June 27, 2017

Tenth Circuit: Judgment Against Individual for Participation in Telemarketing Scheme Affirmed

The Tenth Circuit published its opinion in Federal Trade Commission v. Chapman on Tuesday, May 7, 2013.

This consumer protection action was brought by the Federal Trade Commission and four states against several individual and corporate defendants who marketed and sold to consumers grant-related goods and services with false representations that the consumers were guaranteed or likely to receive grants. After the claims against the other defendants were settled or adjudicated, the district court held a bench trial on the remaining claim against Meggie Chapman. Following the trial, the court found that Ms. Chapman violated the Telemarketing Sales Rule by providing substantial assistance to the telemarketing defendants while knowing or consciously avoiding knowing of their deceptive telemarketing practices. The court ordered a permanent injunction and $1,682,950 in monetary damages against Ms. Chapman. The court also denied Ms. Chapman’s post-judgment motion to alter or amend the judgment or, alternatively, for remittitur. Ms. Chapman appealed.

It is undisputed the Kansas defendants violated § 310.3(a)(2) by misrepresenting material aspects of the grant-related goods or services they sold. Thus, the only disputed issues are (a) whether Ms. Chapman provided substantial assistance to the Kansas defendants and (b) whether Ms. Chapman knew or consciously avoided knowing of their misrepresentations.

Regardless of the standard of review, the Tenth Circuit concluded Ms. Chapman played an integral part in the Kansas defendants’ telemarketing scheme. The Court found no error in the district court’s determination that Ms. Chapman provided substantial assistance to the Kansas defendants. Additionally, the Tenth Circuit concluded that district court’s finding that Ms. Chapman knew or consciously avoided knowing of the Kansas defendants’ misrepresentations was supported by the record and was not clearly erroneous.

Ms. Chapman argued in the alternative that the district court erred in denying her post-judgment motion to alter or amend the judgment or for remittitur. She argued that if she knew or consciously avoided knowing of the Kansas defendants’ misrepresentations, this did not occur until some time during the course of their business relationship, and thus the damages award should not have included the entire amount she billed to the Kansas defendants from the start of their relationship.

In denying the post-judgment motion, the district court first noted that a motion to alter or amend judgment under Rule 59(e) may only be granted under certain limited circumstances, such as when there is a need to correct clear error or prevent manifest injustice. Similarly, remittitur is only appropriate if the award is so excessive that it shocks the judicial conscience and raises an irresistible inference that passion, prejudice, corruption, or other improper cause invaded the trial. The Tenth Circuit was not persuaded the district court abused its discretion by denying Ms. Chapman’s postjudgment motion to reduce the amount of damages. Accordingly, under this deferential standard of review, the Court AFFIRMED the district court’s denial of post-judgment relief.

The Top Ten Mistakes Companies Make in Online Advertising: How to Comply with the FTC Act

Have you ever done an internet search and clicked on what appeared to be a likely answer, only to find yourself staring at a fake news site advertising some product? Or conversely, have you ever thought that you might get more search hits if you made your firm’s web page look like a news website? Learn about the pitfalls to this approach on Wednesday, May 16, 2012, as Scott R. Bialecki and Claude C. Wild, III, discuss the FTC’s advertising laws at CLE’s lunchtime program, “The Top Ten Mistakes Companies Make in Online Advertising.”

In addition to fake news sites, Mr. Bialecki and Mr. Wild will address such topics as website testimonials, endorsements in social media, online disclaimers, use of competitors’ names on websites, and related enforcement considerations. They will also examine common advertising and trademark infringement missteps associated with online advertising.

This program is a must-see for all attorneys with an internet presence. Don’t miss it!

CLE Program: The Top Ten Mistakes Companies Make in Online Advertising

This CLE presentation will take place on Wednesday, May 16. Participants may attend live in our classroom or watch the live webcast.

If you can’t make the live program or webcast, the program will also be available as a homestudy in two formats: video on-demand and mp3 download.

Advertising Law in 2011: Attending This Program Could Help Support Your Immune System!*

* Cannot be verified by any credible medical organization.

