Federal Trade Commission et al v. LeanSpa, LLC et al

Filing 198

RULING denying 109 Motion to Dismiss; denying 155 Motion to Dismiss; granting in part and denying in part 179 Motion to Dismiss. Signed by Judge Janet C. Hall on 1/29/2013. (Lewis, D)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
FEDERAL TRADE COMMISSION
et al.,
Plaintiff,
v.
LEANSPA, LLC, et al.,
Defendants.

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CIVIL ACTION NO.
3:11-CV-1715

JANUARY 29, 2013

RULING RE: MOTIONS TO DISMISS FILED BY RELIEF DEFENDANT ANGELINA
STRANO (DOC. NO. 109), THE LEADCLICK DEFENDANTS (DOC. NO. 155), AND
RICHARD CHIANG (DOC. NO. 179)

I.

INTRODUCTION
Plaintiffs, the Federal Trade Commission (the “FTC”) and the State of

Connecticut (the “State”) (collectively, “plaintiffs”), commenced this action by filing under
seal a Complaint For Permanent Injunction And Other Equitable Relief (Doc. No. 1) and
a Motion seeking Temporary Restraining Order (“TRO”) (Doc. No. 3) against individual
defendant Boris Mizhen (“Mizhen”) and entity defendants LeanSpa, LLC, NutraSlim,
LLC, and NutraSlim, U.K., Ltd. (collectively, the “LeanSpa Entities,” and with Mizhen,
the “LeanSpa defendants”). On November 14, 2011, Judge Robert N. Chatigny issued
an ex parte Temporary Restraining Order freezing the assets of the LeanSpa
defendants, and scheduled a hearing for November 22, 2011, ordering the LeanSpa
defendants to show cause why the court should not enter a preliminary injunction order
against them. Temporary Restraining Order and Order To Show Cause (Doc. No. 24).
On November 21, 2011, the parties filed a Consent Motion stipulating to a preliminary
injunction. Consent Motion for Preliminary Injunction (Doc. No. 32).

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On November 22, 2011, Judge Vanessa Bryant entered a Stipulated Preliminary
Injunction Order (Doc. No. 36) (the “November 22 Order”), ordering, among other
things, the freezing of assets that were “[o]wned or controlled, directly or indirectly, by,”
“[h]eld for the benefit of,” “[i]n the actual or constructive possession of,” “[o]wned,
controlled by, or in the actual or constructive possession of any [entity] directly or
indirectly owned, managed, or controlled by,” or “subject to access by” the LeanSpa
defendants. November 22 Order (Doc. No. 36) at 12–13.
On July 26, 2012, plaintiffs amended their Complaint and added defendants
LeadClick Media, Inc. and LeadClick Media, LLC (as successor in interest to LeadClick
Media) (collectively, “LeadClick”), as well as LeadClick’s officer Richard Chiang
(“Chiang,” and along with LeadClick, the “LeadClick defendants”). Am. Compl. (Doc.
No. 90) ¶¶ 14–15. The Amended Complaint also named Angelina Strano (“Strano”),
Mizhen’s wife, as a relief defendant. Id. ¶ 16. The Amended Complaint alleges
violations of sections 5(a) and 12 of the Federal Trade Commission Act (the “FTC Act”),
15 U.S.C. §§ 45(a), 52; section 907(a) of the Electronic Funds Transfer Act (the
“EFTA”), 15 U.S.C. § 1693e(a); section 205.10(b) of Regulation E, 12 C.F.R. §
205.10(b); and the Connecticut Unfair Trade Practices Act (“CUTPA”), Conn. Gen. Stat.
§ 42-110b(a), et seq. Am. Compl. (Doc. No. 90) ¶¶ 1–2. The first six counts allege
claims by the FTC against the LeanSpa defendants, but only Count 4, regarding
misrepresentations relating to alleged “fake news sites” described in the Amended
Complaint, also alleges a claim against the LeadClick defendants.
The next ten counts, Counts 7 through 16, allege claims by the State of
Connecticut against the LeanSpa defendants, but only Counts 13 and 14 also allege

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claims against the LeadClick defendants. Count 13 alleges deceptive acts or practices
related to the fake news sites, and Count 14 requests statutory civil penalties for such
conduct. Finally, Count 17 seeks to recover from relief defendant Strano funds, or the
value of benefits, allegedly received as a result of the LeanSpa defendants’ unlawful
acts.1
II.

