Federal Trade Commission et al v. The Tax Club, Inc. et al

Filing 122

OPINION AND ORDER re: 93 MOTION to Dismiss. filed by 1800Accountant, LLC, 81 MOTION to Dismiss. filed by 6015, LLC, 5410, Inc., 1800Accountant, LLC, Sandra C. Savage, Marble Base, Inc., Manhattan Professional Group, Inc., Premier Coaching & Cons ulting, LLC, Brendon A. Pack, Gary J. Milkwick, The Tax Club, Inc., Skorpios Holdings, Inc., Michael M. Salvage, HB Marketing Services, LLC, Visavis, Inc., Tahuya, Inc., Ikongo, Inc., 79 MOTION to Dismiss. filed by Edward B. Johnson. For the reasons stated above, Defendants' motions to dismiss are DENIED. The Clerk of Court is directed to terminate Docket Nos. 79, 81, and 93. (Signed by Judge Jesse M. Furman on 1/17/2014) (lmb)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
FEDERAL TRADE COMMISSION et al.,
:
:
Plaintiffs,
:
:
-v:
:
THE TAX CLUB, INC. et al.,
:
:
Defendants.
:
:
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01/17/2014
13 Civ. 210 (JMF)
OPINION AND ORDER

JESSE M. FURMAN, United States District Judge:
In this civil enforcement action, the Federal Trade Commission (“FTC”), the State of
Florida, and the State of New York (collectively, “Plaintiffs”) sue a group of corporate entities
(the “Corporate Defendants”) that this Opinion will refer to as the “Tax Club Enterprise” or the
“Enterprise,” and four people associated with the Enterprise (the “Individual Defendants” and,
together with the Corporate Defendants, “Defendants”). Plaintiffs allege that the Tax Club
Enterprise engaged in deceptive telemarketing tactics, in violation of the Federal Trade
Commission Act (the “FTC Act”), 15 U.S.C. § 45(a), the Telemarketing Sales Rule (the “TSR”),
16 C.F.R. Part 310, and Florida and New York state statutes. Defendants move to dismiss the
Amended Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the
reasons that follow, Defendants’ motions to dismiss are DENIED.
BACKGROUND
The following facts are taken from the Amended Complaint (“AC”) (Docket No. 88) and
are assumed to be true for purposes of this motion. See, e.g., LaFaro v. N.Y. Cardiothoracic
Grp., PLLC, 570 F.3d 471, 475 (2d Cir. 2009).

A. History and Structure of the Enterprise
The Tax Club Enterprise is a business that sells products and services to people seeking
to build their own small businesses. (AC ¶ 30). Defendant Edward Johnson started the business
in 2003 by forming companies known as The Tax Club, Inc. (“TTC”) and Manhattan
Professional Group, Inc. (“MPG”). (Id. ¶ 37). At some point later in 2003, Johnson relocated
the business from St. George, Utah, to New York City. (Id.). At or about the same time,
Johnson recruited Defendant Michael Savage to help him run the business; Savage has served as
the president of TTC and MPG since 2008. (Id. ¶ 38). Savage, in turn, hired Defendant Gary
Milkwick in 2007, who has served as MPG’s Vice President of Operations since at least 2009.
(Id. ¶ 40). Defendant Brendan Pack also joined the business in 2004, and he has supervised sales
operations and managed the sales staff at MPG since at least 2010. (Id. ¶ 39).
In February 2008, these men — the Individual Defendants — began to form new
corporate entities related to the business. Between February and September 2008, they formed
entities known as VisaVis, Inc. (“VisaVis”), Tahuya, Inc. (“Tahuya”), Ikongo, Inc. (“Ikongo”),
and 5410, Inc. (“5410”). (Id. ¶¶ 41-44). In April 2010, 5410 acquired controlling ownership
interests in HB Marketing Services, LLC (“HB Marketing Services”) and Premier Coaching &
Consulting, LLC (“Premier Coaching”), which, until then, had been separate companies selling
similar products as the Enterprise. (Id. ¶ 45). Pack formed an entity known as Marble Base, Inc.
(“Marble Base”) in May 2010, and in August 2011, Savage formed another known as Skorpios
Holdings, Inc. (“Skorpios”). (Id. ¶¶ 46-47). At this point, these entities were all owned by some
combination of Johnson, Savage, and Pack. (Id. ¶ 51).
In November 2011, the Enterprise underwent a reorganization, as a result of which
Johnson was no longer an owner of any corporate entities associated with the Enterprise. (Id. ¶¶

