Farm Fresh Direct by a Cut Above, LLC v. Downey (Maryland U.S.D.C.)

Filed: October 26, 2017

Opinion by: Judge Ellen Lipton Hollander

Holding:

Under Maryland law, the liability protections afforded to limited liability company (“LLC”) members with respect to obligations of an LLC did not support dismissal of claims that an individual engaged in unfair competition and deceptive trade practices by forming and participating in an LLC, where the plaintiff alleged conduct supporting direct claims against the individual.

Facts:

A Maryland LLC, Farm Fresh Direct by a Cut Above LLC (“Plaintiff”), brought suit against multiple defendants, including another Maryland LLC, Farm Fresh Direct Home Food Services, LLC (“Defendant LLC”), and an individual who allegedly filed Defendant LLC’s Articles of Organization with the Maryland State Department of Assessments and Taxation (“Defendant Individual” and together with Defendant LLC, the “Defendants”), alleging that the Defendants engaged in unfair competition in violation of both Section 43(a) of the Lanham Act, codified at 15 U.S.C. § 1125(a), and Maryland common law, by establishing and engaging in a competing business under a name which was confusingly similar to the name of the Plaintiff.  The Defendant Individual moved, pro se, to dismiss the action.  Despite construing the motion liberally in favor of the Defendant Individual, the district court denied the motion, holding that the Plaintiff had alleged sufficient facts to satisfy the pleading requirements of Fed. R. Civ. P. 8(a).    

Analysis: 

The district court analyzed as a threshold issue whether the Defendant Individual was subject to suit in light of the Defendant LLC’s status as a Maryland LLC.  The district court’s analysis begins with a review of Maryland and Fourth Circuit law regarding the corporate shield and the corresponding LLC shield.  The court then notes that, notwithstanding the LLC shield, which generally protects LLC members from personal liability for obligations of the LLC, the LLC shield does not protect LLC members from direct liability for that member’s own actions.  Because Plaintiff alleged that the Defendant Individual formed the Defendant LLC and acted as its resident agent, the district court held that Plaintiff had alleged sufficient facts to plead direct claims against the Defendant Individual.  Further, because Plaintiff alleged that the name of the Defendant LLC was confusingly similar to the name of the Plaintiff and that the Defendant LLC engaged in substantially the same business as the Plaintiff, the district court held that Plaintiff alleged sufficient facts to plead claims of unfair competition and deceptive trade practices under Maryland and Federal law.  Accordingly, the district court denied Defendant Individual’s motion to dismiss.

The full opinion is available in PDF.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

Bontempo v. Lare (Md. Ct. Spec. App.)

Filed: April 30, 2014

Opinion by: Douglas R. M. Zanarian

Holding:

(1) When a minority stockholder petitions a court for dissolution pursuant to Md. Code Ann., Corps. & Ass’ns § 3-413 (the “dissolution statute”), such stockholder’s rights will be informed by any existing stockholder agreement and, where there is no evidence of a deadlock of the board of directors or that the company is likely to become insolvent, the court has discretion under the statute to order alternatives to the extraordinary remedy of dissolution.

(2) The dissolution statute does not provide for personal liability, even if fraud is proven.

(3) The proper remedy when a court finds an officer or director has breached his or her fiduciary duties to the company by diverting money from the company for personal use is an order directing such officer or director to repay such money to the company, not an order requiring the company to declare equivalent distributions for all stockholders.

(4) An award of attorneys’ fees and expenses is only appropriate if the injured company has recovered a common fund.

(5) It is the trial court’s role to determine a party’s credibility and whether evidence is sufficient to support the existence of an oral contract.