FACTUAL BACKGROUND2
A. The LeanSpa and LeadClick Defendants
The Amended Complaint alleges that, beginning sometime in 2010, the LeanSpa

defendants engaged in deceptive practices while marketing and selling to consumers,
via the Internet, “purported weight-loss and related health products under various brand
names.” Am. Compl. ¶¶ 18–19. The alleged scheme worked as follows: the LeanSpa
defendants’ websites offered products to consumers to use on a “risk free” trial basis,
plus a nominal shipping and handling fee of $4.95 or less. Id. ¶¶ 21, 41, 44. The
LeanSpa defendants advertised that the products came with a “100% satisfaction
guarantee.” Id. ¶ 55. However, after consumers entered their payment information to
pay for the shipping and handling fees, the LeanSpa defendants charged the
consumers for the trial products and automatically enrolled those consumers in monthly
continuity plans. Under these plans, consumers were charged monthly amounts of
$79.99 or more, often without their prior knowledge or authorization. Id. ¶¶ 21, 46–51.
1

On November 15, 2012, plaintiffs filed a Consent Motion For Entry Of A Stipulated
Preliminary Injunction Order Against Richard Chang (Doc. No. 177). Under the terms of the attached
Proposed Stipulated Preliminary Injunction Order (Doc. No. 177–1) (“Chiang Proposed PI Order”), Chiang
agrees to, among other things, a freezing of $270,000 worth of his assets. Chiang Proposed PI Order at
5. This court granted the consent motion and entered the proposed preliminary injunction order on
January 16, 2013. See Doc. No. 196.
2

For purposes of defendants’ Motions to Dismiss, this court takes the facts alleged in the
Amended Complaint as true and draws all inferences in plaintiffs’ favor. See Lunney v. United States,
319 F.3d 550, 554 (2d Cir. 2003).

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Once the payment plans were implemented, consumers encountered difficulty in
canceling the payments or getting their money back. Id. ¶ 23. For example, fine print
located on certain pages of the websites stated that consumers could call within 14
days to avoid automatic enrollment in the LeanSpa defendants’ “auto-shipment
program.” The fine print also advised consumers that to avoid being charged for the
trial products, they must first obtain an “RMA number,” return the products, and pay
associated postage costs. Id. ¶¶ 48–49. However, the LeanSpa defendants often
charged consumers for the trial products before they had the opportunity to cancel, and
sometimes even before they received the trial products. Id. ¶ 50. Consumers who
attempted to cancel online were informed either that their account could not be found or
that they would be charged a fee. Id. ¶¶ 52–53. When consumers called to cancel,
they often were unable to reach anyone before incurring additional charges. Id. ¶ 58.
Even those consumers who were able to return the products would incur cancelation
fees, be offered only partial refunds, or would not be given the refunds they were
promised. Id. ¶¶ 57–58.
Plaintiffs allege that, in furtherance of this scheme, the LeanSpa defendants
made false and misleading claims about their products. For example, the LeanSpa
defendants’ websites displayed testimonials from purported customers claiming
substantial weight loss from using the products. Id. ¶ 61. The websites also referenced
purported clinical studies supporting the supposed fact that the products caused rapid
and substantial weight loss. Id. ¶¶ 62–66.
Plaintiffs also allege that the LeanSpa defendants hired the LeadClick
defendants from at least September 2010 until April 2011 to market their products and

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drive online consumers to their websites. Id. ¶¶ 25–40. To accomplish this task, the
LeadClick defendants hired third-party “affiliate marketers” who created fake news sites
promoting the LeanSpa defendants’ products. These fake news sites would purport to
provide objective reports and other information about the products, and would display
names and logos of major television networks to give consumers the false impression
that the studies had been shown on those networks. However, the Amended Complaint
alleges that these studies and reports were in fact false and never performed. To add
to this elaborate scheme, the fake reports would include responses and comments that
appeared to be, but were not in fact, statements from independent consumers. Id.
¶¶ 28–32. Finally, these fake news sites contained links to the LeanSpa defendants’
websites. These links purportedly were provided by the LeadClick defendants. The
LeanSpa defendants allegedly paid the LeadClick defendants a set fee each time a
consumer clicked on a link on a fake news site, ended up on one of the LeanSpa
defendants’ websites, and purchased a product. Id. ¶ 26. Plaintiffs allege that the
LeanSpa and LeadClick defendants knew that the affiliate marketers were using these
fake news sites. Id. ¶ 38. Plaintiffs further allege that the LeanSpa and LeadClick
defendants monitored and acted to further the use of these sites. For example, the
LeanSpa and LeadClick defendants allegedly monitored the fake news sites and
discussed which products on the fake sites should be paired with certain of the
LeanSpa defendants’ products. Id. Chiang and Mizhen also coordinated directly
regarding LeadClick’s “lead generation activities, . . . including the use of blogs or fake
news sites . . . .” Id. ¶ 28. Additionally, when the LeanSpa defendants learned about
consumer complaints and disputed consumer charges resulting in high “chargeback”

