State of Iowa Ex Rel. Thomas J. Miller, Attorney General for Iowa v. Vertrue, Incorporated F/K/A Memberworks, Inc., a Delaware Corporation Adaptive Marketing, LLC, a Delaware Limited Liability Company Idaptive Marketing, LLC, a Delaware Limited Liability Company

IN THE SUPREME COURT OF IOWA
No. 11–0449
Filed July 5, 2013
STATE OF IOWA ex rel. THOMAS J. MILLER,
Attorney General for Iowa,
Appellee,
vs.
VERTRUE, INCORPORATED f/k/a MEMBERWORKS, INC., a Delaware
Corporation; ADAPTIVE MARKETING, LLC, a Delaware Limited Liability
Company; IDAPTIVE MARKETING, LLC, a Delaware Limited Liability
Company,
Appellants.
Appeal from the Iowa District Court for Polk County, Robert A.
Hutchison, Judge.
Seller of buying club memberships appeals the district court’s
rulings that its solicitation and business practices violated the buying
club membership law and the consumer fraud act. The State cross-
appeals. AFFIRMED IN PART, REVERSED IN PART, AND MODIFIED.
Mark McCormick and Margaret C. Callahan of Belin McCormick,
P.C., Des Moines, and Jeffrey R. Babbin and Kim E. Rinehart of Wiggin
and Dana LLP, New Haven, Connecticut, for appellants.
Thomas J. Miller, Attorney General, Jeffrey S. Thompson, Deputy
Attorney General, and Steven M. St. Clair and Julia S. Kim, Assistant
Attorneys General, for appellee.
2
CADY, Chief Justice.
In this appeal and cross-appeal, we must consider numerous
issues in an action brought by the Attorney General of Iowa against
Vertrue Incorporated alleging violations of the Buying Club Membership
Law (BCL), pursuant to Iowa Code chapter 552A (2005), and the Iowa
Consumer Fraud Act (CFA), pursuant to Iowa Code section 714.16. The
State also sought civil penalties for consumer frauds committed against
the elderly pursuant to Iowa Code section 714.16A. The district court
found: (1) a number of Vertrue’s marketing and sales practices violated
the BCL and the CFA, (2) application of the BCL to Vertrue’s solicitation
practices did not violate the dormant Commerce Clause, and (3) Vertrue
did not commit consumer frauds against the elderly in violation of
section 714.16A. The court entered judgment awarding $25,250,736.19
in consumer reimbursement for fees paid in connection with
memberships sold in violation of the BCL or CFA, civil penalties in the
amount of $2,820,000, and $725,240.05 in attorney fees and costs. On
our review, we affirm the judgment of the district court in part, reverse in
part, and modify the judgment.
I. Factual and Procedural Background.
Vertrue sells memberships in buying programs that give members
the option to purchase various goods and services at discounted rates.
Since 1989, Vertrue has enrolled 863,970 Iowans in membership
programs. To entice membership into the programs, Vertrue frequently
offered gift cards and other “cash back” rewards. Further, Vertrue
consistently offered consumers free trial memberships with a negative
option—meaning consumers would be charged the full price of the
membership if they failed to call and cancel within the designated trial
period. Normally, once individuals were enrolled in one of Vertrue’s
3
membership programs, their credit cards or bank accounts were charged
on a monthly basis until they contacted Vertrue and canceled the
membership.
In 1999, the Consumer Protection Division (CPD) of the Iowa
Attorney General’s Office began receiving a high volume of complaints
from Iowans regarding Vertrue’s marketing and business practices. In
response to these complaints, the CPD commenced an investigation in
December 2004 to assess the legality of Vertrue’s business practices. As
part of the investigation, the CPD sent approximately 400 written surveys
to Iowans who had been enrolled in one of four membership programs
offered by Vertrue since April 1, 2003. Of the eighty-eight survey
respondents, sixty-seven percent indicated they were either unaware of
their membership or did not authorize the membership charges, or both.
None of the survey respondents indicated consumer satisfaction.
Based in part on the results of the CPD investigation, on May 12,
2006, the Attorney General initiated this action against Vertrue alleging
violations of the BCL and the CFA. The State sought consumer
restitution, injunctive relief, and civil penalties under both the BCL and
the CFA, and additional civil penalties for consumer frauds committed
against the elderly pursuant to Iowa Code section 714.16A.
The State subsequently filed an amended petition to add Vertrue
affiliates, Adaptive Marketing, LLC and Idaptive Marketing, LLC, as well
as West Telemarketing Corporation and West Corporation, as
defendants. The West defendants later settled and were dismissed from
the litigation. The remaining defendants, Vertrue, Adaptive, and Idaptive
(collectively Vertrue)1 filed an answer to the State’s amended petition
1Adaptive is a wholly owned subsidiary of Idaptive, which is a wholly owned
subsidiary of Vertrue.
4
denying liability under the BCL and CFA. Vertrue asserted
counterclaims requesting declaratory orders establishing the legality of
its sales practices under the BCL and CFA. Additionally, Vertrue sought
a declaratory judgment establishing that application of the BCL to its
mail, telephone, and Internet solicitations would violate the dormant
Commerce Clause of the United States Constitution.
The district court bifurcated trial. The first phase addressed the
issue of liability. The district court reaffirmed its previous summary
judgment rulings and held the BCL was applicable to Vertrue’s mail,
telephone, and Internet solicitations and that these solicitations violated
the BCL. The district court further held that application of the BCL to
Vertrue’s solicitations did not violate the dormant Commerce Clause.
Additionally, the district court concluded several of Vertrue’s marketing
and business practices constituted unfair practices and deceptive acts
under the CFA. However, the court found the BCL did not apply to
Vertrue’s financial, privacy, or health membership programs, and the
State was not entitled to additional civil penalties for consumer frauds
committed against the elderly.
During the remedies phase of the trial, the district court
interpreted Iowa Code section 714.16(7) to require the State to prove
reliance, damages, intent to deceive, and knowledge of falsity in order to
obtain a consumer reimbursement award for both the BCL and CFA
violations. The court found the State proved ninety percent of Iowa
consumers would have canceled Vertrue’s programs had they received
BCL-compliant disclosures and accordingly ordered consumer
reimbursement of ninety percent of Vertrue’s net revenues from non-
BCL-compliant solicitations. This figure amounted to $22,715,073.65.
An additional $2,535,662.54 was awarded for CFA violations, making the
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total reimbursement award $25,250,736.19. The court also awarded a
total of $2,820,000 in civil penalties for the BCL and CFA violations and
$725,240.05 for costs and attorney fees. Finally, the court entered
various injunctive orders requiring Vertrue to comply with the provisions
of the BCL and CFA.
Vertrue appealed. It claimed the district court erred in finding the
BCL applied to its mail, telephone, and Internet sales; the application of
the BCL to Vertrue’s mail, telephone, and Internet sales did not violate
the dormant Commerce Clause; there was sufficient evidentiary support
for the BCL reimbursement award and such an award was equitable;
there was sufficient evidence of the CFA violations regarding Vertrue’s
telemarketing solicitations and sufficient evidence for the respective
reimbursement award; and there was sufficient evidence to support a
CFA reimbursement award for the practice of requiring dual cancellation
requests for memberships bundled into a single Internet transaction.
The State cross-appealed. It argued the district court erred in
finding the record did not support an award of additional civil penalties
for consumer frauds committed against the elderly; the BCL did not
apply to Vertrue’s financial, privacy, and health programs; a BCL
reimbursement award requires proof of reliance, damages, intent to
deceive, and knowledge of falsity; a reimbursement reward for a CFA
claim of concealment, suppression, or omission of a material fact
requires proof of reliance, damages, intent to deceive, and knowledge of
falsity; and there was insufficient evidence of reliance, damages, intent to
6
deceive, and knowledge of falsity to support a finding of a CFA violation
for Vertrue’s “breakage” practices.2
II. Application of the Buying Club Membership Law.
A. Scope of Review. Our review of this equity ruling is de novo;
however, we review the district court’s interpretation of chapter 552A for
correction of errors at law. See Iowa Film Prod. Servs. v. Iowa Dep’t of
Econ. Dev., 818 N.W.2d 207, 217 (Iowa 2012). We also review de novo
the district court’s ruling on questions of constitutional law. Homan v.
Branstad, 812 N.W.2d 623, 628–29 (Iowa 2012). In reviewing a challenge
under the dormant Commerce Clause of the United States Constitution,
“[o]ur function is to determine, to the best of our ability, how the United
States Supreme Court would decide this case under its case law and
established dormant Commerce Clause doctrine.” KFC Corp. v. Iowa
Dep’t of Revenue, 792 N.W.2d 308, 322 (Iowa 2010). Thus, we do not
“engage in independent constitutional adjudication” or “seek to improve
or clarify Supreme Court doctrine.” Id.
B. Preservation of Error. The State contends Vertrue’s proposed
interpretation of section 552A.3, as well as its dormant Commerce
Clause claim, were not properly preserved for appeal. Our error
preservation rules provide that error is preserved for appellate review
when a party raises an issue and the district court rules on it. Meier v.
Senecaut, 641 N.W.2d 532, 537 (Iowa 2002). Vertrue clearly presented to
the district court the issue of whether section 552A.3 applied to
solicitations that were not made in person. The record demonstrates the
parties debated the “irrespective of the place or manner of sale” clause of
2Breakage refers to the business practice of intentionally imposing needless
barriers to the consumer’s receipt of the free premiums offered to induce membership
enrollment.
7
section 552A.3 at length and the district court rejected Vertrue’s
interpretation. Moreover, the State acknowledges that “the court ruled
the BCL did not violate the Commerce Clause [and] Vertrue filed a
motion to reconsider.” Accordingly, we conclude Vertrue has properly
preserved error on both of these arguments.
C. Statutory Framework. In 1993, our legislature enacted the
BCL to protect consumers by regulating the sale of buying club
memberships. See 1993 Iowa Acts ch. 60, §§ 1–5 (codified at Iowa Code
§§ 552A.1–.5 (Supp. 1993)).3 The Act essentially regulates membership
sales in two ways. It imposes duties and restrictions on merchants of
buying club memberships and establishes public and private remedies
for violating its terms. See Iowa Code §§ 552A.3–.5 (2005). The section
at issue incorporates the disclosure and notice requirements of the Iowa
Door-to-Door Sales Act (DDSA). See id. § 552A.3. It provides:
The requirements of sections 555A.1 through 555A.5,
relating to door-to-door sales, shall apply to sales of buying
club memberships, irrespective of the place or manner of
sale or the purpose for which they are purchased. In
addition to the requirements of chapter 555A, a contract
shall not be enforceable against a person acquiring a
membership in a buying club unless the contract is in
writing and signed by the purchaser.
Id.; see also id. §§ 555A.1–.6 (regulating door-to-door sales).
The DDSA imposes numerous requirements on door-to-door sales.