2

48, 50). Instead, the corporate entities comprising the Enterprise were held by Savage, Pack, and
Milkwick, as well as a non-party named Lindsay Kush. (Id.). Many of the entities were owned
by Skorpios which, in turn, was owned by Savage, Pack, Milkwick, and Kush. (Id.). Milkwick
formed two more entities in February 2012, 6015, LLC (“6015”) and 1800Accountant, LLC
(“1800Accountant”), both of which became additional holdings of Skorpios. (Id. ¶ 49). These
entities — twelve in total — are the Corporate Defendants.
B. The Enterprise’s Business and Marketing Techniques
As noted, the Tax Club Enterprise sells products and services to assist people in
developing their own small businesses. (Id. ¶ 30). Among other things, the Enterprise sells tax
advice, business planning services, and business credit development assistance. (Id.).
The Enterprise markets its products by calling potential customers over the telephone.
(Id. ¶¶ 31-32). It identifies these potential customers by purchasing their contact information
(known as “consumer leads”) from businesses that sell similar products as the Enterprise. (Id.
¶ 31). Once the Enterprise acquires a lead, a sales representative calls the potential customer and
states that he or she is calling “on behalf of” the company from which the lead was purchased.
(Id. ¶ 33, 95). The Enterprise’s sales representative then says that the Enterprise offers an array
of services that are essential to the success of the potential customer’s business, and that these
services will ultimately pay for themselves. (Id. ¶ 33). Such services allegedly include
“unlimited, year round consulting,” “comprehensive business plans,” and “personal business
advisors.” (Id. ¶¶ 33, 95). If a consumer does, in fact, purchase an Enterprise product, a sales
representative will make “upsell” calls to that consumer, attempting to persuade him or her to
buy additional products, sometimes indicating that the customer must supplement the alreadypurchased products with additional ones to recoup the money already he or she already spent.

3

(Id. ¶¶ 34, 114-19). One entity within the Enterprise, 5410, provides financing to consumers so
that they can make these additional purchases. (Id. ¶ 55).
When consumers buy the Enterprise’s products with credit or debit cards, the transactions
are processed through various accounts, known as “merchant accounts,” that Defendants have
established with merchant acquiring banks. (Id. ¶¶ 57, 63, 65-66). Defendants have set up over
fifty such accounts since 2008. (Id. ¶ 65). Proceeds processed through these accounts are then
deposited into the Corporate Defendants’ commercial bank accounts (id. ¶¶ 69-71), and are often
transferred among the various commercial bank accounts maintained by the different corporate
entities (id. ¶ 76). In fact, the purpose of the Enterprise’s numerous corporate entities other than
TTC, MPG, and 5410 is to maintain these merchant and commercial bank accounts, receiving
and redistributing funds from consumer purchases. (Id. ¶ 56).
In their Amended Complaint, Plaintiffs allege that the representations that employees of
the Enterprise make on the telemarketing calls are misleading in several ways. For example,
they contend that the representation that the Enterprise calls potential customers “on behalf of”
the companies from which it purchases the customer leads is inaccurate. (Id. ¶¶ 99-101). In
addition, contrary to the representations made on the calls, “in numerous instances, consumers
who purchase the Defendants’ products and services are not able to recoup the purchase price
from future business income” (id. ¶ 106), “are unable to access a live tax or business advisor”
(id. ¶ 111), “do not receive individualized business plans” (id. ¶ 112), and “receive only generic
business credit information” (id. ¶ 113). Further, the upsell calls are “masked as fulfillment
calls that were scheduled for the ostensible purpose of providing services that the customer
already purchased,” and the telemarketers on such calls fail to “disclose promptly that the
purpose of the call is . . . to sell additional products and services.” (Id. ¶ 115).

