Federal Trade Commission v. EDebitPay, LLC

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
FEDERAL TRADE COMMISSION, 
Plaintiff-Appellee, No. 11-55431
v. D.C. No.
EDEBITPAY, LLC; DALE PAUL  2:07-cv-04880-
CLEVELAND; WILLIAM RICHARD ODW-AJW
WILSON, OPINION
Defendants-Appellants.

Appeal from the United States District Court
for the Central District of California
Otis D. Wright, District Judge, Presiding
Argued and Submitted
August 6, 2012—Pasadena, California
Filed August 28, 2012
Before: Stephen Reinhardt, Barry G. Silverman, and
Jacqueline H. Nguyen, Circuit Judges.
Opinion by Judge Silverman
9993
FTC v. EDEBITPAY 9995
COUNSEL
Michael L. Mallow (argued) and Christine M. Reily of Loeb
& Loeb LLP, Los Angeles, California, for the defendants-
appellants.
9996 FTC v. EDEBITPAY
Leslie R. Melman (argued), Willard K. Tom, John F. Daly,
Burke Kappler, Mark Morelli, Elizabeth Tucci, and Zachary
Hunter of the Federal Trade Commission, Washington, D.C.,
for the plaintiff-appellee.
OPINION
SILVERMAN, Circuit Judge:
The Federal Trade Commission sued Defendants EDebit-
Pay, LLC, Dale Cleveland, and William Wilson, alleging that
their online marketing of prepaid debit cards and short-term
loans to consumers in the subprime market violated section 5
of the Federal Trade Commission Act, 15 U.S.C. § 45. The
parties settled and stipulated to the terms of a Final Order.
Thereafter, the FTC applied for an order to show cause why
Defendants should not be held in contempt for violating the
Final Order through their marketing of two products: a shop-
ping club membership program and a “no cost” debit card.
The district court held Defendants in contempt and awarded
the FTC the full amount of loss by consumers, $3,778,315.04.
We affirm the contempt order in its entirety.
I. FACTUAL AND PROCEDURAL BACKGROUND
EDebitPay markets online prepaid charge cards and related
products. Cleveland and Wilson own EDebitPay and serve as
its Chief Executive Officer and President, respectively.
The FTC filed suit, alleging that Defendants violated the
Federal Trade Commission Act in several respects. Defen-
dants and the FTC ultimately settled the matter and stipulated
to the terms of a Final Order, which the district court
approved.
The Final Order, in part, enjoins Defendants from:
FTC v. EDEBITPAY 9997
Subsection I.B
Misrepresenting . . . expressly or by implication, any
fact material to a consumer’s decision to apply for or
purchase any product or service . . . including but not
limited to:
1. that consumers can obtain any product or
service, including but not limited to a pre-
paid card, debit card, or credit card, at no
cost or obligation;
2. the amount of any fee, charge, or bill,
including but not limited to the cost of any
prepaid card, debit card, or credit card;
3. that a consumer will not be assessed a
fee, or be charged or billed;
4. that a consumer is legally obligated to
pay a fee, charge, or bill;
5. any material provision relating to the
acquisition or purchase of a prepaid card,
debit card, or credit card marketed or
offered by any Defendant;
6. that consumers purchased or agreed to
purchase goods or services, and therefore
owe money to any Defendant;
...
Subsection I.D
Failing to clearly and conspicuously disclose the
costs, fees, or charges to obtain and use any prepaid
card, debit card, or credit card, in close proximity to
9998 FTC v. EDEBITPAY
statements such as “No Annual Fees” or “No Secur-
ity Deposit” that represent that a prepaid card, debit
card, or credit card can be obtained “free”; [and]
...
Subsection I.E.5
Failing to clearly and conspicuously disclose[,] prior
to the time when a consumer applies for or purchases
any good or service . . . the material attributes of the
product or service . . . e.g., that the product has the
characteristics of a credit card, debit card, or stored
value card.
The day before the district court signed the Final Order,
Defendants started marketing “Century Platinum”—an online
shopping club membership—on their “Super Elite” website
(supereliteoffer.com) for a third party, Insite. Around this
time, Defendants also used their “Starter Credit Direct” web-
site (startercreditdirect.com) to advertise Century Platinum.
Defendants used e-mail advertisements to target consumers
and bring them to the websites.1 The e-mail advertisements
stated in large, bold font, “Get an Immediate Guaranteed
$10,000 Credit Line*” above a large “APPLY NOW” button.
