Federal Trade Commission v. Chapman , 714 F.3d 1211 ( 2013 )

FILED
United States Court of Appeals
Tenth Circuit
May 7, 2013
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
FEDERAL TRADE COMMISSION;
STATE OF KANSAS; STATE OF
MINNESOTA; STATE OF NORTH
CAROLINA; STATE OF ILLINOIS,
Plaintiffs - Appellees,
v. No. 11-3319
MEGGIE CHAPMAN, individually and
d/b/a Meggie Chapman & Associates,
Defendant - Appellant,
and
WEALTH POWER SYSTEMS, LLC;
ARIA FINANCIAL, LLC,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
(D.C. No. 5:09-CV-04104-JAR)
M. Courtney Koger of Kutak Rock LLP, Kansas City, Missouri, for Defendant -
Appellant.
Michael D. Bergman, Federal Trade Commission, Washington, D.C. (Gary L. Ivens,
Janice Kopec, and Michael Tankersley, Bureau of Consumer Protection, Federal Trade
Commission, Washington, D.C., of counsel; Willard K. Tom, General Counsel, and John
F. Daly, Deputy General Counsel for Litigation, Federal Trade Commission, Washington,
D.C.; Clifford W. Berlow, Assistant Attorney General, Office of the Attorney General for
the State of Illinois, Chicago, Illinois; Steve R. Fabert, Assistant Attorney General, Office
of the Attorney General for the State of Kansas, Topeka, Kansas; Jocelyn F. Olson,
Assistant Attorney General, Office of the Attorney General for the State of Minnesota, St.
Paul, Minnesota; and David N. Kirkman, Assistant Attorney General, Office of the
Attorney General for the State of North Carolina, Raleigh, North Carolina, with him on
the brief) for Plaintiffs - Appellees.
Before O’BRIEN, McKAY, and TYMKOVICH, Circuit Judges.
McKAY, Circuit Judge.
This appeal arises from a bench trial in which the district court found that
Appellant Meggie Chapman violated the “assisting and facilitating” provision of the
Telemarketing Sales Rule, 16 C.F.R. § 310.3(b).
The underlying consumer protection action was brought by the Federal Trade
Commission and four states against several individual and corporate defendants who
marketed and sold to consumers grant-related goods and services with false
representations that the consumers were guaranteed or likely to receive grants. After the
claims against the other defendants were settled or adjudicated by entry of summary
judgment, the district court held a bench trial on the remaining claim against Ms.
Chapman. Following the trial, the court found that Ms. Chapman violated the
Telemarketing Sales Rule by providing substantial assistance to the telemarketing
defendants while knowing or consciously avoiding knowing of their deceptive
telemarketing practices. The court accordingly ordered a permanent injunction and
$1,682,950 in monetary damages against Ms. Chapman. The court also denied Ms.
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Chapman’s post-judgment motion to alter or amend the judgment or, alternatively, for
remittitur. Ms. Chapman appeals both the finding she violated the Telemarketing Sales
Rule and the denial of her post-judgment motion.
BACKGROUND
Beginning in 2007, the Kansas defendants—various individuals and corporations
based in Kansas—began selling grant-related services through telemarketers to
consumers throughout the United States. Their telemarketing scheme involved three
stages. First, they sent consumers postcards advertising the availability of government
grants and inviting consumers to call a toll-free number. Consumers who called the
number were offered the opportunity to purchase for $69 a book called the “Professional
Grant Writer,” referred to in this litigation as the “Grant Guide,” which had been written
by Ms. Chapman and another individual. This book contained a misleading statement
regarding the defendants’ grant-writing success rate. The postcards and the recorded
message at the toll-free number also contained misrepresentations about the likelihood the
consumer would receive government grant money. In fact, none of the defendants
tracked whether customers who purchased their goods or services actually received
grants.
In the second stage of the scheme, individuals who had called about or purchased
the Grant Guide received additional calls advertising grant-research services. Consumers
who purchased these services were charged between $800 and $1100, and in return they
received a list of potential funding sources. Many of these lists were prepared by Ms.
