Chargeback911's Bid to 'Derail' Discovery Would Harm Consumers: FTC

Chargebacks911’s motion to stay discovery pending a ruling on its amended motion to dismiss should be denied, said the FTC and the Florida attorney general in their Aug. 21 opposition (docket 8:23-cv-00796) in U.S. District Court for Middle Florida in Tampa.

Chargebacks911 and Gary Cardone and Monica Eaton, owners of parent company Global E-Trading, moved the court this month to stay discovery pending resolution of their amended motion to dismiss a fraud lawsuit (see 2308080050), saying their motion “is case dispositive” and requiring discovery to proceed during the pendency of the motion would impose “substantial and potentially unnecessary costs" on them.

In their opposition to the amended motion to dismiss, plaintiffs said a stay of discovery is “inappropriate” because CB911 et al. “fail to demonstrate the requisite good cause, reasonableness, necessity, and appropriateness for the proposed stay” because they can’t point to any unusual circumstance that may cause them to suffer prejudice or undue burden from responding to plaintiffs’ initial discovery requests. The motion to dismiss fails to establish that claims are unmeritorious, and most of the defendants’ arguments, “even if valid, would not entirely dispose of this action," the FTC said.

Defendants’ attempt to “derail” the agreed-upon discovery schedule would “unnecessarily delay Plaintiffs’ efforts to protect consumers from Defendants’ misleading chargeback dispute practices,” said plaintiff's opposition, saying the “sweeping motion for a stay of all discovery” should be denied.

The FTC’s and Florida’s April complaint alleges CB911, Cardone and Eaton engaged in “unfair practices” with chargeback mitigation services in violation of the FCT Act and the Florida Deceptive and Unfair Trade Practices Act. CB911 allowed its clients to run “microtransactions” via prepaid debit cards that artificially lower a merchant’s overall chargeback rate by inflating the total number of transactions running through the merchant’s account; that lowers the percentage of their charges that were disputed by consumers. Cardone and Eaton used “multiple unfair techniques” to prevent consumers from winning chargeback disputes over unwanted, fraudulent or incorrect credit card charges, the filing said.

On June 29, defendants filed their amended motion to dismiss, and plaintiffs responded with an opposition. In a joint case management report (CMR) July 10, the parties detailed an agreed-upon discovery schedule. Defendants filed their instant motion about three weeks after the parties agreed to a proposed discovery schedule, seeking to “derail the very discovery schedule they submitted,” said the opposition. Based on the CMR prepared by the parties, the court entered its case management and scheduling order setting the case for a March 2025 trial term, with a June 10 deadline to complete discovery. “Defendants’ requested stay would upend the entire schedule for discovery and trial,” said the opposition.

Defendants’ motion doesn’t meet the established legal standard for a stay or the district’s guidance in the discovery handbook, said the government plaintiffs. Their motion fails to show good cause, reasonableness, necessity, and appropriateness for their proposed stay, and they “cannot identify any unusual circumstance that may cause them to suffer prejudice or an undue burden from responding to Plaintiffs’ initial discovery requests,” said the FTC filing.

In their motion, Defendants made an “unsubstantiated assertion” that discovery is likely to be costly and “highly burdensome,” but the only specific burdens they claim to face are “the ordinary burdens of litigation” – producing responsive documents, the FTC said. Their claim that they may need to produce “a decade’s worth of material,” even if true, “would be insufficient to distinguish this matter from other matters alleging a similar magnitude of harm,” said the opposition. Defendants offered no reason why their cost concerns over producing documents “cannot be addressed through Rule 26’s proportionality requirements," it said.

A preliminary look at the defendants’ motion to dismiss reveals that it fails to establish that plaintiffs' claims CB911 used misleading information to dispute consumers’ chargeback requests, and that they use microtransactions to undermine fraud monitoring systems, “would fail to clear the low threshold required to survive a motion to dismiss, let alone that all claims against Defendants are likely to be dismissed,” said the opposition.

Plaintiffs and the public have a “significant interest in the speedy and just resolution of this case,” said the opposition. Plaintiffs are seeking “critical injunctive relief to halt the injury caused or likely to be caused” by CB911’s unfair chargeback practices, it said. “The interests of consumers in avoiding concrete financial harm far outweighs Defendants’ interest in delaying the ordinary costs of discovery.”