FTC v. Charles Gugliuzza ( 2016 )

FILED
NOT FOR PUBLICATION MAR 03 2016
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
FEDERAL TRADE COMMISSION, No. 12-57064
Plaintiff - Appellee, D.C. No. 8:09-cv-01324-CJC-
RNB
v.
COMMERCE PLANET, INC., a MEMORANDUM*
corporation; et al.,
Defendants,
And
SUPERFLY ADVERTISING, INC., a
Delaware corporation, FKA Morlex, Inc.;
et al.,
Third-party-defendants,
And
CHARLES GUGLIUZZA,
Defendant - Appellant.
Appeal from the United States District Court
for the Central District of California
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Page 2 of 6
Cormac J. Carney, District Judge, Presiding
Argued and Submitted February 9, 2015
Pasadena, California
Before: CALLAHAN, WATFORD, and OWENS, Circuit Judges.
1. The district court did not err in finding that Commerce Planet’s
marketing practices violated the Federal Trade Commission (FTC) Act.
Commerce Planet violated existing standards prohibiting deceptive and
unfair practices in marketing its OnlineSupplier service. Contrary to Gugliuzza’s
contentions, the undisputed evidence established that Commerce Planet was on
notice that it could not mislead consumers on material issues (deceptive practices),
and could not engage in practices likely to cause substantial injury that consumers
could not reasonably avoid and that did not provide countervailing benefits (unfair
practices). That the FTC did not provide guidance specifically tailored to
Commerce Planet’s activities does not immunize the company from liability. Even
if Commerce Planet’s use of negative options was consistent with “standard
industry practices,” as Gugliuzza claims, a practice that is standard to a particular
industry can still violate the FTC Act. See, e.g., FTC v. Cement Institute, 333 U.S.
683, 688, 720–21 (1948).
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That Commerce Planet allegedly had a low rate of consumer confusion is
likewise not a defense to liability. Gugliuzza presented no affirmative evidence on
which we can rely that supports his argument that Commerce Planet actually had a
low rate of confusion. His only proffered evidence to that effect was the excluded
testimony by a proposed expert, Dr. Kenneth Deal, about a consumer survey. The
district court did not abuse its discretion in excluding Dr. Deal’s testimony. Dr.
Deal had not conducted the survey himself and Gugliuzza failed to otherwise
demonstrate that the survey was “conducted according to accepted principles.” M2
Software, Inc. v. Madacy Entertainment, 421 F.3d 1073, 1087 (9th Cir. 2005)
(quoting Clicks Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1263 (9th Cir.
2001)); see Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1142–43 &
n.8 (9th Cir. 1997).
Whether anyone could reasonably estimate Commerce Planet’s actual rate of
confusion is irrelevant. The FTC Act does not require a showing of actual
deception; a showing that a practice is likely to deceive will suffice. See FTC v.
Cyberspace.com LLC, 453 F.3d 1196, 1201 (9th Cir. 2006); FTC v. Pantron I
Corp., 33 F.3d 1088, 1095, 1102 n.33 (9th Cir. 1994). And the district court did
not clearly err in finding that consumers were likely to be deceived. The negative
option disclosure was buried in a thicket of “Terms and Conditions” accessible
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primarily through a link on the web page, which appeared in small text in blue font
on a blue background on an otherwise busy web page. Consumers testified to
actually having been misled; the company had high credit card chargeback rates,
which a Visa employee identified as caused in large part by misled consumers;
expert testimony suggested that the web sites were likely to be materially
misleading; and Commerce Planet’s customer service manager stated that the
company received a large volume of complaints from misled consumers.
2. The district did not clearly err in finding Gugliuzza personally liable for
Commerce Planet’s violations of the FTC Act. Gugliuzza was at least recklessly
indifferent to the truth or falsity of the misrepresentations. See FTC v. Stefanchik,
559 F.3d 924, 931 (9th Cir. 2009).1 Customers filed thousands of complaints about
OnlineSupplier every month, mostly because they believed they had signed up to
receive a free kit, not a monthly membership. Gugliuzza not only had discussions
about these complaints with the customer service manager, but also explicitly
rejected suggested improvements to the disclosures. In addition, he quickly
jettisoned the few improvements that were implemented—and did so because they
“were a disaster” to Commerce Planet’s sign-up numbers. That additional
1
Gugliuzza does not dispute that he “participated directly in the deceptive
acts or had the authority to control them.” Stefanchik, 559 F.3d at 931 (emphasis
omitted).
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disclosures were a “disaster” to sales suggests that, without those disclosures,
consumers were not adequately informed. Gugliuzza’s knowledge that additional
disclosures reduced sales supports the district court’s finding that he was at least
recklessly indifferent to the truth or falsity of the misrepresentations.2
3. The advice of counsel defense does not shield Gugliuzza from liability.
First, advice of counsel is “‘not a valid defense on the question of knowledge’
required for individual liability.” FTC v. Grant Connect, LLC, 763 F.3d 1094,
1102 (9th Cir. 2014) (quoting Cyberspace.com, 453 F.3d at 1202). Second, even if
it were, the defense would not be available to Gugliuzza. The district court did not
clearly err in finding that Gugiluzza had “acted as Commerce Planet’s de facto
legal counsel,” and that he did not in fact accept his in-house counsel’s advice
when it was given. When in-house counsel expressed concerns about whether the
web pages complied with the FTC Act and told Gugiluzza he would have to “do
some research” in order to “give a real legal opinion,” Gugliuzza did not rely on
counsel’s advice in any sense. Instead, he responded that “the pages [we]re fine,”
put his hands over his ears, and refused to discuss the matter further.
2
So, too, does Gugliuzza’s active involvement with OnlineSupplier’s
marketing efforts, as a high “degree of participation in business affairs is probative
of knowledge.” FTC v. Affordable Media, LLC, 179 F.3d 1228, 1235 (9th Cir.
1999) (quoting FTC v. Amy Travel Service, Inc., 875 F.2d 564, 574 (7th Cir.
1989)).
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The district court’s liability determination is AFFIRMED.