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Chapman or her company, and many of them included institutions that did not fund
individual consumers, did not provide monetary funding, did not exist, or had requested
removal of their names from the lists. Ms. Chapman’s research lists frequently included
loans, contests, entitlement programs, and social welfare programs for which the
consumer was not eligible or which did not fit the needs identified by the consumer.
Prior to working with the other defendants, Ms. Chapman had only performed grant
research for educational institutions and nonprofit organizations, not individual
customers, and she had never before worked with telemarketers. The telemarketing sales
script for the defendants’ grant-research services included misrepresentations about the
defendants’ expertise and the consumers’ likelihood of receiving grant funding. The
research cover letters sent to consumers discussed what would happen “in the rare event
that you don’t meet the criteria for any grant applications” and stated the research results
“will contain a list of grants you are eligible for.” J.A. at 729. Ms. Chapman sometimes
received these cover letters when the other defendants sent her consumer information and
research requests.
Finally, in the third stage of the scheme, individuals who purchased grant-research
services received telemarketing calls about grant-writing and grant-coaching services.
Ms. Chapman was involved in providing both grant-writing and grant-coaching services
for consumers from early 2008 through July 2009. The grant-coaching services included
a written workshop in which Ms. Chapman was identified as an instructor for Grant
Writer’s Institute, one of the main Kansas defendants.
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Ms. Chapman also assisted the other defendants in various ways. At the other
defendants’ request, Ms. Chapman researched payment processing companies, collected
consumer testimonials for the defendants’ website, edited some of the website content,
gave the defendants a price quote for research services for international consumers, gave
them a price quote and sample content for a proposed newsletter, and provided them with
a bullet-point list of the purported benefits of using a grant writer. She also helped
prepare a draft of a questionnaire for the Kansas defendants and their telemarketers to use
to collect information from grant-research consumers, and she trained a telemarketing
sales group on the information needed to process research requests.
Ms. Chapman came up with the idea to include contests in the research results.
One of the Kansas defendants subsequently asked her to “write a short paragraph or one
page, on or about what a contest really is and how it is still considered a grant” for the
defendants to include in the research results “so people have a better understanding about
the contests and that will answer some of their questions before they call in.” J.A. at
1110. In response, she sent him a “blurb on contests,” stating, “I wrote it for the target
audience so if it is too cheesy, please let me know.” J.A. at 1108. Among other things,
the response stated, “Hot off the presses [Kansas defendant Grant Writer’s Institute]
wants to tell you about a new trend that can be very fruitful—contests and sweepstakes.
Yes, these are all considered grants!” J.A. at 1108 (bolding in original). The response
further included a “sampling of grants available to individuals,” including contests,
sweepstakes, assistance programs, entitlements such as Medicare and Medicaid,
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scholarships, and loans. J.A. at 1108-09. In February 2009, Ms. Chapman sent the
Kansas defendants an email in which she stated, “I have been brainstorming ways that we
can expand as well as repackage what we are currently doing to appeal to all parties.”
J.A. at 1106. Ms. Chapman came up with an idea for the defendants to sponsor a
quarterly grant contest in order to generate more consumer leads, although the Kansas
defendants did not ultimately implement this or some of Ms. Chapman’s other ideas.
Ms. Chapman also helped the other defendants respond to inquiries from various
state attorney general offices. For instance, when she began working with the Kansas
defendants, she was told a state attorney general’s office “wanted to know who was doing
the research just to ensure that there were actual people performing the research,” and she
provided the defendants with a few individuals’ names to pass on to the state attorney
general. J.A. at 2619. Later, Ms. Chapman was informed the state attorneys general of
North Carolina and Alaska needed to see that individual grants existed, and she assisted
the defendants by compiling a list of grants for which individuals could allegedly apply.