But that doesn’t mean you won’t see some real benefits from attending this excellent program on September 9, 2011. CBA-CLE is bringing in, just for you, legal professionals from the Federal Trade Commission and the Colorado Attorney General’s Office, nationally known private practitioners, and national business experts who will join together in Denver for this informative workshop about complying with truth-in-advertising laws.

No other program in the state will offer you the in-depth, comprehensive approach that this seminar will with its distinguish faculty of experts!

Topics of the program will include:

  • Priorities from the Colorado Attorney’s General’s Office, Consumer Protection Section
  • Federal Trade Commission Updates from the Bureau of Consumer Protection
  • Substantiating Advertising Claims, including Health Claims and Green Guides
  • The Use of Social Media in Advertising
  • Copyright and Trademark Primer for Non-Intellectual Property Attorneys
  • Competitive Issues, including the Lanham Act and National Advertising Division

Register today and mark your calendars for this great program. We look forward to seeing you there!

CLE Program: Advertising Law in 2011

This CLE presentation will take place on Friday, September 9. Participants may attend live in our classroom or watch the live webcast.

If you can’t make the live program or webcast, the program will also be available as a homestudy in three formats: video on-demand, mp3 download, and audio CD recordings. The course materials will also be available.

Philip Gordon: “Social Checks” Come of Age — What Does It Mean for Employers?

Last month, the Federal Trade Commission (FTC) published a letter closing its investigation into whether an “Internet and social media background screening service used by employers in pre-employment background screening” complied with the Fair Credit Reporting Act (FCRA). At first blush, the letter appears to be a non-event. The FTC did not impose a penalty but also admonished that its “action is not to be construed as a determination that a violation may not have occurred.” While not much can be drawn from this equivocal result, the FTC’s letter does contain the following important conclusion: the “social check” service in question, known as Social Intelligence, “is a consumer reporting agency because it assembles or evaluates consumer report information that is furnished to third parties that use such information as a factor in establishing a consumer’s eligibility for employment.” Put into plain English, employers that rely on a social check service, like Social Intelligence, to search social media for information about job candidates must comply with the FCRA.

This conclusion likely will have an impact on a substantial number of employers. According to a recent study by the Society of Human Resources Management (SHRM), more than 50% of employers are relying on social media for recruitment purposes, up from 34% in 2008, and another 20% plan to use social media for recruiting in the future. The SHRM study does not address the percentage of employers that conduct these searches exclusively in-house, in which case the FCRA would not apply, as compared to those that rely on a third-party service, in which case the FCRA likely would apply. However, the fact that the social check space is beginning to fill with new enterprises, like Social Intelligence, suggests that the number of employers that are relying on third parties to conduct social checks has grown significantly.

When the FCRA does apply, employers will need to take the following steps vis-à-vis any applicant who is the subject of a social check. First, review the notice and authorization currently provided to applicants before more traditional background checks are conducted to ensure that those documents encompass social media searches. Second, ensure that applicants who may be eliminated from consideration based in whole or in part on the results of a social check receive a pre-adverse action notice which provides the applicant with the report received by the employer, the FTC’s “A Summary Of Your Rights Under the FCRA,” and an opportunity to dispute the apparently adverse information with the service provider which ran the social check. Third, upon rejecting the applicant, send a final adverse action notice to the applicant containing the language required by the FCRA.

These legal compliance requirements are straightforward enough, but they, and in particular, the pre-adverse action notice requirement, highlight vexing practical issues: What social media information should be reported in the first place? Is the information relevant to the hiring decision? Is the information reliable? There can be no question that social media posts may contain information that employers may not lawfully consider when vetting an applicant, such as disability, protected and lawful off-duty conduct, or genetic information. There also can be no question that social media posts often contain information that warrants rejection of a candidate. According to a recent study by the Society of Corporate Compliance and Ethics, more than 40% of respondents had disciplined an employee based on his or her social media conduct. However, these two groups of information set only the polar extremes; employers still must determine what, if anything, will be reported concerning the vast range of social media content falling in the middle and how they will fairly evaluate that information. Social Intelligence, for example, notes on its Web site that its customer set-up tools leave to the employer responsibility for “defining screening filters (for evaluating individuals) and redaction criteria (for censoring information).”

