United States of America v. The Zaken Corp et al, No. 2:2012cv09631 - Document 41 (C.D. Cal. 2013)
Court Description: ORDER DENYING PLAINTIFFS MOTION FOR PRELIMINARY INJUNCTION WITHOUT PREJUDICE 8 by Judge Dean D. Pregerson . (lc). Modified on 8/1/2013 .(lc).
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United States of America v. The Zaken Corp et al Doc. 41 1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 UNITED STATES OF AMERICA, 12 Plaintiff, 13 14 15 16 17 18 v. THE ZAKEN CORP., a California corporation also d/b/a The Zaken Corproation, QuickSell and QuickSell and TIRAN ZAKEN, individually and as an officer of The Zaken Corp., Defendants. ___________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 12-09631 DDP (MANx) ORDER DENYING PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION [Dkt. No. 8] 19 Presently before the court is Plaintiff’s Motion for a 20 21 Preliminary Injunction. 22 the submissions of the parties, the court denies the motion and 23 adopts the following order. 24 I. 25 Having heard oral argument and considered Background Defendants (collectively, “Zaken”) offer a “Wealth Building 26 Home Business Plan” to consumers.1 27 D at 44.) (Declaration of Dani Stagg, Ex. For $148.00, plus shipping, purchasers become Associates 28 1 This order uses the term “consumer” and “purchaser” interchangeably. Dockets.Justia.com 1 of QuikSell Liquidations and receive a “kit” including instructions 2 on how to locate excess inventories, “‘[i]nsider’ secret 3 techniques,” “powerful and proven strategies,” “a simple seven-word 4 phrase that instantly pays [purchasers] cash profits,” and other 5 information. 6 additional “tools” for an additional charge. 7 at 85-86.) 8 9 (Id. at 57-58, 97.) Zaken also offers purchasers (Stagg Dec., Ex. E. Under Zaken’s plan, consumers identify businesses seeking to liquidate excess inventory. Consumers then notify Zaken, which may 10 proceed to negotiate an acquisition of the excess merchandise. 11 Zaken is successful in 1) buying the products identified by the 12 consumer and 2) reselling the products at a profit, then Zaken pays 13 purchasers fifty percent of the net proceeds. 14 Zaken advertises a “realistic ballpark figure” estimate that “2 to 15 4 hours a week working this business will earn [participants] an 16 average of $3,000 to $6,0000.” If (Id. at 52-53.) (Stagg Dec. Ex. D. at 61.) 17 Effective March 1, 2012, the Federal Trade Commission 18 broadened the scope of its “Business Opportunity Rule,” 16 CFR § 19 437.0 et seq., the earliest form of which was first promulgated in 20 1978. 21 imposed certain disclosure requirements upon the sale of business 22 opportunities, but only those costing over $500. 23 2012 revision eliminated this monetary threshold. 24 The 2012 changes also seek “to address the sale of deceptive work- 25 at home schemes, where unfair and deceptive practices have been 26 both prevalent and persistent.” 27 that “[s]ellers of fraudulent work-at-home opportunities deceive 28 their victims with promises of an ongoing relationship in which the 76 FR 76816. Prior versions of the rule regulated and 76 FR 76826. 2 76 FR 76818. The 76 FR 76821. The FTC elaborated 1 seller will buy the output that business opportunity purchasers 2 produce, often misrepresenting to purchasers that there is a market 3 for the purchasers’ goods and services,” and that these schemes 4 “frequently dupe consumers with false earnings claims.” 5 Id. On November 9, 2012, Plaintiff (“the government”) filed a 6 complaint against Defendants for violations of the Business 7 Opportunity Rule.2 8 enjoining Zaken from violating the Business Opportunity Rule (“the 9 Rule”) and ordering Defendants to preserve their assets. Plaintiff now seeks a preliminary injunction 10 Defendants oppose the motion on the ground that the Rule is not 11 applicable to them. 12 II. 13 Legal Standard Typically, a private party seeking a preliminary injunction 14 must show (1) that he is likely to succeed on the merits, (2) that 15 he is likely to suffer irreparable harm in the absence of 16 preliminary relief, (3) that the balance of equities tips in his 17 favor, and (4) that an injunction is in the public interest. 18 Winter v. Natural Res. Defense Counsel, 555 U.S. 7, 20 (2008). 19 Preliminary relief may be warranted where a party (1) shows a 20 combination of probable success on the merits and the possibility 21 of irreparable harm, or (2) raises serious questions and the 22 balance of hardships tips in favor of a TRO. 23 Continental Air Lines, Inc., 819 F.2d 935, 937 (9th Cir. 1987). 