Notably, the DDSA requires sellers to provide buyers with a copy of the
completed written contract at the time of execution and further requires
that the contract include a statement written in large boldface print
3Prior to 1993 sellers of buying club memberships were not subject to special
regulation. Such sellers were required to apply for a “certificate of authority” to do
business from the insurance commissioner. Iowa Code § 503.5 (1993). If “satisfied that
the business [wa]s not in violation of the law, or against public policy, and that the
certificate or contract [wa]s in proper form,” the commissioner was authorized to issue
the certificate of authority. Id.
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advising the buyer of the right to cancel the transaction within three
business days. Id. § 555A.2. A more detailed notice explaining the right
to cancel must be attached to the contract. Id. § 555A.3. The DDSA also
imposes an obligation to supplement the written right to cancel with an
oral statement of the right at the time the contract is signed. Id.
§ 555A.4. The legislature enacted the DDSA in 1973 because home
solicitation sales can often involve unfair, high pressure tactics. See
1973 Iowa Acts ch. 291, §§ 1–6 (codified at Iowa Code §§ 713B.1–.6
(1975) (current version at Iowa Code §§ 555A.1–.6)).
D. Statutory Interpretation. Vertrue’s argument rests on the
premise that section 552A.3’s notice and disclosure requirements can
only be accomplished by in-person conduct. Vertrue asserts that many
of the DDSA requirements as incorporated by the BCL would be
impracticable or impossible to perform by merchants who sell buying
club memberships by mail, telephone, or the Internet. For example,
Vertrue points out that a merchant who uses the mail or Internet to
make a sale cannot orally inform the buyer of the right to cancel.
Likewise, Vertrue points out that a merchant who uses the telephone to
negotiate a sale of a buying club membership cannot hand the seller a
copy of the contract. Consequently, Vertrue asserts the legislature only
intended section 552A.3 to apply to in-person sales of buying club
memberships.
The State, by contrast, asserts that section 552A.3 operates to
make the incorporated DDSA notice and disclosure requirements
applicable to all buying club membership sales, regardless of the place or
means employed in the transaction. The State adds that section 552A.3
can be satisfied by supplementing direct mail and Internet transactions
with coordinated telephone contact and the transfer of documents by
9
mail or facsimile. It further points out that Internet transactions can be
supplemented with telephone messages and electronic signatures.
Our obligation is to interpret the statute based on the language
used by our legislature. See Auen v. Alcoholic Beverages Div., 679
N.W.2d 586, 590 (Iowa 2004) (“We determine legislative intent from the
words chosen by the legislature, not what it should or might have said.”).
Here, the statute provides specific directions. It provides that the
requirements for door-to-door sales “apply to sales of buying club
memberships, irrespective of the place or manner of sale.” Iowa Code
§ 552A.3 (emphasis added). Section 552A.3 of the BCL is not the first
occasion our legislature has had to use the phrase “irrespective of the
place or manner of sale.” It used this same phrase in the definitions
section of the DDSA to enlarge the scope of the DDSA requirements in
the sale of funeral services and merchandise, as well as the sale of social
referral services. Id. § 555A.1(3)(b). Under this section, the requirements
for door-to-door sales apply to the sale of funeral services and
merchandise and social referral services “irrespective of the place or
manner of sale.” Id. Thus, sales in these two areas must follow the
DDSA requirements even though the DDSA technique is not used. Yet,
we have not had an occasion to interpret the phrase.
It is clear our legislature has defined a door-to-door sale in the
context of “place” and “manner.” The “manner” must involve a personal
solicitation of a sale by the seller or the seller’s representative, including
sales in response to an invitation by a buyer. Id. § 555A.1(3)(a). The
“place” is limited to “a place other than the place of business of the
seller.” Id. Thus, when the legislature declares DDSA requirements
apply to buying club membership sales “irrespective of the place or
manner,” it is declaring the requirements apply without regard to the
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“place” or “manner” that define door-to-door sales. In other words, the
requirements of the DDSA apply to sales at the “place” of the business of
the seller and to sales transacted in a “manner” that is not restricted to
in-person solicitation.
Vertrue accurately described some of the difficulties it will
encounter in attempting to transact its buying club membership sales by
mail, telephone, and the Internet when it is required to follow consumer
protection practices developed for person-to-person transactions. Yet, we
must focus on the clear language of the statute to direct the outcome,
not the difficulty of compliance under a particular business model.
Thus, we conclude the trial court properly interpreted section 552A.3 to
apply the requirements of the DDSA to the selling of all buying club
memberships.
E. The Dormant Commerce Clause. Vertrue contends that even
if the BCL applies to its mail, telephone, and Internet transactions, it
does so in violation of the Commerce Clause of the United States
Constitution. Since compliance with the BCL is “unworkable” unless the
buying club membership transaction occurs in person, Vertrue
maintains the BCL discriminates against out-of-state sellers—
unconstitutionally favoring sellers who establish a physical presence in
Iowa, thereby investing in Iowa employees and facilities.
The United States Constitution grants Congress the power “[t]o
regulate Commerce . . . among the several States.” U.S. Const. art. I, § 8,
cl. 3. The Commerce Clause “has long been seen as a limitation on state
regulatory powers, as well as an affirmative grant of congressional
authority.” Fulton Corp. v. Faulkner, 516 U.S. 325, 330, 116 S. Ct. 848,
853, 133 L. Ed. 2d 796, 804 (1996). The limitation on state regulatory
powers—termed the “dormant Commerce Clause”—“ ‘prohibits economic
11
protectionism—that is, “regulatory measures designed to benefit in-state
economic interests by burdening out-of-state competitors.” ’ ” Id.
(quoting Associated Indus. of Mo. v. Lohman, 511 U.S. 641, 647, 114
S. Ct. 1815, 1820, 128 L. Ed. 2d 639, 646 (1994)). Thus, “the
[Commerce] Clause is both a ‘prolific sourc[e] of national power and an
equally prolific source of conflict with legislation of the state[s].’ ” Kassel
v. Consol. Freightways Corp. of Del., 450 U.S. 662, 669, 101 S. Ct. 1309,
1315, 67 L. Ed. 2d 580, 586 (1981) (quoting H. P. Hood & Sons, Inc. v.
Du Mond, 336 U.S. 525, 534, 69 S. Ct. 657, 663, 93 L. Ed. 865, 872
(1949)).
Modern dormant Commerce Clause jurisprudence is principally
concerned with effectuating
the Framers’ purpose to “preven[t] a State from retreating
into economic isolation or jeopardizing the welfare of the
Nation as a whole, as it would do if it were free to place
burdens on the flow of commerce across its borders that
commerce wholly within those borders would not bear.”
Fulton, 516 U.S. at 330–31, 116 S. Ct. at 853, 133 L. Ed. 2d at 805
(quoting Okla. Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175, 180,
115 S. Ct. 1331, 1335–36, 131 L. Ed. 2d 261, 268 (1995)). The United
States Supreme Court has adopted a two-tiered approach to analyzing
state economic interest regulation pursuant to the dormant Commerce
Clause:
When a state statute directly regulates or discriminates
against interstate commerce, or when its effect is to favor in-
state economic interests over out-of-state interests, we have
generally struck down the statute without further inquiry.
When, however, a statute has only indirect effects on
interstate commerce and regulates evenhandedly, we have
examined whether the State’s interest is legitimate and
whether the burden on interstate commerce clearly exceeds
the local benefits.
12
Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573,
579, 106 S. Ct. 2080, 2084, 90 L. Ed. 2d 552, 559–60 (1986) (citations
omitted)). The party challenging the constitutionality of the statute bears
the burden of demonstrating the statute discriminates either on its face
or in practical effect. Hughes v. Oklahoma, 441 U.S. 322, 336, 99 S. Ct.
1727, 1736, 60 L. Ed. 2d 250, 262 (1979).
If the challenger demonstrates that the restriction on interstate
commerce is discriminatory, a “virtually per se rule of invalidity”
applies—even if the restriction is related to a legitimate local purpose.
Chem. Waste Mgmt., Inc. v. Hunt, 504 U.S. 334, 344 & n.6, 112 S. Ct.
2009, 2015 & n.6, 119 L. Ed. 2d 121, 133 & n.6 (1992) (citation and
internal quotation marks omitted). In order to validate such a statute,
the government carries the heavy burden of proving the regulation
“advances a legitimate local purpose that cannot be adequately served by
reasonable nondiscriminatory alternatives.” New Energy Co. of Ind. v.
Limbach, 486 U.S. 269, 278, 108 S. Ct. 1803, 1810, 100 L. Ed. 2d 302,
311 (1988).
On the other hand, if the law “regulates even-handedly to
effectuate a legitimate local public interest, and its effects on interstate
commerce are only incidental, it will be upheld unless the burden
imposed on such commerce is clearly excessive in relation to the putative
local benefits.” Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S. Ct.
844, 847, 25 L. Ed. 2d 174, 178 (1970). In this context, the challenger
carries the burden of proving excessiveness. Pharm. Care Mgmt. Ass’n v.
Rowe, 429 F.3d 294, 313 (1st Cir. 2005). In evaluating a regulation’s
putative local benefits, the court proceeds with deference to legislative
judgments. See CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 92,
107 S. Ct. 1637, 1651 95 L. Ed. 2d 67, 87 (1987). However, a law
13
“designed for [a] salutary purpose nevertheless may further the purpose
so marginally, and interfere with commerce so substantially, as to be
invalid under the Commerce Clause.” Kassel, 450 U.S. at 670, 101
S. Ct. at 1316, 67 L. Ed. 2d at 587.
With these principles in mind, we turn to the task of evaluating the
constitutionality of section 552A.3. Initially, we note section 552A.3 is
not facially discriminatory—it does not reference interstate commerce or
interstate interaction. Instead, it regulates in an evenhanded manner by
applying the notice and disclosure requirements to any seller of
“memberships” to a “buying club,” as those terms are defined in section
552A.1, “without regard to whether . . . the sellers are from outside the
State.” Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 471–72,
101 S. Ct. 715, 728, 66 L. Ed. 2d 659, 674 (1981); see also Iowa Code
§§ 552A.1, .3. Moreover, section 552A.1 does not set forth a definition
limited to interstate sellers of buying club memberships, nor does it
exclude local sellers. See Iowa Code §§ 552A.1–.2.
We acknowledge compliance with the requirements of section
552A.3 for contemporaneous written and oral obligations at the time of
the transaction may be difficult for out-of-state sellers with no in-state
presence. Yet, the restrictions at issue place the same burden on all
sellers using the telephone, mail, or Internet to transact a sale in Iowa.4
See SPGGC, LLC v. Blumenthal, 505 F.3d 183, 194 n.3 (2d Cir. 2007).
But see Dean Milk Co. v. City of Madison, 340 U.S. 349, 354–55, 71 S. Ct.
295, 298–99, 95 L. Ed. 329, 333–34 (1951) (holding a Madison,
4The burdens on these sales hardly render them impossible. Numerous
business transactions that formerly were conducted in person are now conducted by
other methods. Technological evolution has changed the methods of doing business,
including the presentation and signing of documents. Furthermore, Internet
communication and transfer of documents can be supplemented by telephone
communications to satisfy required oral communications.
