ROBERT J. SHELBY, District Judge.
Matthew G. Cooper, Sandy, UT, Allison F. Sheedy, Constantine Cannon LLP, Daniel Ferrel McInnis, Thompson Hine LLP, Washington, DC, Russell D. Harris, Murray, UT, for Plaintiff.
Arturo Anton DeCastro, Stephen T. Descano, Jr., Drake Cutini, U.S. Dept. of Justice, Consumer Protection, Washington, DC, Jared C. Bennett, U.S. Attorney's Office, Salt Lake City, UT, for Defendants.
MEMORANDUM DECISION AND ORDER
ROBERT J. SHELBY, District Judge.
This is an enforcement action against a group of telemarketers. The Federal Trade Commission alleges that Defendants Corporations for Character, L.C., Feature Films for Families, Inc., Family Films of Utah, Inc., and Forrest Sandusky Baker III engaged in deceptive business practices during multiple telemarketing campaigns. In all, there are two evidentiary motions and five motions for summary judgment before the court. Below, the court provides a brief factual background and then takes up the pending motions.
BACKGROUND
The FTC brings an enforcement action against a group of interrelated defendants.
Defendant Corporations for Character (C4C) is a Utah corporation that provides fundraising services to charitable and nonprofit organizations through telemarketing campaigns. Defendant Feature Films for Families is a Utah corporation that markets family-friendly films through telemarketing. Defendant Family Films of Utah is a Utah corporation that supervises and directs the sales and telemarketing activities of C4C and Feature Films. Defendant Forrest Baker III is the president and chief executive officer of Feature Films, Family Films, and C4C. Defendants have jointly defended the lawsuit.
Defendants use prerecorded audio snippets to conduct telemarketing. An employee initiates a call then plays certain snippets depending on the consumers' response. The FTC alleges that the snippets Defendants used in past campaigns contained misleading statements.
In May 2011, the FTC sued Defendants in Florida federal court, alleging that Defendants had engaged in misleading business practices. The FTC sought equitable and injunctive relief, along with civil penalties. A day after the FTC filed its Complaint in Florida, Defendant C4C sued the FTC in this court. C4C sought declaratory relief and argued that the FTC had violated C4C's First Amendment and due process rights, violated the Administrative Procedures Act, and brought the enforcement action in bad faith. In March 2012, the Honorable Judge Clark Waddoups dismissed C4C's claims. A few months later, the Florida enforcement action was transferred to this court. The two actions were then consolidated.
I. Telemarketing Campaigns to Solicit Contributions for Police and Firefighter Organizations
C4C provides telemarketing services to solicit contributions on behalf of several chapters of the Fraternal Order of Police (FOP) and the Firefighters Charitable Foundation. In exchange for its services, C4C takes a portion of the contributions. In past campaigns, C4C retained up to 70% of the proceeds from the FOP campaigns and 80% from the Firefighter Charitable Foundation campaign.
The FTC alleges that C4C made the following misrepresentations during the FOP and firefighter telemarketing campaigns:
• the FOPs would use the contributions to purchase bulletproof vests for police officers even though the FOPs neither intended to nor actually purchased bulletproof vests;
• any contributions made would go to the FOP or Firefighters Charitable Foundation without mention of the large sums going to C4C;
• the FOPs would use the contributions for law-enforcement training even though the FOPs did not do so;
• there were minimal administrative costs even though most of the contributions went to C4C; and
• the Firefighters Charitable Foundation would retain 20% of every dollar when in reality it retained 15%.
Defendants contend that C4C did not make misleading statements during the Firefighters Charitable Foundation and FOP campaigns.
II. The Kids First and Velveteen Rabbit Campaigns
A. Kids First Campaign
Feature Films and C4C have also conducted telemarketing campaigns to promote family-friendly films. In 2008 and 2009, C4C called consumers across the country as part of the Kids First campaign. C4C conducted the campaign on behalf of the Coalition for Quality in Children's
Media, which owns the Kids First trademark. Defendants and the Coalition for Quality agreed that C4C would make survey and solicitation calls and would retain up to 93% of the donations, in addition to shipping and handling costs. C4C also had the right to use information obtained during the campaign for its own purposes, including marketing and solicitation.
During the Kids First campaign, C4C telemarketers would ask call recipients to serve as volunteers. Becoming a volunteer entailed agreeing to receive two free family-friendly DVDs, watching the DVDs, and providing feedback about the movies during a second phone call. During the second phone call, C4C asked the volunteers to support the Kids First project by purchasing two additional DVDs. The FTC alleges that C4C made misrepresentations during these calls. In particular, the FTC alleges that C4C telemarketers represented that all proceeds would be used in the Kids First project when in reality up to 93% went to Defendants.
B. The Velveteen Rabbit Campaign
Mr. Baker produced a film named The Velveteen Rabbit. Prior to the film's release in theaters, Feature Films made approximately eight million unsolicited phone calls on Mr. Baker's behalf to promote the film. During those calls, Feature Films guaranteed some consumers that they would receive a free DVD of their choosing if they did not enjoy the film. Feature Films also told some consumers that if they purchased a ticket, they would receive a credit to buy other Feature Films DVDs.
III. The Do–Not–Call Registry
The FTC alleges that Defendants called millions of phone numbers that were on the National Do–Not–Call Registry. In particular, the FTC alleges that C4C made two and a half million calls to registered numbers during the Velveteen Rabbit campaign, five million during the Kids First campaign, and nine million during a continuous telemarketing campaign to sell Feature Films DVDs. The FTC also alleges that Defendants made calls to people who told C4C or Feature Films representatives that they did not wish to receive further calls.