Facts: Plaintiff became a minority stockholder of Quotient, Inc. (“Quotient”), a close corporation organized under Maryland law, in 2001. Plaintiff executed a shareholder agreement with the other stockholders of Quotient – the defendants, the Lares (a husband and wife collectively owning 55% of the stock in Quotient). In addition to being a director and officer of Quotient, Plaintiff was also an employee pursuant to an oral agreement with Mr. Lare, which Plaintiff alleged included that he would receive a salary equal to that of the Lares combined. In addition to certain “perks” (e.g., company credit cards for gas, meals and entertainment and a corporate fitness trainer), paid for by Quotient and received by Plaintiff and the Lares, the Lares began paying household employees from Quotient’s payroll account in 2006, advanced interest-free loans from Quotient to two companies in which the Lares had an interest and took a loan from Quotient for renovations to the Lares’ personal home. The relationship between Plaintiff and the Lares began to sour and in 2010 Mr. Lare terminated Plaintiff’s employment with Quotient after Plaintiff refused to voluntarily resign and sell his shares in Quotient. Plaintiff remained an officer and director of Quotient for six months after termination, however, and continued to receive distributions as a stockholder. Plaintiff filed suit against the Lares seeking relief pursuant to Maryland’s dissolution statute and asserted derivate claims on behalf of Quotient for imposition of a constructive trust, breach of fiduciary duty, and constructive fraud and a direct claim for breach of contract.

The trial court ruled in favor of Plaintiff as to his petition for dissolution; however, the trial court refused to dissolve Quotient and instead ordered Quotient to pay Plaintiff $167,638 in damages. The trial court also ruled in favor of Plaintiff as to his claim for breach of fiduciary duty and ordered that the misappropriated funds be treated as a distribution from Quotient and ordered Quotient to pay Plaintiff a proportionate amount, including attorney’s fees, but ruled in favor of the Lares as to Plaintiff’s claim for constructive fraud. The trial court ruled in favor of Plaintiff as to his claim for breach of contract and ordered Quotient to pay Plaintiff $81,818.18 in unpaid distributions, but refused to find an oral equal-compensation contract existed. Both parties appealed.

Analysis: The Court affirmed the holding of the trial court, including the trial court’s refusal to dissolve Quotient; however, it found that the trial court erred in how it allocated the damages.

Although the Court upheld the trial court’s finding, not contested on appeal, that Mr. Lare’s behavior met the standard for oppressive conduct, particularly his threat and ultimate firing of Plaintiff for refusing to voluntarily resign and sell his shares in Quotient, the Court also upheld the trial court’s conclusion that dissolution was not the only available remedy. The Court noted that it was Plaintiff’s status as a stockholder of Quotient, as defined by the shareholder agreement, that defined and bound the rights he was entitled to vindicate under the dissolution statute and the appropriate remedies. Unlike in Edenbaum v. Shcwarcz-Osztreicherne, 165 Md. App. 233 (2005), the Court noted that the shareholder agreement did not mention Plaintiff’s employment rights, thus the shareholder agreement did not give Plaintiff a reasonable expectation of employment or provide an enforceable to such. Instead, the Court found that Plaintiff was entitled to participate in distributions and the affairs and decisions of Quotient consistent with his status as a stockholder. Although Mr. Lare’s actions frustrated such rights, Plaintiff had resigned from Quotient’s board of directors and thus there was no evidence of a deadlock justifying dissolution, nor was there any evidence to suggest that, despite the use by the Lares of Quotient’s funds for personal expenses, Quotient was likely to become insolvent. Therefore, the extreme remedy of dissolution was inappropriate.

The Court also held that the Lares could not be personally liable under the dissolution statute, even if their actions constituted fraud, because the purpose of that statute is to vindicate the reasonable expectations of minority stockholders, in such capacity, against oppression by majority stockholders. Plaintiff’s injury as a minority stockholder was lost distributions, and thus, Plaintiff was made whole by accounting to determine how much money the Lares diverted from Quotient and an order to pay distributions to Quotient stockholders based on the amounts diverted.

The Court also agreed that the Lares had breached their fiduciary duties as directors and officers of Quotient by diverting money from Quotient for personal use; however, the Court held that the trial court erred in ordering a distribution to all stockholders as a remedy. The Court noted that it was Quotient, not Plaintiff, who was harmed because it was Quotient’s money that was taken by the Lares and, thus, distributions would not make Quotient whole but would instead take more money from Quotient. The Court held that the appropriate remedy would have been ordering the Lares to repay Quotient for the money taken. Because such payment would result in a recovery by Quotient of a common fund, the Court noted that an award by the trial court on remand of attorneys’ fees and expenses would be appropriate under the common fund doctrine.

