2006-2 Trade Cases P 75,349, 06 Cal. Daily Op. Serv. 6317... 453 F.3d 1 196 solicitation for internet services that appeared to be refund or United States Court of Appeals, rebate check was materially misleading in violation of FTCA, Ninth Circuit. and FEDERAL TRADE executive was individually liable for corporations' deceptive solicitation. COMMISSION, Plaintiff-Appellee, Affirmed. CYBERSPACE.COM LLC; French Dreams N. V.; Electronic Publishing Ventures LLC; Olympic Telecommunications Attorneys and Law Firms Inc; Ian Eisenberg, Defendants, *1198 Roger M. Townsend, Newman & Newman, LLP, and Seattle, WA, argued the cause for appellants Ian Eisenberg. French Dreams, N.V., and Olympic Telecommunications, Inc. Coto Settlement; Chris Hebard, Derek A. Newman, Newman & Newman, LLP, Seattle, WA, Defendants-Appellants. was on the briefs. Federal Trade Commission, Plaintiff-Appellee, Ernest Leonard, Friedman & Feiger, LLP, Dallas, TX, argued the cause for appellants Coto Settlement and Christopher L. Cyberspace.com LLC; Coto Settlement; Hebard. Lawrence J. Friedman, Friedman & Feiger, LLP. Electronic Publishing Ventures Dallas, TX, and Sarah K. Johnson and Stacy A. Connole, Foster, Pepper & Shefelman, Seattle, WA, were on the briefs. Llc; Chris Hebard, Defendants, and Marilyn E. Kerst, Federal Trade Commission, Washington, D.C. argued the cause for appellees. Willian E. Kovacic, French Dreams N.V.; Olympic General Counsel, John F. Daly, Deputy General Counsel for Telecommunications Inc; Ian Litigation, Collot Guerard, and Michael Goodman, Federal Eisenberg, Defendants-Appellants. Trade Commission, Washington, D.C., were on the brief. Appeal from the United States District Court for the Western Nos. 04-35428, 04-35431. District of Washington, Robert S. Lasnik, District Judge, Presiding. D.C. No. CV-00-01806-RSL. Argued and Submitted March 7, 2006. Before: O'SCANNLAIN, SILVERMAN, and GOULD, Filed July 13, 2006. Circuit Judges.Synopsis Opinion Background: Federal Trade Commission brought suit against companies and founder sending internet access O'SCANNLAIN, Circuit Judge: solicitation that allegedly was deceptive in violation of Federal Trade Commission Act (FTCA). The United States We must decide whether a mail solicitation for internet service District Court for the Western District of Washington, is deceptive as a matter of law within the meaning of the Robert S. Lasnik, Chief Judge, 2002 WL 32060289, entered Federal Trade Commission Act. summary judgment for FTC, and defendants appealed. H Holdings: The Court of Appeals, O'Scannlain, Circuit Judge, In the late nineties, Ian Eisenberg and Chris Hebard held that: formed Electronic Publishing Ventures, LLC ("EPV") and its20062 Trade Cases P T5349, 06 Cal. Daily Op. Sent 6317... four subsidiaries: Cyberspacecom, LLC, Essex Enterprises, LLC, Suriet Services, LLC, and Splashnetnet, LLC. Two o'shore entities, French Dreams Investments, NI. (owned by Eisenberg) and Coto Settlement (controlled by Hebard) owned EP\\--' in equal parts. Between January 1999 and mid2000, EPVs four subsidiaries mailed approximately 4.4 million solicitations o'ering internet access to individuals and small businesses. The solicitations included a check, usually for $3.50, attached to a form resembling an invoice designed to be detached from the check by tearing at the perforated line. The check was addressed to the recipient and the recipient's phone number appeared on the \"re\" line. The attached invoice-type form included columns labeled \"invoice number,\" \"account number,\" and \"discount taken.\" The back of the check and invoice contained small-print disclosures revealing that cashing or depositing the check would constitute agreement to pay a monthly fee for internet access, but the front of the check and the invoice contained no such disclosures. Along with the checkfinvoice document, most of the solicitations also included an advertising insert touting the importance of good internet access. The back of the *1199 insert explained in small print that a monthly fee would be billed to the customer's local phone bill after the check was cashed or deposited. At least 225,000 small businesses and individuals cashed