| Collot Guerard Elizabeth Grant Federal Trade Commission 600 Pennsylvania Avenue, NW Washington, DC 20580 202-326-3338 UNITED
STATES DISTRICT COURT
The Federal Trade Commission ("FTC" or "Commission") brings this action under Sections 13(b) and 19 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 53(b) and 57b, the Telemarketing and Consumer Fraud and Abuse Prevention Act ("Telemarketing Act"), 15 U.S.C. § 6101 et seq., and the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. The FTC seeks a permanent injunction, restitution, disgorgement, and other equitable relief for Defendant's violations of Section 5 of the FTC Act, Sections 310.3(a)(1)(i) and 310(a)(2)(iii) of the FTC's "Telemarketing Sales Rule", 16 C.F.R. Part 310, and Section 226.12(e) of Regulation Z, 12 C.F.R. § 226.12(e), which implements the TILA. JURISDICTION AND VENUE 1. Subject matter jurisdiction is conferred upon this Court by 15 U.S.C. §§ 45(a), 53(b), 57b, 1607(c), 6102(c), and 6105(b), and 28 U.S.C. §§ 1331, 1337(a), and 1345. 2. Venue in this district is proper under 15 U.S.C. §§ 53(b) and 6103(e) and 28 U.S.C. § 1391(b), (c), and (d). INTRADISTRICT ASSIGNMENT 3. Assignment to the San Francisco Division is appropriate because a substantial part of the events that give rise to this Complaint occurred in Sonoma County. THE PARTIES 4. Plaintiff, the Federal Trade Commission, is an independent agency of the United States Government created by statute. 15 U.S.C. § 41 et seq. The Commission enforces the FTC Act and trade regulation rules promulgated thereunder, including the Telemarketing Sales Rule, 16 C.F.R. Part 310, which prohibits deceptive or abusive telemarketing acts or practices. The Commission also enforces the TILA and its implementing Regulation Z. The Commission may initiate federal district court proceedings to enjoin violations of the FTC Act, the Telemarketing Sales Rule, and the TILA, and to secure such equitable relief as is appropriate in each case, including restitution for injured consumers. 15 U.S.C. §§ 53(b), 57b, 1607(c), and 6105(b). 5. Defendant Robert S. Dolgin, a California resident, operates a California sole proprietorship and has done business as Design Travel and Design Travel of Santa Rosa ("Design Travel") since at least 1995. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, participated in and has had knowledge of the acts and practices of Design Travel and its sales agents, including the acts and practices set forth in this complaint. Defendant Dolgin resides at 2152 Mason Street, San Francisco, California 94133, and his business is located at 460 Larkfield Center, Santa Rosa, CA 95403. At all times material to this complaint, Defendant Dolgin has transacted business in this District. COMMERCE 6. At all times material to this complaint, the Defendant's course of business, including the acts and practices alleged herein, has been and is in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44. DEFENDANT'S BUSINESS PRACTICES 7. Since at least 1995, Defendant has engaged in telemarketing, in the United States and elsewhere, vacations that include a Bahamas cruise and several nights of accommodations in Florida. Defendant operates his scheme through a network of telemarketing boilerrooms throughout the country. Defendant purchases the names of his targets, known as "leads." In many instances, Design Travel's leads are gathered through the rental of booths at local fairs or carnivals and posting signs asking people to "register" to win a vacation. 8. Defendant's boilerrooms contact the leads in several ways: 1) "cold calling" i.e., a salesperson from a boilerroom directly calling consumers and telling them they have "won" a vacation; 2) direct mail solicitations informing consumers that they have been selected to receive a "World Class Florida/Caribbean Vacation" including a "luxury" cruise; and 3) unsolicited faxes notifying consumers that Design Travel's "Wholesale Travel Department" has only a few Bahamas cruise packages remaining to sell. Design Travel also operates a home page on the Internet. Regardless of the method of contact, consumers are led to believe they are part of a select group of people specially chosen to receive this vacation bargain. 9. Once Defendant's telemarketers get a consumer on the telephone, they describe their "fantastic," "world-class" vacation to Florida and the Bahamas. The telemarketers tell consumers the vacation is worth as much as $1,500, but that the consumer will pay a much smaller amount to receive it, typically $398, $498, or $598. The amount Design Travel charges for its vacation has varied during the course of its operation. The telemarketers urge consumers to immediately "register for" or "secure" this vacation with a major credit card. Design Travel represents that the payment will cover the cost of their accommodations in both Florida and the Bahamas, as well as the round-trip cruise to the Bahamas. 