Despite holding that the Lares had breached their fiduciary duties to Quotient, the Court affirmed the trial court’s ruling in favor of the Lares as to Plaintiff’s claim for constructive fraud. Although constructive fraud usually arises from a breach of fiduciary duty, the Court noted that they are not equivalent and that “a director can breach fiduciary duties without committing fraud.” The Court found that, although the Lares had used bad judgment in using funds from Quotient for their personal expenses, they had not engaged in a long course of illegal or fraudulent conduct, especially since all of the transactions were recorded on the books of Quotient and Plaintiff had access to such books. For the same reason, the Court found that the Lares did not act with malice.

Finally, the Court found that the trial court committed no error in refusing to find that an oral equal-compensation contract existed between Plaintiff and Quotient. Although Plaintiff and his wife testified to the oral equal-compensation agreement and evidence showed that Plaintiff was paid a salary equal to the Lares for four years, there was also evidence that, for multiple years in the beginning and towards the end of his employment, the salaries of Plaintiff and the Lares differed significantly. The Court noted that it was the trial court that heard the evidence and it was not for the Court to determine on appeal whether the trial court gave appropriate weight to the parties’ credibility.

The full opinion is available in PDF.

Federal Deposit Insurance Corporation as received for Bradford Bank v. Arthur (Maryland U.S.D.C.)

Filed: March 2, 2015

Opinion by: Richard D. Bennett

Holding:  In a claim against officers and directors of a Maryland corporation, a plaintiff may only overcome the business judgment rule with a showing of gross negligence. 

Facts: Plaintiff was appointed receiver for a Bank and brought suit against four former officers of the Bank.  Plaintiff alleged Defendants were negligent, grossly negligent and breached fiduciary duties to the Bank by ignoring the Bank’s loan policy and failing to exercise due care in approving seven loan transactions. 

Analysis:  The Court first enforced a Tolling Agreement that was executed by and between the Plaintiff and each of the Defendants (and extended five times) to suspend operation of the statute of limitations under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”).  The Court noted that a defendant who enters into a contract while believing the contract is enforceable cannot be said to be acting in good faith. 

The Court then addressed the correct standard of liability for director and officer conduct under the FIRREA and Maryland law.  The Court stated that the FIRREA provides that a director or officer of an insured depository institution may be held personally liable for monetary damages for gross negligence, as such term is defined under applicable state law. 

Plaintiff argued that negligence applied to the conduct of corporate officers and directors under Maryland law due to the codification of the business judgment rule.  The Court disagreed and cited Parish v. Maryland & Virginia Milk Producers Ass’n and Billman v. State of Md. Deposit Ins. Fund Corp. as precedent from the Court of Appeals and the Court of Special Appeals, prior to and after codification of the business judgment rule, that applied a gross negligence standard.  

The opinion is available in PDF.

Jackson v. Dackman (Ct. of Appeals)

Filed: October 24, 2011

Opinion by: Judge John C. Eldridge

Held: Immunity provisions of the Reduction of Lead Risk in Housing Act which, under specific conditions, grant immunity to a rental property owner from personal liability suits arising from lead paint poising, are invalid under Article 19 of the Maryland Declaration of Rights.

Facts: The case involves two rental properties, which were owned and maintained by defendants. In January 2007, plaintiff and her daughter moved into the first property when the daughter was one year old. When the lease was first executed, the tenants failed to note any defective conditions. Nevertheless, paint chipped and flaked throughout the apartment, which plaintiff’s daughter ingested, causing her to suffer from lead poising. In February 1999, plaintiff and her daughter moved to the second property, which had been inspected pursuant to the Reduction of Lead Risk in Housing Act and represented as lead-free. However, similar to the first property, paint chipped and flaked throughout the apartment, which the daughter again ingested. Plaintiff brought suit against the defendants and sought damages based on her daughter’s severe and permanent brain injuries allegedly resulting from ingestion of lead-based paint.

Analysis: Section 6-828 of The Reduction of Lead Risk in Housing Act grants immunity from personal injury suits to a rental owner who has complied with the statute, unless notice is given to the owner and the owner has been given the opportunity to make a qualified offer to the person at risk or to a parent or legal guardian of a minor. The statute sets forth specific blood-lead levels at which the tenants are required to give notice to rental owners. The Act also caps the maximum amount payable under a qualified offer to $17,000, which includes medical and relocation expenses. The Act provides that acceptance of a qualified offer releases the owner from all potential liability. It further states that if the qualified offer is rejected “[a]n owner of an affected property is not liable, for alleged injury or loss caused by ingestion of lead by a person at risk in the affected property.”