By mid-2009, approximately 80-90% of Ms. Chapman’s business came from the
Kansas defendants. Between January 2008 and June 2009, Ms. Chapman billed for a
total of 8361 grant-research consumers. She did not track whether any of these
consumers actually received a grant. She testified she did not feel the need to track the
consumers’ success because they were not her clients—she was only “hired to do the
fulfillment for them,” i.e., to fulfill the grant-related services sold to these consumers by
the other defendants. J.A. at 1331. In total, Ms. Chapman received $1,682,950 from the
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Kansas defendants for services she and her company provided from 2007 through 2009.
When the Kansas defendants were listed in the original FTC complaint in July
2009, Ms. Chapman began working for certain Utah-based telemarketers. She did not
review these companies’ marketing materials or telemarketing scripts to see if they
suffered from the same problems alleged in the FTC action against the Kansas
defendants. These Utah companies—as well as Ms. Chapman—were subsequently
named in an amended FTC complaint in December 2009, and Ms. Chapman then began
working for another Utah company she knew was controlled by the owners of one of the
Utah defendants. At the time of her September 2010 deposition, Ms. Chapman was still
providing fulfillment services for this company. She testified again she did not review
this company’s marketing materials or telemarketing scripts. When asked if she
“want[ed] to know what [the company was] sending out to consumers,” Ms. Chapman
replied, “You know, I really hadn’t thought about it.” J.A. at 1378.
Following a two-day bench trial, the district court found that Ms. Chapman had
violated 16 C.F.R. § 310.3(b), which provides:
It is a deceptive telemarketing act or practice and a violation of this Rule for
a person to provide substantial assistance or support to any seller or
telemarketer when that person knows or consciously avoids knowing that
the seller or telemarketer is engaged in any act or practice that violates §§
310.3(a), (c) or (d), or § 310.4 of this Rule.
The district court rejected Ms. Chapman’s arguments that she did not provide substantial
assistance to the Kansas defendants and that she did not know or consciously avoid
knowing of their misrepresentations to consumers. The district court accordingly issued a
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permanent injunction against Ms. Chapman and ordered her to pay $1,682,950 in
monetary damages. Ms. Chapman filed a motion to alter or amend the judgment or,
alternatively, for remittitur, seeking a reduction in damages. The district court denied this
motion, holding that the damages award was not clearly erroneous or manifestly unjust
and that remittitur was not appropriate. This appeal followed.
DISCUSSION
On appeal, Ms. Chapman challenges the district court’s finding that she violated
the Telemarketing Sales Rule. She also challenges the district court’s denial of her post-
judgment motion to alter or amend the judgment or for remittitur. “We review the district
court’s legal conclusions in a bench trial de novo; findings of fact will not be set aside
unless clearly erroneous.” Ryan v. Am. Natural Energy Corp., 557 F.3d 1152, 1157 (10th
Cir. 2009). We review for abuse of discretion the district court’s denial of Ms.
Chapman’s post-judgment motion to alter or amend the judgment or for remittitur. See
Monge v. RG Petro-Mach. (Grp.) Co. Ltd., 701 F.3d 598, 610 (10th Cir. 2012) (motion to
alter or amend); M.D. Mark, Inc. v. Kerr-McGee Corp., 565 F.3d 753, 766 (10th Cir.
2009) (motion for remittitur).
I. Violation of the Telemarketing Sales Rule
Under 16 C.F.R. § 310.3(b), it is a violation of the Telemarketing Sales Rule “for a
person to provide substantial assistance or support to any seller or telemarketer when that
person knows or consciously avoids knowing that the seller or telemarketer is engaged in
any act or practice that violates §§ 310.3(a), (c) or (d), or § 310.4 of this Rule.” In this
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case, it is undisputed the Kansas defendants violated § 310.3(a)(2) by misrepresenting
material aspects of the grant-related goods or services they sold. Thus, the only disputed
issues are (a) whether Ms. Chapman provided substantial assistance to the Kansas
defendants and (b) whether Ms. Chapman knew or consciously avoided knowing of their
misrepresentations.
