Federal Trade Commission v. Directv, Inc. et al

Northern District of California, cand-4:2015-cv-01129

Discovery Order re: {{82}} Discovery Letter Brief filed by Federal Trade Commission. Signed by Judge Maria-Elena James on 12/9/2015.

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 FEDERAL TRADE COMMISSION, 7 Case No. 15-cv-01129-HSG (MEJ) Plaintiff, 8 DISCOVERY ORDER v. 9 Re: Dkt. No. 82 DIRECTV, INC., et al., 10 Defendants. 11 12 Northern District of California United States District Court 13 INTRODUCTION 14 Pending before the Court is the parties' discovery dispute letter concerning Defendants 15 DIRECTV and DIRECTV, LLC's (collectively, "Defendants") subpoenas to seven non-party 16 consumers (collectively, the "consumer declarant subpoenas"). Dkt. No. 82. Through the joint 17 letter, Plaintiff Federal Trade Commission (the "FTC") seeks a protective order forbidding the 18 depositions and document productions requested. Having considered the parties' positions, 19 relevant legal authority, and the record in this case, the Court issues the following order. 20 BACKGROUND 21 A. Factual Background 22 Defendants provide direct-to-home digital television service and multi-channel video 23 programming distribution throughout the United States. Compl. ¶ 10, Dkt. No. 1. They offer this 24 service to consumers by subscription, which consists of a programming package, a satellite dish 25 and other necessary equipment, and installation and support services. Id. ¶ 11. Defendants 26 typically require consumers to agree to a mandatory 24-month contract to receive programming 27 and assess an "early cancellation fee" against customers who cancel their subscription before the 28 end of 24 months. Id. ¶ 12. 1 Since 2007, Defendants have disseminated advertisements for their subscription service 2 that contain the following statements regarding pricing for their subscription service: 3 A. "All New! Limited Time Offer! . . . Now only $19.99*/mo." 4 B. "Package offers starting at $24.99/mo. Limited Time." 5 C. "Limited Time! $24.99/mo for 12 months." 6 Id. ¶ 16 & Exs. 1-3. To the extent these advertisements contain any qualifying disclosures 7 concerning the mandatory two-year contract length and the price consumers will pay after the 8 initial period, the FTC alleges any such disclosures are inadequate. Id. ¶ 17. 9 Some of Defendants' advertisements also contain statements that subscribers will receive 10 premium channels free of charge for three months. Id. ¶ 18. For example, Exhibit 1 to the 11 Complaint states "over 30 premium channels free for 3 months." The FTC alleges these 12 advertisements do not convey that (1) Defendants automatically enroll consumers in a negative Northern District of California United States District Court 13 option continuity plan with additional charges; (2) consumers must affirmatively cancel the 14 negative option continuity plan before the end of a trial period to avoid additional charges; (3) 15 Defendants use consumers' credit or debit card information to charge consumers monthly for the 16 negative option continuity plan; and (4) the costs associated with the negative option continuity 17 plan. Id. ¶ 19. 18 The FTC further alleges Defendants engage in deceptive internet sales on their website, 19 www.directv.com. Since 2007, Defendants have disseminated webpages that contain statements 20 that are identical or similar to the following: 21 A. "Limited Time. 140+ channels. $24.99 month for 12 months"; and 22 B. "CHOICE: 150+ channels. Only $29.99 month for 12 months" 23 Id. ¶ 21 & Ex. 4 at 1-2. The FTC alleges these webpages do not convey that Defendants require 24 consumers to remain a subscriber for two years, a mandatory term which carries an early 25 cancellation fee for the failure to do so; and that Defendants charge significantly higher monthly 26 prices for their programming packages during the second year of service. Id. ¶ 22. Defendants' 27 webpages typically contain statements concerning an offer of free premium channels that are 28 identical or similar to the following: "Free for 3 months. HBO + Starz + Showtime + Cinemax." 2 1 Id. ¶ 23 & Ex. 4 at 1. The FTC maintains these webpages do not convey to consumers that 2 Defendants automatically enroll consumers in a negative option continuity plan and related costs 3 described above. Id. ¶ 24. 