An issue presented to the court focused on whether the immunity provisions in the Act were invalid under Article 19 of the Maryland Declaration of Rights. Article 19 establishes the right to a remedy for a person who experiences an injury to person or property. The Court explained that the remedy may be found at common law, or substituted by the legislature through statute. The general inquiry, under Article 19 jurisprudence, “is whether the abolition of the common law remedy and substitution of a statutory remedy is reasonable.” Article 19 permits the legislature to impose a reasonable limit upon non-economic damages recoverable in tort cases. The Court, while reaffirming that some restrictions upon judicial remedies have been upheld -- including certain well-established immunities, ultimately held the immunity provisions of the Act to be unreasonable.

The immunity granted by the Act was not a well-established immunity in personal injury actions because it did not exist prior to the enactment of the statute in 1994. Under the Act, the only remedy offered in substitution for a personal injury action is a qualified offer by the owners which is accepted by a “person at risk, or a parent or legal guardian of a minor who is a person at risk.” The Court noted that the statute did not provide a remedy where no qualified offer was made. In addition, under the statute, the maximum compensation that may be offered is $17,000, which the Court deemed “minuscule” for a child who is found to be permanently brain damaged. Thus, the Court reasoned, “the remedy which the Act substitutes for a traditional personal injury action results in either no compensation (where no qualified offer is made or where a qualified offer is rejected) or drastically inadequate compensation (where such qualified offer is made and accepted).”


Furthermore, the Act has no exception to the owner’s immunity in the situation where an injured child reaches the age of majority and attempts to bring, in his or her own name, a personal injury action against the owner. The Court held, that because no adequate remedy was substituted for the grant of immunity, the immunity provisions of the Act were unreasonable and therefore invalid under Article 19. However, the Court found that the invalid provisions were severable from the rest of the statute, ultimately upholding the Act.

The full opinion is available in pdf. 

Oliver v. Crump (Maryland U.S.D.C.)

Filed: September 15, 2011

Opinion by: Judge Ellen Lipton Hollander

Held: In a suit alleging breach of fiduciary obligations of directors of a corporation, a Maryland court may exercise personal jurisdiction over out-of-state directors of a Maryland corporation that conducts its business operations in Maryland.

Facts: Defendants were directors, officers and employees of a Maryland corporation. Plaintiff alleged defendants acted in a course of misconduct. All of the defendants reside in Delaware.

Analysis: A court exercising personal jurisdiction over non-resident defendants does not violate the due process clause of the U.S. Constitution when the defendants have "minimum contacts" in the state and "the exercise of jurisdiction based on those contacts is constitutionally reasonable." The Court applied the logic of Pittsburgh Terminal Corp. v. Mid Allegheny Corp., 831 F.2d 522 (4th Cir. 1987), which involved a West Virginia corporation and directors who lived in the State of Virginia.

In Pittsburgh Terminal, the Fourth Circuit held "the acceptance of a directorship constitutes minimum contacts in a derivative suit." The Court also found minimum contacts because, among other reasons, (a) Maryland law, like West Virginia law, provides the business and affairs of the corporation shall be managed under the direction of a board of directors, (b) directors participate in business decisions that have a primary effect in the forum state and (c) by becoming directors, the defendants purposefully availed themselves of the privilege of doing business in that state.

Turning to the constitutional reasonableness portion of the due process test, the Court cited Pittsburgh Terminal, which noted the factors of the case made the "assertion of jurisdiction more reasonable." The Court agreed. As in Pittsburgh Terminal, the defendants live in a neighboring state. Maryland has a strong interest in providing a forum to hear a claim alleging wrongful acts by the directors of one of its domestic corporations. And, according to the Court, while defendants receive many benefits of the legal fiction of a corporation, requiring "them in turn to shoulder one of the few burdens of such fiction" did not seem unfair.

The opinion is available in pdf.

Allen v. Dackman (Ct. of Appeals)

Filed: March 22, 2010
Opinion by Judge Clayton Greene, Jr.

Held: An individual member of an LLC may be exposed to personal liability if he commits, inspires or participates in a tort. In addition, under the Baltimore Housing Code, an individual member of an LLC that owns a residential property may be subject to personal liability for violations of the Code as an "owner", as the term is defined, if he has "control" over the title, notwithstanding the liability shield of the LLC.