14
Wisconsin, ordinance was unconstitutional because it had the practical
effect of excluding “from distribution in Madison wholesome milk
produced and pasteurized in Illinois”). “The fact that the burden of a
state regulation falls on some interstate companies does not, by itself,
establish a claim of discrimination against interstate commerce.” Exxon
Corp. v. Governor of Md., 437 U.S. 117, 126, 98 S. Ct. 2207, 2214, 57
L. Ed. 2d 91, 100 (1978).
Section 552A.3 does not afford Iowa sellers a competitive
advantage or cause out-of-state sellers to “surrender whatever
competitive advantages they may possess.” Brown-Forman, 476 U.S. at
580, 106 S. Ct. at 2085, 90 L. Ed. 2d at 560. Therefore, we cannot
conclude that section 552A.3 has the practical effect of discriminating
against out-of-state economic interests.
As a result, the dormant Commerce Clause claim asserted by
Vertrue devolves into a question of whether the indirect, incidental
burdens imposed on interstate commerce by section 552A.3 are “clearly
excessive in relation to the putative local benefits.” Pike, 397 U.S. at
142, 90 S. Ct. at 847, 25 L. Ed. 2d at 178. The protection of consumers
and the curtailment of unfair business practices have long been
recognized as significant interests in determining whether statutory
regulations violate the Commerce Clause. See CTS, 481 U.S. at 93, 107
S. Ct. at 1652–53, 95 L. Ed. 2d at 88 (finding no violation of the dormant
Commerce Clause and noting Indiana’s statute regulating corporate
takeovers served the “substantial interest in preventing the corporate
form from becoming a shield for unfair business dealing”); Int’l Dairy
Foods Ass’n v. Boggs, 622 F.3d 628, 649 (6th Cir. 2010) (holding that
burdens placed on interstate commerce by Ohio milk labeling regulation
did not outweigh the consumer protection benefits); Allstate Ins. Co. v.
15
Abbott, 495 F.3d 151, 161–62 (5th Cir. 2007) (holding that Texas statute
restricting ability of auto insurers to operate body shops did not violate
dormant Commerce Clause because, despite “stray protectionist
remarks,” the legislative record demonstrated legislation was enacted to
protect consumers from predatory insurance practices); Alliance of Auto.
Mfrs. v. Gwadosky, 430 F.3d 30, 38–40 (1st Cir. 2005) (holding that
burden on interstate commerce from Maine statute prohibiting
automobile manufacturers from recovering warranty repair costs for
which manufacturers were required to reimburse automobile dealers did
not outweigh the state’s interest in protecting residents from “frauds,
impositions and other abuses” (citation and internal quotation marks
omitted)). Furthermore, “because consumer protection is a field
traditionally subject to state regulation, ‘[w]e should be particularly
hesitant to interfere with the [State’s] efforts under the guise of the
Commerce Clause.’ ” SPGGC, 505 F.3d at 194 (quoting United Haulers
Ass’n v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 344,
127 S. Ct. 1786, 1796, 167 L. Ed. 2d 655, 668 (2007)).
Notwithstanding, Vertrue argues the burdens are clearly excessive
because the record does not contain any actual evidence of consumer
protection benefits. However, “under Pike, it is the putative local benefits
that matter. It matters not whether these benefits actually come into
being at the end of the day.” Pharm. Care, 429 F.3d at 313.
Furthermore, Vertrue has not identified any substantial impediments on
interstate commerce that outweigh the consumer protection benefits. We
acknowledge the minimal burden section 552A.3 imposes on the
interstate sale of buying club memberships in the form of compliance
costs. Nevertheless, even a burdensome regulation does not necessarily
violate the dormant Commerce Clause because it affects the profits of
16
individual sellers. “[T]he Clause protects the interstate market, not
particular interstate firms, from prohibitive or burdensome regulations.”
Exxon, 437 U.S. at 127–28, 98 S. Ct. at 2215, 57 L. Ed. 2d at 101.
Under a contrary interpretation, “almost every state consumer protection
law would be considered ‘protectionist’ in a sense prohibited by the
Constitution.” SPGGC, 505 F.3d at 194–95 (holding that Connecticut
Gift Card Law prohibiting in-state sales of gift cards with inactivity fees
and expiration dates did not regulate out-of-state commerce in violation
of dormant Commerce Clause, even though out-of-state sellers
necessarily incurred compliance costs).
Based on the preceding, we affirm the district court’s conclusion
that section 552A.3 does not violate the dormant Commerce Clause.
F. Applicability of the BCL to Vertrue’s Financial, Privacy, and
Health Membership Programs. The State cross-appealed the district
court’s ruling regarding the applicability of the BCL to Vertrue’s sales of
financial, privacy, and health membership programs. In its posttrial
brief, the State argued any membership that offers consumers the option
to purchase one or more goods or services at a discount (discount
features) should be subject to the BCL. The district court rejected this
argument in regard to Vertrue’s financial and privacy programs,
reasoning that such an interpretation would reach too broadly
encompassing entities that “cannot reasonably be considered buying
clubs.” While most of Vertrue’s financial and privacy programs offered
discounts, the court considered these to be ancillary benefits and
concluded the BCL applies only to membership programs in which the
primary benefit is the option to purchase discounted goods or services.5
5This case concerns the entitlement to purchase goods or services at a discount.
However, we acknowledge section 552A.1 applies not only to purchases at a discount,
17
The district court also concluded the BCL did not apply to Vertrue’s
health programs, reasoning they are similar to Health Management
Organizations (HMO) or Preferred-Provider Organizations (PPO), which
the legislature likely did not seek to regulate in enacting the BCL.
Section 552A.1 of the BCL provides the following definitions:
As used in this chapter, unless the context otherwise
requires:
1. “Buying club” means a corporation, partnership,
unincorporated association, or other business enterprise
which sells or offers for sale to the public generally
memberships or certificates of membership.
2. “Contract” means the agreement by which a person
acquires a membership in a buying club.
3. “Membership” means certificates, memberships,
shares, bonds, contracts, stocks, or agreements of any kind
or character issued upon any plan offered generally to the
public entitling the holder to purchase merchandise,
materials, equipment, or service, either from the issuer or
another person designated by the issuer, either under a
franchise or otherwise, whether it be at a discount, at cost
plus a percentage, at cost plus a fixed amount, at a fixed
price, or on any other similar basis.
Iowa Code § 552A.1. Section 552A.2 contains a list of exemptions
excluding certain types of businesses and organizations from the
coverage of the BCL. The parties agree that none of the exemptions
apply to any of Vertrue’s financial, privacy, or health programs.
The legislature has provided no further guidance for determining
whether the definition of buying club membership excludes plans that
offer an entitlement to purchase discounted goods and services when the
membership plan also, or perhaps primarily, offers consumers other
distinct benefits. In interpreting section 552A.1, we apply well-settled
principles of statutory construction in order “to give effect to the
_________________________
but also to purchases “at cost plus a percentage, at cost plus a fixed amount, at a fixed
price, or on any other similar basis.” See Iowa Code § 552A.1(3).
18
legislative intent of [the] statute.” Watson v. Iowa Dep’t of Transp. Motor
Vehicle Div., 829 N.W.2d 566, 569 (Iowa 2013) (citation and internal
quotation marks omitted). The BCL is a remedial statute; accordingly,
we construe it liberally to effectuate its purposes. State ex rel. Miller v.
Cutty’s Des Moines Camping Club, Inc., 694 N.W.2d 518, 528 (Iowa
2005).
A straightforward reading of section 552A.1 would make the BCL
applicable to “any plan offered generally to the public entitling the holder
to purchase merchandise, materials, equipment, or service . . . at a
discount,” notwithstanding the other consumer benefits the district court
concluded were the “primary purpose” of those membership plans.6 Iowa
Code § 552A.1(3). We acknowledge that this interpretation could, in
theory, encompass membership plans the legislature may not have
intended to regulate. However, adoption of a “primary purpose”
limitation would undoubtedly encumber the BCL and leave it vulnerable
to circumvention by clever fraudsters. Dier v. Peters, 815 N.W.2d 1, 11
(Iowa 2012) (“[T]ribunals [should have] the liberty to deal with [fraud] in
whatever form it may present itself.” (Citation and internal quotation
marks omitted.)); cf. State ex rel. Miller v. Hydro Mag, Ltd., 436 N.W.2d
617, 621 (Iowa 1989) (noting that consumer fraud protections are
undermined by reading unlisted elements into a CFA analysis). If we
were to imply such a limitation into section 552A.1, future sellers would
be afforded an opportunity to evade BCL enforcement by meticulously
balancing discount and nondiscount features and otherwise obscuring
the primary purpose of a program that is, in essence, a buying club
6We find error in the district court’s ruling in several respects. Many of the
programs excluded by the district court, some of which offer a far greater number of
discount features than any other purported benefits, would clearly fit within the
“primary purpose” definition it adopted.
19
membership. The district court’s reliance on the fact “the programs
[we]re not marketed as discount programs” renders the BCL open to this
sort of perversion. Moreover, as the primary benefit of any given
membership can vary significantly from consumer to consumer, the
inherent vagueness in the primary purpose rationale increases the
likelihood BCL enforcement will be rendered illusory as courts struggle to
determine whether a program’s discount features predominate over the
nondiscount features. In addition, implying a primary purpose limitation
into the BCL would require us to invent satisfactory principles and
standards for guiding a treacherous inquiry with no legislative guidance.
It is also noteworthy that none of Vertrue’s programs provide any
independent services to consumers. The programs at issue, without
exception, involve the bundling of numerous goods and services from
various merchants. Upon bundling the goods and services into one
membership, Vertrue offers consumers the membership at a monthly
rate. We recognize that this practice does not fit within the literal
definition of a buying club membership under section 552A.1 because it
does not “entitl[e] the holder to purchase” goods and services at a
discount. However, this practice is strikingly similar to the
administration of the classic buying club membership established in
section 552A.1. Both practices offer the consumer the ability to receive
various goods and services at a predetermined rate.
As noted above, the purpose of the BCL is to protect consumers
from overreaching merchants of buying club memberships. Many of
Vertrue’s financial, privacy, and health programs contain manifold
discount features that unquestionably predominate over any other
purported benefits. Additionally, the record is replete with examples of
consumers who were unwittingly enrolled in Vertrue’s financial, privacy,
20
and health programs through the use of misleading solicitations and
overreaching marketing tactics. While a case may come along in which a
literal application of section 552A.1 would lead to results so absurd that
a limitation must be implied into its interpretation, this is not that case.
The BCL contains exemptions, but it does not exempt memberships that
offer financial, privacy, or health-related discounts or programs that
contain only one discount feature. See Iowa Code § 552A.2(3). Thus, the
plain language of the statute dictates all of Vertrue’s financial, privacy,
and health memberships that offer one or more discount features are
subject to the terms of the BCL. Accordingly, we reverse the district
court’s ruling to the extent it excluded these programs. Our resulting
modification of the district court’s BCL reimbursement award is
discussed below.
III. Reimbursement Under the BCL and CFA.
A. Scope of Review. Our review of this equity ruling is de novo;
however, we review the district court’s interpretation of sections 552A.5
and 714.16(7) for correction of errors at law. See Iowa Film, 818 N.W.2d
at 217.
