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					Consumer Protection Update

August 2007

ABA Antitrust Section

Oona Peterson
August T Horvath
Federal Trade Commission
FTC Obtains Temporary Restraining Order Against Stored-
Value Card Marketers

   FTC v. EdebitPay, LLC, C.D. Cal., No. CV074880ODW(AJWx); FTC File No.
        The FTC’s request for a temporary restraining order and asset freeze
         against a business engaged in marketing stored-value cards has been
        The defendants debited a $159.95 “application and processing” fee from
         consumers’ bank accounts, even though several of the consumers had
         no contact with the defendants or had applied for unrelated short-term
        The defendants claimed on their Web sites that the cards carried “No
         Annual Fees” and had “No Security Deposit,” but failed to clearly disclose
         the processing fee.
        Following the restraining order, the FTC will seek to permanently bar the
         defendants from further violations and will seek to force a forfeiture of the
         ill-gotten gains
FTC Settles Prepaid Stored Value Card Actions

   FTC v. Remote Response Corp., et. al., S.D. Fla., No. 06-20168-CIV; FTC File No. 052-3137
        The FTC has entered into a stipulated final order with defendants, banning them from
         telemarketing and from selling credit cards, stored value cards, phone cards, and
         health discount plans, among other items
        Defendants had targeted Spanish-speaking consumers through advertisements on
         Spanish-language television
        Defendants marketed various pre-paid cards, which frequently did not work. They
         also offered free trial periods for a discount health plan, but either did not actually
         provide the free trial period or failed to respond to consumers’ attempts to cancel the
         trial period before the payment period began
        In addition to being banned from selling such items in the future, defendants agreed
         to pay $4,164,558
   The FTC has approved a final consent order with respect to Kmart's gift card program.
        Kmart must reimburse the dormancy fees for eligible consumers and must publicize
         the refund program on its website
        Consumers may contact Kmart to determine if they are eligible for a refund; to obtain
         a refund, consumers must provide their gift card number, mailing address, and
         phone number
        If the consumer is found eligible, Kmart will mail consumers a new gift card with a
         balance equal to the improperly deducted fees
Filing of Final Monetary Judgment in Matter of Verity
International Authorized

   FTC v. Verity International, Ltd., S.D.N.Y., No. 00 Civ. 7422-LAK, FTC File No. 002-

        The FTC authorized the filing of a stipulated final monetary judgment for over $1.6

        Defendants had engaged in deceptive and unfair billing practices by charging the
         phone bills of consumers after the defendants’ pornography web sites were

        At times, the consumers who were charged were not the same consumers who
         accessed the websites

        In all cases, bills reflected charges for phone calls to Madagascar, when, in fact,
         internet usage was “short stopped” in London

        In addition to paying a monetary judgment, defendants were permanently barred
         from billing or offering such services to U.S. consumers
Operators of Boiler Room Scam Banned from Telemarketing

   FTC v. The Results Group L.L.C., D.C. Az., No. CV 06-2843-PHX-JAT,
    FTC File No. 062-3205
        Defendants had engaged in deceptive telemarketing by selling
         home-based internet business opportunities to consumers
        Defendants misrepresented statistics portraying how much money
         consumers earned with the business and pressured consumers to
         spend money on advertising in order to increase the profitability of
         their internet businesses
        In addition to the telemarketing ban, defendants have been ordered
         to return approximately $435,000 to consumers
Spam Advertising Bogus Weight-Loss Products Must Cease

   FTC v. Sili Neutraceuticals, LLC, N.D. Ill., No. 07 C 4541, FTC
    File No. 072-3124
        Defendants and the FTC have agreed upon a stipulated
         preliminary injunction
        The FTC alleged that defendants violated the “CAN-SPAM
         ACT” by illegally sending e-mail messages about weight-
         loss products and human growth hormone anti-aging
         products to consumers
        As alleged by the FTC, defendants used “Web form
         hijacking” – a spam tactic in which the spammer sends the
         spam message from an unrelated, third-party site, which
         causes the message to appear to come from that third-party
        Following this injunction, the FTC will ultimately seek to
         permanently bar the defendants from further violations, and
         will also seek forfeiture of ill-gotten gains
FTC Cracks Down on Phony Weight-Loss Products