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The result of these practices has been an extraordinarily high level of consumer
complaints against the Enterprise. Apparently, dissatisfied consumers have filed numerous
complaints against TTC with the Better Business Bureau of Utah, have initiated a high rate of
chargebacks (that is, disputes of charges on credit card bills) with their credit card issuers, and
have requested many returns (that is, requests for reversal of charges on credit card accounts)
from the Enterprise itself. (Id. ¶¶ 121-30). As a result of the high rate of chargebacks and
returns, at least two merchant acquiring banks have terminated the Enterprise’s accounts. (Id. ¶
132). In addition, state attorneys general brought some of the consumer complaints to the
attention of Johnson and Savage. (Id. ¶ 135).
C. Procedural History
Plaintiffs filed their initial Complaint on January 9, 2013 (Docket No. 1), accompanied
by a motion for a temporary restraining order and preliminary injunction (Docket No. 2). The
Court held hearings on the requested temporary relief on January 11 and 15, 2013, and entered
interim Orders on January 11 and 18, 2013 (Dockets No. 31 and 65), which, inter alia,
prohibited Defendants from making false or misleading statements; prohibited them from failing
to disclose certain information to people receiving calls from the Defendants; and established a
monitoring program to record sales, billing, and fulfillment calls. The Court subsequently
replaced those Orders with a stipulated preliminary injunction order containing essentially the
same terms. (Docket No. 74).
On March 18, 2013, Defendants moved to dismiss the Complaint. Johnson filed his
motion individually (Mem. Law. Supp. Def. Edward B. Johnson’s Mot. Dismiss Pls.’ Compl.
(“Johnson Mem.”) (Docket No. 80)), while all of the other Defendants filed a single, joint
motion (Mem. Law. Supp. Defs.’ Mot. Dismiss (“TTC Mem.”) (Docket No. 82)). Pursuant to

5

the Court’s Order of March 19, 2013 (Docket No. 84), Plaintiffs filed an Amended Complaint on
April 8, 2013 (Docket No. 88). On May 13, 2013, Defendant 1800Accountant, LLC filed a new
motion to dismiss in response to the Amended Complaint (Mem. Law. Supp. Def.
1800Accountant, LLC’s Mot. Dismiss. Am. Compl. (“1800Accountant Mem.”) (Docket No.
94)), but all other Defendants (including Johnson) indicated that they were relying on their
previously filed motions to dismiss (Docket No. 95).
The Amended Complaint asserts claims against Defendants under the FTC Act (AC
¶¶ 139-50); the TSR (id. ¶¶ 151-60); the Florida Deceptive and Unfair Trade Practices Act
(“FDUTPA”) (id. ¶¶ 161-65); the New York Executive Law (id. ¶ 166); and the New York
General Business Law (id. ¶ 167). The Amended Complaint also asserts an equitable claim
against Relief Defendant Sandra Savage, the wife of Defendant Michael Savage, for ill-gotten
gains. (Id. ¶¶ 27, 168-70).
DISCUSSION
Collectively, Defendants press four main arguments. First, they contend that the
allegations in the Amended Complaint are insufficiently specific with regard to each particular
Defendant. (TTC Mem. 6-8; Johnson Mem. 6-9; 1800Accountant Mem. 5-9). Second, they
assert that the Amended Complaint fails to allege the elements required for individual liability
under the FTC Act and the TSR. (Johnson Mem. 8-10; Reply Mem. of Law Supp. Defs.’ Mot.
Dismiss (Docket No. 102) (“TTC Reply”) 12-13). Third, they insist that the FDUPTA claim
should be dismissed because of the Amended Complaint’s alleged failure to adequately plead
causation. (TTC Mem. 9-11). Finally, they argue that the claim against Relief Defendant Sandra
Savage should be dismissed for the Amended Complaint’s failure to plead that she was unjustly
enriched. (TTC Mem. 8-9). The Court addresses these arguments in turn.