B. Analysis. The parties dispute the requisite elements of proof
required to obtain a reimbursement award under the BCL as well as
under the CFA. The CFA sets forth the remedies available upon proof of
an unlawful practice. Iowa Code § 714.16(7). It states, in relevant part,
as follows:
Except in an action for the concealment, suppression, or
omission of a material fact with intent that others rely upon
it, it is not necessary in an action for reimbursement or an
injunction, to allege or to prove reliance, damages, intent to
deceive, or that the person who engaged in an unlawful act
had knowledge of the falsity of the claim or ignorance of the
truth.
21
Id. Any violation of the BCL also violates section 714.16(2)(a) of the CFA.
Id. § 552A.5(1). Accordingly, any violation of the BCL triggers remedies
under section 714.16(7) of the CFA. The CFA states, in part:
The act, use or employment by a person of an unfair
practice, deception, fraud, false pretense, false promise, or
misrepresentation, or the concealment, suppression, or
omission of a material fact with intent that others rely upon
the concealment, suppression, or omission, in connection
with the lease, sale, or advertisement of any merchandise or
the solicitation of contributions for charitable purposes,
whether or not a person has in fact been misled, deceived, or
damaged, is an unlawful practice.
Id. § 714.16(2)(a).
In its liability ruling, the district court concluded Vertrue’s
marketing practices independently violated the BCL and CFA. In the
CFA portion of its analysis, the court concluded Vertrue’s direct mail,
telephone, and Internet solicitation practices amounted to unfair
practices. Additionally, the district court concluded Vertrue’s direct mail
solicitations were deceptive.
Furthermore, the district court concluded Vertrue’s breakage
practices violated the CFA. Breakage refers to the practice by which “free
premiums (e.g., $25 Wal-Mart gift card) that are used to lure consumers
into trial memberships are never actually provided to the consumers.”
The court referred to Vertrue’s practice as a “double breakage model”
because it required “consumers to jump two sets of unnecessary hurdles
. . . for the sole purpose of making it difficult for consumers to redeem
the promised premium.” The district court held this practice was
deceptive, unfair, and an omission of a material fact under the CFA. See
id.
In the remedies trial, the State argued that proof of reliance,
damages, intent to deceive, and knowledge of falsity are never required to
22
obtain reimbursement under the CFA, even in a claim alleging
“concealment, suppression, or omission of a material fact.” See id.
§ 714.16(7). Alternatively, the State argued that all of the remedies
contained in section 714.16(7) are available for any violation of the BCL
without proof of additional elements. The district court rejected both
arguments, reasoning a BCL violation “is by definition a concealment or
omission.”
Consequently, the district court proceeded to evaluate the State’s
evidence of reliance. The court relied primarily on the testimony of
Vertrue’s expert, Thomas Maronick, who testified at trial that ninety
percent to ninety-five percent of Vertrue’s Internet customers would not
have signed up for a membership if Vertrue were required to conduct in-
person disclosures. Based predominantly on Maronick’s testimony, the
court concluded ninety percent of consumers who purchased Vertrue’s
membership programs would have canceled within the three-day period
had Vertrue complied with the BCL. Accordingly, the district court
ordered a reimbursement award of ninety percent of the net membership
fees Vertrue acquired by means of non-BCL-compliant solicitations. This
figure came to $22,715,073.65. However, the court denied CFA
reimbursement for Vertrue’s breakage practice upon concluding there
was “no evidence in the record upon which to make a finding of reliance.”
On appeal, Vertrue disputes the reliance aspect of the district
court’s reimbursement award, arguing there is no logical connection
between Maronick’s testimony and the district court’s conclusion that
ninety percent of Iowa consumers would have canceled had they received
BCL-compliant disclosures.7 The State counters that the district court’s
7Maronick’s testimony was presented by Vertrue for the purpose of establishing
that compliance with section 552A.3 of the BCL would cripple Vertrue’s ability to
conduct its business. This argument was also based on Vertrue’s faulty premise under
23
ruling was adequately supported by record evidence and Maronick’s
testimony constituted a principled basis for evaluating reliance.
Additionally, the State cross-appealed the district court’s rulings
regarding the applicability of section 714.16(7)’s additional proof
elements to a remedial determination for both BCL and CFA violations.
We find it unnecessary to address Vertrue’s arguments regarding
the sufficiency of the evidence to support the district court’s findings on
reliance. Additionally, because we conclude that the State was entitled
to full BCL reimbursement without a reliance-based reduction for
Vertrue’s mail, telephone, and Internet solicitations, we do not reach the
State’s argument that it was not required to prove section 714.16(7)’s
additional elements in order to obtain reimbursement for the same
programs under the CFA.
1. Reimbursement under the BCL. First, we consider what proof
must be shown to obtain a reimbursement award for a violation of the
BCL. In order to obtain reimbursement in cases alleging “concealment,
suppression, or omission of a material fact,” the State must prove
“reliance, damages, intent to deceive, [and] . . . knowledge of the falsity of
the claim or ignorance of the truth.” Id. These requirements are
recognizable as elements in a claim for common law fraud. See Dier, 815
N.W.2d at 7 (setting forth the traditional elements of a common law fraud
claim).
Section 714.16(2)(a) establishes various unlawful practices under
the CFA, one of which is “the concealment, suppression, or omission of a
material fact with intent that others rely upon [it] . . . in connection with
the . . . sale . . . of any merchandise.” Our reading of section 714.16, as
_________________________
which compliance with section 552A.3 requires in-person interaction at the time of the
transaction.
24
well as our precedent, leads to the inexorable conclusion that each of
these unlawful practices is a distinct line of inquiry under the CFA. See
Cutty’s, 694 N.W.2d at 527 (“[D]eceptive and unfair practices are distinct
lines of inquiry . . . . [W]hile a practice may be both deceptive and unfair,
it may be unfair without being deceptive.” (Citation and internal
quotations marks omitted.)). Similarly, we read section 552A.5 of the
BCL as effectively making violations of the BCL an additional distinct
unlawful practice under section 714.16(2)(a).
The legislature specifically required proof of the additional common
law fraud elements in order to obtain reimbursement for only one
distinct unlawful practice—“concealment, suppression, or omission of a
material fact.” See Iowa Code § 714.16(7). The legislature demonstrated
its intent to single out this particular unlawful practice by using the
exact same language that appears in section 714.16(2)(a). Compare id.
§ 714.16(7), with id. § 714.16(2)(a). BCL violations are not listed as one
of the unlawful practices for which the State must prove the additional
common law fraud elements in order to obtain injunctive relief or a
reimbursement award. See id. § 714.16(7). We have consistently
“observed that legislative intent is expressed by omission as well as by
inclusion.” Watson, 829 N.W.2d at 570. By only listing “concealment,
suppression, or omission of a material fact” in section 714.16(7) and
excluding the other types of unlawful practices established by section
714.16(2)(a), we think it clear the legislature intended the additional
proof elements to apply only to the listed unlawful practice. As we said
in State ex rel. Miller v. Pace, the CFA “is not a codification of common
law fraud principles” and, accordingly, absent explicit direction from the
legislature, we decline to impose upon the State the burden of proving
common law fraud elements in order to obtain reimbursement for
25
unlawful practices not specifically listed as requiring additional proof
under section 714.16(7). 677 N.W.2d 761, 770 (Iowa 2004).
Moreover, there is nothing in the legislative scheme suggesting the
legislature intended that a remedy be crafted by determining what kind
of CFA cause of action an alleged BCL violation most resembles. No
statutory guidance has been set forth for this determination. Thus, in
assessing what remedies are available for a BCL violation under section
714.16(7), the district court was not authorized to engage in an analysis
to determine which CFA cause of action the BCL violation generally
supports.
A contrary conclusion may suggest the State is required to prove a
violation also amounted to a “concealment, suppression, or omission of a
material fact” in order to be entitled to recovery for any BCL violation.
However, the BCL, as well as a number of other consumer protection
statutes that incorporate the remedies provisions of the CFA,8 prohibits
acts section 714.16(2)(a) was not designed to prevent. See State ex rel.
8Numerous consumer protection statutes incorporate the remedies provision of
the CFA by referencing section 714.16 in an identical or similar fashion to section
552A.3. See, e.g., Iowa Code § 9D.4(3) (2013) (Travel Agencies and Agents); id. § 13C.8
(Organizations Soliciting Public Donations); id. § 126.5(5) (Drugs, Devices, and
Cosmetics); id. § 261B.12(3) (Registration of Postsecondary Schools); id. § 321.69(11)
(damage disclosure statement); id. § 321.69A(4) (Disclosure of repairs to new vehicles);
id. § 322G.10 (Defective Motor Vehicles (Lemon Law)); id. § 516D.9 (Rental of Motor
Vehicles); id. § 516E.15(l)(a)(l) (Motor Vehicle Service Contracts); id. § 523A.807(1)
(Cemetery and Funeral Merchandise and Funeral Services); id. § 523G.9(7) (Invention
Development Services); id. § 523I.205(1) (Iowa Cemetery Act); id. § 535C.10(2) (Loan
Brokers); id. § 537B.6 (Motor Vehicle Service Trade Practices Act); id. § 543D.18A(2)
(Penalties for improper influence of an appraisal assignment); id. § 552.13(2) (Physical
Exercise Clubs); id. § 554.3513(6) (Civil remedy for dishonor of a check, draft, or order);
id. § 555A.6(2) (Door-to-Door Sales Act); id. § 557B.14(1) (Membership Campgrounds);
id. § 714.21A (Civil enforcement for specified sections of chapter 714 (Theft, Fraud, and
Related Offenses)); id. § 714A.5 (Pay-Per-Call Service); id. § 714B.7 (Prize Promotions);
id. § 714D.7(1) (Telecommunications Service Provider Fraud); id. § 714E.6(1)
(Foreclosure Consultants); id. § 714F.9(1) (Foreclosure Reconveyances); id. § 714G.11
(Consumer Credit Security); id. § 715A.8(4) (Identity theft); id. § 715C.2(8)(a) (Personal
Information Security Breach Protection); id. § 716A.6(3)(a) (Electronic Mail).
26
Miller v. Santa Rosa Sales & Mktg., Inc., 475 N.W.2d 210, 218 (Iowa 1991)
(noting the DDSA and the statute governing lotteries prohibit acts section
714.16(2)(a) was not designed to prevent). Furthermore, requiring this
additional showing would render these consumer protection statutes,
including the BCL, either ineffective or redundant in direct contravention
of clear legislative intent.
We acknowledge that the legislative language applies the additional
proof requirements to “action[s] for the concealment, suppression, or
omission of a material fact.” Iowa Code § 714.16(7) (2005) (emphasis
added). However, we think “action” contemplates a “cause of action.”
Therefore, the additional common law fraud elements must be proven for
causes of action alleging “concealment, suppression, or omission of a
material fact.” In turn, the State is not required to prove the additional
elements for every violation of section 714.16(2)(a) in any lawsuit that
alleges concealment, suppression, or omission of a material fact in
addition to other unlawful practices.9 Thus, the most rational,
straightforward application of section 714.16(7) only requires the State
to prove the additional common law fraud elements in order to obtain
reimbursement or injunctive relief on a claim of “concealment,
suppression, or omission of a material fact” under section 714.16(2)(a).