   This month, the FTC took action to restore money to consumers who had previously
    purchased bogus diet and exercise products
        FTC Requests the Return of Money to Consumers who Purchased “Ab Force”
             In August of 2006, the Fourth Circuit upheld a ruling that marketers violated federal
              law by intentionally making deceptive claims that an electronic muscle stimulator
              would lead to weight loss
             This August, the FTC filed a complaint seeking money for the consumers who
              purchased the Abdomen belts from the defendant marketers. Over 700,000 belts and
              related products were sold, earning about $16 million.
        Refunds for Consumers Who Purchased Weight Loss Drug
             From August 6 until September 15, 2007, the FTC will be accepting refund requests
              from consumers who bought Xenadrine EFX between February 1, 2002 and May 22,
              2006. This action is being taken pursuant to the FTC’s settlement, with the marketers
              of Xenadrine EFX, of false advertising charges
        Weight-Loss Patch Manufacturers to Pay $180,000
             In order to settle FTC claims that Transdermal Products International Marketing
              Corporation and William H. Newbauer sold bogus weight-loss patches through false
              advertising, the defendants will cease selling the patches and will pay $180,000
             Settlement also bars defendants from making claims identified by the FTC as “red
              flags” for weight-loss products, such as claiming that a product rubbed or worn on
              the skin leads to weight loss
Operators Who Placed Unauthorized Charges on Phone Bills
to Pay $1.2 Million in Settlement Fees

   FTC v. Websource Media, L.L.C., et. al., S.D. Tx., Civ. No. H-06-1980, FTC File
    No. 032-3176

        Defendants cold-called small businesses and nonprofits and offered them a
         free “trial” Web site service

        Even when consumers did not agree to participate in the free “trial,” the
         defendants charged their phone bills, later claiming that they had
         “verification recordings” of an employee authorizing the charges

        Defendants entered into a stipulated final judgment with the FTC to pay $1.2
         million to settle the charges brought against them

        The FTC settlement will bar the unlawful practices the defendants have been

        The defendants were charged under sections 5(a) and 13(b) of the Federal
         Trade Commission Act
FTC and Subprime Mortgage Servicer Agree to Modified

   In 2003, Fairbanks Capital Corp. and Fairbanks Capital Holding Corp. agreed to pay $40
    million to settle charges of unfair, deceptive, and illegal practices in servicing subprime
    mortgage loans. The 2003 settlement with the FTC also limited Fairbanks’s ability to charge
    fees to consumers and engage in certain practices when servicing mortgage loans.
   In 2004 Fairbanks changed its name to Select Portfolio Servicing, Inc. and SPS Holding
   A recent review of SPS’s compliance with the 2003 settlement has resulted in several
    modifications. Among other changes, SPS must:
        Cease marketing non-required products, such as home warranties, for five years
        Limit charging attorney’s fees in connection with bankruptcies and foreclosures
        Provide monthly mortgage statements for customers
        Continue to allow an auditor to oversee compliance with the settlement until 2013
        SPS will now be allowed to hold or reject a customer’s payment if it is more than $25
         short of the monthly principal and interest that is due, provided that adequate notice is
         given to the customer
FTC Comments on Louisiana State Bar Association’s
Proposed Revisions to Attorney Advertising Rules

   FTC recommends that Louisiana refrain from banning forms of
    advertising that are not inherently or actually misleading

   FTC suggests that the Louisiana Bar, rather than leveling a ban on
    advertising, instead provide guidance on how some advertising may
    be deceptive and how such potential problems may be cured

   The FTC refers to the New York State Unified Court System Rules as an
    example after which Louisiana could model its rules
Upcoming FTC Town Hall on Online Behavioral Advertising
and Privacy Issues

   FTC will host a discussion on the privacy implications of “behavioral
    advertising” on November 1-2 in Washington DC

   Consumer advocates, industry representatives, technology experts, and
    academics will discuss the practice of tracking consumers’ online activities to
    target advertising

   Discussion will touch upon:

        how online behavioral advertising works

        whether the data collected is personally identifiable or anonymous

        what security protections are in place to guard the consumer data that
         companies collect

        whether the online data-collection practices of companies are being
         disclosed to consumers

        what standards should govern practices related to online behavioral
State Attorney General
Florida AG Sues Deceptive Florist

   Florida AG alleges that a New Jersey corporation, “Florist in
    Miami,” created 53 false listings of florists that appeared to be
    in Florida and led customers to believe that flower orders
    were being filled from Florida, when in fact they were being
    filled from New Jersey.