Reliability is another critical issue for employers using social media to evaluate job candidates. In the case of more traditional pre-employment screening, the nature of the information itself engenders a higher probability, albeit not certainty, that information is accurate. Court systems, educational institutions, and employers, for example, have an inherent interest in maintaining accurate records for their own legitimate business purposes. By contrast, social media are replete with false, doctored, and biased information about others. Social Intelligence suggests a solution to this issue by noting on its Web site that it reports “only information the applicant has created himself.” However, completely eliminating social media information posted by third persons arguably reduces the effectiveness of a social check to some extent. Perhaps more importantly, social media posts apparently created by the author can be forged. I have recently counseled clients on two separate occasions where employees denied having posted on their Facebook wall negative information about the employer or co-workers, credibly claiming that others had stolen their log-in credentials or hacked into their account.

The absence of any inherent reliability in most social media information emphasizes the importance of providing applicants with a pre-adverse notice even when there is no legal obligation to do so. Employers easily could lose potentially outstanding employees by relying on social media content that is false, misleading or inaccurate. Even if apparently adverse information turns out to be accurate and true, the applicant’s explanation of that information could demonstrate maturity and honesty as opposed to evasiveness and bad character.

With use of social media for hiring becoming increasingly common, human resources professionals and in-house employment counsel need to scrutinize their organization’s use, or potential use, of this new tool and answer several challenging questions. Most importantly, how should social checks supplement more traditional means of vetting applicants’ credentials and pre-employment screening for adverse information? What types of information does the organization need and how will that information be weighted? Next, will the information be gathered through in-house resources or an external service provider, such as Social Intelligence? If the latter, how will FCRA compliance be worked into the social check process? Finally, particularly given the newness of social checks, employers should evaluate them at least annually with one key question in mind: Have the social checks improved the effectiveness of the organization’s hiring process and the quality of new hires?

Philip L. Gordon is the Chair of Littler Mendelson’s Privacy and Data Protection Practice Group. He has years of experience litigating privacy-based claims and counseling clients on all aspects of workplace privacy. He blogs at Littler’s Workplace Privacy Counsel, where this post originally appeared on July 11, 2011.

Colorado AG’s Office, FTC Instruct Small Businesses in Safeguarding Personal Data

Data security breaches in the private sector have become so commonplace in the digital age that they scarcely shock or make headlines anymore — much to the chagrin and inconvenience of those whose sensitive data has been targeted. But there is much that businesses (including small law firms and solo practitioners) can do to protect their data from malicious or inadvertent loss, and the Colorado Attorney General’s Office and the Federal Trade Commission (FTC) want you to know about it. They’ve collaborated on a free pamphlet, “Protecting Personal Information: A Guide for Business” (pdf), available for download.

The pamphlet summarizes five steps an entity should take to create and maintain a data-protection plan, each step with a wealth of details within.

Take stock. Know what personal information you have in your files and on your computers.
Scale down. Keep only what you need for your business.
Lock it. Protect the information that you keep.
Pitch it. Properly dispose of what you no longer need.
Plan ahead. Create a plan to respond to security incidents.

The FTC website features an interactive tutorial instructing on these measures.

Earlier this month, we reported on related news of interest to business owners: how to safeguard a business entity’s identity against out-of-state crooks hoping to capitalize on its good credit toward malicious ends.

Update: FTC Eases Enforcement of Anti-Identity Theft “Red Flags” Rule Among Lawyers, Other Professionals

The National Law Journal reports this week that the Federal Trade Commission (FTC) has bowed to Congressional pressure to dial back enforcement of the so-called “Red Flags” Rule, which directs certain professionals, including lawyers and doctors, to develop written measures to detect and thwart identity theft within their organizations.

Lawyers, doctors, and other professionals are considered “creditors” and “financial institutions” under the Fair and Accurate Credit Transactions Act (.pdf), designations disputed by the American Bar Association and American Medical Association in lawsuits filed against the FTC.

The FTC has agreed to ease enforcement of the Red Flags Rule until the end of 2010.