They made no mention of “membership” or “shopping club.”
At the bottom of the e-mails, and in very small font, Defen-
dants disclosed to consumers that the credit line could only be
used at Insite’s online store.
Once a consumer clicked on the “Apply Now” button, the
Super Elite or Starter Credit Direct webpage opened. The
1
Defendants argue that the e-mail advertisements should not be consid-
ered because they relate only to the Starter Credit Direct website, which
is not at issue in this appeal. At trial, however, Defendants testified that
these e-mail offers were used to bring consumers to both the Super Elite
and Starter Credit Direct websites.
FTC v. EDEBITPAY 9999
record shows that the two websites were essentially the same.
On the first page, Defendants placed a $10,000 credit line
offer in large, red, boldface font above “Instant $2500
Account Advance,” “Guaranteed $10,000,” “No Job Require-
ments,” “No Credit Checks,” and “100% Online Approval.”
The Super Elite webpage included the words “Century Plati-
num Membership Credit Line” in smaller point typeface
below the $10,000 credit line offer.
After the consumer clicked on “GO TO APPLICATION,”
the consumer was taken to the second page, which was simi-
lar to the first page, except it contained additional boxes
where the consumer could input his or her checking account
information. Enrollment in Century Platinum entailed a $99
application and processing fee and a $14 monthly member-
ship fee. The only reference to a shopping club was in a foot-
note at the bottom of the pages in 7.5-point, single-spaced
type and in the middle of other dense footnotes. It stated, “To
Purchase Brand Name Merchandise Exclusively From Our
Online Mega-Store! . . . This is a membership program and
not a debit or credit card.”
Defendants enrolled around 34,340 consumers in Century
Platinum, but only 86 people or less than 0.3% of the total
enrolled attempted to place orders from the online shop.
Defendants received thousands of complaints from consum-
ers, many asking for refunds and explaining that they did not
know they were joining a club. Nevertheless, Defendants did
not change any part of their websites.
Two years after the district court entered the Final Order,
Defendants began to advertise another product, the NetSpend
“No Cost” prepaid debit card. Defendants marketed the card
on behalf of NetSpend Corporation, a third-party, on at least
three different websites (simplecreditmatch.com, eplatinumdi-
rect.com, and supereliteoffer.com) that gave consumers the
option of obtaining the card while they purchased other prod-
ucts, such as Century Platinum. Despite its name, the NetS-
10000 FTC v. EDEBITPAY
pend card entailed a $9.95 monthly maintenance fee and
various other fees.
The websites used the slogan, “Get a Prepaid Visa Debit
Card at NO COST!—No Overdraft Fees or Interest Charges!”
When a consumer clicked “Yes,” a drop-down message
appeared with a hyperlink to additional “Terms & Condi-
tions.” Defendants concede that, at various times, the websites
failed to disclose any fees: Simple Credit Match (July 2009–
February 2010); ePlatinum Direct (November 2009–January
2010); and Super Elite (June 2009–November 2009). At other
times, they stated that “[a] monthly maintenance fee of $9.95
will be assessed.” A consumer had to click the “Terms &
Conditions” to find various fees in the middle of a 4,720-word
document.
After learning of these practices, the FTC applied for an
order to show cause why Defendants should not be held in
contempt for violating the Final Order. The FTC alleged that
Defendants violated subsections I.B and I.E.5 through their
material misrepresentations and failure to clearly and conspic-
uously disclose material facts regarding Century Platinum on
the Starter Credit Direct website. In addition, it argued that
Defendants violated subsection I.D for failing to clearly and
conspicuously disclose all fees relating to the NetSpend card.2
Later, after it was discovered, the FTC expanded its contempt
application to cover Defendants’ marketing of Century Plati-
num on the Super Elite website.
After a three-day bench trial, the district court ruled that
Defendants’ advertising of Century Platinum was misleading
and violated subsections I.B and I.E.5. The court also found
2
The FTC also argued that Defendants violated other subsections of the
Final Order by failing to obtain consumers’ express consent to charges
relating to Century Platinum and the NetSpend card. The district court
concluded that the FTC failed to prove those violations, and the FTC does
not appeal that adverse ruling.
FTC v. EDEBITPAY 10001
that Defendants violated subsection I.D through their market-
ing of the NetSpend card. The district court awarded as sanc-
tions the FTC the full amount of loss by consumers,
$3,778,315.04.