24 “These two formulations represent two points on a sliding scale in 25 which the required degree of irreparable harm increases as the 26 probability of success decreases.” Id. See Arcamuzi v. Under both formulations, 27 2 28 The Complaint also alleges that Defendants have violated Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45(a). 3 1 the party must demonstrate a “fair chance of success on the merits” 2 and a “significant threat of irreparable injury.”3 3 Id. Here, however, Section 13(b) of the Federal Trade Commission 4 Act imposes a more lenient standard upon the plaintiff. 5 Trade Commission v. Affordable Media, 179 F.3d 1228, 1233 (9th Cir. 6 1999). 7 irreparable injury is presumed. 8 Wide Factors, Ltd., 882 F.2d 344, 347 (9th Cir. 1989). 9 therefore, need not show irreparable harm. Federal In a statutory enforcement action such as this one, Federal Trade Commission v. World Plaintiff, Affordable Media, 179 10 F.3d at 1233. 11 here is whether the government has shown a likelihood of success on 12 the merits. 13 III. Discussion 14 Thus, as the parties appear to agree, the only issue Defendants contend that Plaintiffs cannot demonstrate a 15 likelihood of success on the merits because Defendants do not offer 16 a “business opportunity,” and therefore do not fall within the 17 ambit of the Business Opportunity Rule. 18 interpretation of its own regulations is controlling unless plainly 19 erroneous or inconsistent with the regulations being interpreted.”. 20 Long Island Care at home, Ltd. v. Coke, 551 U.S. 158, 171 (2007) 21 (internal quotations and alterations omitted). 22 business opportunity as a commercial arrangement in which: 23 “[A]n agency’s The Rule defines a (1) A seller solicits a prospective purchaser to enter into a new business; and 24 25 3 26 27 28 Even under the “serious interests” sliding scale test, a plaintiff must satisfy the four Winter factors and demonstrate “that there is a likelihood of irreparable injury and that the injunction is in the public interest.” Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir. 2011). 4 1 (2) The prospective purchaser makes a required payment; and 2 3 (3) The seller, expressly or by implication, orally or in writing, represents that the seller or one or more designated persons will: 4 5 6 7 8 9 10 11 (i) Provide locations for the use or operation of equipment, displays, vending machines, or similar devices, owned, leased, controlled, or paid for by the purchaser; or (ii) Provide outlets, accounts, or customers, including, but not limited to, Internet outlets, accounts, or customers, for the purchaser’s goods or services; or (iii) Buy back any or all of the goods or services that the purchaser makes, produces, fabricates, grows, breeds, modifies, or provides, including but not limited to providing payment for such services as, for example, stuffing envelopes from the purchaser’s home. 12 16 C.F.R. § 437.1(c). 13 means furnishing the prospective purchaser with existing or 14 potential locations, outlets, accounts, or customers . . . or 15 otherwise assisting the prospective purchaser in obtaining his or 16 her own locations, outlets, accounts or customers . . . .” 17 C.F.R. § 437.1(m). 18 training does not constitute “providing locations, outlets, 19 accounts, or customers.” “Providing outlets, accounts, or customers 16 General advice about business development and Id. 20 As an initial matter, Plaintiff has not established that 21 Defendants represents that it will take any action that might fall 22 under the third prong of the Rule. 23 Zaken represents that it “will attempt to negotiate a deal with the 24 located company. 25 the merchandise at a profit,” then Zaken will pay the consumer a 26 portion of the profits. 27 Rule encompasses even implicit representations that a seller will 28 take certain actions covered by Section 437.1(c)(ii) and (iii), the By Plaintiff’s own description, If that deal is completed and [Zaken] can sell (Mot. at 12 (emphases added)). 5 While the 1 record as currently presented to the court establishes only that 2 Zaken represents that it may take such action.4 3 A. “Outlets” or “Customers” 4 The representation issue aside, the government argues that 5 Defendants’ scheme falls under 16 C.F.R. § 437.1(c)(ii) because 6 Defendants promise that Zaken will itself serve as purchasers’ 7 customer. 8 “customer” because it never buys anything from them. 9 5.) 