6

A. Legal Standard
In reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court must accept the
factual allegations set forth in the complaint as true and draw all reasonable inferences in favor
of the plaintiff. See, e.g., Holmes v. Grubman, 568 F.3d 329, 335 (2d Cir. 2009). To survive a
Rule 12(b)(6) motion, however, the plaintiff must plead sufficient facts “to state a claim to relief
that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is
facially plausible “when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). More specifically, the plaintiff
must allege sufficient facts to show “more than a sheer possibility that a defendant has acted
unlawfully.” Id. A complaint that offers only “labels and conclusions” or “a formulaic recitation
of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. Further, if the
plaintiff has not “nudged [his or her] claims across the line from conceivable to plausible, [the]
complaint must be dismissed.” Id. at 570.
B. Specificity of the Pleadings
First, Defendants argue that the Amended Complaint should be dismissed because it
impermissibly engages in “group pleading” — that is, it “lumps” the Defendants together, and
“does not distinguish . . . any aspect of their alleged misconduct.” (TTC Mem. 6-7). As a
general matter, pleadings are required to specify “which defendant is alleged to have committed
a particular . . . act.” Merrill Lynch, Pierce, Fenner & Smith, No. 91 Civ. 2923 (CSH), 1994
WL 88129, at * 15 (S.D.N.Y. Mar. 15, 1994); see also Appalachian Enters., Inc. v. ePayment
Solutions Ltd., No. 01 Civ. 11502 (GBD), 2004 WL 2813121, at * 7 (S.D.N.Y. Dec. 8, 2004)
(dismissing complaint that “lump[ed] all the defendants together and fail[ed] to distinguish their

7

conduct” (internal quotation marks omitted)). There is an exception to this rule, however, where
multiple corporate defendants operate a “common enterprise.” See Del. Watch Co. v. FTC, 332
F.2d 745, 746 (2d Cir. 1964) (per curiam); FTC v. Consumer Health Benefits Ass’n (Consumer
Health Benefits II), No. 10 Civ. 3551 (ILG), 2012 WL 1890242, at *5, *10 (E.D.N.Y. May 23,
2012); Commodity Futures Trading Comm’n v. Int’l Fin. Servs. (N.Y.), Inc., 323 F. Supp. 2d 482,
508 (S.D.N.Y. 2004).
Under the common enterprise theory, each entity within a set of interrelated companies
may be held jointly and severally liable for the actions of other entities that are part of the group.
See FTC v. Consumer Health Benefits Ass’n (Consumer Health Benefits I), No. 10 Civ. 3551
(ILG) (RLM), 2011 WL 3652248, at *5 (E.D.N.Y. Aug. 18, 2011) (“Corporate entities that
operate in a common enterprise may be held liable for one another’s deceptive acts and
practices.”), aff’d, No. 10 Civ. 3551 (ILG) (Docket No. 250) (E.D.N.Y. Oct. 12, 2011); Int’l Fin.
Servs., 323 F. Supp. 2d at 511 (“IFS Inc. and IFS LLC engaged in a common enterprise, and IFS
LLC therefore bears joint and several liability for IFS Inc.’s violations . . . .”). In determining
whether a common enterprise exists among a set of corporate defendants, courts consider a set of
non-dispositive factors, including “whether they (1) maintain officers and employees in
common, (2) operate under common control, (3) share offices, (4) commingle funds, and (5)
share advertising and marketing.” Consumer Health Benefits II, 2012 WL 1890242, at *5; see
also FTC v. Wash. Data Res., 856 F. Supp. 2d 1247, 1271 (M.D. Fla. 2012) (similar); FTC v.
Neovi, Inc., 598 F. Supp. 2d 1104, 1116 (S.D. Cal. 2008) (similar). Thus, to state a claim for
common enterprise liability, a plaintiff must allege facts plausibly supporting the existence of
these factors.
The Amended Complaint alleges facts that support the existence of each one of these