10. Defendant's telemarketers tell consumers that they must purchase the vacation immediately. The telemarketers respond to consumers who request time to think over the offer, or receive it in writing, with canned rebuttals such as "each confirmation number can only be activated once so you cannot call back and reactivate your number" or "by the time you receive something in the mail, the limited number of vacations would be gone." In fact, there is no limit to the number of vacations for sale. 11. Consumers give their credit card numbers to the telemarketer, who charges their credit cards. In the travel certificate industry, this payment is known as the "front end" fee. The "front end" fees are funneled through Defendant's merchant account at the Exchange Bank in Santa Rosa, California. The charges appear on consumers' credit card statements as Design Travel in Santa Rosa. In the course of its operation, Design Travel also has used other merchant accounts in addition to Defendant's account at Exchange Bank. 12. Consumers do not receive a vacation for the money charged to their credit card accounts. Instead, they receive a package containing a short video, some advertisements, and "reservation request forms" for the Bahamas Cruise and the central Florida vacation. In order to book the cruise or visit central Florida, consumers learn they must pay more money to Defendant or his affiliate. The required additional payment, or the "back end" fee as it is known in the travel certificate industry, generally is at least $198 to $298. The reservation forms falsely state that the "back end" fee is for "port charges, reservation fees, service charges and taxes." In fact, the "back end" fee pays for the consumers' cruise to the Bahamas and accommodations. 13. Upon discovering that they must pay more to take the vacation they thought they had already purchased, many consumers attempt to cancel their vacation and return their package to Defendant. In numerous instances, Design Travel fails to credit consumers' accounts within seven days of receiving the package or forgiving the debt, as required by the TILA and Regulation Z. In fact, in some cases, Defendant delays several months before crediting consumers' accounts. 14. Those consumers who actually take the vacation after paying the extra "back end" fee discover that the vacation was not the "World Class" vacation they were promised. Consumers discover that the "luxury" cruise is, in fact, a ferry ride to the Bahamas. If consumers wish to stay at the better-known hotels and resorts referred to in Defendant's solicitations they must pay yet more undisclosed "upgrade" fees; otherwise they must endure the vermin-infested accommodations in the Bahamas provided by Design Travel. THE FEDERAL TRADE COMMISSION ACT 15. Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), provides that "unfair or deceptive acts or practices in or affecting commerce are hereby declared unlawful." VIOLATIONS OF THE FTC ACT COUNT I 16. Paragraphs 1 through 15 are incorporated herein by reference. 17. Since at least 1995, in connection with the telemarketing of vacations, Defendant, in numerous instances, has represented, or has caused his telemarketers or other agents to represent, directly or by implication, that consumers who pay Design Travel the amount specified in the initial solicitation or the initial sales call will receive a vacation. 18. In truth and fact, in numerous instances, consumers who pay Design Travel the amount specified in the initial solicitation or initial sales call do not receive a vacation. All the consumer receives for the payment is the option to purchase a vacation. In order to receive the vacation, the consumer must pay an additional amount to Design Travel or its affiliate. 19. Therefore, Defendant's representation as set forth in Paragraph 17 is false and misleading, and constitutes a deceptive act or practice in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). THE FTC TELEMARKETING SALES RULE 20. Defendant is a "seller" or "telemarketer" engaged in "telemarketing," as those terms are defined in the Telemarketing Sales Rule, 16 C.F.R. §§ 310.2(r), (t) and (u). 21. In the Telemarketing Act, Congress directed the FTC to prescribe rules prohibiting deceptive or abusive telemarketing acts or practices, including the following:
