Fed. Trade Comm'n v. Educare Ctr. Servs., Inc.

433 F.Supp.3d 1008

FEDERAL TRADE COMMISSION, and, State of Ohio ex rel. Attorney General Dave Yost, Plaintiff,

v.EDUCARE CENTRE SERVICES, INC., et al., Defendants.

EP-19-CV-196-KC

United States District Court, W.D. Texas, El Paso Division.

Signed January 14, 2020

Christopher E. Brown, J. Ronald Brooke, Jr., Federal Trade Commission, Washington, DC, Erin B. Leahy, Office of the Attorney General, Jeffrey Loeser, Ohio Attorney General, Columbus, OH, for Plaintiffs.

Haroon Rafati, Pro Hac Vice, The Rafati Law Firm, PLLC, Katy, TX, Aldo R. Lopez, Ray, McChristian & Jeans, P.C., Daniel H. Hernandez, Stephen Harrison Nickey, The Law Offices of Stephen H. Nickey, P.C., El Paso, TX, Genevieve C. Bradley, Gregory M. Caffas, Mitchell N. Roth, Roth Jackson Gibbons Condlin, PLC, McLean, VA, Benjamin Eliot New, Richard W. Epstein, Greenspoon Marder LLP, Jeffrey A. Backman, Roy Taub, Greenspoon Marder, P.A., Fort Lauderdale, FL, Amiad Kushner, Seiden Law Group LLP, New York, NY, for Defendants.

Sam Madi, Laval, QC, pro se.

Charles Kharouf, Laval, QC, pro se.

ORDER

KATHLEEN CARDONE, UNITED STATES DISTRICT JUDGE

On this day, the Court considered Defendants Mohammad Souheil, Prolink Vision, S.R.L., 9896988 Canada, Inc., and Sam Madi's ("Educare Defendants") Joint Opposition to Plaintiffs' Application for Preliminary Injunction, ECF No. 94, and Defendants Globex Telecom, Inc. and 9506276 Canada, Inc.'s ("Globex Defendants") Opposition to Plaintiffs' Application for a Preliminary Injunction and Motion to Dissolve the Ex Parte Temporary Restraining Order, ECF No. 115. For the reasons set forth below, the Court finds that entry of injunctive relief is appropriate in this case because (1) Plaintiffs are statutorily authorized to seek equitable remedies and (2) the Globex Defendants are not entitled to immunity under the common carrier exemption. See Preliminary Injunction Order as to Educare Defendants 4 ¶ J, ECF No. 124 ("The Court will issue a separate order addressing the issues raised by Defendants related to the Court's authority to enter this Preliminary Injunction."); Preliminary Injunction Order as to Globex Defendants 4 ¶ J, ECF No. 125 (same). Therefore, the Globex Defendants' Motion to Dissolve is DENIED , and all Defendants are ORDERED to comply with the Preliminary Injunctions and other remedies ordered in this case.

I. BACKGROUND

On July 19, 2019, the Court issued a Temporary Restraining Order ("Educare TRO") granting Plaintiffs injunctive relief pursuant to Section 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 53(b), based on alleged violations of the FTC Act, 15 U.S.C. § 5(a), the Telemarketing Sales Rule ("TSR"), 16 C.F.R. Part 310, the Telemarketing and Consumer Fraud and Abuse Prevention Act ("Telemarketing Act"), 15 U.S.C. §§ 6101 - 6108, the Ohio Consumer Sales Practices Act, Ohio Rev. Code Ann. § 1345.07 (West 2017), and the Ohio Telephone Solicitation Sales Act, Ohio Rev. Code Ann. § 4719.01 et seq. (West 2018). Educare TRO, ECF No. 8. The Educare TRO enjoined the Educare Defendants from making misrepresentations to consumers, violating the TSR, and selling or otherwise releasing consumer data, and ordered an asset freeze, foreign asset repatriation, and appointment of a temporary receiver. Id. Plaintiffs and the Educare Defendants jointly agreed to extend the Educare TRO and continue the corresponding preliminary injunction hearing through December 16, 2019. ECF Nos. 43, 64.

On December 3, 2019, Plaintiffs filed their First Amended Complaint, ECF No. 81, and the Court issued a TRO against the Globex Defendants ("Globex TRO"), ECF No. 84. The Globex TRO granted Plaintiffs injunctive relief pursuant to Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), based on the Globex Defendants' alleged liability for "assisting and facilitating" the Educare Defendants' aforementioned alleged violations pursuant to the "substantial assistance" provision of the Telemarketing Sales Rule ("TSR"), 16 C.F.R. § 310.3(b). Id. The Globex TRO enjoined the Globex Defendants from violating the TSR and ordered the same ancillary remedies as ordered against the Educare Defendants. See id.

On December 9, 2019, the Educare Defendants filed a Motion for Partial Summary Judgment ("Educare Response"), ECF No. 93, laying out their opposition to injunctive relief in this case, and their Joint Opposition to Plaintiffs' Application for Preliminary Injunction, ECF No. 94, which fully incorporated the same arguments. On December 12, 2019, the Globex Defendants filed their Opposition to Plaintiffs' Application for a Preliminary Injunction and Motion to Dissolve the Ex Parte Temporary Restraining Order ("Globex Response"), ECF No. 115.