   Sued for over 150 violations of Florida
Florida AG Sues Intelliflix

   Florida AG claims DVD
    rental company
    advertises movies that
    are not actually available and
    ships more slowly than claimed.

   Customers who wanted to cancel membership were told they
    could only do so at the end of an enrollment year.

   Suit calls for company to cease all business operations and
    be enjoined permanently from online video rental business.
Connecticut AG Sues Car Dealership

   Connecticut AG alleges that Crabtree Subaru and Crabtree
    Dodge falsely advertised credit terms to lure customers into

   False testimonials from nonexistent customers were allegedly
    used to tout the dealer.

   Various discounts and special prices promoted by the dealer
    also allegedly were not available.
New York AG Probes Home Health Care

   New York AG: “The evidence we’ve obtained to date
    suggests endemic, persistent fraud and malfeasance at all
    levels of the home health care industry.”
        Unqualified aides and other personnel

        Fraudulent billing and collection practices

   Fifty subpoenas have been sent to certified home health
    agencies in the New York City area.

   “The findings from these subpoenas will help us put together
    a global picture of the extent of the problem and a roadmap
    for repair.”
California AG Settles with Vocational School

   California AG alleged that The Corinthian School deceptively
    overstated the percentage of students who had obtained
    employment from its vocational courses, inflated the starting
    salary of its graduates, and created unrealistically high
    expectations to attract prospective students.

   Settlement provides $5.8 million in restitution for tuition paid
    by students in reliance on the claims, including $1.5 million as
    debt cancellation, the balance as a refund.

   $700,000 payment to AG for civil costs and penalties.
Nebraska AG Investigates Gas Price Advertising

   Gas station in North Platte at I-80 interchange advertised
    price on gasoline, but it was only available at some pumps.
    Other pumps were substantially higher priced. Consumers
    allegedly were deceived into using higher-priced pumps.
   Competitor at same interchange noted
    tactic and followed suit.
   AG commenced investigation, served CID.
    Much media attention, public outcry.
   Signs have now changed to disclose that
    the advertised price is available at only some
   AG and some consumers not satisfied.
Allstate Ins. Co. v. Abbott, 2007 WL 2192895 (5th
Cir. Aug. 1, 2007).

   Texas law restricted the right of automobile
    insurers to own and operate auto body
    repair shops and to participate in joint
    marketing with “tied” repair facility.
   Auto insurer, having purchased a chain of
    60 repair shops in 14 states, challenged
    this law as violation of dormant Commerce
    Clause and First Amendment.
   Held: The Texas law is an unconstitutional restriction on
    commercial speech. Insurer may own repair shops and influence
    customers to use them, provided it discloses affiliation. Prohibiting
    this is an impermissibly broad restraint on truthful speech.
   Court rejected Texas’s argument that advertisements guiding
    consumers to insurer-owned shops are inherently misleading and
    therefore ineligible for protection.
Shroyer v. New Cingular Wireless Servs., Inc.,
2007 WL 2332068 (9th Cir. Aug. 17, 2007)

   Suit by consumer class against cellular telephone provider
    alleging that the 2004 merger with AT&T
    injured consumers through deterioration in
    service quality, claiming violations of state
    and common law fraud and false advertising

   Case removed to federal court
    under CAFA; California judge granted motion
    to compel arbitration.

   Ninth Circuit holds that Cingular’s class arbitration waiver was
    unconscionable and therefore entire arbitration clause void
    under California law; claims may proceed.
Naftulin v. Sprint Corp., 2007 WL 2429499 (N.Y.
Sup. Aug. 27, 2007).

   Consumer plaintiff sought national class certification of class of
    subscribers to Sprint’s 3000-minute $49.99 Add-A-Phone Plan,
    alleging common law fraud and seeking New York subclass based
    on GBL Sect. 349, 350 violations.

   Plan was intended to be test-marketed only in
    Detroit and Washington DC, but advertising was
    inadvertently distributed nationwide by Staples. Those who signed
    up elsewhere in nation were given other plans and offered chance to
    deactivate without fee.

   Class certification denied because of individual issues as to
    inducement to sign up, what contract was actually provided to
    customers, and how much compensation was already received for
Pennsylvania Employees Ben. Trust Fund v. Zeneca Inc.,
2007 WL 2376312 (3d Cir. Aug. 17, 2007).