9It goes without saying that an act may amount to a concealment, suppression,
or omission of a material fact, as well as one of the other unlawful acts contained in
section 714.16(2)(a). See Cutty’s, 694 N.W.2d at 527 (“[W]hile a practice may be both
deceptive and unfair, it may be unfair without being deceptive. The disjunctive
language of the Iowa Act clearly requires proof of only one, not both, sorts of conduct.”
(Citation and internal quotation marks omitted.)); Pace, 677 N.W.2d at 766 (affirming
district court ruling that defendant’s “conduct constituted an ‘unfair practice’ and
‘deception’ under the consumer fraud provision of chapter 714”). It would not make
sense to require proof of the additional common law fraud elements when the State
proves an unlawful act, such as deception, simply because the underlying conduct also
amounted to a concealment, suppression, or omission of a material fact. The same
applies for a BCL violation.
27
2. Equitability of the BCL reimbursement award. Vertrue next
contends the reimbursement award for its BCL violations contravenes
principles of equity. Vertrue first asserts the voluntary payment doctrine
precludes any award of reimbursement. The Seventh Circuit has
explained the doctrine as a common law principle according to which “ ‘a
plaintiff who voluntarily pays money in reply to an incorrect or illegal
claim of right cannot recover that payment unless he can show fraud,
coercion, or mistake of fact.’ ” Spivey v. Adaptive Mktg. LLC, 622 F.3d
816, 822 (7th Cir. 2010) (quoting Randazzo v. Harris Bank Palatine, N.A.,
262 F.3d 663, 666 (7th Cir. 2001)). In support of this argument, Vertrue
cites Spivey in which the Seventh Circuit, relying on the voluntary
payment doctrine, affirmed the district court’s grant of summary
judgment to a defendant telemarketing company in a consumer class
action alleging breach of contract and unjust enrichment. Id. at 817,
824.
We have never recognized the voluntary payment doctrine and
decline to do so now. Even if we did recognize the doctrine, it would not
apply here because, unlike the plaintiffs in Spivey, the State has proven
consumer fraud. See id. at 822 (noting the voluntary payment doctrine
is inapplicable in cases in which fraud is shown). Moreover, application
of the doctrine in consumer protection actions would have the effect of
judicially vitiating consumer protection legislation. The CFA is a
remedial statute, and accordingly, we are bound to give it a liberal
interpretation, not an illusory one. See Cutty’s, 694 N.W.2d at 527–28.
Numerous courts have declined to apply the voluntary-payment doctrine
in actions alleging violations of consumer protection statutes, concluding
such an application would subvert the underlying purpose of these
statutes. See, e.g., Southstar Energy Servs., LLC v. Ellison, 691 S.E.2d
28203, 206 (Ga. 2010) (“Judicially imposing [Georgia’s legislatively enacted
voluntary payment doctrine] on consumers’ statutory right to bring an
action contravenes the clear legislative intent that the protection of
consumers is the most important factor for any decision made under the
Natural Gas Act.”); Ramirez v. Smart Corp., 863 N.E.2d 800, 810 (Ill. App.
Ct. 2007) (“The effect of such transgressive acts [that violate statutorily-
defined public policy], generally speaking, is that the voluntary payment
rule will not be applicable.”); Huch v. Charter Commc’ns, Inc., 290 S.W.3d
721, 727 (Mo. 2009) (“To allow [the defendant] to avoid liability for this
unfair practice through the voluntary payment doctrine would nullify the
protections of the [Missouri Merchandising Practices Act] and be contrary
to the intent of the legislature.”); Indoor Billboard/Wash., Inc. v. Integra
Telecom of Wash., Inc., 170 P.3d 10, 24 (Wash. 2007) (“[T]he voluntary
payment doctrine is inappropriate as an affirmative defense in the . . .
context [of Washington’s Consumer Protection Act], as a matter of law,
because we construe the CPA liberally in favor of plaintiffs.”). We agree.
Vertrue also argues the State’s delay in enforcing section 552A.3
renders a reimbursement award inequitable. According to Vertrue, the
thirteen years between the enactment of the BCL in 1993 and the State’s
initiation of this action in 2006 allowed Vertrue’s understanding of Iowa
law to crystallize and resulted in an unduly large and burdensome
award. Vertrue further argues the State can uphold the public interest
through the use of civil penalties and future enforcement without
pursuing reimbursement claims, many of which would be time-barred if
brought by individual consumers. Vertrue has not cited any cases or
known legal principles that appear to support these arguments.
However, in our view, these arguments can essentially be characterized
as claims of laches and equitable estoppel.
29
Laches, however, does not apply against the government. See
State ex rel. Weede v. Iowa S. Utils. Co. of Del., 231 Iowa 784, 838, 2
N.W.2d 372, 400 (1942). Similarly, estoppel by acquiescence only
applies against the government in the most exceptional cases. Bailiff v.
Adams Cnty. Conference Bd., 650 N.W.2d 621, 627 (Iowa 2002). No
exceptional circumstances justify the doctrine’s application here. See id.
Accordingly, we reverse the district court’s ruling to the extent it
required proof of reliance, damages, intent to deceive, and knowledge of
falsity in order to obtain a BCL reimbursement award. In light of this
holding and our previous holding that Vertrue’s financial, privacy, and
health program are covered by the BCL, we modify the district court’s
BCL reimbursement award to $36,308,187.58—the figure reflected in the
record for net payments received for non-BCL-compliant membership
programs.
IV. Evidentiary Support for CFA Violations Based on Vertrue’s
Telemarketing and Internet Practices.
A. Scope of Review. Our review of this equity action is de novo.
See Iowa Code §§ 552A.5, 714.16(7); see also Iowa R. App. P. 6.907.
Accordingly, “[w]e give weight to the findings of the district court,
particularly concerning the credibility of witnesses; however, those
findings are not binding upon us.” In re Marriage of McDermott, 827
N.W.2d 671, 676 (Iowa 2013); accord Iowa R. App. P. 6.904(3)(g).
“Nonetheless, the appellant is not entitled ‘to a trial de novo, only review
of identified error de novo.’ Consequently, ‘our review is confined to
those propositions relied upon by the appellant for reversal on appeal.’ ”
Pace, 677 N.W.2d at 767 (quoting Hyler v. Garner, 548 N.W.2d 864, 870
(Iowa 1996) (emphasis omitted)).
30
B. Analysis. Vertrue contends the record does not support the
district court’s finding of CFA violations based on its telemarketing
solicitations. Specifically, Vertrue argues the district court erred in
concluding a telemarketing script for its Home Works Plus program and
a recorded telemarketing exchange contained deceptive and unfair
features. Additionally, Vertrue challenges the reliability of exhibit 620, a
spreadsheet listing ninety-one different Vertrue telemarketing scripts,
which the State introduced during the remedies phase of the trial.
Vertrue also assigns error to the district court’s finding that Vertrue’s
practice of requiring separate cancellation phone calls in situations in
which more than one membership was purchased in a single Internet
transaction (bundled Internet memberships) to be unfair and deceptive.10
We examine Vertrue’s solicitations and business practices to
determine whether they involve unfair or deceptive features in violation of
the CFA. “ ‘[D]eceptive and unfair practices are distinct lines of
inquiry. . . . [W]hile a practice may be both deceptive and unfair, it may
be unfair without being deceptive.’ ” Cutty’s, 694 N.W.2d at 527 (quoting
Orkin Exterminating Co. v. FTC, 849 F.2d 1354, 1367 (11th Cir. 1988)).
We have said that “ ‘[d]eception occurs primarily (though not exclusively)
at the formation stage of a contract. Conversely, unfairness occurs
primarily (though not exclusively) with respect to the substance or
performance of a contract.’ ” Id. (quoting Michael M. Greenfield,
10Alternatively, Vertrue argues that the district court erred in ordering CFA
reimbursement for all net revenues received from both of the bundled Internet
membership programs instead of limiting reimbursement to the “add-on” fees incurred
in the second program after the first one was canceled. Because we concluded the
State was entitled to reimbursement under the BCL for these programs, we find it
unnecessary to reach any questions regarding reimbursement for CFA violations.
Accordingly, we address Vertrue’s arguments regarding CFA violations solely for the
purpose of determining whether the record supports the district court’s order of civil
penalties in relation to Vertrue’s conduct.
31
Consumer Law: A Guide for Those Who Represent Sellers, Lenders, and
Consumers § 4.1, at 161 (1995)).
The CFA defines deception as “an act or practice which has the
tendency or capacity to mislead a substantial number of consumers as to
a material fact or facts.” Iowa Code § 714.16(1)(f). To ascertain whether
a practice is likely to mislead in the consumer protection context, courts
typically evaluate the overall or “net impression” created by the
representation. FTC v. Cyberspace.Com LLC, 453 F.3d 1196, 1200 (9th
Cir. 2006); see also FTC v. USA Fin., LLC, 415 F. App’x 970, 973 (11th
Cir. 2011) (“The overall impression created by the calls was that
consumers were receiving a card that could be used to make purchases
anywhere.”); Beneficial Corp. v. FTC, 542 F.2d 611, 616 (3d Cir. 1976)
(“[T]he tendency of the advertising to deceive must be judged by viewing
it as a whole, without emphasizing isolated words or phrases apart from
their context.”); Murray Space Shoe Corp. v. FTC, 304 F.2d 270, 272 (2d
Cir. 1962) (“In deciding whether petitioner’s advertising was false and
misleading we are not to look to technical interpretation of each phrase,
but must look to the overall impression these circulars are likely to make
on the buying public. And statements susceptible of both a misleading
and a truthful interpretation will be construed against the advertiser.”
(Citations omitted.)). “A solicitation may be likely to mislead by virtue of
the net impression it creates even though the solicitation also contains
truthful disclosures.” Cyberspace.Com, 453 F.3d at 1200. “A misleading
impression created by a solicitation is material if it ‘involves information
that is important to consumers and, hence, likely to affect their choice of,
or conduct regarding, a product.’ ” Id. at 1201 (quoting In re Cliffdale
Assocs., Inc., 103 F.T.C. 110, 165 (1984)).
32
Section 714.16(1)(n) defines unfair practice as “an act or practice
which causes substantial, unavoidable injury to consumers that is not
outweighed by any consumer or competitive benefits which the practice
produces.” We have recognized that many courts consider an unfair
practice to be “nothing more than conduct ‘a court of equity would
consider unfair.’ ” Cutty’s, 694 N.W.2d at 525 (quoting S. Atl. P’ship of
Tenn., L.P. v. Riese, 284 F.3d 518, 535 (4th Cir. 2002) (emphasis
omitted)). Accordingly, “statutes that prohibit ‘unfair practices’ are
designed to infuse flexible equitable principles into consumer protection
law so that it may respond to the myriad of unscrupulous business
practices modern consumers face.” Id.