4 Consumers who call the telephone number listed in Defendants' advertisements speak with 5 a telemarketer. Id. ¶ 25. Defendants' telephonic sales presentations typically include statements 6 concerning the initial monthly prices that consumers will pay for programming packages, but the 7 FTC alleges the presentations do not adequately disclose the monthly cost to consumers of the 8 programming packages during in the second year of their subscription agreements. Id. 9 B. Complaint 10 The FTC filed this case on March 11, 2015, bringing claims under Sections 13(b) and 19 11 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 53(b) and 57b, and Section 5 of 12 the Restore Online Shoppers' Confidence Act ("ROSCA"), 15 U.S.C. § 8404, in connection with Northern District of California United States District Court 13 the advertising, marketing, and sale of Defendants' multi-channel video programming subscription 14 service. In Count I, the FTC alleges Defendants' fail to disclose or disclose adequately: (1) the 15 mandatory two-year agreement period for the subscription service, which carries an early 16 cancellation fee; and (2) the significantly higher price for programming packages, typically $25 to 17 $45 per month higher, during the mandatory second year of the consumer's agreement, and this 18 failure constitutes a deceptive act or practice in violation of Section 5(a) of the FTC Act, 15 19 U.S.C. § 45(a). Compl. ¶¶ 28-30. 20 In Count II, the FTC alleges Defendants fail to disclose or disclose adequately: (1) that 21 they automatically enroll consumers in a negative option continuity plan with significant charges; 22 (2) consumers must affirmatively cancel the negative option continuity plan before the end of the 23 trial period to avoid charges; (3) Defendants use consumers' credit or debit card information to 24 charge consumers for the negative option continuity plan; and (4) the costs associated with the 25 negative option continuity plan, and this failure also constitutes a deceptive act or practice in 26 violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). Id. ¶¶ 31-33. 27 In Count III, the FTC alleges Defendants have charged or attempted to charge consumers 28 for access to premium channels, as part of its subscription service, through a negative option 3 1 feature while failing to clearly and conspicuously disclose all material terms of the transaction 2 before obtaining consumers' billing information, and that this practice constitutes a violation of 3 Section 4(1) of ROSCA, 15 U.S.C. § 8403(1). Id. ¶¶ 39-40. 4 In Count IV, the FTC alleges Defendants have charged or attempted to charge consumers 5 for access to premium channels, as part of their subscription service, through a negative option 6 feature while failing to obtain consumers' express informed consent before charging their credit 7 card, debit card, bank account, or other financial account for those premium channels, and that this 8 practice constitutes a violation of Section 4(2) of ROSCA, 15 U.S.C. § 8403(2). Id. ¶¶ 41-42. 9 C. Consumer Declarant Subpoenas 10 On November 6, 2015, Defendants served the seven consumer declarant subpoenas. Jt. 11 Ltr., Exs. A-G. The subpoenas seek information regarding communications with the FTC, 12 including draft declarations, communications with DIRECTV about their accounts, Northern District of California United States District Court 13 communications with state attorneys general and regulatory agencies, and records of subscriptions 14 to competitive TV services. Id.1 These seven consumers provided the FTC with sworn 15 declarations in 2013 and 2014 as part of the agency's investigation of Defendants. Jt. Ltr. at 2. 16 LEGAL STANDARD 17 Federal Rule of Civil Procedure 26 provides that a party may obtain discovery "regarding 18 any nonprivileged matter that is relevant to any party's claim or defense and proportional to the 19 needs of the case[.]" Fed. R. Civ. P. 26(b)(1). Relevance within the meaning of Rule 26(b)(1) is 20 considerably broader than relevance for trial purposes. See Oppenheimer Fund v. Sanders, 437 21 U.S. 340, 351 (1978) (citation omitted). However, a court "must limit the frequency or extent of 22 discovery otherwise allowed by [the Federal] rules" if "(i) the discovery sought is unreasonably 23 cumulative or duplicative, or can be obtained from some other source that is more convenient, less 24 burdensome, or less expensive; (ii) the party seeking discovery has had ample opportunity to 25 obtain the information by discovery in the action; or (iii) the proposed discovery is outside the 26 scope permitted by Rule 26(b)(1)." Fed. R. Civ. P. 26(b)(2)(C). 27 28 1 Each of the document requests is identical. 