A. Substantial assistance
Although the parties do not dispute the general standard of review stated above,
they disagree as to how this general standard of review applies to the specific issue of
substantial assistance. Ms. Chapman argues that, although the district court’s underlying
factual findings are reviewed for clear error, the district court’s ultimate determination
that she provided substantial assistance to the Kansas defendants is a legal conclusion we
review de novo. Plaintiffs disagree, arguing this determination was either a factual
finding or a mixed question of law and fact that we review for clear error. Neither side
cites to authority directly on point. We need not resolve this dispute here because we
would affirm under either standard of review.
As detailed above, Ms. Chapman played an integral part in the Kansas defendants’
telemarketing scheme. She coauthored the book that was sold in the first stage of the
scheme, she provided the research results—often flawed—that were marketed in the
second stage of the scheme, and she wrote grant applications and developed the workshop
marketed in the third stage of the scheme. She also assisted the Kansas defendants in
numerous other ways: helping develop the questionnaire the telemarketers used to obtain
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information from grant-seeking customers; training a sales group on processing grant
research requests; assisting in responding to inquiries from different state attorneys
general; providing the Kansas defendants with justifications and explanations to deal with
consumer complaints; brainstorming ways for them to collectively expand their business;
and so forth.
Ms. Chapman argues her actions did not constitute substantial assistance under the
Telemarketing Sales Rule because she was not involved in the marketing efforts and thus
her assistance was not directly connected to the misrepresentations made to consumers.
However, this type of direct connection is not required. Although the originally proposed
rule would have applied only where “such substantial assistance is related to the
commission or furtherance of that act or practice,” Revised Notice of Proposed
Rulemaking, Telemarketing Sales Rule, 60 Fed. Reg. 30,406, 30,414 (June 8, 1995), the
FTC rejected this requirement in the final rule, see Statement of Basis and Purpose and
Final Rule, Telemarketing Sales Rule, 60 Fed. Reg. 43,842, 43,851 (Aug. 23, 1995). As
the FTC’s published guidance states, the substantial assistance standard will not be met if
the third party provides only “casual or incidental” help to the telemarketer. FTC,
Complying with the Telemarketing Sales Rule, available at
http://business.ftc.gov/documents/bus27-complying-telemarketing-sales-rule#assisting
(Feb. 2011). Thus, “cleaning a telemarketer’s office, delivering lunches to the
telemarketer’s premises, or engaging in some other activity with little or no relation to the
conduct that violates the Rule would not be enough to support liability as an assistor or
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facilitator.” Id. However, Ms. Chapman’s assistance was much more than casual or
incidental—she was the one who provided the services and products they marketed to
consumers in misleading ways.
Ms. Chapman also argues that she could not have provided substantial assistance
because she did not engage in any of the specific examples of substantial assistance listed
in the FTC’s published guidelines or discussed in previous cases. For support, she cites
to an FTC statement that provides an illustrative, non-exclusive list of ways in which
third parties may provide substantial assistance to telemarketers. See Statement of Basis,
60 Fed. Reg. at 43,852. She also cites to cases finding substantial assistance under the
Telemarketing Sales Rule under different types of factual circumstances. However, the
fact that Ms. Chapman’s conduct did not fit precisely into the FTC’s non-exclusive list or
the fact patterns of previous cases does not prevent a finding that she provided substantial
assistance to the Kansas telemarketers through her actions. The FTC and courts have not
purported to create an exhaustive list of activities that establish substantial assistance, and
the law does not provide a special exemption for the first individual to come up with a
novel way of assisting telemarketers. It is sufficient that Ms. Chapman played an integral
part in the Kansas defendants’ scheme by providing the services and products they
marketed to consumers. Moreover, Ms. Chapman’s conduct is certainly analogous to the
example given by the FTC of “a fulfillment house that ships only inexpensive prizes on
behalf of a telemarketer about whom it receives numerous complaints” as satisfying the
“conscious avoidance” standard. Final Amended Rule, Telemarketing Sales Rule, 68
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Fed. Reg. 4580, 4612 (Jan. 29, 2003). We see no error in the district court’s
determination that Ms. Chapman provided substantial assistance to the Kansas
defendants.
