Markets Wired

Three Utah-based firms and their owner, which a federal court jury in 2016 found deceptively and illegally called more than 117 million consumers pitching their movies, have agreed to a proposed court order settling the Federal Trade Commission’s charges against them. The U.S. Department of Justice (DOJ) secured the defendants’ agreement to the proposed order imposing civil penalties and prohibiting telemarketing abuses, and filed it with the court on the behalf of the FTC.

The 2016 jury verdict covered six different Telemarketing Sales Rule (TSR) violations, including violations of the FTC’s regulations requiring telemarketers to use caller identification names that tell consumers what seller is calling and restrictions on telemarketers making calls to consumers without connecting the call to a sales representative within two seconds of the consumer’s greeting.

The proposed court order announced today bars the defendants from the misconduct alleged in the complaint, including illegally calling phone numbers on the Do Not Call (DNC) Registry, and imposes a $45.5 million civil penalty judgment, of which all but $487,735 is conditionally suspended. The suspended portion of the penalty amount will become due if the court later finds that defendants misrepresented their financial condition.

Case History

According to a 2011 complaint filed by the DOJ on behalf of the FTC, Forrest S. Baker III and three Utah firms that he controls violated the TSR and the FTC Act multiple times and deceived customers they called about where the proceeds from their movie purchases would go. The three firms named with Forrest S. Baker III as co-defendants are Feature Films for Families, Inc.; Corporations for Character, L.C.; and Family Films of Utah.

After the court resolved several issues in the case, DOJ attorneys and FTC witnesses presented evidence to a jury about violations by defendants during multiple telemarketing campaigns. In one nationwide campaign, Corporations for Character called consumers under the name “Kids First,” offered to send two free DVDs and requested feedback on whether the movies should be included on a list of recommended movies. This telemarketing campaign resulted in millions of calls to consumers on the DNC Registry in which defendants urged consumers to buy additional DVDs by telling them that “all of the proceeds” from sales would be used to complete a recommended viewing list of the nonprofit Coalition for Quality Children’s Media. In reality, Feature Films had contracted to receive 93 percent of all money collected from consumers.

The evidence also showed that in 2009 Feature Films called consumers to urge them to buy tickets to see “The Velveteen Rabbit,” a film produced by Baker and released in theaters before going to DVD. Feature Films’ telemarketers made more than 2.5 million calls to numbers on the DNC Registry during this campaign. In additional marketing campaigns, the defendants routinely called consumers on the DNC Registry to sell DVDs, and even continued to call consumers who had asked the defendants to stop calling, resulting in tens of millions of illegal calls.

In all, the jury found the defendants collectively responsible for 117 million TSR violations, including 99 million illegal calls to telephone numbers listed on the DNC Registry, as well as more than four million additional calls in which the defendants’ telemarketers made misleading statements to induce DVD sales.

The jury also found the defendants had actual or implied knowledge of the TSR violations, allowing the court to assess civil penalties under the FTC Act. The case was the first-ever jury verdict in an action to enforce the TSR and DNC Registry rules.

The Commission vote approving the proposed order was 2-0. It was filed in the U.S. District Court for the District of Utah, Central Division. The proposed order is subject to court approval.

NOTE: Stipulated final injunctions/orders have the force of law when approved and signed by the District Court judge.

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