Facts: An LLC acquired a property in Baltimore City in order to sell it and turn a profit. At the time of purchase, the LLC was unaware that prior renters remained on the property. The LLC later became aware of the prior renters and requested that they vacate the premises. The prior renters did not comply and eventually had to be forcibly removed from the premises.

Two young children lived with the prior renters. They suffered elevated blood-lead levels, allegedly caused by lead paint on the premises, both before and after the LLC acquired the property. The plaintiffs filed a complaint against both the LLC and an individual that was a member of the LLC (the “Individual”), alleging a negligence action based on violations of the Baltimore City Housing Code.

The Individual filed a motion for summary judgment, arguing that he could not be held personally liable as a matter of law because his only involvement with the property was through the LLC. The trial court granted the motion, and the plaintiffs appealed to the Court of Special Appeals. The court affirmed the judgment of the trial court, and the plaintiffs appealed to the Court of Appeals.

Analysis: In a 5-2 decision, the Court of Appeals reversed, holding that a jury could have found the Individual personally liable. While an LLC member is generally not liable for torts committed by the LLC, the court stated that such a member could be liable if it committed, inspired or participated in the tort. The court held that because the Individual managed the LLC’s day-to-day affairs, a jury could have found that the Individual personally participated in the LLC’s decisions regarding the alleged negligent maintenance of the property. According to the court, such participation would permit personal liability for the Individual.

An additional issue on appeal was whether the Individual could be considered an "owner" under the Housing Code. Compliance with the Housing Code is only the responsibility of owners. The court ultimately held that a jury could have found that the Individual was an owner and so summary judgment was inappropriate. In so holding, the court stated the definition of owner under the Housing Code includes those who "control" title to a dwelling and it was a question for the jury whether the Individual had control, notwithstanding that the LLC owned the title.

The full opinion is available in PDF.

LTVN Holdings, LLC v. Odeh (Maryland U.S.D.C.)

Filed: November 5, 2009.
Opinion by: Judge Catherine C. Blake

Held: A non-resident defendant's assent to a forum selection clause in an Internet "clickwrap" agreement, alone, is sufficient to justify the exercise of personal jurisdiction over such a defendant and constitutes a waiver of any objection to venue.

Facts: Defendant LLC and its principal, citizens of Louisiana, obtained access to Plaintiff's Internet-based video content by registering on Plaintiff's website and accepting Plaintiff's on-line terms of use. The terms included a forum-selection clause, requiring that "any action to enforce this agreement shall be brought in the federal or state courts located in the State of Maryland." Plaintiff sued both the LLC and its principal in Maryland, alleging that they improperly tampered with Plaintiff's video content and passed it off on their website as the Defendant LLC's property. Defendants never visited Maryland and conducted no business there.

Analysis: The forum-selection clause in the Network Affiliate Agreement is valid, mandatory, and enforceable. Courts have routinely upheld such clauses where defendants clicked only once on a button indicating their assent to an on-line agreement containing those terms, even if they have not read the agreements. Defendant did not meet its "heavy burden" of showing that the forum-selection clause was "unreasonable, unfair, or unjust" in order to justify a judicial refusal to enforce it. As a result, Defendants' consent to the forum-selection clause, standing alone, is sufficient to confer personal jurisdiction in Maryland and makes venue in this district proper. Assent to the clause constitutes a waiver of objections to both personal jurisdiction and venue.

The plaintiff had previously prevailed in two other cases challenging the same type of contract provisions, Costar Realty Information, Inc. v. Field, 612 F.Supp. 2d 660 (2009) and Costar Realty Information, Inc. v. Meissner, 604 F.Supp. 2d 757 (2009).

Practice Pointer: Corporate principals, like the President of the Defendant LLC here, may be exposing themselves to personal liability merely by "clicking" their assent to an on-line service-provider's terms of use, even if the entity is the intended user of the on-line content. Such agreements may not distinguish between a user acting in his personal capacity and a user acting as agent for a corporate principal.

The full opinion is available in PDF.