B. Knew or consciously avoided knowing
The district court found that Ms. Chapman knew or consciously avoided knowing
of the Kansas defendants’ misrepresentations to consumers based on several facts: (1)
Ms. Chapman knew of inquiries by state attorneys general into the Kansas defendants’
marketing practices, which should have put her on notice she should at least investigate
these practices; (2) she knew the Kansas attorney general had asked the telemarketers to
change the marketing practices used to sell her services, but she never asked to see the
marketing materials or telemarketing sales script; (3) she received a request from one
defendant’s attorney to provide the names of her researchers, since the Kansas attorney
general wanted to make sure research was being conducted by “actual people” J.A. at
2619; (4) she was new to the business of researching grants for individuals, and thus
should have been more cautious in the face of inquiries suggesting her research results
either were not viable or were being inappropriately marketed; (5) she was familiar with
the Grant Guide, where a 70% success rate was represented, and she knew this rate was
not substantiated; (6) an individual who formerly worked for the Kansas defendants stated
she counseled Ms. Chapman to be vigilant about monitoring these defendants’ marketing
activities; (7) Ms. Chapman sometimes received the consumer cover letter, which
contained claims that it was rare for a consumer not to qualify for grants listed in the
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research results; (8) when Ms. Chapman began working with the Kansas defendants, she
continued to receive large numbers of grant requests for debt reduction relief after
determining such grants were not available, which should have put her on notice that the
telemarketers were not accurately informing consumers of the types of grants available;
(9) consumer and funder complaints put Ms. Chapman on notice that several grant
sources included in her research did not exist or had requirements consumers did not
meet; and (10) her testimony about the availability of individual grants was neither
substantiated nor credible. Based on all of this evidence, the district court determined that
Ms. Chapman knew or consciously avoided knowing that the Kansas defendants were
violating the Telemarketing Sales Rule. The parties agree this is a factual finding we
review for clear error.
On appeal, Ms. Chapman argues there are several reasons why the district court’s
determination was clearly erroneous. First, Ms. Chapman argues that some of the district
court’s underlying factual findings were clearly erroneous. For instance, she argues that
the 70% success rate represented in the Grant Guide was not a misrepresentation, since
the individual who wrote this portion of the Grant Guide had in fact achieved a 70%
success rate in her own work with non-profit organizations and schools. However,
particularly in context, the Grant Guide’s statement that “historically the grant writers
have been able to produce a 70% success rate in receiving grant funding” J.A. at 98 is
clearly a misrepresentation. Ms. Chapman likewise argues the district court clearly erred
in finding that she knew of several inquiries by state attorneys general, since she only
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knew of two such inquiries, her knowledge of these inquiries was limited, and she
believed the inquiries had been resolved. We are not persuaded this finding was clearly
erroneous. The evidence in the record supports the conclusion that Ms. Chapman knew
of at least three inquiries, regardless of whether she thought they had been resolved, and
Ms. Chapman cannot demonstrate clear error based simply on the fact that the district
court used the term “several” to refer to three inquiries. We are not persuaded any of the
district court’s underlying factual findings were clearly erroneous.
