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Swish Marketing, Inc. v. Federal Trade Commission

November 17, 2009


The opinion of the court was delivered by: John D. Bates United States District Judge


Swish Marketing, Inc. is an internet marketing firm that operates websites which advertise financial services. The Federal Trade Commission ("FTC") deemed Swish's websites misleading under Section 5(a) of the Federal Trade Commission Act ("FTCA"), and threatened to sue unless Swish agreed to injunctive and monetary relief. After settlement discussions broke down, Swish, along with two of its officers and directors, brought this action for a declaratory judgment against the FTC. It asks the Court to resolve whether and to what extent the FTC may seek monetary relief for the alleged violations of the FTCA. The FTC has moved to dismiss the complaint, urging the Court to decline jurisdiction over Swish's claim. For the reasons set forth below, the Court grants the FTC's motion.


Swish operates websites marketing short-term, or "payday," loans. In August 2006, Swish agreed to place on its websites advertisements by Virtualworks, LLC. Compl. ¶ 7. Swish also agreed to "transfer to Virtualworks the names and banking information of consumers that expressed interest in purchasing a privacy suite/package that included anonymous web surfing software combined with an anonymous virtual debit card... offered for sale by Virtualworks." Id. Virtualworks paid Swish an average of $14 for each transfer of information, or "lead," it accepted. Id.; see also id. ¶ 13. Virtualworks used this financial information to charge consumers for a prepaid debit card. Def.'s Mot. to Dismiss [Docket Entry 11] ("Def.'s Mot.") at 8.

Between about September 2006 and August 2007, Virtualworks accepted 290,547 leads from Swish, and based on these leads charged consumers approximately $15.3 million. Compl. ¶ 12. Virtualworks instructed Swish in August 2007 to stop transferring leads for certain products, and it terminated its agreement with Swish the following month. Id. ¶ 11.

In April 2008, the FTC told Swish that it was conducting an investigation "[t]o determine whether unnamed accessors of consumers' bank accounts are or may be engaged in violation of Section 5 of the Federal Trade Commission Act... by accessing consumers' bank accounts without consumers' authorization, by accessing consumers' bank accounts for an amount different than the amount authorized by consumers, or by otherwise obtaining access to consumers' bank accounts through unfair or deceptive acts or practices." Id. ¶ 14. About a year later, in March 2009, the FTC's Bureau of Consumer Protection concluded that "there is reason to believe" that Swish's marketing and sale of prepaid debit cards for Virtualworks violated the FTCA. Id. ¶ 16. The FTC offered to settle the dispute, however, and proposed a stipulated order that would require Swish to accept a judgment against it for $5,450,367,*fn1 as well as an injunction governing Swish's future behavior. Id. The FTC also sent Swish a proposed complaint, which was captioned to be filed in the Federal District Court for the Northern District of California. Def.'s Mot., Exhibit 1.

Swish responded that it would be willing to settle the matter, without admitting liability, for approximately $1.18 million.*fn2 Compl. ¶ 18. Swish told the FTC that it believed this was the maximum figure for which it could be held responsible under the FTCA. Id. ¶ 19. The FTC declined Swish's counteroffer, and responded that it believed Swish was liable for the full amount of consumer harm not yet reimbursed -- $5.4 million. Id. ¶ 20. The FTC further informed Swish that the agency would file its proposed complaint unless the matter was settled by May 30, 2009. Id. ¶ 21.

Swish filed a complaint for declaratory relief in this Court on May 18, 2009. Swish maintains that it has not violated the FTCA. Id. ¶ 23; see also Pls.' Opp'n to Def.'s Mot. to Dismiss ("Pls.' Opp'n") [Docket Entry 13] at 5 n.7. But Swish asks the Court to determine --assuming that it did violate the FTCA -- whether section 13(b) of that statute allows the FTC to obtain any monetary relief from Swish and, if so, the amount Swish may lawfully be required to pay. Id. ¶ 24.

Before the Court is the FTC's motion to dismiss Swish's request for a declaratory judgment. The agency has not addressed Swish's claims on the merits, but instead urges the Court to exercise its discretion under the Declaratory Judgment Act and decline jurisdiction over Swish's complaint. See Def.'s Reply in Support of its Mot. to Dismiss ("Def.'s Reply") [Docket Entry 16] at 3. Meanwhile, after this action was initiated and during briefing on the FTC's motion, a civil enforcement action was brought by the FTC against Swish and others in federal court in California.*fn3


The Declaratory Judgment Act provides that "in a case of actual controversy within its jurisdiction... any court of the United States... may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such." 28 U.S.C. § 2201(a).This language is permissive, not mandatory: even when a suit otherwise satisfies subject matter jurisdictional prerequisites, the Act gives courts discretion to determine "whether and when to entertain an action." Wilton v. Seven Falls, 515 U.S. 277, 282 (1995); see also MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 136 (2007) (the Act "has long been understood 'to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants'" (quoting Wilton, 515 U.S. at 286)); Jackson v. Culinary Sch., 59 F.3d 254, 256 (D.C. Cir. 1995).

In deciding whether to exercise its permissive jurisdiction over declaratory actions, a court may consider "equitable, prudential, and policy arguments." MedImmune, 549 U.S. at 136; see also 10B Wright, Miller & Kane, Federal Practice & Procedure § 2759 (3d. ed. 1998) ("It is always the duty of the court to strike a proper balance between the needs of the plaintiff and the consequences of giving the desired relief."). Although there are "no dispositive factors," Comm. on the Judiciary v. Miers, 558 F. Supp. 2d 53, 95 (D.D.C. 2008), the D.C. Circuit has listed several relevant considerations to guide the Court's analysis:

[W]hether [a declaratory judgment] would finally settle the controversy between the parties; whether other remedies are available or other proceedings pending; the convenience of the parties; the equity of the conduct of the declaratory judgment plaintiff; prevention of "procedural fencing"; the state of the record; the degree of adverseness between the parties; and the public importance of the question to be decided.

Hanes Corp. v. Millard, 531 F.2d 585, 591 n.4 (D.C. Cir. 1976) (citing 10 Wright & Miller, ยง 2759). In addition, "[t]he anticipation of defenses is not ordinarily a proper use of the ...

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