On December 13, 2019, Plaintiffs filed a Supplemental Brief in Support of Preliminary Injunction as to the Educare Defendants ("Plaintiffs' Educare Reply"), ECF No. 119, and a Supplemental Brief in Support of Preliminary Injunction as to the Globex Defendants ("Plaintiffs' Globex Reply"), ECF No. 118.

On December 16, 2019, the Court held a preliminary injunction hearing as to both the Educare Defendants and the Globex Defendants. ECF Nos. 129, 130. At the preliminary injunction hearing, the Court ruled from the bench on threshold issues, denying the Globex Defendants' motion to dissolve the temporary restraining order and finding injunctive relief available as to all parties. See ECF No. 130 at 8:50. The Court indicated at that time that a written Order on those issues would be forthcoming. See id. at 1:51:30. On December 17, 2019, the Court granted Plaintiffs' motions for preliminary injunctions. This written Order is that order referred to at the preliminary injunction hearing. See Preliminary Injunction Order as to Educare Defendants 4 ¶ J; Preliminary Injunction Order as to Globex Defendants 4 ¶ J.

II. DISCUSSION

Both the Educare Defendants and the Globex Defendants argue that injunctive relief in this case is improperly issued. First, the Educare Defendants and the Globex Defendants argue that equitable remedies are unavailable to the FTC under § 13(b) of the FTC Act because any allegedly unlawful conduct was not ongoing when the action was filed. Educare Resp. 7–11; Globex Resp. 7–14. Second, the Globex Defendants argue further that, as "VoIP" (voice over Internet Protocol) providers, they are subject to the "common carrier" exemption to the FTC's jurisdiction and therefore excepted from liability under the TSR. Globex Resp. 14–16. The Court addresses each in turn.

A. § 13(b) authority as to the Educare Defendants and the Globex Defendants

Plaintiffs allege that the Educare Defendants and the Globex Defendants are in violation of § 5 of the FTC Act, 15 U.S.C. § 45(a), and the TSR, 16 C.F.R. § 310. Section 5 of the FTC Act prohibits "[u]nfair methods of competition." 15 U.S.C. § 45(a). That section authorizes the FTC to seek its own administrative remedies, id. § 45(b), which is the agency's traditional enforcement mechanism. See Gibson v. FTC , 682 F.2d 554, 560 (5th Cir. 1982) ; Colonial Stores, Inc. v. FTC , 450 F.2d 733, 739–40 (5th Cir. 1971). Section 13(b) of the FTC Act, codified as 15 U.S.C. § 53(b), was added to the FTC Act to "improve the Commission's consumer protection powers" by enabling the FTC to seek preliminary relief from federal courts. See FTC v. Sw. Sunsites, Inc. , 665 F.2d 711, 719–20 (5th Cir. 1982) (concluding from legislative history that the purpose of § 13(b)'s addition "was to add significant new weapons to the Commission's enforcement arsenal in order to make more meaningful and complete consumer relief possible," such that the Act now "clearly makes the district court a vital enforcement arm of the statute").

Section 13(b), in relevant part, provides:

Whenever the Commission has reason to believe—

(1) that any person, partnership, or corporation is violating, or is about to violate , any provision of law enforced by the Federal Trade Commission, and

(2) that the enjoining thereof pending the issuance of a complaint by the Commission and until such complaint is dismissed by the Commission or set aside by the court on review, or until the order of the Commission made thereon has become final, would be in the interest of the public--

the Commission ... may bring suit in a district court of the United States to enjoin any such act or practice. Upon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest, and after notice to the defendant, a temporary restraining order or a preliminary injunction may be granted without bond ... [and] in proper cases the Commission may seek, and after proper proof, the court may issue, a permanent injunction.

15 U.S.C. § 53(b) (emphasis added).

The Educare Defendants and the Globex Defendants argue that the phrase "is violating, or is about to violate" in § 13(b)(1) requires the FTC to have knowledge of ongoing or imminent unlawful conduct in order for the FTC to seek, and for a court to order, equitable remedies. Educare Resp. 7; Globex Resp. 7. Defendants contend that the conduct alleged in Plaintiffs' complaints ceased prior to Plaintiffs' filing of this action, and therefore § 13(b) relief is unavailable. Educare Resp. 9–11; Globex Resp. 8–10. Thus, they conclude that the injunctive relief ordered in this case—asset freezes, receiverships, temporary restraining orders, and now, preliminary injunctions—is improper and must be dissolved, leaving Plaintiffs to pursue relief under § 5's administrative pathway instead. Educare Resp. 8, 11; Globex Resp. 11–14.

The Educare and Globex Defendants both rely on a recent decision of the United States Court of Appeals for the Third Circuit, FTC v. Shire ViroPharma, Inc. (Shire ), 917 F.3d 147 (3d Cir. 2019), as support for their reading of the threshold requirement in § 13(b)(1). See Educare Resp. 7–11; Globex Resp. 7–14. In Shire , the Third Circuit concluded that the plain language of § 13(b) requires that the...