Bayly Crossing, LLC v. Consumer Protection Division (Ct. of Special Appeals)

Filed: October 5, 2009

Opinion by: Judge James R. Eyler

Held: Limited liability company violated the Maryland Home Builder Registration Act and the Maryland Consumer Protection Act by failing to register as a home builder and by failing to disclose its unregistered status to prospective purchasers of new homes. The LLC's liability stemmed from entering into contractual obligations to build and sell new homes even if LLC did not perform the actual construction. The LLC members were personally liable for these violations because they were found to have participated in, controlled, or had knowledge of the LLC'sunregistered home building activity.

Facts: A limited liability company entered into form contracts to construct and sell new homes to individual buyers. The contracts disclosed that an affiliated corporation, closely held by the three members of the LLC, was registered as a home builder in Maryland and would perform the actual construction of the new homes. The contracts failed to disclose, however, that the LLC itself (designated as the "Seller" under each contract) was not registered as a home builder. Each contract also offered a one-year, limited warranty on the newly built home in exchange for the buyer's release of the LLC and its members from all liability relating to the construction. Prior litigation involving unregistered home-building activity by the affiliated corporation led to entry of a consent order, to which both the corporation and its principals (who would later also be the members of the LLC) were parties. The consent order prohibited the principals and "any entity with which they are or will be involved" from engaging in new home-building activities without first registering with the Maryland Home Builder Registration Unit of the Consumer Protection Division.

Analysis: By undertaking a legal obligation to "sell and construct" new homes to consumers without first registering as a home builder, the LLC violated the Maryland Home Builder Registration Act ("HBRA") even though its contracts disclosed that an affiliated corporation would perform the actual construction. The LLC also engaged in unfair and deceptive trade practices, in violation of the Maryland Consumer Protection Act ("CPA"), by failing to disclose its unregistered status in its contracts and promotional materials, thereby falsely implying to consumers that the LLC was lawfully authorized to sell new homes to consumers.

The members of the LLC were properly held jointly and severally liable for the LLC's statutory violations for two reasons.

First, they violated the prior consent order, which required both them and any entity with which they were or would become involved to register as home builders before engaging in any new home-building activity.

Second, consistent with the standard announced in Consumer Protection Div. v. Morgan, 387 Md. 125, 874 A.2d 919 (2005) for holding principals personally liable for corporate violations of the CPA, there was sufficient evidence demonstrating that the LLC members participated in, controlled, and had knowledge of the LLC's unlawful operation as an unregistered home builder. Also of note, the LLC itself was dismissed as a party to the appeal for lack of standing because its corporate charter was forfeited prior to the deadline to notice an appeal. The court held that revival of a forfeited corporate charter does not relate back to the filing of a notice of appeal by the corporation when it had no legal existence.

There are two significant practice pointers arising from this decision. First, by engaging in commercial activity that is subject to a comprehensive licensing and regulation statute enforced by an administrative agency, the actor is deemed to be making an implicit representation of a material fact to consumers that the actor is properly licensed and registered. Second, reflecting a growing trend in Maryland jurisprudence, corporate principals can be held personally liable for violations of these statutes under standards similar to long-held common-law principles imposing personal liability on corporate principals who direct, participate in, or cooperate in the commission of tortious activity by the corporation.

The full opinion is available in PDF.

Federal Trade Commission v. Innovative Marketing, Inc. (Maryland U.S.D.C.)

Filed September 16, 2009
Opinion by Judge Richard D. Bennett

Held: Under the recently articulated Iqbal "plausibility" standard, the FTC sufficiently pleaded a cause of action against a corporate officer for personal liability for deceptive marketing practices.

Facts: The FTC sued multiple companies and their officers for marketing software using misleading "scareware" tactics. One officer moved to dismiss for failure to state a claim against him in his individual capacity. Under the FTC Act, upon establishment of corporate liability for deceptive marketing, individual defendants may be held personally liable upon proof that they "participated directly" in the acts or "had authority to control them." In addition, the FTC must prove the individual had some knowledge of the conduct.

Regarding the individual, the FTC alleged that 1) he was a corporate officer, 2) he handled the company's finances and merchant accounts, 3) this was important because of the difficulty maintaining payment processors due to a high rate of chargebacks and complaints, and 4) his credit card was used by another defendant to buy advertising. The court held that these allegations were sufficient to support a claim for personal liability under the Act.

*Concerning the knowledge requirement, the court relied on the defendant's degree of participation in business affairs, the small size of the enterprise, and the breadth of the scheme to infer that he had knowledge.

The full opinion is available in PDF.