Defendants appeal the district court’s contempt order, but
concede that the marketing on the Starter Credit Direct web-
site violated the Final Order. As such, they appeal the con-
tempt order only as it pertains to the marketing of Century
Platinum on the Super Elite website and the NetSpend card.
II. JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction pursuant to 28 U.S.C. § 1291. We
review a district court’s civil contempt order for abuse of dis-
cretion. FTC v. Affordable Media, 179 F.3d 1228, 1239 (9th
Cir. 1999). The district court’s underlying factual findings are
reviewed for clear error, id., but its construction of the con-
sent decree is reviewed de novo, Thompson v. Enomoto, 915
F.2d 1383, 1388 (9th Cir. 1990).
III. DISCUSSION
A.
Defendants argue that the district court erred when it failed
to limit the reach of subsections I.B and I.E.5 to only prepaid
cards, debit cards, and credit cards. Defendants also claim that
the district court erred when it refused to consider extrinsic
evidence supposedly bearing on the scope of subsection I.E.5.
[1] In construing consent decrees like the one at issue here,
“courts use contract principles. The contract law of the situs
state applies.” Thompson, 915 F.2d at 1388 (internal citation
omitted). In California, a contract is to be interpreted “to give
effect to the mutual intention of the parties as it existed at the
time of contracting.” Cal. Civ. Code § 1636. The contract’s
10002 FTC v. EDEBITPAY
language governs “if the language is clear and explicit.” Id.
§ 1638.
[2] The district court correctly held that subsections I.B
and I.E.5 are not limited to Defendants’ marketing of credit
cards, debit cards, or prepaid cards. The plain language of
subsections I.B and I.E clearly and explicitly enjoins misrep-
resentations on, and failure to disclose material information
about, “any product or service offered by any Defendant.”
Subsection I.B, moreover, states that its scope “includ[es] but
[is] not limited to” certain enumerated examples. This “in-
cluding but not limited to” language “is a phrase of enlarge-
ment.” In re Johnny M., 123 Cal. Rptr. 2d 316, 321 (Ct. App.
2002). It indicates an intention that enumerated examples fol-
lowing the phrase should not be construed as an exhaustive
listing. See LT-WR, L.L.C. v. Cal. Coastal Comm’n, 60 Cal.
Rptr. 3d 417, 443 (Ct. App. 2007). Similarly, for subsection
I.E.5, the parties used the term “e.g.” which means “for exam-
ple.” Black’s Law Dictionary 593 (9th ed. 2009). “E.g.” signi-
fies that the subsequent examples are illustrative and not
exhaustive. Defendants’ interpretation would render the
phrases “any good or service,” “including but not limited to,”
and “e.g.” inoperative or meaningless. See Cal. Civ. Code
§ 1641.
[3] Defendants’ argument that the district court’s construc-
tion violated ejusdem generis is unpersuasive. “Under the
principle of ejusdem generis . . . where specific words follow
general words in a contract, ‘the general words are construed
to embrace only things similar in nature to those enumerated
by the specific words.’ ” Nygard, Inc. v. Uusi-Kerttula, 72
Cal. Rptr. 3d 210, 223 (Ct. App. 2008) (citations omitted).
The maxim of ejusdem generis, however, is inapplicable
where the contract language is unambiguous, as is the case
here. See In re Tobacco Cases I, 111 Cal. Rptr. 3d 313, 318
(Ct. App. 2010). Because the language of the Final Order is
clear, the district court also properly declined to evaluate
extrinsic evidence regarding subsection I.E.5. See Nehmer v.
FTC v. EDEBITPAY 10003
U.S. Dep’t of Veterans Affairs, 494 F.3d 846, 861 (9th Cir.
2007) (“[I]f the plain language of a consent decree is clear, we
need not evaluate any extrinsic evidence . . . .”).
[4] Defendants next argue that subsections I.B and I.E.5
are vague and overbroad if not restricted to credit, debit, and
prepaid cards. They contend that the district court’s interpre-
tation renders the subsections unenforceable because they
merely restate section 5 of the Federal Trade Commission Act
and amount to “obey the law” injunctions.
Defendants’ argument fails on multiple accounts. First,
because they themselves stipulated to the entry of the Final
Order, they cannot collaterally attack the Final Order in con-
tempt proceedings. See Irwin v. Mascott, 370 F.3d 924, 931
(9th Cir. 2004). Second, we have not adopted a rule against
“obey the law” injunctions per se. See United States v. Miller,
588 F.2d 1256, 1261 (9th Cir. 1978). Third, Defendants’ argu-
ment proves only that the Final Order is broad, not vague.