4 1 "The court may, for good cause, issue an order to protect a party or person from 2 annoyance, embarrassment, oppression, or undue burden or expense," including by (1) prohibiting 3 disclosure or discovery; (2) conditioning disclosure or discovery on specified terms; (3) 4 preventing inquiry into certain matters; or (4) limiting the scope of disclosure or discovery to 5 certain matters. Fed. R. Civ. P. 26(c)(1). "Rule 26(c) confers broad discretion on the trial court to 6 decide when a protective order is appropriate and what degree of protection is required." Seattle 7 Times Co. v. Rhinehart, 467 U.S. 20, 36 (1984). 8 DISCUSSION 9 The FTC brings this request for a protective order under Rule 26(c) "to protect the 10 agency's interests and to relieve seven private citizens from the burdens of DIRECTV's efforts to 11 seek discovery of marginal relevance." Jt. Ltr. at 2. Although the FTC produced these 12 declarations to Defendants, it argues "they represent just seven complaining consumers among the Northern District of California United States District Court 13 millions of complaints received by the FTC, the Better Business Bureau, and, we understand, by 14 DIRECTV itself." Id. (emphasis in original). The FTC maintains Defendants "cannot avoid the 15 fact that the testimony and documents of the seven declarants is of extremely limited value when 16 compared to these other sources of consumer complaints available from the parties themselves." 17 Id. The FTC notes it has not offered any of the consumer declarations in support of its Complaint, 18 nor does it intend to call any of the consumer declarants as witnesses at trial. Id. As such, 19 Defendants' consumer declarant subpoenas "waste agency resources and inflict collateral damage 20 on seven private citizens." Id. 21 In response, Defendants argue the FTC "has made clear that it will rely on consumer 22 complaints against DIRECTV to support its case," noting that in its Complaint, the FTC asserts 23 Defendants' "advertising has been the focus of 'tens of thousands of consumer complaints.'" Id. 24 at 4; Compl. ¶ 15. As Defendants intend to show "consumer complaints in general—and these 25 seven in particular—are unreliable," they subpoenaed the consumers "the FTC placed at issue by 26 convincing them to sign declarations attacking DIRECTV." Jt. Ltr. at 4. Defendants contend the 27 discovery is relevant and likely to yield evidence that supports their defense "that consumers have 28 not been deceived, but rather have selective memories and make untruthful claims to avoid 5 1 contractual fees." Id. Defendants further argue the FTC's motion should be denied because the 2 FTC is the wrong party to bring this motion: "If the consumers object, they must say so." Id. 3 As an initial matter, the Court finds the FTC, as a party to this consumer protection action, 4 may request a protective order regarding the consumers it seeks to protect. See FTC v. AMG 5 Servs., Inc., 291 F.R.D. 544, 552 (D. Nev. 2013) ("FTC, as a party to this action, may bring this 6 motion for protective order. . . regarding the subpoenas issued to the nonparty consumers."); In re 7 REMEC, Inc. Secs. Litig., 2008 WL 2282647, at *1 (S.D. Cal. May 30, 2008) (party may move for 8 a protective order regarding subpoena issued to a non-party); see also Moon v. SCP Pool Corp., 9 232 F.R.D. 633, 636 (C.D. Cal. 2005) ("A party cannot object to a subpoena duces tecum served 10 on a nonparty, but rather, must seek a protective order or make a motion to quash."); EEOC v. 11 Serramonte, 237 F.R.D. 220, 223 (N.D. Cal. 2006) (pursuant to Rule 26(c), plaintiff federal 12 agency may move to quash nonparty subpoenas). Northern District of California United States District Court 13 Having reviewed the parties' positions, the Court finds it unnecessary to burden the 14 consumer declarants with Defendants' requests. First, the consumer declarant subpoenas impose 15 potentially substantial burdens on private citizens, including the time and expense of collecting 16 responsive documents and preparing and testifying at the depositions, as well as the cost of 17 retaining legal counsel to assist with this response. 18 Second, it is not clear that the subpoenas are proportional to the needs of this case. While 19 the scope of relevancy is broad for discovery purposes, permissible discovery from nonparties is 20 narrower than that permitted from parties to the action. Dart Indus. Co. v. Westwood Chemical 21 Co., 649 F.2d 646, 649-50 (9th Cir. 1980) ("[T]he word 'non-party' serves as a constant reminder 22 of the reasons for the limitations that characterize 'third-party' discovery." (citations omitted)). 