Next, Ms. Chapman argues that the district court drew incorrect inferences from
some of the underlying facts. For instance, she argues that her knowledge of the inquiries
by the state attorneys general was too limited to support the inference that she should
have looked more closely into the defendants’ practices. However, her knowledge that
different state attorneys general were inquiring into the defendants’ practices is certainly
relevant to the question of whether she consciously avoided knowing of their improper
marketing practices. Similarly, Ms. Chapman argues the consumer requests for personal
debt relief grants do not support the inference that she knew or should have known of the
other defendants’ misrepresentations, since she stopped receiving such requests at some
point after she told the Kansas defendants such grants were not available. Under our
deferential standard of review, we are not persuaded the district court drew impermissible
inferences from this evidence. This evidence, especially in conjunction with all of the
other evidence in this case, supports the inference that Ms. Chapman was put on notice
the Kansas defendants might be providing misleading information to consumers. Despite
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these warning indications, Ms. Chapman never asked what the telemarketers were telling
customers to encourage them to request nonexistent grants for personal debt relief and to
pay $1000 or more on grant-related services they could ill afford. The district court could
reasonably infer from this and other evidence that Ms. Chapman consciously avoided
knowing of the Kansas defendants’ misrepresentations to consumers.
Finally, Ms. Chapman asserts there is no evidence she actually knew of the
misrepresentations contained in the Kansas defendants’ direct-mail materials and
telemarketing sales scripts. However, actual knowledge is not necessary under the
“conscious avoidance” standard. Ms. Chapman could easily have reviewed the
defendants’ marketing materials to see what representations they were making to
consumers. Indeed, she testified that she received a telemarketing sales script early in her
relationship with the defendants but chose not to review it. As the FTC has explained in
its Compliance Guide, “taking deliberate steps to ensure one’s own ignorance of a seller
or telemarketer’s Rule violations is an ineffective strategy to avoid liability.” FTC,
Complying with the Telemarketing Sales Rule, supra. Whether or not Ms. Chapman
actually knew of the Kansas defendants’ misrepresentations, there is ample evidence in
the record to support the district court’s finding that she at least consciously avoided
knowing of the misrepresentations.
The district court’s finding that Ms. Chapman knew or consciously avoided
knowing of the Kansas defendants’ misrepresentations is supported by the record and is
not clearly erroneous. We accordingly affirm the district court’s entry of judgment
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against Ms. Chapman for violating the Telemarketing Sales Rule.
II. Denial of Post-Judgment Motion
Ms. Chapman argues in the alternative that the district court erred in denying her
post-judgment motion to alter or amend the judgment or for remittitur. She argues that if
she knew or consciously avoided knowing of the Kansas defendants’ misrepresentations,
this did not occur until some time during the course of their business relationship, and
thus the damages award should not have included the entire amount she billed to the
Kansas defendants from the start of their relationship.
In denying the post-judgment motion, the district court first noted that a motion to
alter or amend judgment under Rule 59(e) may only be granted under certain limited
circumstances, such as when there is a “need to correct clear error or prevent manifest
injustice.” Monge, 701 F.3d at 611 (internal quotation marks omitted). Similarly,
remittitur is only appropriate if the award is “so excessive that it shocks the judicial
conscience and raises an irresistible inference that passion, prejudice, corruption, or other
improper cause invaded the trial.” Vining ex rel. Vining v. Enter. Fin. Grp., Inc., 148
F.3d 1206, 1216 (10th Cir. 1998) (internal quotation marks omitted). The district court
then concluded that Ms. Chapman began receiving indicators of the Kansas defendants’
improprieties early on, although she certainly received more indicators later. Based on
this conclusion, the district court held that Ms. Chapman had not shown clear error,
manifest injustice, or an award of damages so excessive as to shock the conscience.
“[T]he decision to grant reconsideration is committed to the sound discretion of the
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district court,” Brumark Corp. v. Samson Res. Corp., 57 F.3d 941, 944 (10th Cir. 1995),
and denial of a motion for remittitur is likewise reviewed “under a highly deferential
standard” under which we will reverse “only if we can discern a manifest abuse of
discretion,” M.D. Mark, Inc., 565 F.3d at 766 (internal quotation marks omitted). We are
not persuaded the district court abused its discretion by denying Ms. Chapman’s post-
judgment motion to reduce the amount of damages. Accordingly, under this deferential
standard of review, we affirm the district court’s denial of post-judgment relief.
CONCLUSION
For the foregoing reasons, the judgment of the district court is AFFIRMED.
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