US District Court Judge Donald Molloy recently dissolved an injunction against a Lolo telemarketer accused by the Federal Trade Commission (FTC) of scamming hundreds of out-of-state customers. In the order, Molloy calls evidence presented by FTC “weak” and states that, if the trial were to occur today, the feds would seem unlikely to succeed on the merits of their claims.
Federal attorneys filed the lawsuit against U.S. Magazine Service and owner Jason Ellsworth of Hamilton on May 13, quickly securing an injunction and a freeze on Ellsworth’s assets without posting bond (see “Boundary call,” July 31, 2008). The telemarketer’s attorney, Hank Waters, says prosecutors used the best of FTC’s evidence to try and maintain the injunction.
“They’ve already kind of shot their load with the judge,” Waters says. “My guess is their supervisors didn’t know how bad the case was going.”
The FTC’s complaint accuses the company of luring customers into frontloaded payment plans with promises of sweepstakes prizes and then refusing cancellation requests—a violation of the Telemarketing Sales Rule. Molloy agreed with Ellsworth that while recorded sales calls show representatives refusing cancellation, the FTC’s evidence fails to prove the violations stemmed from company policy, rather than the actions of a few employees.
Twenty customer affidavits and roughly 200 complaints constituted the rest of FTC’s evidence, but in many of those cases Molloy determined the complainants either agreed to the payment plans or received a refund.
The lawsuit remains before the district court, though it appears prosecutors must now expand upon the body of evidence if they hope to succeed. The Spokane Better Business Bureau and the Montana Department of Justice compiled much of the documentation used against U.S. Magazine Service. State attorneys have no standing in the case itself since the telemarketing firm solicits only out-of-state clients.
Charles Harwood, regional director of the FTC, says discovery is ongoing. The case is scheduled for trial in early 2010.