10 (Reply at 6.) Zaken argues that it is not consumers’ (Surreply at “When a statute does not define a term, a court should 11 construe that term in accordance with its ‘ordinary, contemporary, 12 common meaning.’” 13 988 (9th Cir. 2005) (quoting San Jose Christian College v. City of 14 Morgan Hill, 360 F.3d 1024, 1034 (9th Cir. 2004).). 15 look to dictionary definitions to determine the “plain meaning” of 16 a term. 17 or service,” or “one who frequents any place of sale for the sake 18 of purchasing,” or “one who customarily purchases from a particular 19 tradesman.” 20 Inc., 21 Dictionary Online, Oxford University Press, http:// www.oed.com 22 (May 2013). 23 Cleveland v. City of Los Angeles, 420 F.3d 981, Id. at 1034. Courts may A customer is “one who purchases a commodity Merriam-Webster Online Dictionary, Merriam-Webster, http:// www.merriam-webster.com (May 2013); Oxford English With these definitions in mind, the court agrees that Zaken 24 is not consumers’ “customer.” 25 “customer” requires a purchase of some sort. 26 purchases a service from consumers. The ordinary meaning of the term Zaken, however, never Consumers, or “lead finders,” 27 4 28 Whether those actions constitute conduct falling within the Rule is a separate question, discussed below. 6 1 as Zaken styles them, do not necessarily receive or require 2 anything of value in exchange for the information they share with 3 Zaken.5 4 any purchase, sale, or exchange of any kind. 5 consumer’s efforts do ultimately result in purchases and sales of 6 goods, the consumer is not a party to any of those transactions. 7 Under such circumstances, Zaken’s contingency arrangement with 8 consumers does not render it a “customer” under the Rule. 9 In some cases, the consumers’ efforts will not result in Even when the The government also argues that Zaken promises consumers 10 “outlets for the excess merchandise that prospective purchasers 11 identify.” 12 as the outlet, but rather to third-party inventory buyers. 13 the government is correct that these outlets for excess merchandise 14 are critical to the success of consumers’ businesses, the Rule 15 clearly states that a purveyor such as Zaken must represent that it 16 will provide outlets for consumers’goods or services. 17 merchandise for which Zaken arguably provides an “outlet” does not 18 belong to consumers. 19 20 (Reply at 6.) B. This argument refers not to Zaken itself While The excess “Buyback” Even if Zaken does not provide customers or outlets to 21 consumers, its offer may nevertheless fall under the Rule if it 22 represents that it will “buy back” any of the services that the 23 consumer provides. 24 regulation nor its motivating statement of purpose provides any 25 insight as to how one might “buy back” a service, the regulation 26 itself provides one example of an arrangement falling under the 16 C.F.R. § 437.1(c)(iii). While neither the 27 5 28 It remains unclear at this stage whether consumers can or do share information with liquidators other than Zaken. 7 1 Rule.6 2 envelopes and printed material, then “provid[es] payment” to the 3 consumer for the service of stuffing the envelopes, the Rule 4 applies. 5 “provide payment” to consumers in exchange for any service or good. 6 Rather, Zaken in essence offers consumers an incentive to provide 7 information that may or may not yield them some ultimate benefit. 8 The government’s attempt to apply the Rule to the contingency 9 arrangement between Zaken and its purchasers is therefore Where a purveyor of an opportunity provides a consumer with Id. As discussed above, however, Zaken does not offer to 10 inconsistent with 16 C.F.R. § 437.1(c)(iii), which requires, at the 11 very least, that a seller of a business opportunity pay the 12 purchaser for performing a service. 13 IV. 14 Conclusion For the reasons stated above, Plaintiff has not demonstrated a 15 likelihood of success on the merits. 16 Preliminary Injunction is therefore DENIED, without prejudice.7 Plaintiff’s Motion for a 17 18 19 IT IS SO ORDERED. 20 21 22 Dated: July 31, 2013 DEAN D. PREGERSON United States District Judge 23 24 25 26 27 6 Such an arrangement would likely not entail a “buy back” of services alone, as the purveyor typically would provide the consumer with physical materials before buying them back in assembled form. 7 28 This order shall not be read to apply to other relief Plaintiff may seek outside the Business Opportunity Rule. 8
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