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rates on credit cards, the LeanSpa and LeadClick defendants discussed strategies to
reduce the impact of the excessive chargebacks. Id. ¶¶ 39–40.
B. Relief Defendant Angelina Strano
Mizhen is the CEO and owner of the LeanSpa Entities. Am. Compl. ¶ 9. Strano
is Mizhen’s spouse. Id. ¶ 16. Plaintiffs allege that Strano received funds that are
proceeds of the LeanSpa defendants’ unlawful actions and to which she has no
legitimate claim. Id. ¶¶ 16, 134–35.
III.

STANDARD
When deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure

12(b)(6), the court must determine whether the plaintiff has stated a legally cognizable
claim by making allegations that, if true, would show that the plaintiff is entitled to relief.
See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007) (interpreting Rule 12(b)(6), in
accordance with Rule 8(a)(2), to require allegations with “enough heft to ‘sho[w] that the
pleader is entitled to relief’” (alteration in original)). The court takes the factual
allegations of the complaint to be true, Hemi Grp., LLC v. City of New York, 130 S.Ct.
983, 986–87 (2010), and draws all reasonable inferences in plaintiff’s favor, Fulton v.
Goord, 591 F.3d 37, 43 (2d Cir. 2009). However, the tenet that a court must accept a
complaint’s allegations as true is inapplicable to “[t]hreadbare recitals of the elements of
a cause of action, supported by mere conclusory statements.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (citing Twombly, 550 U.S. at 555).
To survive a motion pursuant to Rule 12(b)(6), “a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on
its face.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “A claim has

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facial plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged. The
plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a
sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S.
at 556).
IV.

DISCUSSION
A. LeadClick Defendants’ Motion to Dismiss
The LeadClick defendants seek to dismiss Counts 4, 13, and 14 of the Amended

Complaint, which allege misrepresentations and deceptive acts and practices related to
the so-called “fake news sites,” on the basis that LeadClick (and Chiang, in his capacity
as an officer of LeadClick) is an interactive computer service provider that has immunity
under section 230 of the Communications Decency Act (the “CDA”), 47 U.S.C. § 230.
See LeadClick Mot. to Dismiss (Doc. No. 156). The CDA provides that, “[n]o provider or
user of an interactive computer service shall be treated as the publisher or speaker of
any information provided by another information content provider.” 47 U.S.C.
§ 230(c)(1). The LeadClick defendants are entitled to immunity under the CDA if (1)
LeadClick is an interactive computer service provider or user; (2) plaintiffs’ claims are
based on “information provided by another information content provider”; and (3)
plaintiffs’ claims would treat LeadClick as the “publisher or speaker” of such information.
See Doctor’s Assocs., Inc. v. QIP Holders, LLC (“Doctor’s Assocs. I”), No. 06-cv-1710,
2007 WL 1186026, at *2 (D. Conn. Apr. 19, 2007) (citing Universal Commc’n Sys., Inc.
v. Lycos, Inc., 478 F.3d 413, 418 (1st Cir. 2007)).

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Immunity under the CDA constitutes an affirmative defense that “is generally not
fodder for a Rule 12(b)(6) motion.” Doctor’s Assocs. I, 2007 WL 1186026, at *2 (quoting
Novak v. Overture Servs., Inc., 309 F. Supp. 2d 446, 452 (E.D.N.Y. 2004)). Rather,
“such a defense is generally addressed as a Rule 12(c) or Rule 56 motion.” Id. at *2
(internal quotation marks and citations omitted). The LeadClick defendants argue that
this court should nonetheless grant them immunity at the motion to dismiss stage
because each element of the defense “appears on the face of the complaint.” Mem. in
Support of LeadClick Mot. to Dismiss (Doc. No. 156) (“LeadClick Mem. Mot. to
Dismiss”) at 4 (citing Jones v. Bock, 549 U.S. 199, 215 (2007)), 20.
This court cannot conclude from the face of the Amended Complaint that the
LeadClick defendants are entitled to immunity under the CDA. First, the Amended
Complaint does not establish on its face that LeadClick is an interactive computer
service provider. The CDA defines an interactive computer service as “any information
service, system, or access software provider that provides or enables computer access
by multiple users to a computer server.” 47 U.S.C. § 230(f)(2). The LeadClick
defendants argue that a fake news site constitutes an interactive computer service,
LeadClick Mem. Mot. to Dismiss at 13 (citing Ascentive, LLC v. Opinion Corp., 842 F.
Supp. 2d 450, 473 (E.D.N.Y. 2011)), and that LeadClick acted as a provider of such
services because it provided the “pass-through network links” used to link the affiliate
marketers’ fake new sites to the LeanSpa defendants’ websites, id. at 14 (citing Am.
Compl. ¶ 26).
However, the cases cited by the LeadClick defendants involved defendants that
operated or hosted websites where users could post comments or reviews or access