or deposited the solicitation checks. The EPY subsidiaries used a billing aggregation service to place charges for $19.95 or 329.95 a month on the small businessesr and individuals' ordinary telephone bills. Internet usage records show, however, that less than one percent of the 225,000 individuals and businesses billed for internet service actually logged on to the service. research study which found that 87 .9 percent of 256 participants who actually read the language on the back of the solicitation understood that the act of cashing or depositing the check would constitute agreement to purchase internet service. Based on its belief that the solicitations were deceptive in violation of Section 5 of the Federal Trade Commission Act ("FTCA\"), the Federal Trade Commission (\"FTC\") sought an injunction and consumer redress in the district court pursuant to FTCA 13 (b). The district court entered two stipulated permanent injunctions in which the defendants agreed to cease the practices at issue without admitting to a FTCA 5 violation. The parties then led cross-motions for summary judgment on the issues of liability and consumer redress. After denying the defendants' motions for summary judgment, the district court granted the FTC's motion in part. The court concluded that the solicitation violated FTCA 5 as a matter of law. The district court further concluded that Ian Eisenberg was liable for the 5 violation in his individual capacity as a matter of law. The district court then held a one- day bench trial on consumer redress in which it concluded that the proper amount of consumer redress was $17,636,897. The Eisenberg defendantsIan Eisenberg, French Dreams Investments, 37.11, and Olympic Telecommunications, Inc., a billing aggregator owned by Eisenberg (collectively, \"EFO\") and the Hebard defendantsChris Hebard and Coto Settlement (collectively, \"Hebard-")led timely separate appeals, which we consolidated for review.L Eisenberg and Hebard were aware that the solicitation had misled some consumers. The companies received complaints from recipients of the solicitations which indicated that some customers had deposited the solicitation check without realizing that the},r had contracted for internet senices. Materials that Eisenberg and Hebard prepared in an attempt to sell one of the subsidiaries in 1999 informed prospective buyers that \"the Company believes that a number of customers sign up for the [sic] without realizing that when they deposit the check that they have ordered Internet service.\" In June 2000, alter the companies had ceased mailing solicitations to consumers, Cyberspace.com the largest of the four subsidiaries, commissioned a comumer Section 5 of the Federal Trade Commission Act prohibits "deceptive acts or practices in or affecting commerce." FTCA 5(a)(1]_. 15 L'.S.C. 45(a). As we have previously explained, a practice falls within this prohibition (1) if it is liker to mislead consumers acting reasonany under the circumstances (2) in a way that is material.2 *1200 ETC 1'. Giff. 365. F.3d 944, 950(901 (1122001) {citing FTCI'. Positron ICin" 33 F.3d 1083= 1095 (9th 6121994)). A 20062 Trade Cases P 75,349, 06 Cal. Daily Op. Sent. 6317... In this case= Hebard and EFO contend that the ne print notices they placed on the reverse side of the checlr:= invoice= and marketing insert preclude liability under FTCA 5. We disagree. A solicitation may be likely to mislead by virtue of the net impression it creates even though the solicitation also contains truthil disclosures. In Ffoet'sheim 1: FT C. 411 F.2d 874 (9th Cir. 1969). we found that substantial evidence supported the FTC's determination that the appearance and prominent repetition of the words "Washington DC." on debt-collecting forms from a private collections company created the deceptive impression that the forms were a demand from the government even though the forms contained a small print disclaimer informing recipients that such was not the case. M. at 87'67'3. Similarly= inlttdopondent Directory Corp. 1'. FTC. 188 F.2d 468 {Id (5121951), the Second Circuit held that substantial evidence supported the FTC's determination that a solicitation for advertising