   State employee benefit fund brought class action against drug
    manufacturer alleging deceptive advertising of Nexium heartburn
    and acid reflux disease drug as superior to Prilosec under Delaware
    Consumer Fraud Act and other state statues.
   Affirming dismissal of action, the Third Circuit held that while outside
    the DCFA’s explicit exemption for conduct that complies with FTC
    rules, the action was preempted by highly specific FDA regulations
    for prescription drug advertising.
   FDA has issued extensive regulations
    governing prescription drug advertising
    which shows intent to exercise close
    supervision. Case for preemption is
    especially strong when the advertising is
    based on FDA-approved labeling.
Romond v. Valiant Home Remodelers, 2007 WL
2362853 (N.J. Super. A.D. Aug. 21, 2007).

   Consumers sued window contractor alleging that they had
    relied on a brochure shown to them by its president featuring
    a large bow window having five lights and narrow mullions.

   What they got instead had wide
    mullions and the lights consistent
    mostly of frosted glass.

   HELD: Remodeler is bound by
    appearance of window shown in
    brochure. Under NJ Consumer Fraud Act, it must provide a
    window similar to that shown in the brochure, where customer
    had focused on brochure illustration specifically in
    conversations leading to purchase.
Weinstein v. Saturn Corp., 2007 WL 2429397
(N.D. Cal. Aug. 23, 2007)

   Consumer sued alleging that Saturn’s advertisements for the OnStar
    system installed in Saturn cars was deceptively implied that that
    system performs the task of “navigation of automated phone
    systems,” when in fact it does not.
   Court granted motion to dismiss claim. Plaintiff failed to show that
    Saturn advertisements and/or brochures contained such a claim
    expressly, nor could one reasonably infer such a claim. Plaintiff
    alleged that a Saturn dealer employee made this claim, but failed to
    allege that Saturn can be held vicariously liable for it. Plaintiff also
    failed to allege that Saturn had an affirmative duty to allege that the
    OnStar system lacked the desired capability (i.e. that it was a
    material omission).
   Claims against dealer were allowed to proceed but were remanded
    to state court.
In re Tobacco Cases II, 41 Cal. 4th 1257 (Cal.

   Consumer class action against tobacco companies for alleged
    scheme to market cigarettes to minors was alleged as violation of
    California UCL and false advertising law.

   California Supreme Court held action preempted by Federal
    Cigarette Labeling and Advertising Act.

   This reverses a prior ruling of the Court, Mangini v. R.J. Reynolds
    Tobacco Co., 7 Cal. 4th 1057 (Cal. 1994), that the FCLAA does not
    preempt UCL claims that tobacco companies advertised in a manner
    that encouraged minors to begin smoking, based on intervening
    U.S. Supreme Court decision, Lorillard Tobacco Co. v. Reilly, 533
    U.S. 525 (2001), holding that the FCLAA preempted state statute
    banning outdoor cigarette advertisements near schools, parks and
Good v. Altria Corp., 2007 WL 2460039 (1st Cir.
Aug. 31, 2007).

   Class of smokers sued tobacco company alleging that claims that a
    cigarette was “light” and had “lowered tar and nicotine” were
    deceptive under the Maine UTPA.

   Reversing district court, the First Circuit held these claims not
    preempted by FCLAA, not implicitly preempted by FTC oversight of
    tobacco advertising, and not barred by MUTPA exemption for
    activities permissible under federal law.

   Distinguished from Lorillard: Here, State is not trying to outlaw
    specific advertising activities, but to enforce general “state-law duty
    not to deceive” which is
    “broader than a duty based on smoking
    and health and therefore beyond the
    reach of FCLAA preemption.”
Time Warner Cable v. DirecTV, Inc., 2007 WL
2263932 (2d Cir. Aug. 9, 2007)

   Lanham Act claim by cable provider against satellite TV
    provider alleging that satellite provider falsely advertised
    superiority of picture signal provided by satellite as compared to

   Affirming in part district court grant of prelim-
    inary injunction, Second Circuit holds claims that it is
    “impossible to obtain the best picture” from cable or that
    consumers should not “settle” for the quality
    of cable are likely to be proven misleading.

   However, internet ads showing exaggerated
    demo of poor cable quality are so extreme
    as to be puffing, not likely believed by consumers.

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