1. The Home Works Plus script. The district court found numerous
deceptive and unfair features in the following script used for inbound
telemarketing11 solicitations of Vertrue’s Home Works Plus program:
“To thank you, we’re sending you a voucher for a free
$25 gift card to The Home Depot with a risk-free 30-day trial
membership in Home Works Plus. Offered by Major Savings,
this service offers you hundreds of dollars in savings at
stores like The Home Depot, Kmart, Circuit City, Linens and
Things, Macy’s and more of your favorite stores through their
gift card program. You can also save up to 40% on name
brand furniture, appliances, electronics and more through
the Home Works Plus discount shopping service. Now if you
want to cancel, just call the toll free number in your welcome
package in the first 30 days and you won’t be charged. And
with your OK today, if you decide not to cancel, after the 30
day trial the service is automatically extended to a full year
for just $139.95, charged as Home Works Plus to the credit
card you provided today and the free $25 gift card to The
Home Depot is yours to claim just for trying the program,
OK?”
11Inbound telemarketing generally occurs when a consumer initiates a call to
purchase a product or service from an unrelated business having a partnership
arrangement with Vertrue. For example, a consumer may call to place a catalog order.
At the conclusion of the call, the partner either personally solicits the consumer or
transfers the consumer to one of Vertrue’s sales representatives for the purpose of
trying to “upsell” (e.g., offer) the consumer a trial membership.
33
Vertrue’s telemarketers also requested consent a second time, in
the following terms:
Great. Your welcome packet will arrive within two
weeks, but you can access your benefits within the next 3
business days or cancel anytime by calling 1-800-XXX-
XXXX. Now, Mr./Mrs. (last name), to confirm your (product
name) order I’ll need to verify the last four digits of your
credit card. What are the last four digits of the credit card
you’re using today?
We conclude the script is misleading. Opening with an ostensible
“thank you” does not promptly disclose the purpose of the interaction,
but rather fosters the misleading impression that the new interaction is
somehow related to the initial transaction. See FTC v. Publishers Bus.
Servs., Inc., 821 F. Supp. 2d 1205, 1224 (D. Nev. 2010) (concluding
defendant’s call script was deceptive because it did not promptly disclose
the purpose of the call, but rather purported to offer a “small surprise”).
This serves to exploit consumers by creating the impression that the
business they had just knowingly patronized was offering a $25 gift card
to encourage future patronage. Cf. Floersheim v. FTC, 411 F.2d 874, 876
(9th Cir. 1969) (finding debt-collecting forms from private collections
company deceptive partly because they “create[d] the impression that
they c[a]me from the government or some other official source”).
Vertrue was not offering to send the consumer a $25 gift card as a
“thank you” because, at that point, the consumer had not done anything
to receive the gratification of Vertrue. As the record demonstrates, the
actual purpose of the $25 gift card was to lure unwitting consumers into
enrolling in membership programs. Furthermore, the $25 gift card was
not a gift, but rather was a term of the offer surreptitiously made by
Vertrue. Therefore, the manner in which the script opened dialogue with
the potential consumer was likely to be misleading. In order to avoid
34
violating the prohibitions of section 714.16(2)(a) against deceptive acts,
at the very least, a telemarketer should disclose rather than obscure the
purpose of the interaction at its outset. See FTC v. Bay Area Bus.
Council, Inc., 423 F.3d 627, 635 (7th Cir. 2005) (finding telemarketing
script to be misleading in violation of the Federal Trade Commission Act
and the Telemarketing Sales Rule when the opening lines refer to the
consumer’s “recent application for ‘a credit card’ ” thereby obscuring the
nature of the offer and misleading consumers into believing the call
constituted an offer for a credit card).
The script effectively conveyed the impression the consumer was
not forming a binding agreement, but rather was merely acquiescing to a
“risk free” gift from the caller. See Publishers Bus. Servs., 821
F. Supp. 2d at 1224 (holding call script was deceptive in part because it
claimed “there is no catch involved”). Vertrue asserts the transaction
was risk free because a consumer could avoid financial obligation by
canceling within the thirty-day trial period. According to Vertrue, “the
script stated, in easily understandable fashion, all of the program’s
material terms” and “had consumers paid attention, they did or would
have understood.” This argument is based on the flawed presumption
that consumers, in fact, understood the true purpose of the interaction.
See id. at 1225 (rejecting argument that consumers acted unreasonably
by agreeing to terms in telemarketing pitch without listening carefully
because the evidence demonstrated that the consumers were “[un]aware
they [we]re agreeing to terms to which they w[ould] later be held”).
However, the telemarketer’s sales pitch, which briskly transitioned from
a deceptive “thank you,” to the hastily recited terms, and then to an
abrupt “OK?” did not reveal to consumers that they were being
confronted with a purchase decision. Nor is it likely that an ordinary
35
consumer would understand they were agreeing to enroll in a
membership program with attendant financial obligations by approving
the mailing of a gift card.
Furthermore, the CPD survey of Vertrue members suggested that
sixty-seven percent of respondents were unaware of their memberships
and/or did not believe they had authorized Vertrue to charge their credit
cards. Data collected from Vertrue’s own internal marketing studies
demonstrates that 84.6% of members never used their memberships.
The fact that the vast majority of Vertrue’s members never benefited at
all from their memberships is persuasive evidence that Vertrue’s
telemarketing solicitations misled a substantial number of consumers as
to the material facts underlying the transactions. Cf. FTC v. Stefanchik,
559 F.3d 924, 929 (9th Cir. 2009) (“Given the voluminous evidence
showing that very few people made money using the Stefanchik Program
as promised in the advertising materials and telemarketing pitches . . .
we conclude . . . the marketing material made misrepresentations in a
manner likely to mislead reasonable consumers.”). The statistical data
presented by the State is consistent with the trial testimony of numerous
consumers stating they were misled by telemarketing pitches containing
features identical to those contained in the Home Works Plus script.
Complaints to the CPD and Better Business Bureau (BBB) were also
consistent with the State’s contention that multitudes of consumers
unknowingly enrolled in one of Vertrue’s memberships as a result of
similar telemarketing solicitations. A sample of BBB complaints from
Vertrue’s members was analyzed by the State, and the data suggested
that about seventy-five percent involved consumers complaining about
“unauthorized charges.” Clearly, evidence that consumers were in fact
misled is relevant to determining whether a solicitation had a tendency to
36
mislead. See State ex rel. Miller v. Nat’l Dietary Research, Inc., 454
N.W.2d 820, 825 (Iowa 1990). The record demonstrates Vertrue had
knowledge of the nature and number of BBB complaints and continued
these practices nonetheless.
The district court correctly rejected Vertrue’s request to focus on
the second request for consent and properly considered the net
impression created by the solicitation. Cf. FTC v. Wash. Data Res., 856
F. Supp. 2d 1247, 1274 (M.D. Fla. 2012), aff’d, 704 F.3d 1323 (11th Cir.
2013) (holding disclaimer in retainer agreements was received “far too
late” to cure the misleading net impression created by deceptive
telemarketing sales script). The presence of a disclosure or request for
consent does not alone cure a misleading solicitation if the net
impression remains deceptive because material elements of the
transaction remain obscured. Cf. Cyberspace.Com, 453 F.3d at 1200–01
(holding misleading solicitation for Internet service was deceptive
notwithstanding disclosure in fine print); In re Raymond Lee Org., Inc.,
Docket No. 9045, 1978 WL 206103, at *100 (F.T.C. Nov. 1, 1978) (“[T]he
contract disclaimers relied upon by respondents are insuffic[ient] to
counter the overall impression fostered by RLO’s written and oral
representations.”), aff’d sub nom Lee v. FTC, 679 F.2d 905 (D.C. Cir.
1980). Here, the second request for consent did not alleviate the
misleading net impression because it did not repeat the terms of the
membership. Rather, it reinforced the false impression the consumer
was receiving a complimentary gift from the initial business by asking
only for confirmation of the last four digits of the credit card the
consumer used in the unrelated purchase.
Of course, the underlying performance terms of the membership
offer were material as they presumably constituted the most important
37
factor affecting consumers’ decisions to enter into a long-term obligation
to pay Vertrue monthly premiums. See Cyberspace.Com, 453 F.3d at
1201; see also Publishers Bus. Servs., 821 F. Supp. 2d at 1225
(“[Telemarketers’] representations are material because the net
impression has a tendency to mislead the consumer into agreeing to a
long-term obligation to pay [defendant] hundreds of dollars.”).
Accordingly, misleading consumers about such terms constitutes a
deceptive act.
Vertrue’s focus on the testimony of four members who made use of
their memberships was unconvincing in the face of the evidence as a
whole. See FTC v. Tashman, 318 F.3d 1273, 1278 (11th Cir. 2003)
(holding the district court erred in focusing “on a few satisfied
customers” when overwhelming evidence demonstrated misleading
representations). The weight of the evidence reveals the majority of
Vertrue’s members never used Vertrue’s services, and a surprising
number did not even know they were members. In sum, the record
contains extensive evidence that the Home Works Plus telemarketing
script had the tendency to mislead a substantial number of consumers
as to the material terms of the transaction, and the use of it was
therefore a deceptive act under section 714.16(2)(a).
For many of the same reasons, we conclude the use of the script
also constituted an unfair practice. A course of conduct contrary to what
an ordinary consumer would anticipate contributes to a finding of an
unfair practice. See Cutty’s, 694 N.W.2d at 530 (considering conduct
that an ordinary consumer would not anticipate as a factor contributing
to unavoidable injury). By creating the misleading impression that the
consumer was still dealing with the original business with which they
had just made an unrelated purchase, the script created a situation
38
unanticipated by consumers. There was a substantial likelihood this
concealment would result in unavoidable injury to consumers who were
unaware they were agreeing to join a membership program at a monthly
premium. See id. (noting that ambiguous documents designed to lure
“unwitting consumers into ownership” could result in unavoidable
consumer injury). In light of record evidence demonstrating that 84.6%
of Vertrue’s members never used their memberships, we cannot conclude
the script resulted in any prevailing consumer or competitive benefits.
Accordingly, we also affirm the district court’s ruling that the use of the
script constituted an unfair practice under section 714.16(2)(a).
2. The recorded telephone exchange. Vertrue also claims the
district court erred by concluding that a recording of an outbound
telemarketing solicitation demonstrated an unfair and deceptive act in
violation of the CFA. Vertrue’s outbound telemarketing solicitations were
generally administered by third-party vendors hired to call consumers
and market Vertrue’s programs. In the recording, a telemarketer solicits
seventy-six-year-old Patricia Ackelson to purchase a program called
“Simple Escapes.” Ackelson testified at the liability trial that the
interaction arose from an unexpected call she received from a
telemarketer.
Vertrue’s recording of part of the exchange was introduced into
evidence. Ackleson was informed she would receive a thirty-day trial for
a one-dollar fee, and she could cancel the membership by calling an 800
number. As above, the caller then requested a simple cumulative assent
to the terms without determining whether Ackelson understood them.
After Ackelson responded, “alright,” the caller gave her some additional
information about using the program and then, bizarrely, sought a
second confirmation of assent by asking Ackelson for her city of birth.