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other content, or that were search engines. See, e.g., Universal Commc’ns Sys., 478
F.3d at 415 (anonymous postings on “Internet message board operated by” defendant);
Ascentive, 842 F. Supp. 2d at 454 (business reviews posted by consumers on
defendant’s website); Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d
250, 252 (4th Cir. 2009) (consumer reviews posted on defendant’s website); Atl.
Recording Corp. v. Project Playlist, Inc., 603 F. Supp. 2d 690, 692 (S.D.N.Y. 2009)
(defendant’s website contained index of links to files hosted on third-party websites);
Murawski v. Pataki, 514 F. Supp. 2d 577, 582 (S.D.N.Y. 2007) (search engine); Parker
v. Google, Inc., 422 F. Supp. 2d 492, 501 (E.D. Pa. 2006) (search engine); Parisi v.
Sinclair, 774 F. Supp. 2d 310, 312 (D.D.C. 2011) (books listed on defendants’
websites).
Here, the Amended Complaint does not allege that the LeadClick defendants
operated online message boards or review websites, or even that they operated
websites at all. The Amended Complaint merely alleges that LeadClick provided
network links that directed consumers from one website to another. It is unclear
whether providing such network links “provides or enables computer access by multiple
users to a computer server” in the way that hosting a website, message board, or
search engine does. See 47 U.S.C. § 230(f)(2). At the very least, plaintiffs should have
the opportunity to develop facts, during discovery, showing what is involved in the
creation of the “network links.” Accordingly, this court finds that, on the face of the
Amended Complaint, it is plausible that LeadClick is not an “interactive computer
service provider” as that term is defined under the CDA.

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Even if it were indisputable that LeadClick were an “interactive computer service
provider,” the LeadClick defendants still would not be entitled to section 230 immunity,
because it is plausible on the face of the Amended Complaint that LeadClick is not an
information content provider—i.e., that it is not “responsible, in whole or in part, for the
creation or development of information provided through the Internet or any other
interactive computer service.” 47 U.S.C. § 230(f)(3) (emphasis added). The LeadClick
defendants argue that the Amended Complaint attributes the allegedly deceptive
content to third-party affiliate marketers. LeadClick Mem. Mot. to Dismiss at 15–16
(quoting Am. Compl. ¶¶ 29–30, 33). However, this does not mean that the LeadClick
defendants are not also information content providers. See, e.g., FTC v. Accusearch,
570 F.3d 1187, 1197 (10th Cir. 2009) (“[T]here may be several information content
providers with respect to a single item of information (each being ‘responsible,’ at least
‘in part,’ for its ‘creation or development.’” (quoting 47 U.S.C. § 230(f)(3)).
The LeadClick defendants argue that mere knowledge of the deceptive content
does not “undermine LeadClick’s CDA immunity.” LeadClick Mem. Mot. to Dismiss at
16 (citing Universal Commc’n Sys., 478 F.3d at 19). However, the Amended Complaint
alleges more than mere knowledge on the part of the LeadClick defendants. For
example, plaintiffs allege that Chiang, in his capacity as an officer of LeadClick,
“coordinated directly with Mizhen regarding LeadClick’s lead generation activities for the
LeanSpa defendants, including the use of blogs or fake news sites . . . .” Am. Compl.
¶ 28. Plaintiffs also allege that the LeadClick defendants, along with the LeanSpa
defendants, “monitored and had knowledge” of the affiliate marketers’ use of fake news
sites and “discussed which products to pair with the LeanSpa Defendants’ products on