23 The Ninth Circuit "does not favor unnecessarily burdening nonparties with discovery requests, 24 and, as a result, [n]on-parties deserve extra protection from the courts." Robert Half Int'l Inc. v. 25 Ainsworth, 2015 WL 4662429, at *4 (S.D. Cal. Aug. 6, 2015) (citations and quotations omitted). 26 Defendants argue they have a right to conduct discovery of consumers who have claimed 27 to have been deceived. Jt. Ltr. at 5. They argue they will show "that consumers who claimed not 28 to have seen or understood certain disclosures, in fact often fully knew all the material terms at the 6 1 time they subscribed. Thus, depositions like these are important for DIRECTV's defenses and 2 may strike at the heart of one pillar of the FTC's case." Id. at 6. However, these seven consumers 3 provided the FTC with sworn declarations in 2013 and 2014 as part of the agency's investigation 4 of Defendants, before the FTC filed its current case. The FTC has already produced these 5 declarations to Defendants, and there is no indication it intends to offer them in support of its 6 Complaint or to call any of the consumer declarants as witnesses at trial. Id. at 2. Moreover, 7 Defendants do not deny that, despite the FTC's requests, they have not yet produced complaints 8 that consumers submitted directly to DIRECTV. Id. at 2, 6. As the FTC's case focuses on 9 potentially millions of consumer complaints, many of which are in Defendants' possession, the 10 Court finds Defendants have failed to show that information obtained from these seven declarants, 11 especially when compared to these other sources of consumer complaints available from the 12 parties themselves, outweighs the potential burden to the declarants as nonparties. Northern District of California United States District Court 13 Third, in looking at the document requests propounded by Defendants, the requested 14 information appears to be, at least in part, already in Defendants' possession. Document Request 15 No. 2 seeks "All COMMUNICATIONS and DOCUMENTS with DIRECTV about your 16 account(s)." Id., Exs. A-G. Document Request No. 4 seeks "All records of billings by and 17 payments to DIRECTV." Id. Defendants fail to show why they cannot obtain this information 18 from their own records rather than imposing the burden of production on nonparties. Document 19 Request No. 5 is of marginal relevance at best; it seeks "All records of any subscriptions to 20 competitive TV services." Id. Defendants argue this request "can show whether the consumers 21 understood similar contracts, or whether the consumers had motives for complaining." Jt. Ltr. at 22 6. However, the FTC does not need to establish that consumers were actually deceived. See FTC 23 v. Commerce Planet, Inc., 878 F. Supp. 2d 1048, 1073 (C.D. Cal. 2012) ("To establish a section 5 24 violation, proof of actual deception is unnecessary; it only requires a showing that 25 misrepresentations possess a tendency to deceive."). 26 The two remaining requests could be relevant. Document Request No. 1 seeks "All 27 COMMUNICATIONS and DOCUMENTS with the FTC including, but not limited to, draft 28 declarations." Jt. Ltr., Exs. A-G. Document Request No. 3 seeks "All COMMUNICATIONS and 7 1 DOCUMENTS with any state AG, BBB or other regulatory agency." Id. But at this stage in the 2 litigation, where Defendants have not yet produced complaints that consumers submitted directly 3 to them, the Court finds Defendants have failed to show it is necessary to burden nonparties with 4 such requests. See Fed. R. Civ. P. 26(b)(1) (the importance of discovery in resolving case issues 5 and the relationship of the burden to the benefit of discovery are two factors that define 6 proportionality). 7 CONCLUSION 8 For the foregoing reasons, the Court GRANTS the FTC's request for a protective order. 9 The consumer declarants do not need to respond to Defendants' November 6, 2015 subpoenas. If, 10 after the pleadings are settled and the parties have had the opportunity to engage in further 11 discovery, Defendants maintain discovery from nonparties is still necessary, the parties shall meet 12 and confer in compliance with the undersigned's Discovery Standing Order. Northern District of California United States District Court 13 IT IS SO ORDERED. 14 15 Dated: December 9, 2015 16 ______________________________________ MARIA-ELENA JAMES 17 United States Magistrate Judge 18 19 20 21 22 23 24 25 26 27 28 8