UNITED STATES DISTRICT COURT FEDERAL TRADE COMMISSION, Plaintiff, v. HOLD BILLING SERVICES, LTD., a Texas limited partnership; HBS, INC., a Texas corporation; AVERY COMMUNICATIONS, INC., a Texas corporation; VETERANS OF AMERICA ASSOCIATION, LTD., a Pennsylvania corporation; THOMAS M. LYONS, individually and as an officer of HBS, Inc.; KEITH C. CALIL, individually and as an officer of Veterans of America Association, Ltd.; and MILFORD H. BALABAN, individually and as an officer of Veterans of America Association, Ltd.; Defendants. CIVIL NO. COMPLAINT FOR Plaintiff, the Federal Trade Commission (“FTC” or “Commission”), for its Complaint alleges: 1. The FTC brings this action under Section 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 53(b), to obtain preliminary and permanent injunctive relief, restitution, disgorgement, and other equitable relief for Defendants' unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). JURISDICTION AND VENUE 2. Subject matter jurisdiction is conferred upon this Court by 15 U.S.C. §§ 45(a) and 53(b), and 28 U.S.C. §§ 1331, 1337(a) and 1345. 3. Venue in this district is proper under 15 U.S.C. § 53(b) and 28 U.S.C. §§ 1391(b) and (c). 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 Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce. The Commission may initiate federal district court proceedings to enjoin violations of the FTC Act, and to secure such equitable relief as is appropriate in each case, including restitution for injured consumers. 15 U.S.C. §§ 53(b). 5. Defendant Hold Billing Services, Ltd. ("Hold"), is a Texas limited partnership with its principal place of business at 14677 Midway Road, Suite 111, Dallas, Texas 75244, and its main business office at 4242 Medical Drive, Suite 2100, San Antonio, Texas 78229. Hold transacts or has transacted business in this district. 6. Defendant HBS, Inc. ("HBS") is a Texas corporation which also has its principal place of business at 14677 Midway Road, Suite 111, Dallas, Texas 75244, and a business office at 4242 Medical Drive, Suite 2100, San Antonio, Texas 78229. Defendant HBS is the sole general partner of Defendant Hold. HBS transacts or has transacted business in this district. 7. Defendant Avery Communications, Inc. ("Avery") is a Texas corporation which also has its principal place of business at 14677 Midway Road, Suite 111, Dallas, Texas 75244. Defendant Avery is the sole limited partner of Defendant Hold, and is the parent of Defendant HBS. Avery transacts or has transacted business in this district. 8. Defendant Thomas M. Lyons is president of Defendants HBS and Avery. He resides at 938 Hills Creek Drive, McKinney, Texas 75070. At all times material to this Complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of Avery, HBS and Hold set forth in this Complaint. Lyons transacts or has transacted business in this district. 9. Defendant Veterans of America Association, Ltd. ("VOAA") is a Pennsylvania corporation with its principal place of business at 600 W. Germantown Pike, Suite 400, Plymouth Meeting, Pennsylvania 19462-1046. VOAA itself, or through its agent Hold, transacts or has transacted business in this district. 10. Defendant Keith C. Calil is president of Defendant VOAA. He resides at 2445 Morris Avenue, Springfield, New Jersey 07081. At all times material to this Complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of VOAA set forth in this Complaint. 11. Defendant Milford H. Balaban is treasurer of Defendant VOAA. He resides at 59 Highgate Lane, Blue Bell, Pennsylvania 19422. At all times material to this Complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of VOAA set forth in this Complaint. COMMERCE 12. At all times material to this Complaint, Defendants’ 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. DEFINITIONS 13. For the purpose of this Complaint, “Local Exchange Carrier” or “LEC” means the local telephone company from which a line subscriber receives his or her telephone bill. 14. For the purpose of this Complaint, "line subscriber" means an individual or entity who has arranged with a LEC to obtain local telephone service provided through an assigned telephone number, and to be billed for such service on a monthly (or other periodic) basis. 15. For the purpose of this Complaint, “service vendor” or "vendor" means an entity that offers services that are billed to line subscribers on the monthly telephone bills received by line subscribers from their LECs. 16. For the purpose of this Complaint, “billing aggregator” means an entity that, on behalf of one or more service vendors, arranges to have charges placed on the telephone bills sent to line subscribers from their LECs, arranges for the LECs to collect those charges from line subscribers, and arranges for service vendors to receive payment for their services. DEFENDANTS’ BUSINESS PRACTICES 17. Since at least mid-1997, Defendant VOAA has operated as a service vendor offering services billed through the telephone billing and collection system. VOAA offers a voice-mail service. 18. Defendant Hold is a billing aggregator. Hold arranges to have the charges for services of its clients, such as VOAA, placed on line subscribers’ telephone bills. Hold contracts with LECs such as Bell South, Bell Atlantic and Pacific Bell -- the local telephone companies from which line subscribers receive their telephone service and billing -- to place the charges for VOAA’s services on line subscribers’ telephone bills. Charges for VOAA’s services generally appear on a separate page titled "Hold Billing" or "Hold" that the LECs insert into line subscribers’ telephone bills. Hold/VOAA bills look much like the bill page attached as Exhibit A to this Complaint. 19. Defendant VOAA has marketed its services to consumers by conducting sweepstakes or prize promotions at local shopping malls, convention centers and fairgrounds. VOAA or its agents set up displays at these and similar sites purporting to offer consumers a chance to win a desirable new vehicle or $25,000. To enter VOAA’s sweepstakes, consumers must fill in and sign an entry form calling for their name, address and telephone number, ostensibly for prize notification purposes. Consumers submit the completed entry form to VOAA or its agents, and retain no copy or other record of the entry. 