15 U.S.C. § 6102(a)(3)(C). On August 16, 1995, the FTC promulgated the Telemarketing Sales Rule, 16 C.F.R. Part 310. The Rule became effective on December 31, 1995. 22. The Telemarketing Sales Rule requires a telemarketer "[b]efore a customer pays for goods or services offered . . . to disclose, in a clear and conspicuous manner . . . [t]he total costs to purchase, receive, or use, and the quantity of, any goods or services that are the subject of the sales offer. . . ." 16 C.F.R. § 310.3(a)(1)(i). 23. The Telemarketing Sales Rule also prohibits a telemarketer from "[m]isrepresenting, directly or by implication, . . . [a]ny material aspect of the performance, efficacy, nature, or central characteristics of goods or services that are the subject of the sales offer . . . ." 16 C.F.R. § 310.3(a)(2)(iii). 24. Pursuant to Section 3(c) of the Telemarketing Act, 15 U.S.C. § 6102(c), and Section 18(d)(3) of the FTC Act, 15 U.S.C. § 57a(d)(3), violations of the Telemarketing Sales Rule constitute unfair or deceptive acts or practices in or affecting commerce, in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). VIOLATIONS OF THE FTC TELEMARKETING SALES RULE COUNT II 25. Paragraphs 1 through 24 are incorporated herein by reference. 26. In the course of telemarketing, in numerous instances since December 31, 1995, Defendant has failed to disclose, or failed to ensure that his telemarketers or other agents disclose, in a clear and conspicuous manner before a customer pays, the total costs of the vacation, in violation of Section 310.3(a)(1)(i) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(1)(i). COUNT III 27. Paragraphs 1 through 26 are incorporated herein by reference. 28. In the course of telemarketing, in numerous instances since December 31, 1995, defendant has represented, or has caused his telemarketers or other agents to represent, directly or by implication, that consumers would receive a vacation worth much more than they were paying. In truth and fact, in numerous instances since December 31, 1995, consumers did not receive a vacation worth much more than they were paying, and actually received a vacation worth much less than they paid. 29. Therefore, defendant has misrepresented, directly or by implication, material aspects of the performance, efficacy, nature or central characteristics of the offered vacations in violation of Section 310.3(a)(2)(iii) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(2)(iii). THE TRUTH IN LENDING ACT 30. Section 166 of the TILA, 15 U.S.C. § 1666e, requires creditors to promptly credit a consumer's credit card account upon acceptance of the return of goods or forgiveness of the debt for services. Section 226.12(e) of Regulation Z, which implements Section 166 of the TILA, requires creditors to credit a consumer's credit card account within seven business days from accepting the return of property or forgiving a debt for services. 12 C.F.R. § 226.12(e). VIOLATIONS OF THE TRUTH IN LENDING ACT COUNT IV 31. Paragraphs 1 through 31 are incorporated herein by reference. 32. Design Travel is a creditor as that term is defined in Section 103(f) of the TILA, 15 U.S.C. § 1602(f), and Section 226.2(a)(17)(ii) of Regulation Z, 12 C.F.R. § 226.2(a)(17)(ii). 33. In numerous instances, Defendant Design Travel fails to credit promptly consumers' credit card accounts within seven business days from accepting the return of property or forgiving a debt for services and, therefore, violates Section 166 of the TILA, 15 U.S.C. § 1666e, and Section 226.12(e) of Regulation Z, 12 C.F.R. § 226.12(e). CONSUMER INJURY 34. Consumers throughout the United States have suffered substantial monetary loss as a result of Defendant's unlawful acts or practices described in Counts I through IV above. Absent injunctive relief, defendant is likely to continue to injure consumers. THIS COURT'S POWER TO GRANT RELIEF 35. Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), empowers this Court to grant injunctive and other ancillary relief, including consumer redress, disgorgement, and restitution to prevent and remedy any violations of any provision of law enforced by the Commission. 36. Section 19 of the FTC Act, 15 U.S.C. § 57b, and Section 6(b) of the Telemarketing Act, 15 U.S.C. § 6105(b), authorize this Court to grant such relief as the Court finds necessary to redress injury to consumers or other persons resulting from the Defendant's violations of the Telemarketing Sales Rule, including the rescission and reformation of contracts and the refund of monies. 37. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy injury caused by the Defendant's law violations. PRAYER FOR RELIEF WHEREFORE, Plaintiff requests that this Court, as authorized by Sections 13(b) and 19 of the FTC Act, 15 U.S.C. §§ 53(b) and 57b, Section 6(b) of the Telemarketing Act, 15 U.S.C. § 6105(b), Section 108(c) of the TILA, 15 U.S.C. § 1607(c), and pursuant to its own equitable powers:
Respectfully submitted, COLLOT GUERARD ELIZABETH GRANT |