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the fake news sites.” Id. ¶ 38. These allegations go beyond mere knowledge: they
allege that the LeadClick defendants discussed use of the fake websites and how to
“pair” products with that deceptive content. Further, the Amended Complaint describes
how the LeadClick defendants contemplated implementing strategies designed to
disguise the “high level” of chargebacks resulting from leads generated from the fake
news sites. See Am. Compl. ¶¶ 39–40. These allegations can plausibly be read to
allege that the LeadClick defendants were “actively responsible” for the “development
of” at least part of the deceptive content on the fake news sites. See Doctor’s Assocs.,
Inc. v. QIP Holders LLC (“Doctor’s Assocs. II”), No. 06-cv-1710, 2010 WL 669870, at
*23 (Feb. 19, 2010). Thus, this court concludes that, on the face of the Amended
Complaint, it is plausible that LeadClick is an information content provider; and the
LeadClick defendants cannot claim immunity under the CDA. See FTC v. Accusearch,
570 F.3d 1187, 1197 (10th Cir. 2009) (“[A]n interactive computer service that is also an
information content provider of certain content is not immune from liability arising from
publication of that content.” (quoting Fair Hous. Council v. Roommates.com, 521 F.3d
1157, 1162 (9th Cir. 2008) (en banc))).
Because it is plausible on the face of the Amended Complaint that the LeadClick
defendants do not satisfy at least one of the first two prongs of the test for section 230
immunity, this court does not need to evaluate whether the LeadClick defendants have
met the third prong.
In support of their claim of immunity, the LeadClick defendants attempt to
distinguish the facts of this case from those in Doctor’s Associates I, a case in which
this court declined to decide section 230 immunity on a motion to dismiss. There,

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defendant Quiznos sponsored a contest inviting contestants to submit video entries
about its rival Subway. Id. at *1. The question there was whether Quiznos was entitled
to immunity with respect to allegedly false and misleading advertising in the submitted
videos. Id. This court held that it could not determine, on a motion to dismiss, whether
Quiznos was entitled to section 230 immunity, because “whether or not Quiznos is an
‘information content provider’ is a question awaiting further discovery.” Id. at *2. The
LeadClick defendants argue that, unlike in Doctor’s Associates I, plaintiffs here failed to
allege that the LeadClick defendants “solicited the subject matter contained in the”
deceptive content at issue. LeadClick Mem. Mot. to Dismiss at 20–21.
However, this argument is unavailing. Based on the allegations discussed
above—that the LeadClick defendants coordinated the use of the fake new sites,
monitored them, discussed how to use the information in concert with LeanSpa’s
products, and developed strategy intended to permit the use of the deceptive content to
continue—it is plausible, on the face of the Amended Complaint, that the LeadClick
defendants solicited allegedly deceptive content on the fake news sites.
B. Chiang’s Motion to Dismiss
Chiang also filed a Motion to Dismiss in his individual capacity seeking to dismiss
Counts 4, 13, and 14 of the Amended Complaint. Mem. in Support of Chiang’s Mot. to
Dismiss (Doc. No. 179) (“Chiang Mem. Mot. to Dismiss”) at 1–2. Chiang makes three
main arguments, and the court will address each of them in turn.
Chiang’s first argument is that, if the court grants the LeadClick defendants’
Motion to Dismiss, it should grant his as well because he is an employee of LeadClick.
Chiang Mem. Mot. to Dismiss (Doc. No. 179-1) at 6–7. This argument is moot because

12

the court did not grant the LeadClick defendants’ Motion to Dismiss. See supra Section
IV.A.
Second, Chiang argues that, whether or not this court grants LeadClick
defendants’ Motion to Dismiss, plaintiffs have failed to state the “factual prerequisites” to
establish Chiang’s personal liability. Chiang Mem. Mot. to Dismiss at 7–13. “An
individual will be liable for corporate violations of the FTC Act if (1) he participated
directly in the deceptive acts or had the authority to control them and (2) he had
knowledge of the misrepresentations, was recklessly indifferent to the truth or falsity of
the misrepresentation, or was aware of a high probability of fraud along with an
intentional avoidance of the truth.” FTC v. Stefanchik, 559 F.3d 924, 931 (9th Cir. 2009)
(emphasis in original); FTC v. Consumer Health Benefits Ass’n, 2012 WL 1890242, at
*5 (E.D.N.Y. May 23, 2012) (quoting Stefanchik).
Plaintiffs have plausibly alleged that Chiang participated directly in, or had the
authority to control, LeadClick’s deceptive acts. Chiang argues that plaintiffs have not
met this prong because they have not alleged that Chiang “owned LeadClick or
operated it for his personal benefit.” Chiang Mem. Mot. to Dismiss at 8 (citing FTC v.
Standard Educ. Soc’y, 302 U.S. 112, 120 (1937)). However, Standard Education
Society simply stands for the uncontroversial proposition that ownership of a corporation
or operation of it for personal benefit can establish individual liability. The court
nowhere stated that these circumstances were necessary conditions for finding
individual liability. In fact, plaintiffs reference several cases in which non-owner,
individual defendants were found joint and severally liable with corporate defendants for
violations of the FTC Act. See Pl.’s Mem. of Law in Opp. to Chiang Mot. to Dismiss

