Complaint 'Traces a Straight Line' of Misconduct to Injury, Says FTC in Fraud Case

Defendants Gary Cardone and Monica Eaton’s amended motion to dismiss a fraud complaint should be denied, plaintiffs the FTC and state of Florida responded (docket 8:23-cv-00796 ) Thursday in U.S. District Court for Middle Florida in Tampa, saying their claims “easily satisfy the low threshold for defeating a motion to dismiss.”

Cardone and Eaton, owners of Global E-Trading, doing business as Chargebacks911, used “multiple unfair techniques” to prevent consumers from winning chargeback disputes over unwanted, fraudulent or incorrect credit card charges, said the April complaint (see 2304130013).

In a June motion to dismiss, defendants said the FTC and Florida attorney general “do not adequately allege any required element of their claims,” reciting instead “conclusory allegations (see 2306140035." The complaint only points to conduct from over four years ago, “making no serious effort at showing any risk of future harm,” which, defendants said, disqualifies plaintiffs’ request for injunctive relief.

The complaint “traces a straight line” from defendants’ misconduct to consumer injury, responded plaintiffs Thursday. Consumers have reported to their banks that they had been charged without their knowledge and consent, said the response. Defendants have submitted representments purporting to show consumers knew about and consented to charges; as a result, “banks likely have been misled into denying the consumers’ valid chargebacks,” plaintiffs said.

“Connecting these dots is all that is necessary” to show Chargebacks911’s practices have caused or are likely to cause “substantial injury to consumers,” said the response. Defendants “misstate the standard for unfairness,” claiming that plaintiffs must allege that their misconduct “did in fact cause” or “caused or will cause” consumer harm, said the response, but the “correct standard” is that the act “causes or is likely to cause substantial injury.” Plaintiffs aren’t required to identify the specific injured consumers or provide individual consumers' information when bringing suit under the Florida Deceptive and Unfair Trade Practices Act or the FTC Act, it said.

Defendants try to “obfuscate their role in the scheme,” but their “misleading statements to banks that consumers consented to charges are squarely material to the banks’ decisions,” said the response. “There is only one logical reason that fraudulent merchants,” -- including Apex Capital, AH Media and F9 Advertising, all mentioned in the complaint – “paid Defendants to submit tens of thousands of misleading representments over the course of several years,” it said: “The scheme works.”

In their motion to dismiss, defendants said a chargeback doesn’t mean a consumer was harmed. The filing of a chargeback is “the opposite” of consumer injury because it's a “consumer trying to avoid harm” in cases where the chargeback is warranted, it said. The complaint doesn’t “allege or estimate the number of chargebacks that consumers lost or the average price of the underlying disputes,” it said, "and it never ties a consumer losing a legitimate chargeback dispute" to the company.

Defendants’ practices “parallel the misconduct” addressed in FTC v. Neovi, where the Neovi defendants were held liable for unfair practices because their website, which “created and delivered unverified checks,” was “highly vulnerable to con artists and fraudsters,” said the government plaintiffs’ response. The court said the defendants’ “profound lack of diligence, coupled with ... affirmative acts” was sufficient for an unfairness claim, said the filing.

“Here, too, Defendants’ liability derives from their profound lack of diligence and affirmative acts in submitting misleading information to dispute chargebacks,” said the response. Defeating isn’t just a “predictable consequence,” but “the entire point of Defendants’ actions,” it said. Defendants try to dodge responsibility by claiming they merely offer a clerical service and the merchant provides evidence for representment, said the response. That ignores that defendants “created and controlled a system that facilitated fraud and that the company was on notice” that it was submitting misleading information, it said.