8

factors among the twelve Corporate Defendants. Some combination of Johnson, Savage, Pack,
and Milkwick are alleged to occupy or have occupied officer positions at each of the twelve
Corporate Defendants. (AC ¶¶ 23-26). All twelve are alleged to share the same office space (id.
¶¶ 11-22) and employ the same telemarketing, customer service, billing, and administrative staff
(id. ¶¶ 28, 40). They are alleged to maintain a highly integrated set of banking services;
consumer funds processed through a credit card merchant account in the name of one Corporate
Defendant are often deposited in a commercial bank account in the name of another Corporate
Defendant (id. ¶ 75), and funds are frequently transferred among the bank accounts of the
Corporate Defendants (id. ¶ 76). They are also alleged to share common ownership; prior to the
November 2011 reorganization, all of the Corporate Defendants (except 6015, 1800Accountant,
and Skorpios, which did not exist at the time) were owned by Johnson, Savage, Pack, or some
combination of the three, (id. ¶ 51), and after the reorganization, all of the Corporate Defendants
other than Ikongo and Tahuya were controlled by Savage, Pack, Milkwick, Kush, or some
combination of the four (id. ¶ 52). Finally, they are alleged to use the same process of
identifying potential customers and marketing their products. (Id. ¶¶ 28, 90-92, 96).
Defendants’ arguments that the Amended Complaint inadequately alleges specific
conduct by certain corporate entities (see TTC Reply 6-7; 1800Accountant Mem. 5-9) fail to
recognize the effect of the common enterprise theory. The very nature of this theory is that
corporate entities that are a part of the common enterprise are liable for the conduct of other
entities in the enterprise, regardless of whether the particular entity engaged in the behavior at
issue. See Del. Watch. Co., 332 F.2d at 746 (holding that where “the same individuals were
transacting an integrated business through a maze of interrelated companies . . . the pattern and
frame-work of the whole enterprise must be taken into consideration” (internal quotation marks

9

omitted)); Consumer Health Benefits II, 2012 WL 1890242, at *5 (noting that where the
“structure, organization, and operation of a business venture among separate corporate entities
reveal[s] a common enterprise . . . the FTC Act will “disregard[] the corporate form”). Thus, so
long as the Amended Complaint adequately alleges wrongdoing by the common enterprise, as
well as facts supporting a finding that the entity in question is part of the common enterprise, it is
immaterial whether the Amended Complaint alleges that each Corporate Defendant “specifically
engaged in deceptive telemarketing practice[s].” (1800 Accountant Mem. 5; see also TTC Reply
6-7). Defendants do not appear to dispute that the Amended Complaint adequately alleges
wrongdoing by the Enterprise as a whole, and, as discussed above, it sufficiently alleges facts
establishing common enterprise liability.
Defendants’ remaining arguments warrant little discussion. First, Defendants somehow
contend that the Amended Complaint fails to allege a “common purpose” among the corporate
entities (TTC Reply 8-10), in spite of the Amended Complaint’s lucid description of the
Defendants’ business as a seller of “tax preparation and advice, business planning and
counseling, and business credit development services” (AC ¶ 30) as well as its clear explanation
of the roles the different corporate entities play in furthering that business purpose (id. ¶¶ 54-56).
Second, Defendants cite no legal authority — and the Court is aware of none — for the
proposition that “[w]here . . . the businesses of . . . Corporate Defendants . . . could continue in
operation despite the shuttering of some, there is no common enterprise.” (TTC Reply 9).
Finally, to the extent that Defendants’ argue that the heightened pleading requirements of Federal
Rule of Civil Procedure 9(b) apply, 1 the only relevant authority they cite actually concludes to
1