13

(Doc. No. 183) (“Pl.’s Opp. to Chiang Mot. to Dismiss”) at 13 (listing cases). Rather,
authority to control the company is sufficient and can be evidenced by, among other
things, “active involvement in business affairs and the making of corporate policy,
including assuming the duties of a corporate officer.” FTC v. Amy Travel Servs., Inc.,
875 F.2d 564, 573 (7th Cir. 1989) (citing FTC v. Kitco of Nevada, Inc., 612 F. Supp.
1282, 1292 (D. Minn. 1985)); FTC v. Med. Billers Network, Inc., 543 F. Supp. 2d 283,
320 (S.D.N.Y. 2008) (citing Amy Travel). The Amended Complaint pleads such
allegations: plaintiffs allege that Chiang was an officer of LeadClick and “formulated,
directed, controlled, had the authority to control, or participated in the acts and
practices” described in paragraphs 25 through 40 of the Amended Complaint. Am.
Compl. ¶ 15. In those paragraphs, plaintiffs allege specific acts by LeadClick and
Chiang, including the following: the hiring of affiliate marketers to generate leads for the
LeanSpa defendants, monitoring the affiliate marketers’ use of fake news sites,
discussing with the LeanSpa defendants the pairing of their products on the fake news
sites, and discussing strategy intended to disguise the high rate of chargebacks
generated by LeadClick’s deceptive marketing practices. Id. ¶¶ 25, 38–40. Plaintiffs
also allege that Chiang met with Mizhen to discuss LeadClick’s “use of blogs or fake
news sites to market [the LeanSpa Entities’] products and obtain consumer leads.” Id.
¶ 28. Chiang argues that this allegation is “inadequate” because it fails to identify
“specifics about the substance” of such discussions. Chiang Mem. Mot. to Dismiss at 9.
However, alleging that Chiang (an officer of LeadClick) spoke with Mizhen (the owner of
the LeanSpa Entities) regarding the use of the fake news sites is sufficient to plausibly
state Chiang’s participation in or control over LeadClick’s actions. Moreover, plaintiffs’

14

allegations are not merely conclusory. They identify specific acts that Chiang and
LeadClick took regarding the fake news sites, including, in at least one instance, a
discussion Chiang had with Mizhen about LeadClick’s alleged deceptive practices.
Chiang also argues that his position as “division manager . . . acting in the
normal course of the corporation’s business” stands in contrast to the “direct and
substantial” involvement of defendants in other cases. Id. at 8–9 (citing cases).
However, none of the cases Chiang cites occurred in the context of a motion to dismiss.
See, e.g., FTC v. Cyberspace.com, LLC, No. C00-1806L, 2002 WL 32060289 (W.D.
Wash. Jul. 10, 2002) (summary judgment); FTC v. Bronson Partners, LLC, 564 F. Supp.
2d 119 (D. Conn. 2008) (summary judgment). In those cases, the parties had the
benefit of discovery.3 Here, at the motion to dismiss stage, the question is not whether
plaintiffs have provided sufficient evidence, but rather, whether they have sufficiently
made a plausible claim that they are entitled to relief. Under this standard, the
allegations mentioned above plausibly support a claim that Chiang was directly and
substantially involved in LeadClick’s activities regarding the allegedly deceptive content
at issue. At the summary judgment stage, after the parties have engaged in discovery,
Chiang will be entitled to challenge whether there is evidence sufficient to merit a trial.
Plaintiffs have also plausibly alleged Chiang’s knowledge of, or reckless
indifference to, the alleged misrepresentations. See Stefanchik, 559 F.3d at 931 (9th
Cir. 2009). A court may consider an individual’s “degree of participation” in the
corporation’s affairs as “probative of [that individual’s] knowledge.” Amy Travel, 875
3

Chiang also cites FTC v. H.N. Singer, Inc., 668 F.2d 1107 (9th Cir. 1982), which involved an
appeal of a preliminary injunction entered by the district court below. That case is similarly unhelpful.
The Ninth Circuit noted that the district court had considered “pleadings, memoranda and affidavits”
before granting preliminary injunctive relief, and also noted that defendants did not contest on appeal that
the evidence supported finding of preliminary injunctive relief against them. Id. at 1109.