39
Vertrue contends that Ackelson’s testimony demonstrates that she
understood the “general nature” of the transaction, she was interested in
the program, and she understood the trial period. Therefore, according
to Vertrue she cannot be found to have been deceived or subjected to an
unfair practice. At the trial, Ackelson was hearing the tape-recorded
exchange for at least the fourth time. Yet, immediately afterwards she
was unable to indicate numerous essential aspects of the exchange
including the name of the membership program in which she was
enrolling, why she was being charged one dollar, whether there was a gift
card involved, or why she had been asked for her city of birth. She
described the telemarketer’s presentation as “really, really fast.” Even
though she believed that she had canceled the membership within the
thirty-day membership period she remained enrolled in the program for
twelve months at a monthly fee of $14.95. She only received a refund for
one of these monthly payments, and she never received a gift card. She
never used the membership, and when she realized she was being
charged for it, she called the Attorney General’s Office.
A review of the recorded exchange illustrates the manner in which
Vertrue’s telemarketing solicitations were incontestably deceptive and
unfair in practice. As the district court noted, the “telemarketer had a
heavy accent, and spoke at a very fast pace, rendering much of the pitch
unintelligible.” Our review demonstrates that critical portions of the
exchange cannot be understood without carefully scrutinizing the
recording. It would have been unreasonable for the telemarketer to
presume that Ackelson would have had an opportunity to record the
telephone number provided for cancellation. In addition, it would have
been unreasonable for the telemarketer to presume Ackelson had
acquired a basic understanding of the essential terms of membership
40
enrollment. Yet, the telemarketer made no attempt to verify that
Ackelson had actually understood and assented to those terms. Rather,
the telemarketer relied on a general indication of assent to proceed and
then requested Ackelson’s city of birth as a means of verifying her assent
to the enrollment terms. This delusive manner of requesting assent
further created the misleading impression that the consumer was merely
verifying personal information for the purpose of receiving a benefit from
a familiar business as a result of a recent transaction.
This unintelligible telemarketing pitch that proceeded at a
lightning pace was likely to mislead consumers as to the material terms
of the transaction. See FTC v. Kuykendall, 371 F.3d 745, 757–58 (10th
Cir. 2004) (finding a violation of the Telemarketing Sales Rule sufficient
to support violation of injunction entered in previous FTC enforcement
action when, inter alia, telemarketers used “rapid fire and confusing
language” in a magazine subscription sales pitch); Publishers Bus. Servs.,
821 F. Supp. 2d at 1225 (finding telemarketing pitch to be misleading
when, inter alia, the telemarketer spoke so rapidly that consumers were
confused as to the terms of the offer). Similarly, the misleading nature of
the telemarketing pitch is likely to have resulted in substantial,
unavoidable injury by causing Ackelson to pay twelve monthly premiums
without fully understanding the fact she had enrolled or the terms of the
program. Vertrue has not identified any cognizable competitive or
consumer benefits attendant to the telephone solicitation of Ackelson.
Vertrue argues that “the recording does not constitute a full and
fair representation of the exchange” because Vertrue does not record
entire telemarketing calls, but only the portions in which the consumers
confirm acceptance. However, Vertrue presented nothing more than an
assertion that in the opening of the call the telemarketer adequately
41
explained the program to Ackelson. This assertion is unsupported in a
record otherwise replete with evidence Vertrue consistently utilized
telemarketing scripts with misleading features. See Publishers Bus.
Servs., 821 F. Supp. 2d at 1225–26 (noting record evidence
demonstrated that corporation’s telemarketers selectively disclose
material terms, “speak quickly,” and “evade consumer questions” and
rejecting corporation’s “bare assertions” to the contrary). Accordingly, we
affirm the district court’s ruling that the telemarketing exchange with
Ackelson was deceptive and constituted an unfair act under section
714.16(2)(a).
3. Reliability of exhibit 620. The State introduced a spreadsheet
indicating ninety-one of Vertrue’s telemarketing scripts contained
purportedly unfair or deceptive features. In the spreadsheet, the State
indicated whether each script contained any of five allegedly deceptive or
unfair characteristics. Vertrue argues exhibit 620 was not a reliable
basis for the district court to conclude the ninety-one scripts at issue
contained CFA violations because, in order to make this determination,
each script must be considered individually in its respective context.
In its remedies ruling, the district court listed fifteen CFA
violations it found to be knowing, purposeful, and harmful to thousands
of Iowans. The district court noted the “pronounced need to deter”
future violations and ordered “a civil penalty in the highest amount,
$40,000.00,” for each violation. The designated violations relating to
telemarketing solicitations included “risk free” representations,
unintelligible telemarketing pitches, and the false claim “that any part of
the transaction [wa]s intended as a ‘thank you.’ ”
Vertrue does not dispute that 4451 members joined its Home
Works Plus program as a result of the Home Works Plus telemarketing
42
script discussed earlier. Nor does Vertrue dispute that 25,405 members
joined the Simple Escapes program as a result of telemarketing pitches
based on scripts similar to the one used to solicit Ackelson. Our review
of the Home Works Plus script and the telemarketing phone call to
Ackelson demonstrate the civil penalties the district court ordered based
on the three above-mentioned telemarketing practices were easily
supported by the record without any reliance on exhibit 620. Therefore,
we decline to address Vertrue’s arguments regarding the district court’s
reliance on exhibit 620.
4. Dual cancellation requirement for bundled Internet membership
sales. In the liability ruling, the district court reviewed evidence that in
addition to posttransaction Internet marketing, Vertrue also maintained
direct Internet marketing on its own Web sites. As stated by the district
court,
Vertrue maintains its own website FreeScore.com, where the
consumers can purchase a service involving credit scores.
However, Vertrue bundles another distinct product, Privacy
Plus, with the purchase of the initial service, for an
additional monthly fee . . . . Thus, to purchase the initial
service, a consumer must purchase Privacy Plus, although
this fact is obscured as much as possible. . . . [T]here is no
ambiguity that to cancel both services, a member must call
two separate 800 numbers, even though the consumer had
no choice but to purchase both services together. Most
consumers will likely be unaware of the purchase of the
second service (much like the post-transaction solicitations
discussed above), and that when the consumer calls an 800
number to cancel the primary service, he or she will
continue to be billed for the (unknown) add-on service.
Moreover, even for the wary consumer that understands that
two services are being purchased with only one click of the
mouse, such a consumer may not understand that calling
one number to cancel does not cancel both services, despite
the “one-click” nature of the initial purchase.
(Citations omitted.)
43
The testimony of Bruce Douglas, the vice president of marketing,
during the liability trial demonstrates that the practice of bundling
memberships in Internet transactions occurred precisely as described by
the district court. The district court concluded that the practice violated
the CFA and ordered remedies accordingly. Vertrue challenges the
district court’s rulings as to liability and the remedy in respect to the
dual cancellation requirement. However, we review the record only to
determine whether it supports the district court’s award of a civil penalty
based on the foregoing practice. Vertrue argues that its practice of
requiring two separate cancellation phone calls for bundled Internet
membership sales is not unfair or deceptive because “the two programs
enrolled in through a single transaction were shown by separate entries
on the consumer’s credit card statement [and e]ach entry provided the
name of the program accompanied by a toll-free” cancellation phone
number.
Douglas testified that the primary benefit of Privacy Matters 1-2-3
service on FreeScore.com was to provide “access to credit information
and credit monitoring [of] your report and sending you alerts if anything
should change with those reports.” A liability trial exhibit showed the
three browser pages viewed by consumers registering for the Privacy
Matters 1-2-3 service on FreeScore.com. The first Web page enticed
consumers to enroll in Privacy Matters 1-2-3 with a large, bright, and
attractive display as well as a passage stating:
Sign up here and along with your FREE 7-day trial in
Privacy Matters 1-2-3 you’ll get instant, online access to your
FREE 3-in-1 Credit Report and Triple Credit Scores.
Privacy Matters 1-2-3 makes it easy to . . .
● Check that your information is accurate with your 3-in-1
Credit Report and Triple Credit Scores.
44
● Stay on top of your information with Triple Credit Report
Monitoring and daily alerts whenever critical changes occur
in your credit file at all 3 credit bureaus.
● Other important benefits.
Nowhere on the browser page did the solicitation refer to the Privacy Plus
membership or any other program that the consumer would be enrolled
in by clicking the large, bright “START NOW” button.
The second browser page instructed the consumer as follows:
Step 1 of 2. Complete the form below. (See Offer
Details.) In addition to Privacy Matters 1-2-3, you’ll also
receive Privacy Plus*. Click here for details.
Web form fields appeared below for consumers to enter their names and
contact information.
Covertly, on the left-hand side of the second browser page, in fine
print, the essential offer terms were set forth. In the reproduction
introduced into evidence, the print in which these details are set forth is
so tiny that it is nearly unreadable. The consumer is instructed that
they will be charged a “$1.00 monthly refundable processing fee” to
enroll in the Privacy Matters 1-2-3 “7-day FREE trial.” The fine print
goes on to explain that after seven days “it’s just $29.95 per month.” A
toll-free number is provided, and the consumer is instructed to call and
cancel within seven days to avoid charges.
A separate shorter paragraph of fine print below instructs the
consumer that:
By clicking “Submit” on the next page you also agree to
activate your separate membership to Privacy Plus at the
special low price of just $2.00 per month. To ensure
continuous service, your membership will be automatically
charged/debited each month at the then-current
membership fee to the credit card you provide today or from
the checking account associated with the debit card you
provide today.
45
The passage further instructs the consumer to call a different toll-free
number to cancel the Privacy Plus membership if the consumer is
dissatisfied for any reason.
Another passage in the same fine print placed at the bottom of the
browser page instructs the consumer that
[p]articipating vendors are neither sponsors, co-sponsors nor
affiliates of Privacy Plus. Gift card/certificate savings are an
exclusive offer of Privacy Plus and are valid only on gift
cards/certificates purchased through Privacy Plus. Please
see back of gift card/certificate for terms and conditions of
use. All vendor trademarks and copyrights remain the
property of the individual vendor. Privacy Plus uses vendor
names, logos and any other vendor material by permission of
each vendor. Please visit the Privacy Plus website or call
Member Savings for complete terms and conditions related
to participating vendors.
This passage is the only opportunity on the three sign-up browser pages
to consider information relating to the actual nature of the Privacy Plus
program. Even in the unlikely event a consumer noticed and read the
passage, the degree of vagueness employed would likely not permit an
ordinary consumer to recognize that Privacy Plus was actually a buying
club membership.12
The third browser page contained Web form fields for consumers to
enter their payment information. Additionally, it contained more colorful
and enticing endorsements of Privacy Matters 1-2-3 in large legible print.
Below the Web form fields, the fine print returned in a passage that
stated:
Typing my e-mail address below will constitute my electronic
signature and is my written authorization to charge/debit
my account according to the Offer Details. By clicking
12The district court ruled that Vertrue’s privacy programs did not qualify as
buying club memberships. As discussed above in part II.F., we disagree with the
district court’s conclusion that the sale of the Privacy Plus program in this context did
not constitute the sale of a buying club membership.
46
“Submit”, I have read and agree to the Privacy Matters 1-2-3
and Privacy Plus Offer Details on the previous page and the
Privacy Policy and Terms and Conditions for both programs.