In their initial Memorandum of Law, Defendants did not explicitly raise this argument,
merely stating — in a footnote, no less— that “there is no controlling authority excusing
Plaintiffs from [the] obligation” of meeting Rule 9(b)’s requirements, and that the Court “need
not reach the question of the applicability of Rule 9(b).” (TTC Mem. 7 n.4). But in their Reply
10

the contrary, holding that Rule 9(b) does not apply to claims brought under the FTC Act. See
Consumer Health Benefits II, 2012 WL 1890242, at *5.
C. Individual Liability
Next, Defendant Johnson argues that the Amended Complaint fails to state a claim
against him personally (Johnson Mem. 8-9; Reply Further Supp. Def. Edward B. Johnson’s Mot.
Dismiss (Docket No. 101) (“Johnson Reply”) 7-12). In order to state a claim for individual
liability for deceptive telemarketing practices, Plaintiffs must allege “(1) that the individuals
participated directly in the wrongful acts or practices or that the individual defendants had the
authority to control the corporate defendants; and (2) that the individuals had some knowledge of
the acts or practices.” FTC v. Five-Star Auto Club, 97 F. Supp. 2d 502, 535 (S.D.N.Y. 2000).
Johnson contends that Plaintiffs fail to allege authority to control, direct participation in the
wrongful acts, and knowledge of the wrongful acts. (Johnson Mem. 8-9; Johnson Reply 7-12).
None of these arguments, however, is persuasive.
“Authority to control the company can be evidenced by active involvement in business
affairs and the making of corporate policy, including assuming the duties of a corporate officer.”
FTC v. Med. Billers Network, Inc., 543 F. Supp. 2d 283, 320 (S.D.N.Y. 2008) (internal quotation
marks omitted); see also Five-Star Auto Club, 97 F. Supp. 2d at 538 (“An individual’s
assumption of the role of president and her authority to sign documents on behalf of the
corporation demonstrate that she had the requisite control over the corporation to be held liable
under the FTC Act.” (internal quotation marks and alterations omitted)). Here, the Amended
Memorandum, Defendants changed course, affirmatively stating that the Court “should evaluate
the Amended Complaint in light of the particularity requirements of Rule 9(b).” (TTC Reply 5).
It is well settled, however, that a court need not consider arguments relegated to footnotes or
raised for the first time in a reply brief. See, e.g., Tolbert v. Queens Coll., 242 F.3d 58, 75 (2d
Cir. 2001); United States v. Restrepo, 986 F.2d 1462, 1463 (2d Cir. 1993); Haywin Textile
Prods., Inc. v. Int’l Fin. Inv., 137 F. Supp. 2d 431, 434 n.2 (S.D.N.Y. 2001).
11

Complaint alleges that Johnson served as the CEO of the main operating entities of the
Enterprise — TTC and MPG — until August of 2011 (AC ¶ 23), that he was the sole owner of
these entities until November 2011 (id.), and that he served in officer positions at Ikongo (id.)
and 5410 (id. ¶ 44). The Amended Complaint also alleges that he helped formulate policies
regarding the Enterprise’s sales practices by creating sample scripts to be used during
telemarketing calls (id. ¶ 93), and that he had authority to operate bank accounts on behalf of the
Enterprise (id. ¶ 74). The fact that Johnson has not owned or served as an officer of any of the
Corporate Defendants since 2011 (see Johnson Reply 8) is immaterial, as the Amended
Complaint alleges illegal conduct since 2008, and Johnson has not argued that any of Plaintiffs’
claims are time barred. 2
Not only does the Amended Complaint allege sufficient factual content to support the
authority-to-control prong, but it also alleges sufficient facts supporting the direct participation
prong. The Amended Complaint alleges that Johnson helped to formulate sales scripts used in
the Enterprise’s telemarketing calls (AC ¶¶ 93, 95, 97), and Plaintiffs’ theory of liability depends
on the allegedly misleading language from these scripts, such as the telemarketers’
representations that they were calling “on behalf of” particular lead sources (id. ¶¶ 95, 148(a),
161(a), 166(a), 167(a)). Regardless of whether the particular sample script Johnson is alleged to
have helped draft was “ever used by the corporate defendants” (Johnson Mem. 9), the Amended
Complaint clearly alleges direct participation in the wrongful acts by claiming that he “created
sample sales scripts to guide sales representatives in making deceptive claims during
telemarketing calls,” and that the sales scripts “guide sales representatives[] to,” inter alia,
“falsely claim they are calling consumers ‘on behalf of’ a particular lead source.” (AC ¶ 95).
2