15

F.2d at 574 (citing FTC v. Int’l Diamond Corp., 1983 WL 1911 at *5 (N.D. Cal. Nov. 8,
1983)). Here, the same allegations cited above that supported prong one also plausibly
allege Chiang’s knowledge or reckless indifference. Allegations that the LeadClick
defendants (a term that includes Chiang) hired affiliate marketers and monitored those
marketers’ use of the fake news sites plausibly supports the claim that Chiang
participated in and was involved in LeadClick’s activities. Moreover, plaintiffs alleged
that Chiang, “[a]s an officer and representative of LeadClick,” coordinated with Mizhen
regarding LeadClick’s “use of blogs or fake news sites” and “discussed the LeanSpa
Defendants’ monthly sales and chargeback levels.” Am. Compl. ¶ 28. As pled, these
allegations plausibly suggest Chiang’s participation in LeadClick’s activities as they
related to the affiliate marketers and fake news sites. Chiang argues that plaintiffs’
allegations do not plead reckless indifference, and he attempts to contrast the facts in
the Amended Complaint with those described by the Ninth Circuit in another case.
Chiang Mem. Mot. to Dismiss at 11 (citing FTC v. Neovi, Inc., 604 F.3d 1150, 1156 (9th
Cir. 2010)). However, Neovi was decided at the summary judgment stage. The FTC
had access to a factual record developed through discovery, which is unavailable at the
motion to dismiss stage. Based on the allegations in the Amended Complaint, plaintiffs
have alleged sufficient facts to plausibly support the second prong.
The allegations that establish Chiang’s personal liability under the FTC Act also
establish his personal liability under CUTPA. As this court has noted, “It is well
established in Connecticut that a director or officer who commits [a] tort or who directs
the tortious act done, or participates or operates therein, is liable to third persons injured
thereby, even though liability may also attach to the corporation for the tort.” Envtl.

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Energy Servs., Inc. v. Cylenchar, Ltd., 2011 WL 4829851 at *6 (D. Conn. Oct. 12, 2011)
(quotation marks and citations omitted) (alteration in original); see Wall v. Post Publ’g
Co., No. CV 91-03-75-79S, 1992 WL 67382 *1 (Conn. Super. Mar. 26, 1992)
(“[P]ersonal liability may attach in a CUTPA claim where it is alleged that the individual
defendant participates in, controls or directs the acts or practices of a defendant
corporation.”). Moreover, “cases under the [FTC Act] serve as a lodestar for
interpretation of the open-ended language of CUTPA.” Russell v. Dean Witter
Reynolds, Inc., 200 Conn. 172, 179 (1986) (listing cases).
Finally, Chiang argues that, even if his personal liability is established, plaintiffs
cannot recover monetarily from him. According to Chiang, both the FTC Act and
CUTPA limit plaintiffs’ recovery to equitable relief, which in this case is the amount by
which he was unjustly enriched. Because “there is not a single allegation in the
Amended Complaint that Mr. Chiang obtained any unlawful, ill-gotten or wrongly gained
assets from the alleged conduct,” the Amended Complaint does not allege that he
benefited personally from LeadClick’s actions, and plaintiffs may not seek monetary
relief. See Chiang Mem. Mot. to Dismiss at 9, 13–15.
As mentioned previously, the Amended Complaint establishes Chiang’s
involvement in LeadClick’s deceptive practices. Further, the FTC Act grants authority to
courts to grant “equitable relief, including monetary relief.” FTC v. Bronson Partners,
LLC, 654 F.3d 359, 365 (2d Cir. 2011). Chiang argues that such relief must be based
on a defendant’s unjust enrichment. See Chiang Mem. Mot. to Dismiss at 14 (citing
FTC v. Verity Int’l, Ltd., 443 F.3d 48, 67–68 (2d Cir. 2006), cert denied, 549 U.S. 1278
(2007) (noting that “restitution is measured by the defendant’s gain”).