20. Defendant VOAA’s contest displays and entry forms do not disclose, in a manner likely to be noticed and understood by consumers, that the Defendants construe a completed entry form as an order for VOAA’s services. Nor does VOAA disclose in its sweepstakes or prize promotion displays, in a manner consumers are likely to notice and understand, that Defendants will cause charges for VOAA’s services to appear on the monthly billing statement for the telephone number an entrant places on the sweepstakes entry form. 21. Defendant VOAA construes completed sweepstakes entry forms as contracts authorizing it to bill the telephone number on the entry form for the services it offers. VOAA transmits to Defendant Hold billing data necessary to cause charges for its services to appear on line subscribers’ telephone bills. Hold forwards this data to the LECs, who then process the data, causing a charge for the services of Defendant VOAA to appear on line subscribers’ telephone bills. 22. None of the Defendants has taken adequate steps to verify or confirm that a person who fills out a sweepstakes or prize promotion entry form is actually the line subscriber for the telephone number submitted on the entry form. In numerous instances, the Defendants have caused a line subscriber to be billed for a service even though he or she did not sign up for the sweepstakes or prize promotion. 23. Defendant Hold provides a toll-free 800 number on line subscribers’ telephone bills, ostensibly for line subscribers to call with complaints or questions. However, line subscribers who have called this number have found it difficult to reach a representative of Hold. In many instances, line subscribers reach only a recorded message telling them that if they need to speak to a representative they will have to try back later because all operators are busy. In other instances, line subscribers are put on hold for long periods of time. Many hang up, never reaching a Hold representative. In numerous instances, line subscribers spend several hours over a period of several days simply trying to reach a representative who can answer questions about the charges on their telephone bills. 24. When a line subscriber finally succeeds in reaching a Hold representative, the representative either refers him or her to the service vendor that provided the service for which the line subscriber was billed, or handles the inquiry on the service vendor’s behalf. In many instances, representatives of Hold or Defendant VOAA tell line subscribers that they are legally responsible for the charges, regardless of who, if anyone, ordered and received the service in question. In many instances, Defendants initially refuse to credit a line subscriber’s account, even though the line subscriber has neither ordered nor authorized an order for Defendant VOAA’s services. In some cases, the Defendants issue a credit to the consumer only after the intervention of a local exchange carrier or government authority. VIOLATIONS OF SECTION 5 OF THE FTC ACT COUNT I 25. In numerous instances, the Defendants represent, expressly or by implication, orally or in writing, that a line subscriber is legally obligated to pay the charges for VOAA’s services that Defendants have caused to be included on the line subscriber’s telephone bill. 26. In truth and in fact, in numerous instances, the line subscriber is not legally obligated to pay the charges for VOAA’s services that Defendants have caused to be included on the line subscriber’s telephone bill because the line subscriber did not order the services or authorize charges to be billed to his or her telephone bill. 27. Therefore, the representation by the Defendants, as alleged above, is false and deceptive, and violates Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT II 28. In numerous instances, Defendants bill or cause to be billed, and attempt to collect or arrange for the collection of payment from a line subscriber, based upon the appearance of the line subscriber’s telephone number on a sweepstakes or prize promotion entry form submitted to Defendants by a person other than the line subscriber. 29. Line subscribers cannot prevent third parties from placing their telephone numbers on sweepstakes or prize promotion entry forms. Therefore, a line subscriber cannot reasonably avoid Defendants’ billing and collection efforts for services based on sweepstakes entry forms filled out by a person other than the line subscriber. 30. Defendants’ practice of billing and attempting to collect from line subscribers who have not placed their telephone numbers on sweepstakes or prize promotion entry forms, have not entered into a valid contract to purchase services, and have not consented to have charges for such services billed to their telephone bills, causes substantial injury to line subscribers that cannot reasonably be avoided by them and is not outweighed by countervailing benefits to consumers or competition. 31. Therefore, Defendants’ practice, as alleged above, is unfair, and violates Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT III 32. In numerous instances, Defendant VOAA represents to consumers, expressly or by implication, orally or in writing, that consumers can enter a sweepstakes or prize promotion with a purported chance to win $25,000 or other valuable prize by completing and submitting a form. 33. In truth and in fact, VOAA construes the consumer’s completion and submission of these forms as authorization to cause charges for services to appear on the monthly billing statement for the telephone number the sweepstakes entrant places on the form. 34. In view of VOAA’s representations as set forth in paragraph 32, above, VOAA’s failure to disclose, in a manner likely to be noticed and understood by consumers, the material information, set forth in paragraph 33, above, is deceptive, and violates Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). CONSUMER INJURY 35. Consumers throughout the United States have suffered and continue to suffer substantial monetary loss as a result of Defendants' unlawful acts or practices. In addition, Defendants have been unjustly enriched as a result of their unlawful practices. Absent injunctive relief by this Court, Defendants are likely to continue to injure consumers, reap unjust enrichment, and harm the public interest. THIS COURT'S POWER TO GRANT RELIEF 36. 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. PRAYER FOR RELIEF WHEREFORE, Plaintiff, the Federal Trade Commission, requests that this Court, as authorized by Section 13(b) of the FTC Act, 15 U.S.C. §§ 53(b), and pursuant to its own equitable powers:
Respectfully submitted, Lawrence Hodapp Robert Shaw-Meadow Tel.: (210) 530-6110 Attorneys for Plaintiff Date: |