The other Defendants explicitly disavow any arguments based on a statute of limitations.
(TTC Reply Mem. 11 n.5).
12

Finally, it is beyond doubt that the Amended Complaint sufficiently alleges Johnson’s
knowledge of the Enterprise’s wrongful practices. The “knowledge requirement may be fulfilled
by showing that the individual had actual knowledge of material misrepresentations, reckless
indifference to the truth or falsity of such misrepresentations, or an awareness of a high
probability of fraud along with an intentional avoidance of the truth.” Five-Star Auto Club, 97 F.
Supp. 2d at 535 (internal quotation marks omitted); see also Consumer Health Benefits II, 2012
WL 1890242, at *5 (“The degree of participation in a corporate defendant’s affairs can be
probative of knowledge.”). Here, the Amended Complaint alleges that Johnson participated in at
least two meetings regarding consumer complaints concerning the very kinds of deceptive
practices for which the Plaintiffs seek redress. (AC ¶¶ 121, 135-36). It also alleges that the
Enterprise had unusually high chargeback and return rates, which resulted in the termination of
several of the Enterprise’s merchant accounts prior to the time that Johnson sold his interest in
the Enterprise. (Id. ¶¶ 122-32). Accepting these allegations as true, as the Court must, Johnson
had to have been aware of the Enterprise’s misrepresentations or, at the very least, recklessly
indifferent to their truth or falsity. See, e.g., FTC v. Crescent Publ’g Grp., Inc., 129 F. Supp. 2d
311, 324 (S.D.N.Y. 2001) (granting preliminary relief under the FTC Act against an individual
defendant where there was “ample evidence of [the individual defendant’s] communications
about charge backs and customer disputes”); FTC v. MacGregor, 360 F. App’x 891, 894-95 (9th
Cir. 2009) (holding that “evidence showing the high volume of consumer complaints, the high
refund and return rates, and the number of investigations by state Attorneys General and the
Better Business Bureau” showed that the individual defendant “likely knew of material
misrepresentations . . . or was at least recklessly indifferent to the truth”).
The remaining three Individual Defendants — Pack, Milkwick, and Savage — also

13

contend that the Amended Complaint fails to adequately allege their personal liability (TTC
Reply 12-13), but their arguments fail for largely the same reasons. The Amended Complaint
adequately alleges authority to control by all three. Pack is alleged to be an officer of Marble
Base, Tahuya, and Skorpios (AC ¶ 25), and a signatory on a number of different merchant and
commercial bank accounts (id. ¶¶ 64-65, 69-71). He also is alleged to have drafted scripts
guiding the sales staff in making the allegedly misleading telemarketing calls. (Id. ¶¶ 93-95).
Milkwick is alleged to be an officer of 5410, 6015, 1800Accountant, HB Marketing, and Premier
Coaching (id. ¶ 26), and a signatory on numerous merchant and commercial bank accounts (id.
¶¶ 64-65, 69-73). And Savage is alleged to have held senior positions at TTC, MPG, 5410,
Marble Base, Tahuya, and Skorpios (id. ¶ 24), to oversee a wide range of functions for the
Enterprise (id. ¶ 38), and to be a signatory on a number of merchant and commercial bank
accounts (id. ¶¶ 64-65, 69, 71-73). The Amended Complaint also alleges knowledge on the part
of all three, claiming that they discussed the Enterprise’s high level of customer complaints and
chargebacks on at least two occasions. (Id. ¶¶ 133-137). Put simply, the Amended Complaint
goes far beyond “conclusory allegations about their oversight roles in the companies” and
“general allegations of knowledge.” (TTC Reply 12). Accordingly, Defendants’ motion to
dismiss the Amended Complaint with respect to the Individual Defendants is DENIED.
D. FDUPTA Claims
Next, Defendants move to dismiss Florida’s FDUPTA claim on the ground that the
Amended Complaint fails to “adequately plead causation.” (TTC Mem. 9; TTC Reply 2 n.2). 3
Their argument, however, misrepresents the law. When bringing a civil enforcement action
3

