     Case: 12-10520   Document: 00512338201    Page: 1   Date Filed: 08/12/2013




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                 Fifth Circuit

                                                                   FILED
                                                              August 12, 2013
                                No. 12-10520
                                                                  Lyle W. Cayce
                                                                       Clerk

FEDERAL TRADE COMMISSION,

                                          Plaintiff - Appellant
v.

FINANCIAL FREEDOM PROCESSING, INCORPORATED, a corporation,
formerly known as Financial Freedom of America, Incorporated; COREY
BUTCHER, Individually and as an Officer of the Corporation; BRENT
BUTCHER, Individually and as an Officer of the Corporation

                                          Defendants - Appellees

---------- ------------------------------------------------

FEDERAL TRADE COMMISSION,

                                          Plaintiff - Appellant
v.

DEBT CONSULTANTS OF AMERICA, INCORPORATED; DEBT PROFES-
SIONALS OF AMERICA, INCORPORATED; ROBERT CREEL, Individually
and as an Officer of the Corporations; COREY BUTCHER, Individually and as
an Officer of the Corporations; NIKKI CREEL, Individually and as an Officer of
the Corporations, also known as Nikki Vrla

                                          Defendants - Appellees


               Appeal from the United States District Court
                    for the Northern District of Texas
            USDC No. 3:10-CV-2447 (consol. with 3:10-CV-2446).
     Case: 12-10520       Document: 00512338201         Page: 2     Date Filed: 08/12/2013


                                       No. 12-10520

Before STEWART, Chief Judge, HIGGINBOTHAM and JONES, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:*
       In 2010, the FTC sued three debt-negotiation companies — Financial
Freedom of America, Inc., Debt Consultants of America, Inc., and Debt
Professionals of America, Inc. (“the Companies”) — as well as five of the
individuals who owned or controlled them. According to the FTC, the defendants
violated § 5 of the FTC Act by deceptively claiming, in radio ads, on their
websites, and in sales calls, that the Companies could eliminate 30 to 60% of
consumers’ credit card debt in as little as 18 to 36 months.1 At trial, the
defendants argued that the claims were perfectly accurate as interpreted by a
reasonable consumer, who would have understood that (1) the advertised debt
reduction excluded the Companies’ fees and (2) the advertised debt reduction
and timing excluded clients who dropped out of the programs. To support their
interpretation of the claims, the defendants relied heavily on the Companies’
disclosures in sales calls and enrollment agreements — disclosures made at or
shortly before the point of purchase. The district court agreed that § 5 deception
should be evaluated on the basis of all information the Companies disclosed to
consumers up to the point of purchase. Based on this conclusion, it adopted the
defendants’ interpretation of the claims and entered judgment in their favor.
       The district court’s § 5 analysis is dubious. The Companies deployed a
marketing campaign that utilized a variety of media and involved a series of
discrete communications with consumers.                Circuits to apply § 5 in such
circumstances have concluded that “the law is violated if the first contact is



       *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
       1
       As relevant here, § 5 prohibits “unfair or deceptive acts or practices in or affecting
commerce.” 15 U.S.C. § 45(a)(1). The FTC brought suit under § 13(b). See 15 U.S.C. § 53(b).

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                                         No. 12-10520

secured by deception, even though the true facts are made known to the buyer
before he enters into the contract of purchase.”2 That is, “each advertisement
must stand on its own merits; even if other advertisements contain accurate,
non-deceptive claims, a violation may occur with respect to the deceptive ads.”3
Hence, there is an argument with considerable purchase that the district court
erred by considering not only the content of individual radio ads and websites
(the Companies’ “first contact” with consumers), but also critical disclosures
made only when consumers arrived at the bargaining table.4
       The FTC, however, did not clearly challenge the district court’s § 5
analysis on this ground in its briefs or during oral argument — despite pointed
questioning.       Rather, it chose to challenge the district court’s factual
determination that reasonable consumers at the point of purchase would have
interpreted the Companies’ debt-reduction and timing claims in a non-deceptive
manner.      The FTC’s attempt to characterize this assessment of consumer
perceptions as a legal conclusion is unavailing; we review such findings only for
clear error.5      And while the Companies’ radio ads and websites may be

       2
         Exposition Press, Inc. v. FTC, 295 F.2d 869, 873 (2d Cir. 1961) (quoting Carter Prods.,
Inc. v. FTC, 186 F.2d 821, 824 (7th Cir. 1951)); see also Resort Car Rental Sys., Inc. v. FTC,
518 F.2d 962, 964 (9th Cir. 1975) (“[Section 5] is violated if it induces the first contact through
deception, even if the buyer later becomes fully informed before entering the contract.”).
       3
        Removatron Intern. Corp. v. FTC, 884 F.2d 1489, 1496–97 (1st Cir. 1989); see also FTC
v. Medical Billers Network, Inc., 543 F. Supp. 2d 283, 304 (S.D.N.Y. 2008) (“[E]ach
representation must stand on its own merit, even if other representations contain accurate,
non-deceptive information.”); FTC v. Gill, 71 F. Supp. 2d 1030, 1044 (C.D. Cal. 1999) (same).
       4
        Had the FTC persuaded us that the district court applied an incorrect legal standard,
we would have been obliged to review the evidence de novo. See, e.g., Fuji Photo Film Co., Inc.
v. Shinohara Shoji Kabushiki Kaisha, 754 F.2d 591 (5th Cir. 1985).
       5
          See, e.g., Beneficial Corp. v. FTC, 542 F.2d 611, 617 (3d Cir. 1976) (“Whether
particular advertising has a tendency to deceive or mislead is obviously an impressionistic
determination more closely akin to a finding of fact than to a conclusion of law.”); Giant Food,
Inc. v. FTC¸ 322 F.2d 977, 982 n.12 (D.C. Cir. 1963) (“The meaning of advertisements or other
representations to the public, and their tendency or capacity to mislead or deceive, are
questions of fact . . . .”).

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                                       No. 12-10520

misleading6 — indeed, it is difficult to conclude that the websites are not
deceptive7 — we are satisfied that substantial evidence supports the district
court’s finding that reasonable consumers were no longer deceived at the point
of purchase. The judgment of the district court is AFFIRMED.




       6
         For example, even accepting that a reasonable consumer exposed to the Companies’
radio ads would have understood that the advertised debt reduction and timing excluded
dropouts, the ads may have nonetheless been deceptive because they failed to disclose the
likelihood of dropping out (and affirmatively fostered the misimpression that participation
would be painless). See FTC v. Stefanchik, 559 F.3d 924, 928 (9th Cir. 2009) (noting that a
material omission may violate § 5). Though the district court recognized this possibility during
closing arguments, its concerns were apparently assuaged by the fact that the Companies
disclosed the many of the risks of participation in their sales calls and enrollment agreements.
       7
        Whereas the radio ads merely failed to disclose the Companies’ high dropout rate, see
supra note 6, two of the Companies’ websites affirmatively misrepresented it, claiming that
“the majority of our clients complete the programs in 18–36 months.” (emphasis added.) This
language clearly and unambiguously conveys that a majority of consumers who enroll in the
programs (i.e., “clients”) successfully complete the programs within 18 to 36 months; however,
the evidence establishes that at most 24% of enrolled clients competed the programs.


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EDITH H. JONES, Circuit Judge, concurring:

      I concur in my colleagues’ rationale that the district court’s findings of fact
are not clearly erroneous but I am not so sure the district court misapplied the
law, had FTC properly raised that issue. I concur in the judgment.