orders that appeared to be a renewal notice for an existing advertisement was deceptive even though the ne print disclosed that the advertisement clipping attached to the form was an advertisement the recipient had taken out in a di'erent publication:5 Id. at 4H}. Likewise. in FT C 1'. Brown 61 rtilftomson Tobacco Corp. T38 F.2d 35, 4243 (D.C.Cir.1985)_. the D.C. Circuit affirmed a district court's nding that an advertisements description of cigarette tar content was deceptive even though ne print in the corner of the advertisement truthftly explained how the tar content was measured. The court reasoned that. under the circumstances. consumers were unlikely to read the ne print in the corner of the ad. Id. at 43; see also Standard Oil Co. ofCalifotttt'a v. FTC. 5?"? F.2d 653: 6'39 [9th Cir.19'8) (affirming for substantial evidence the FTC's nding that the predominant visual message of an advertisement was misleading. and that it was not corrected by the accompanying verbal message in the advertisements); cf. FT C v. nggfo Int?\" Inc, 99-1 F.2d 595. 604 {9th {3121993) (\"*Figgie can Here. Hebard and EFO's mailing created the deceptive impression that the 53.50 check was simply a refund or rebate rather than an offer for services. The check was made out to the individual or small business to whom it was sent. with *1201 the consumer's phone number in the \"re\" line. The portion of the document that resembled an invoice included columns labeled \"invoice number,\" \"account number,\" and \"'discotmt taken.\" implying a preexisting business relationship for which a refund check was being o'ered. The front of the check and invoice lacked any indication that by cashing the check, the consumer was contracting to pay a monthly fee. As the district court reasoned. \"[t]he receipt of a check the pemsal of which would reveal no obvious mention of an o'er for services. no product information. and no indication that a contract is in the ofng= coupled with an invoice that has no advertising or solicitation purpose, creates an overall impression that the check resolves some small. outstanding debt}= FTC 1'. Ct'ber'spocecom. LEG. No. C001306L. 2002 WI 3.2 0602 09= *2 (W.D.Wash.2 002). Based on the fore going. we agree with the district court that no reasonable factnder could conclude that the solicitation was not likely to deceive consumers acting reasonably under the circumstances. Our conclusion is bolstered by undisputed evidence indicating that Hebard and EFO's solicitation actually deceived nearly 225,000 individuals and small businesses. Hebard and EFO billed each of these consumers for a service that less than one percent of them ever attempted to use. It is reasonable to infer that most of the remaining 99 percent did not realize they had contracted for internet service when they cashed or deposited the solicitation check. Although \"[p]roof of actual deception is unnecessary to establish a violation of Section 5.\" Trans Hbr'ldArmtmm Inc. v. FTC; 594 F.2d 212. 211r [:9th Cir. 1 9'9]. such proof is highly probative to show that a practice is likely to mislead consumers acting reasonably under the circumstances. We cannot accept Hebard's and EFO's contention that the nearly 225,000 consumers billed point to nothing in statute or case law which protects from liability those who merely imply their deceptive claims; there is no such loophole"); Sterling Drug. Inc, r. H C. H] .2d 1146, 1152, 115ir (9th (111984) (\"A determination of false advertising can be based upon deceptive visual representations"); Am. Home Prods. Corp 1'. FTC, 695 F.2d 631, 68? (3d Cir.1982} (\" '|_T]he tendency of the advertising to deceive must be judged by viewing it as a whole'.... The impression created by the advertising, not its literal truth or falsity, is the desideratlnn.\") (quoting Beneficial Corp. 1'. H C . 542 F.2d 611, 617' (3d Cir.19?6)). for unwanted internet service acted unreasonably Twhen they cashed or deposited the solicitation check. We further conclude that the solicitation was likely to mislead in a way that is material. 