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Federal Trade Commission v. Financial Freedom Processing, Inc.

United States Court of Appeals, Fifth Circuit

August 12, 2013

FEDERAL TRADE COMMISSION, Plaintiff - Appellant
v.
FINANCIAL FREEDOM PROCESSING, INCORPORATED, a corporation, formerly known as Financial Freedom of America, Incorporated; COREY BUTCHER, Individually and as an Officer of the Corporation; BRENT BUTCHER, Individually and as an Officer of the Corporation Defendants-Appellees FEDERAL TRADE COMMISSION, Plaintiff - Appellant
v.
DEBT CONSULTANTS OF AMERICA, INCORPORATED; DEBT PROFESSIONALS OF AMERICA, INCORPORATED; ROBERT CREEL, Individually and as an Officer of the Corporations; COREY BUTCHER, Individually and as an Officer of the Corporations; NIKKI CREEL, Individually and as an Officer of the Corporations, also known as Nikki Vrla Defendants-Appellees

Appeal from the United States District Court for the Northern District of Texas USDC No. 3:10-CV-2447 (consol. with 3:10-CV-2446).

Before STEWART, Chief Judge, HIGGINBOTHAM and JONES, Circuit Judges.

PATRICK E.HIGGINBOTHAM, Circuit Judge: [*]

In 2010, the FTC sued three debt-negotiation companies — Financial Freedom of America, Inc., Debt Consultants of America, Inc., and Debt Professionals of America, Inc. ("the Companies") — as well as five of the individuals who owned or controlled them. According to the FTC, the defendants violated § 5 of the FTC Act by deceptively claiming, in radio ads, on their websites, and in sales calls, that the Companies could eliminate 30 to 60% of consumers' credit card debt in as little as 18 to 36 months.[1] At trial, the defendants argued that the claims were perfectly accurate as interpreted by a reasonable consumer, who would have understood that (1) the advertised debt reduction excluded the Companies' fees and (2) the advertised debt reduction and timing excluded clients who dropped out of the programs. To support their interpretation of the claims, the defendants relied heavily on the Companies' disclosures in sales calls and enrollment agreements — disclosures made at or shortly before the point of purchase. The district court agreed that § 5 deception should be evaluated on the basis of all information the Companies disclosed to consumers up to the point of purchase. Based on this conclusion, it adopted the defendants' interpretation of the claims and entered judgment in their favor.

The district court's § 5 analysis is dubious. The Companies deployed a marketing campaign that utilized a variety of media and involved a series of discrete communications with consumers. Circuits to apply § 5 in such circumstances have concluded that "the law is violated if the first contact is secured by deception, even though the true facts are made known to the buyer before he enters into the contract of purchase."[2] That is, "each advertisement must stand on its own merits; even if other advertisements contain accurate, non-deceptive claims, a violation may occur with respect to the deceptive ads."[3]Hence, there is an argument with considerable purchase that the district court erred by considering not only the content of individual radio ads and websites (the Companies' "first contact" with consumers), but also critical disclosures made only when consumers arrived at the bargaining table.[4]

The FTC, however, did not clearly challenge the district court's § 5 analysis on this ground in its briefs or during oral argument — despite pointed questioning. Rather, it chose to challenge the district court's factual determination that reasonable consumers at the point of purchase would have interpreted the Companies' debt-reduction and timing claims in a non-deceptive manner. The FTC's attempt to characterize this assessment of consumer perceptions as a legal conclusion is unavailing; we review such findings only for clear error.[5] And while the Companies' radio ads and websites may be misleading[6] — indeed, it is difficult to conclude that the websites are not deceptive[7] — we are satisfied that substantial evidence supports the district court's finding that reasonable consumers were no longer deceived at the point of purchase. The judgment of the district court is AFFIRMED.

EDITH H. JONES, Circuit Judge, concurring:

I concur in my colleagues' rationale that the district court's findings of fact are not clearly erroneous but I am not so sure the district court misapplied the law, had FTC properly raised that issue. I concur in the judgment.


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