In their initial Memorandum of Law, Plaintiffs also argued that the Amended Complaint
failed to adequately allege damages. In their Reply Memorandum, Defendants withdrew that
argument. (TTC Reply 2 n.2; see also Endorsed Letter of May 13, 2013, at 1 n.1 (Docket No.
95)).
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under FDUPTA for injunctive relief, the Florida Attorney General is not required to plead that
the allegedly deceptive conduct caused harm to individual consumers. Instead, the pleadings
must simply claim that a person “has violated, is violating, or is otherwise likely to violate”
FDUPTA, Fla. Stat. § 501.207(1)(b), which the Amended Complaint does. (AC ¶¶ 161-62).
Moreover, to the extent that the Florida Attorney General seeks damages on behalf of Florida
consumers, it is not required to name the consumers affected by the allegedly fraudulent conduct.
See, e.g., Taubert v. State, 79 So. 3d 77, 79-80 (Fla. Dist. Ct. App. 1st 2011). Accordingly,
Defendants’ motion to dismiss the FDUPTA claim is DENIED.
E. Relief Defendant Sandra Savage
Finally, Defendants contend that the claim against Relief Defendant Sandra Savage
should be dismissed. “A relief defendant is a person who holds the subject matter of the
litigation in a subordinate or possessory capacity as to which there is no dispute.” Commodity
Futures Trading Comm’n v. Walsh, 618 F.3d 218, 225 (2d Cir. 2010). District courts have the
power to order disgorgement from such a defendant “upon a finding that she (1) is in possession
of ill-gotten funds and (2) lacks a legitimate claim to those funds.” Id.
Here, there is no question that the Amended Complaint states a claim against Relief
Defendant Savage. Defendants argue that Sandra Savage has not been unjustly enriched (TTC
Mem 8-9), but the Amended Complaint explicitly alleges that, from April 2010 to June 2010, she
“received monthly electronic funds transfers from VisaVis totaling well in excess of $6 million,”
transfers representing “funds from consumer purchases deposited . . . with VisaVis.” (AC ¶ 27).
Defendants’ contention that “Plaintiffs have inadequately pleaded their claims against VisaVis”
(TTC Reply 13) is simply a rehash of the arguments that this Court has already rejected, and they
make no suggestion that Sandra Savage is or was otherwise entitled to these funds. Defendants

15

rely heavily on FTC v. Leanspa, LLC, 920 F. Supp. 2d 270 (D. Conn. 2013), but that case
actually supports Plaintiffs’ position, as the court permitted a claim against a spousal relief
defendant even where the complaint did not specify the dates or amounts of the alleged transfers.
Id. at 281. The Amended Complaint in this case does far more; accordingly, Defendants’ motion
to dismiss the claim against Sandra Savage is DENIED.
CONCLUSION
For the reasons stated above, Defendants’ motions to dismiss are DENIED. The Clerk of
Court is directed to terminate Docket Nos. 79, 81, and 93.

SO ORDERED.

Dated: January 17, 2014
New York, New York

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