City of Chi. v. Equte LLC

693 F.Supp.3d 879

CITY OF CHICAGO, Plaintiff, v. EQUTE LLC, Jeffrey Evenmo, and Juishy LLC, Defendants.

No. 21 C 518

United States District Court, N.D. Illinois, Eastern Division

Signed September 19, 2023

Chelsey Blaire Metcalf, Lucy Prather, Rebecca Alfert Hirsch, Stephen J. Kane, City of Chicago Law Department, Chicago, IL, Rachel F. Granetz, Federal Trade Commission, Chicago, IL, for Plaintiff.

Jeffrey C. Brown, Jeffrey C. Brown, PLLC, Roseville, MN, for Defendants.

OPINION AND ORDER

SARA L. ELLIS, United States District Judge

The City of Chicago ("the City") brought this enforcement action against Equte LLC ("Equte"), Juishy LLC ("Juishy" and, with Equte, the "Corporate Defendants") and Jeffrey Evenmo (collectively, "Defendants") for violating several sections of the Municipal Code of Chicago ("MCC") related to tobacco sales and business practices. After the Court denied Defendants' motion to dismiss, see Doc. 51, the parties completed fact discovery on August 31, 2022, see Doc. 69. Now, both Defendants [112] and the City [85] move for partial summary judgment.

Defendants raise several jurisdictional and statutory-interpretation arguments that this Court previously resolved in its decision denying their motion to dismiss, urging the Court to reconsider its rulings with the benefit of a fully-fledged factual record. Doc. 98. While declining to reexamine its initial decisions, the Court agrees that Evenmo cannot be held personally liable for any fines assessed against the Corporate Defendants in this case and enters judgment in Evenmo's favor on this issue.¹

The City argues, and Defendants concede, that the undisputed facts show that the Corporate Defendants made 600 sales of electronic cigarette ("e-cigarette") products to minors and 100 sales of flavored liquid nicotine products, constituting violations of MCC § 4-64-345 (Count Two) and MCC § 4-64-355 (Count Three), respectively. The Court enters judgment for the City on these Counts. The City further moves for summary judgment on its claim that the Corporate Defendants violated MCC § 2-25-090 (Count One) by (1) violating MCC §§ 4-64-345 and 355 and (2) using automatic age-verification systems that allowed them to make sales to Chicagoans younger than twenty-one, which the City argues constitutes an unfair business practice. Defendants concede the first theory of liability, so the Court enters judgment for the City on Count One. However, because the Court finds that the Corporate Defendants' use of automatic age-verification systems cannot as a matter of law constitute an unfair business practice, the Court denies the City's motion for summary judgment on this theory of liability.

BACKGROUND²

I. The Parties

A. The Corporate Defendants

Equte and Juishy are both Minnesota corporations with their principal places of business in Minnesota. Equte, which Evenmo created sometime between 2013 and 2014, sold e-cigarettes, vaping products, and other nicotine products on a website with the domain name vapes.com. Equte possessed its own bank accounts, filed corporate tax returns between the 2016 and 2018 tax years, and issued profit and loss statements between 2017 and 2019. Evenmo could not recall when he founded Juishy, which marketed and sold flavored liquid nicotine products on vapes.com and Juishy.com. Although Juishy also operated social media pages on Facebook and Instagram, it did not generate as many sales as Equte. Juishy never had its own bank account, owned any domain names, or employed anyone.

The Corporate Defendants used two automatic age-verification programs to monitor their sales: Subuno and AgeChecker.net ("AgeChecker"). Subuno is an e-commerce verification program that Defendants primarily used as a fraud-detection tool, but it was also capable of screening underage purchasers. Subuno would halt orders "in which the billing address, shipping address, credit card name or email address did not seem to 'match up.' " Doc. 87 ¶ 23 (quoting Doc. 89 at 125:18-24, 126:1-13). AgeChecker, which the Corporate Defendants began using in March 2017, would ask customers to enter their date of birth and other personal identifying information, and could require a consumer to upload a photo ID. The software would then cross-reference customer information against a "database of public records and credit information to verify the customer's age." Id. ¶ 29. Although AgeChecker allowed its users to customize the age limits on their websites, the Corporate Defendants initially kept the age limit at AgeChecker's default setting of eighteen years, which they believed kept them in compliance with the laws of all fifty states. It was not until October 23, 2017, that one of the Corporate Defendants' contractors informed them that certain Minnesota localities moved the age limit for tobacco sales from eighteen years to adults over the age of twenty-one. The contractor discussed how the Corporate Defendants could use Subuno to hold orders placed from more restrictive jurisdictions and manually cross-reference them against the age the customer entered in AgeChecker. The record does not reveal whether the Corporate Defendants took any such step, but Evenmo, speaking as the Corporate Defendants' representative, testified that no one researched local minimum age laws in other states after learning that some cities in Minnesota became more restrictive. On June 28, 2019, AgeChecker allowed its users "to enforce age requirements down to the county, city, or zip code in the United States," id. ¶ 38, which the Corporate Defendants used.