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." C'nydolc Associates. Inc. 103 PIC. 110, 165 (1984). Here, the misleading impression the solicitation createdthat the check was merely a refund or rebateclearly made it more likely that consumers would deposit the check and thereby obligate themselves to pay a monthly charge for internet of fraud along with an intentional avoidance of the truth. service. " FTC v. Publishing Clearing House, Inc., 104 F.3d 1168, 1170-71 (9th Cir. 1997) (quoting FTC v. Am. Standard Credit In sum, the district court properly granted summary judgment Sys., 874 F.Supp. 1080, 1089 (C.D.Cal. 1994)). to the FTC on the FTCA $ 5 violation because no reasonable factfinder could conclude that the solicitation was not Eisenberg admits that the district court correctly found likely to mislead consumers acting reasonably under the that he "had and exercised control over all of the corporate circumstances in a way that is material. Gill, 265 F.3d at 950. entities except Coto Settlement." Cyberspace.com, No. C00- 1806L, 2002 WL 32060289, at *5. He contends, however, that the district court erred by concluding that he had sufficient knowledge to be personally liable. We disagree. The B undisputed evidence demonstrates that Eisenberg reviewed at least some of the solicitation checks before they were mailed, The results of the consumer research study Cyberspace.com and that Don Reese, the billing manager for defendant- commissioned do not undermine our conclusion. As EFO's appellant Olympic Telecommunications, Inc., had numerous counsel conceded at oral argument, the survey results conversations with Eisenberg about consumer complaints in stand only for the proposition that most consumers can understand the fine print on the back of the solicitation which Reese told Eisenberg that "there were a lot of customers who didn't know they were customers [because] AR [accounts when that language is specifically brought to their attention. receivable] did not know what that check represented." This Importantly, the survey did not probe whether the notices undisputed evidence is sufficient, as a matter of law, to were sufficiently conspicuous to draw the survey subjects' demonstrate that Eisenberg knew the facts constituting the $ attention in the first place. 5 violation or at the very least was recklessly indifferent to the truth. See Publishing Clearing House, 104 F.3d at 1171. Similarly, the fact that the companies provided consumers a toll free number to call for refunds does not affect our Eisenberg's attempt to avoid liability based on his contention conclusion that the solicitation violated FTCA $ 5. See that he had a "reasonable basis" to believe that the solicitation Pantron, 33 F.3d at 1103 *1202 ("the existence of a money- back guarantee is insufficient reason as a matter of law to checks did not violate the FTCA is unavailing." "[Reliance preclude a monetary remedy [for a $ 5 violation]"). on advice of counsel [is] not a valid defense on the question of knowledge" required for individual liability. FTC v. Amy Travel Serv., Inc., 875 F.2d 564, 575 (7th Cir. 1989); see also Feil v. FTC, 285 F.2d 879, 896 (9th Cir. 1960) (whether an III individual acts in good or bad faith is immaterial to liability We next address Eisenberg's contention that the district court under FTCA $ 5). erred by finding, as a matter of law, that he is liable in his individual capacity. An individual is personally liable for a AFFIRMED. corporation's FTCA $ 5 violations if he "participated directly in the acts or practices or had authority to control them" All Citations and " had actual knowledge of material misrepresentations,was recklessly indifferent to the truth or falsity of a 453 F.3d 1196, 2006-2 Trade Cases P 75,349, 06 Cal. Daily misrepresentation, or had an awareness of a high probability Op. Serv. 6317, 2006 Daily Journal D.A.R. 9198 Footnotes We review the district court's order granting summary judgment de novo. Balint v. Carson City, Nevada, 180 F.3d 1047, 1050 (9th Cir. 1999). 2 Hebard and EFO would have us add an additional requirement: that the FTC must prove that consumers could not reasonably have avoided injury. However, the plain language of the provision that Hebard and EFO cite for this contention, FTCA $ 5(n), defeats this argument