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Plaintiffs allege that Chiang was an officer of LeadClick and that LeadClick was
paid fees for its role in this action. Id. ¶¶ 15, 26. Plaintiffs also allege that the LeadClick
defendants, a term that includes Chiang, have been unjustly enriched by their
participation in this scheme. Am. Compl. ¶ 137. However, the Amended Complaint
does not allege any facts regarding how Chiang was unjustly enriched. The Amended
Complaint does not allege that any of LeadClick’s fees went to Chiang, nor does it
allege that Chiang was paid for his role in the alleged deceptive scheme. Absent such
support, these allegations constitute “[t]hreadbare recitals of the elements of a cause of
action, supported by mere conclusory statements.” Iqbal, 556 U.S. at 678 (citing
Twombly, 550 U.S. at 555). Accordingly, the court finds that plaintiffs have failed to
plausibly allege that Chiang was unjustly enriched by the deceptive conduct at issue.
C. Strano
Finally, Strano seeks to dismiss Count 17 of the Amended Complaint, the only
count alleged against Strano, for failure to state a claim upon which relief may be
granted. See Strano Mot. to Dismiss (Doc. No. 109). Specifically, Strano argues that
plaintiffs fail to allege facts regarding transfers of ill-gotten assets to her from any of the
other defendants. Mem. of Law in Support of Strano’s Mot. to Dismiss (Doc. No. 109-1)
(“Strano Mem. Mot. to Dismiss”) at 10 (arguing that the Amended Complaint fails to
allege any “factual predicate” for claims of such transfers). Strano also argues that
plaintiffs had the opportunity to discover such facts, if they existed, when a courtappointed receiver for the LeanSpa defendants (the “Receiver”) and plaintiffs “engaged
in six months of discovery,” some of which was directed toward Strano’s involvement.
Id. at 12.

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Although plaintiffs have not pleaded Strano’s involvement in great detail, this
court finds that the allegations are sufficient to survive a motion to dismiss. A court is
permitted to order equitable relief against a party that has received ill-gotten funds and
that does not have a legitimate claim to those funds. SEC v. Cavanagh, 155 F.3d 129,
136 (2d Cir. 1998) (describing standard for recovering from relief defendant in securities
enforcement action). Here, plaintiffs allege that Strano is the spouse of Mizhen, who
“owns, directs, or otherwise controls” the LeanSpa Entities, and who directed,
controlled, and/or participated in the LeanSpa Entities’ deceptive practices. Am. Compl.
¶¶ 9, 13, 16. Plaintiffs also allege that Strano received “or otherwise benefitted from”
proceeds of the LeanSpa defendants’ unlawful practices, that she “has no legitimate
claim” to those funds, and that she will be unjustly enriched if she does not disgorge
those funds. Id. ¶¶ 134–36. Strano is correct that these allegations do not specify
dates or amounts of any of these alleged transfers. However, the omission of such
details at this stage is not fatal to plaintiffs’ claim. In FTC v. Ivy Capital, Inc., 2011 WL
2118626 (D. Nev. May 25, 2011), the FTC made allegations against relief defendants
that were virtually identical to the allegations in this case. See id. at *4. The relief
defendants argued that the complaint was insufficiently pleaded because it failed to
allege that the relief defendants participated in or controlled any wrongdoing or had any
knowledge of the allegedly fraudulent conduct. Id. In denying the relief defendants’
motions to dismiss, the Ivy Capital court noted that all the FTC needed to allege with
respect to the relief defendants was that the relief defendants (i) received ill-gotten
gains and (ii) have no legitimate claim to the funds. Id. at *4–5. That court further noted
that the motions to dismiss were based on “pleading standards rather than the

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sufficiency of the evidence,” and that “arguments as to the sufficiency of the evidence
. . . are inappropriate at this juncture.” Id. at *5.
While the Ivy Capital court’s holding is not binding, this court finds its reasoning
persuasive. The question is whether plaintiffs have plausibly alleged that Strano
received ill-gotten funds to which she does not have a legitimate claim, Cavanagh, 155
F.3d at 136, not whether plaintiffs have alleged facts tracing particular funds to Strano.
By alleging a spousal relationship between Strano and Mizhen, the owner of the
LeanSpa Entities, describing the deceptive conduct of the LeanSpa defendants, and
alleging that Strano received funds or otherwise benefited from the LeanSpa
defendants’ ill-gotten funds, plaintiffs have plausibly alleged a basis for relief.
V.

CONCLUSION
For the foregoing reasons, the Motions to Dismiss filed by Strano and the

LeadClick defendants (Doc. Nos. 109, 155) are DENIED. The Motion to Dismiss filed
by Chiang (Doc. No. 179) is GRANTED in part as to the claim for equitable relief in the
form of money, and DENIED in part. Plaintiffs have until February 20, 2013 to replead
their claims to plausibly allege how Chiang was unjustly enriched, if they can do so
under the standards set forth above.
SO ORDERED.
Dated at New Haven, Connecticut this 29th day of January, 2013.
_/s/ Janet C. Hall_________
Janet C. Hall
United States District Judge

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