On February 17, 2021, before the City served Defendants with process, Evenmo, the Corporate Defendants' sole owner and CEO, administratively terminated Juishy. Then, on May 11, 2021, also before the City served Defendants, Equte sold its domain page vapes.com to an unrelated party.

B. Jeffrey Evenmo

Evenmo is a Minnesota resident and citizen. He created his businesses because, as a former smoker, he thought e-cigarettes provided a healthier alternative to more traditional forms of smoking. Evenmo recognized that this did not make his products healthy, however, and said that he thought young people should stay far away from his products. Although Evenmo was the final decisionmaker for the Corporate Defendants, he did not oversee day-to-day operations at their warehouse. Evenmo was the only person authorized to make transfers from Equte's business account and would periodically transfer funds from Equte's account to his personal checking account. For example, in January 2017, Evenmo made eleven transfers to his personal account in the sum of $172,790.24. The transfers were frequently strings of identical numbers, including $17,171.17, $11,111.11, $11.111.10, $9,888.88, and $8,888.88. When asked about these transfers, Evenmo replied that he "was probably just being lazy." Doc. 89 at 85:10-11. Evenmo also leased two Tesla cars in Equte's name, which he did to "try the nicest one they have." Doc. 90 at 38:4-11. Evenmo did this despite working from home full-time and travelling to his companies' warehouse only six times per year.

C. The City's Tobacco Enforcement Regime

Scientific evidence clearly establishes that nicotine is highly addictive, causes a heightened risk of cardiovascular defects, and hinders brain development in humans under the age of twenty-five. To combat these potential health issues in the City's youth, the City enacted an ordinance on July 1, 2016, prohibiting the sale of tobacco products to anyone under the age of twenty-one. MCC § 4-64-345. While the law covers e-cigarettes and other vaping products, the City enacted it before these products exploded in popularity, especially among young people. E-cigarettes pose a particular danger because they are more efficient at delivering nicotine into the body than traditional cigarettes, and because vendors of liquid nicotine used in e-cigarettes could make their products taste like soda, candy, popcorn, or other products that might appeal to younger individuals. On October 7, 2020, the City enacted MCC § 4-64-355, banning flavored liquid nicotine products.

II. The City's Investigation

On October 29, 2020, Adam Weller, an investigator in the City's Department of Business Affairs and Consumer Protection (the "Department"), attempted to purchase a flavored liquid nicotine product from Equte. Equte rejected Weller's order, and an Equte employee emailed him on November 2, 2020, asking for a picture of Weller holding his ID card. Weller emailed a photograph of himself and his driver's license on November 3, 2020, and successfully ordered a flavored liquid nicotine product on November 6, 2020. After investigating this sale, the Department determined that the Corporate Defendants violated MCC § 2-25-090 by separately violating regulations governing business conduct, namely the regulations pertaining to the Corporate Defendants' tobacco sales. The Department referred the case to the City's Corporation Counsel, which filed the instant enforcement action against Defendants on January 29, 2021. After the City served Defendants on July 26, 2021 (and informed the Court of the service on August 23, 2021), the Court issued a discovery order to which neither side objected.

After the City obtained discovery, it learned from the Corporate Defendants' sales data that they had sold 600 tobacco products to Chicago residents between the ages of eighteen and twenty-one—589 from Equte and 11 from Juishy—after the City enacted MCC § 4-64-345 on July 1, 2016. The City also identified 100 sales from the Corporate Defendants' data of flavored liquid nicotine products after it enacted MCC § 4-64-355 on October 7, 2020. Defendants do not contest the number or characterization of the sales the City identified.

LEGAL STANDARD

Summary judgment obviates the need for a trial where "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). To determine whether...