Defendants further contend that their marketing of Century
Platinum on the Super Elite website did not violate subsec-
tions I.B and I.E.5, and that their marketing of the NetSpend
card was a harmless technical violation of subsection I.D. In
the alternative, Defendants argue that they should not be held
in contempt because they substantially complied with the con-
sent decree.
[5] The district court did not abuse its discretion in finding
that Defendants’ Super Elite website violated the Final Order.
Defendants prominently displayed in large, bold, and colored
type “$10,000” and “Instant $2,500 Advance,” misrepresent-
ing by implication that the offer was for a general credit line.
In a much smaller font, Defendants used the ambiguous
phrase “Century Platinum Membership Credit Line.” This did
not clearly and conspicuously disclose a material attribute of
Century Platinum—that the credit line can only be used at a
third-party’s online shop. To fully understand the product,
10004 FTC v. EDEBITPAY
consumers would have had to look at a small footnote buried
in the middle of other dense footnotes. Therefore, the “net
impression” of the marketing on the Super Elite website mis-
led consumers and violated subsections I.B (misrepresenta-
tion) and I.E.5 (failure to disclose). See FTC v.
Cyberspace.com LLC, 453 F.3d 1196, 1200 (9th Cir. 2006).
[6] The district court similarly did not abuse its discretion
in holding that Defendants’ marketing of the NetSpend card
violated subsection I.D. Defendants concede that at various
times their websites failed to disclose, among other fees, a
monthly $9.95 maintenance fee. This violation occurred for
eight months on one of Defendants’ websites. These were not
mere “technical” violations and, thus, the district court’s con-
tempt finding was not an abuse of discretion.
Defendants’ claim of substantial compliance is unavailing
because a defendant must show that he took “every reason-
able effort” to comply with the order to establish such a
defense. In re Dual-Deck Video Cassette Recorder Antitrust
Litig., 10 F.3d 693, 695 (9th Cir. 1993). The district court did
not clearly err or abuse its discretion in finding that not to be
the case.
B.
Lastly, Defendants argue that the district court abused its
discretion when it ordered them to pay the FTC the full
amount lost by consumers. Defendants assert that the district
court should have ordered them to disgorge only their profits
instead.
[7] “District courts have broad equitable power to order
appropriate relief in civil contempt proceedings.” SEC v.
Hickey, 322 F.3d 1123, 1128 (9th Cir. 2003). Moreover, dis-
trict courts have “broad authority” under the Federal Trade
Commission Act to grant any relief necessary to accomplish
complete justice in direct FTC actions, including the power to
FTC v. EDEBITPAY 10005
order restitution to consumers. FTC v. Stefanchik, 559 F.3d
924, 931 (9th Cir. 2009). However, we have not had occasion
to determine whether district courts have comparable broad
authority to calculate sanctions in contempt proceedings
brought by the FTC. The Seventh, Tenth, and Eleventh Cir-
cuits have expressly considered this issue and all have gener-
ally held that district courts may use consumer loss. See FTC
v. Trudeau, 579 F.3d 754, 771 (7th Cir. 2009); FTC v.
Kuykendall, 371 F.3d 745, 764 (10th Cir. 2004) (en banc);
McGregor v. Chierico, 206 F.3d 1378, 1387–88 (11th Cir.
2000). We join our sister circuits today and hold that district
courts have broad discretion to use consumer loss to calculate
sanctions for civil contempt of an FTC consent order. In exer-
cising this discretion, the district court should explain why the
use of consumer loss is appropriate and why the remedy is
commensurate with the harm.
[8] Here, the district court did not abuse its discretion
when it sanctioned Defendants for the full amount lost by
consumers. It sufficiently explained that full restitution, rather
than only disgorgement, was appropriate because Defendants
disregarded the core provisions of the Final Order to not mis-
lead consumers about the products they advertised. The dis-
trict court also found that consumers lost far more than
Defendants gained. The record supports the district court’s
determination that Defendants took advantage of thousands of
consumers, who lost over $3 million because of Defendants’
acts. The district court’s decision that equity required Defen-
dants to make consumers whole again in light of these cir-
cumstances was not an abuse of discretion.
The district court’s contempt order is AFFIRMED.