As the district court stated, information indicating that the
purchase of the Privacy Matters 1-2-3 program would also result in a
simultaneous purchase of the separate Privacy Plus program was
“obscured as much as possible.” The covert fine print setting forth the
dual nature of the transaction was misleading. The design, content, and
layout of the sign-up browser pages created an overall net impression
that consumers were purchasing one program for the purpose of
monitoring their credit scores. See FTC v. Commerce Planet, Inc., 878
F. Supp. 2d 1048, 1067–68 (C.D. Cal. 2012) (finding Internet solicitation
to be unfair and deceptive when, inter alia, a “disclosure—by its
placement, wording, colorization, spacing, and size of the text—was
designed not [to] be clear and conspicuous, but rather to mask
information . . . without entirely omitting the information”). The
similarity in the names of the two programs suggested that Privacy Plus
was a related component of the program in which the consumer was
initially interested.
However, the deception did not end there. The fact that the
consumer was required to call a separate number to cancel Privacy Plus
appears only once in fine print. Thus, even the hypervigilant consumer
that recognized he or she had enrolled in two memberships
simultaneously could still be easily misled into thinking that by calling to
cancel the initial membership, both memberships would be canceled.
There is no question as to whether the information obscured by Vertrue
in a misleading fashion was material. The information regarding the
enrollment in Privacy Plus and the procedure for cancellation constituted
essential terms of the offer with attendant performance obligations.
47
Accordingly, we conclude Vertrue’s practice of requiring dual cancellation
requests for memberships bundled into a single Internet transaction was
deceptive in violation of section 714.16(2)(a). Additionally, this scheme
was an unfair practice because it was likely to result in unavoidable
injury to consumers who did not realize by purchasing one service they
were obligating themselves to pay a monthly premium for a separate
membership. Again, we are unable to identify any attendant consumer
or competitive benefits justifying this practice.
Vertrue also relies on the voluntary payment doctrine set forth in
Spivey, 622 F.3d at 822, in support of its argument that it was not unfair
or deceptive to require separate cancellation of “memberships through
means that were readily identifiable on credit card billings.” We rejected
Vertrue’s invocation of the voluntary payment doctrine in the context of
BCL reimbursement and see no reason to reach a different result here.
Accordingly, we affirm the district court’s liability finding and the civil
penalty ordered for the practice of requiring dual cancellation requests
for memberships bundled into a single Internet transaction.
V. Consumer Frauds Committed Against the Elderly.
The State sought additional civil penalties for consumer frauds
committed against the elderly under section 714.16A. The district court
ruled against the State on this issue, concluding
the State has failed to carry its burden of proof that the
Vertrue [defendants] have targeted older Iowans . . . .
Vertrue has attempted to take advantage of all consumers
equally, and [has] not directed its efforts against any age
group.
The State has cross-appealed this issue. Our review of this equity ruling
is de novo; however, we review the district court’s interpretation of
48
section 714.16A for correction of errors at law. See Iowa Film, 818
N.W.2d at 217.
Section 714.16A reads as follows:
1. If a person violates section 714.16, and the
violation is committed against an older person, in an action
brought by the attorney general, in addition to any other civil
penalty, the court may impose an additional civil penalty not
to exceed five thousand dollars for each such violation. . . .
....
2. In determining whether to impose a civil penalty
under subsection 1, and the amount of any such penalty,
the court shall consider the following:
a. Whether the defendant’s conduct was in willful
disregard of the rights of the older person.
b. Whether the defendant knew or should have known
that the defendant’s conduct was directed to an older
person.
c. Whether the older person was substantially more
vulnerable to the defendant’s conduct because of age, poor
health, infirmity, impaired understanding, restricted
mobility, or disability, than other persons.
d. Any other factors the court deems appropriate.
3. As used in this section, “older person” means a
person who is sixty-five years of age or older.
Iowa Code § 714.16A.
Subsection (d) authorizes the court to consider whether the
merchant targeted the elderly if the court considers this to be an
“appropriate” factor. See id. § 714.16A(2)(d). However, “targeting”
implies intentional conduct and there is no legitimate statutory basis for
concluding that the State must carry the burden of showing the elderly
were intentionally targeted. Imposing this burden on the State is in
direct contravention of subsections 2(a) and (b), which expressly direct
the court to consider levels of culpability equivalent to those required for
a showing of recklessness or negligence. Compare id. § 714.16A(2)(a)
(directing the court to consider “[w]hether the defendant’s conduct was in
49
willful disregard of the rights of the older person”), and id.
§ 714.16A(2)(b) (directing the court to consider “[w]hether the defendant
knew or should have known that the defendant’s conduct was directed to
an older person”), with Peter v. Thomas, 231 Iowa 985, 992, 2 N.W.2d
643, 646–47 (1942) (“We think our court has held to the true rule
heretofore that to constitute recklessness there must be shown a
conscious disregard of the rights of others . . . .” (Citation and internal
quotation marks omitted.)), Estate of Harris v. Papa John’s Pizza, 679
N.W.2d 673, 680 (Iowa 2004) (“In order to prove negligent supervision, a
plaintiff must show: (1) the employer knew, or in the exercise of ordinary
care should have known, of its employee’s unfitness at the time the
employee engaged in wrongful or tortious conduct . . . .”), and Morgan v.
Perlowski, 508 N.W.2d 724, 728 (Iowa 1993) (affirming trial court’s denial
of motion notwithstanding the verdict in which, inter alia, “a jury issue
was generated as to whether [defendant] knew or should have known he
had the ability to control the person or persons causing injury”).
In drafting subsection (2), the legislature employed language that
invokes traditional legal standards with definitions commonly assigned
in our jurisprudence. See Taft v. Iowa Dist. Ct., 828 N.W.2d 309, 319
(Iowa 2013) (interpreting sexual predator commitment statute and
concluding that the legislature “attached to the words ‘relevant and
reliable’ meanings commonly assigned to them in our jurisprudence”).
Accordingly, we conclude the legislature has directed the court to
consider whether the conduct challenged under section 714.16A evinced
negligent or reckless indifference to the rights of elderly Iowans. Reading
a requirement of intentional targeting into section 714.16A would defeat
legislative intent.
50
On our de novo review, we conclude the State made the showing
necessary to prove liability under section 714.16A. The State presented
compelling evidence that Vertrue’s marketing practices
disproportionately affected elderly Iowans. The State constructed
statistical databases by cross-referencing information obtained from
Vertrue in discovery, with motor vehicle division, social security, and
background investigation databases. These statistical calculations
demonstrated that of the fifty direct mail enrollees who had the most
billings with no incidence of benefit usage, forty-six percent were over the
age of sixty-five. The corresponding figure was thirty-one percent for
Internet enrollees, thirty percent for outbound telemarketing enrollees,
and fifty-two percent for inbound telemarketing enrollees. Additionally,
the State’s calculations demonstrated that persons aged sixty-five or
older constituted fifty percent of all Iowa members that were billed ninety
or more times without ever using program benefits. Clearly, the elderly
were overrepresented in these statistical populations. State Data Center
figures indicated that about nineteen percent of all Iowans were sixty-five
or older during the relevant time frame.
Vertrue has not attempted to refute the accuracy of the State’s
statistical evidence but, rather, has repeatedly argued it did not direct its
marketing plans at the elderly, and programs were not designed to
appeal to a specific age group. The gist of all of Vertrue’s arguments
regarding liability under section 714.16A is that they did not violate the
statute because they did not target the elderly. These arguments miss
the mark.
In addition to reviewing the State’s statistical evidence, the district
court acknowledged that contrary to the “trial testimony of Jeff Paradise,
[the Vice President of Product], who stated that age was not discussed[,]
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internal company documents include demographic studies that examine
age data extensively.” One study conducted by Vertrue demonstrated
19.4% of enrollees in its Privacy Matters 1-2-3 program who never used
any program benefits were over the age of sixty-five. This was the third
highest percentage for any age group. However, persons in the over-
sixty-five age group only constituted 15.8% of one-time benefit users.
The corresponding figure for persons in the over-sixty-five age group who
were two-time benefit users plummeted to 6.3%—the lowest figure for all
age groups except the under-twenty-five age group. These figures
demonstrated that persons over the age of sixty-five were among the
most likely to enroll in the program and among the least likely to use the
program benefits. Again, the weight of the evidence suggests that these
persons never accessed the purported membership benefits because they
did not know they were deceived into enrolling. An accompanying
internal report noted that, “Almost half (46%) of the Privacy Matters
visitors are age 55 or more . . . . The biggest skew is in visitors over age
55.” Not only did Vertrue have access to the information necessary to
generate the statistics produced by the State, to some extent, they
actually did. Accordingly, the trial record demonstrates that Vertrue, at
the very least, should have known that their fraudulent strategies
disproportionately affected the elderly.
Additionally, the record was replete with testimony of Iowans over
the age of sixty-five who testified they could not read important
disclosures contained in Vertrue’s marketing and program materials
because their vision, compromised by old age, rendered the fine print
illegible. This testimony is corroborated by extensive record evidence.
Common sense dictates that, similarly, the elderly were substantially
more vulnerable to Vertrue’s indecipherable, rapid-fire telemarketing
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pitches due to the auditory deficiencies that disproportionally affect the
elderly.
The State convincingly carried the burden set forth by the
statutory factors in section 714.16A(2). We will not read an intent
requirement into the statute that would undermine the statute’s self-
evident goal of protecting Iowa consumers who are vulnerable to unfair
sales tactics because of their age. For these reasons, we reverse the
district court finding that Vertrue did not violate section 714.16A. As
discussed above, pursuant to section 552A.5 of the BCL, a BCL violation
is a violation of section 714.16(2)(a). Therefore, under section 714.16A,
the State is entitled to civil penalties for CFA as well as BCL violations.
The district court identified fifteen CFA violations and 104 BCL violations
for the purposes of awarding civil penalties. Upon our de novo review, we
increase the district court’s award of civil penalties by $180,000 for a
total of $3,000,000 in civil penalties for BCL and CFA violations.
VI. Conclusion.
We affirm the district court’s rulings regarding the applicability of
the BCL to Vertrue’s mail, telephone, and Internet solicitations.
Likewise, we affirm the district court’s ruling that application of the BCL
to Vertrue’s solicitations does not violate the dormant Commerce Clause.
We reverse the district court’s ruling regarding the applicability of the
BCL to Vertrue’s financial, privacy, and health programs. Additionally,
we reverse the district court’s interpretation of section 714.16(7) of the
CFA to the extent it requires the State to prove additional common law
fraud elements in order to obtain a reimbursement award for BCL
violations. We affirm the reimbursement award for BCL violations as
modified. We also affirm the district court’s ruling that there was
sufficient evidence to support a finding of CFA violations based on
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Vertrue’s telemarketing and Internet practices. Finally, we reverse the
district court’s ruling that the State was not entitled to civil penalties for
consumer frauds committed against the elderly and enhance the award
of civil penalties accordingly.
AFFIRMED IN PART, REVERSED IN PART, AND MODIFIED.
All justices concur except Mansfield, J., who takes no part.