IV. Defendants' Caller ID Practices
Finally, the FTC alleges that Defendants have failed to submit sufficient identifying information to caller-identification services. When Feature Films conducted the Velveteen Rabbit campaign, Defendants submitted the phrases “VELVETEEN” and “VELVETEENMOV” to be displayed on caller IDs. For calls to sell Feature Films DVDs, Defendants submitted the phrases “CUSTOMER SVC FE” and “FAMILY VALUE CB.”
ANALYSIS
Discussion on Evidentiary Motions
I. Defendants' Motion to Strike Exhibits
Defendants filed a Motion to Strike three of the FTC's exhibits submitted with its summary judgment briefing: the declaration of Kelly Horne (Exhibit 8), the compendium of script excerpts (Exhibit 9), and a spreadsheet listing the names Defendants submitted to caller-identification services for various telemarketing campaigns (Exhibit 49). For the reasons stated below, the court denies Defendants' motion.
A. The Declaration of Kelly Horne and the Compendium
Defendants contend that Ms. Horne's declaration, the documents attached to the
declaration, and the compendium of script excerpts are inadmissible. First, Defendants argue that the exhibits are not the best evidence under Federal Rule of Evidence 1002. Rule 1002 states, “An original writing, recording, or photograph is required in order to prove its content unless these rules or a federal statute provides otherwise.” Further, Rule 1007 states, “The proponent may prove the content of a writing, recording, or photograph by the testimony, deposition, or written statement of the party against whom the evidence is offered. The proponent need not account for the original.” Defendants argue that the FTC cannot prove the content of telemarketing calls without the actual recordings. But the FTC is not offering the sample scripts to prove the content of specific calls. Rather, the FTC is using the sample scripts to show the content of a written document (i.e., the sample call scripts). Further, Defendant produced the sample call scripts. Thus, the FTC need not submit the original document and the duplicate is admissible.
Next, Defendants argue that the FTC's exhibits contain inadmissible hearsay. Hearsay is an out-of-court statement introduced to prove the truth of the statement. The sample scripts and related compendium, which is a compilation of snippets from the sample scripts, are not hearsay for two reasons. First, they are statements by a party opponent and thus do not constitute hearsay. Second, the scripts are not being introduced to prove the truth of Defendants' statements. Quite the opposite, the FTC contends that the statements in the scripts are false.
Exhibits 8 and 9 are admissible. Whether the sample scripts are sufficient evidence for summary judgment is addressed below in the discussion on the motions for summary judgment.
B. The List of Names Submitted to Caller–Identification Services
Defendants further argue that the list of names submitted to caller-identification services is inadmissible because the FTC has failed to authenticate the document as required by FRE 901(a). Defendants also claim that they did not see the document until after discovery ended. The document is a self-authenticating business record under FRE 803(6) and FRE 902(11). The FTC received the document from Manchester Services, Inc., which has certified that the record was kept as part of a regularly conducted business activity. Also, the FTC produced the document and identified Manchester Services, Inc. and its agent responsible for producing the document in its initial disclosures. Exhibit 49 is admissible.
II. Defendants' Motion to Strike Phone Record Analysis
Defendants also filed a motion in limine to exclude the FTC's undisclosed analysis of phone records. But the FTC has not disclosed the analysis, leaving nothing to exclude. For this reason, along with the reasons stated on the record at the January 16, 2014 hearing, Defendants' motion is denied.
Discussion on Motions for Summary Judgment
I. Standard of Review
Summary judgment is appropriate when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
The court may grant summary judgment on each claim or defense or on part of each claim or defense. The court “view[s] the evidence and make[s] all reasonable inferences in the light most favorable to the nonmoving party.” Importantly, “[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.”
II. Counts 1 and 2: Deceptive Representations and Truth in Telemarketing
The FTC's first two causes of action are for misleading representations. The first count alleges that Defendants made deceptive statements in violation of Section 5(a) of the FTC Act, which prohibits a practice that “entails a material misrepresentation or omission that is likely to mislead consumers acting reasonably under the circumstances.” Courts often refer to the Section 5(a) standard as the reasonable-consumer standard. The first count also alleges that Defendants violated various provisions of the Telemarketing Sales Rule (TSR), codified at 16 C.F.R. pt. 310. The second count alleges that Defendants made false statements in connection with telemarketing to induce charitable contributions in violation of the TSR.
A. First Amendment Defense
Defendants argue that the FTC's causes of action based on the FTC Act and the TSR impermissibly limit protected speech. It is well established that “[t]he First Amendment protects the right to engage in charitable solicitation.” It is also well established that the First Amendment does not protect fraud, including fraudulent statements in charitable solicitations.
Defendants contend that the First Amendment bars the FTC's enforcement action because it is not based on fraud. In other words, Defendants assert that the only way the FTC can restrict their charitable solicitations at issue is to prove that they committed fraud. Defendants base this argument on a line of Supreme Court cases dealing with restrictions on charitable solicitations. In Village of Schaumburg v. Citizens for a Better Environment, Maryland v. Joseph H. Munson Co., and Riley v. National Federation of the Blind of North Carolina, the Court considered three prophylactic laws that limited charitable solicitations. Each of the statutes placed a limit on the percentage of charitable contributions professional fundraisers could retain. The Court struck down each statute, holding that laws limiting charitable speech based on the percentage paid toward fundraising
were not narrowly tailored. Put simply, the percentage paid to fundraisers was not “an accurate measure of fraud.”