Opinion
CASE NO, 8:00-CV-2114-T-17TBM
February 28, 2001
ORDER ADOPTING REPORT AND RECOMMENDATION
THIS CAUSE is before the Court on the Report and Recommendation entered on November 21, 2000, by Magistrate Judge Thomas B. McCoun, III, (Dkt. 45), Defendants, Para-Link International, Inc., et al's, Objections thereto, (Dkt. 48), and Plaintiff, Federal Trade Commission's, Response, (Dkt. 52). After reviewing the Report and Recommendation, and considering Defendants' Objections and Plaintiff's Response, the Court adopts the Report and Recommendation.
I. Standard of Review
Pursuant to 28 U.S.C. § 636(b)(1)(c), a party may file written objections to the findings of a Magistrate Judge within ten (10) days of being served with the Report and Recommendation. The District Judge shall make a de novo review of those portions of the Report and Recommendation to which the objections are made. See Group v. United Airlines, Inc., 817 F. Supp. 1558, 1561 (M.D.Fla. 1993). The District Judge must evaluate portions of the Report and Recommendation not objected to under a clearly erroneous standard of review. See id. at 1562.
II. Background
On October 16, 2000, Plaintiff filed a Complaint for injunction and other equitable relief against Defendants. (Dkt. 1). Within this Complaint, Plaintiff requests temporary, preliminary, and permanent injunctive relief', rescission of contracts, restitution, disgorgement, appointment of a receiver, and other equitable relief due to Defendants' alleged violations of Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45(a).
Plaintiff alleges that Defendants, Para-Link International, Inc., [hereinafter "Para-Link"], AAA Family Centers, Inc., [hereinafter "AAA"], and The Liberty Group of America, Inc., [hereinafter "Liberty Group"], a Florida corporation, engaged in advertising, promoting, and selling paralegal training and employment opportunities. Plaintiff states that Defendant, Deborah R. Dolen, is the president of Para-Link, and the vice-president of AAA. Defendant Dolen also acts as a consultant to Liberty Group. Plaintiff states that, at all times material hereto, Defendant Dolen has formulated, directed, controlled, or participated in the acts and practices of Para-Link, AAA, and Liberty Group, which includes the acts and practices contained within Plaintiff's Complaint. Defendant, Michael See, is alleged to be the Director and President of Liberty Group. In addition to holding the Director title in association with Liberty Group, Defendant See, also, while acting alone or in concert with others, is alleged to have formulated, directed, controlled, or participated in the acts and practices of Liberty Group, Para-Link, and AAA. Defendant, Judy Graves, is alleged to be the Vice-President of Para-Link. It is also alleged that, at all times material to Plaintiff's Complaint, Defendant Graves, while acting alone or in concert with others, formulated, directed, controlled, or participated in the acts and practices of Para-Link, AAA, and Liberty Group, which includes the acts and practices complained of in Plaintiff's Complaint.
According to Plaintiff, at all times relevant to the information contained within Plaintiff's Complaint, Defendants have maintained a substantial course of trade in the offering for sale and sale of paralegal employment opportunities, in, or affecting, commerce, as defined in Section 4 of the Federal Trade Commission Act, 15 U.S.C. § 44.
The business activities, allegedly performed by Defendants, complained of within Plaintiff's Complaint, include, but are not limited to:
1) Since at least June 1999, and continuing thereafter, Defendants have advertised, promoted, and sold paralegal training and other work-at-home employment opportunities to consumers. Defendants, either directly[,] or through third parties, use various advertising media such as Internet Web sites, located at www.para-link. com. taylormadeopportunities. com. www.thelawclub.com. as well as unsolicited electronic mail and newspaper advertisements to promote their paralegal training and employment opportunity. Through one or more of these advertising media, Defendants lure potential purchasers into buying a work-at-home kit for prices ranging from $395-$495 that Defendants promise will train purchasers to become and earn money as a paralegal. Once consumers pass Defendants' qualifying tests, they are then eligible to receive case referrals from Defendants. Defendants promise to pay consumers $25 for each referred completed case, plus $5 per case for expenses.
2) Defendants' unsolicited electronic mail (or "spain") and newspaper advertisements often feature earnings and representations such as "Make Over $200 An Hour" and "You Can Process Simple Divorces and Bankruptcies From Home and Make Over $200 an Hour in as little as 30 Days!!!" The text of one email noted that "It's 1000% PROVEN! . . . Work When YOU Please!" The unsolicited emails often encourage recipients to call a toll-free number to learn more about the opportunity from one of the company's "22 in house paralegals." Defendants' newspaper advertisements often proclaim "Make $50 per hour working from home." Defendants' Web sites promise that kit buyers will "make serious money" and boast "you are paid directly by the customer up to $200 an hour!" and that "students can start making money the same day they get the kit!" Finally, Defendants promise "your success is guaranteed!"
3) Also featured on Defendants' Web sites are testimonials supposedly from current kit purchasers. These testimonials contain representations about how successful a potential kit buyer can expect to be; for example: "I have been doing this for about 2 weeks and already have made about as much money as my full time job." Another testimonial reads: "I have made an enormous amount of income." Still another claims: "The information gleaned from this program has made it possible for me to increase my income substantially." In numerous instances, these testimonials are not from independent kit buyers, but instead are quotes from Defendants' employees.
4) Defendants assure potential kit purchasers that no advanced degrees or prior legal experience are necessary for consumers to succeed . . . . Defendants promise kit buyers that they will be assigned personal trainers whose role is to help them correctly complete the qualifying exams. However, when kit buyers contact their trainers for help with their exams, these trainers are often unavailable and many times fail to return consumers' calls or emails.
5) Defendants also claim that once kit buyers pass the qualifying exams, Defendants will refer a steady stream of cases to them, and that consumers will be assigned "10-20 cases a week" at a rate of $30 per case. Defendants also represent that the "best typists get more than 50+ cases a week!" Defendants promise on their Web sites that "[t]he forms should take no more than 30 minutes to complete once you are familiar" with the format.
6) On their Web sites, Defendants purport to have a solid supply of cases to refer to qualifying kit buyers. Defendants state, "Many major firms now use Para2000 for all their document needs. These firms include The Liberty Group and The Law Club . . . ." Both The Liberty Group and The Law Club are not independent "major firms" but rather are part of the family of Defendants['] corporations.
7) Consumers who call Defendants['] toll-free telephone numbers or visit Defendants' Web sites learn that in exchange for a payment ranging from S395-$495, they will receive a work-at-home kit "via U.S. Priority mail within 2-3 business days" that will get them started in performing paralegal services, including: (1) extensive training computer software; (2) a set of six audio tapes that "explains everything about the industry"; (3) a training video; (4) over 88 sample forms, including forms for creating a simple divorce or bankruptcy; and (5) ongoing assistance.
8) In numerous instances, consumers fail to receive their kits in a timely fashion, and are forced to contact the company repeatedly to inquire as to the status of their order. Still other consumers discover that, when they finally receive their kits, the contents are of very poor quality or are incomplete. In many cases, the software is incompatible with consumers' computer operating systems or fails to function properly . . . . In some cases, consumers find that the audio tapes are of such poor quality that it is difficult to decipher their content.
9) The qualifying tests are extremely difficult. To pass the tests (and therefore qualify for case referrals), Defendants require that kit buyers achieve a perfect score. On their Web sites, Defendants predict that "[i]t typically takes 2-4 days or 20 hours to learn the materials." In fact, many consumers spend weeks trying to make Defendants' software work, and then spend much more than 20 hours attempting to correctly complete Defendants' qualifying exams. Few consumers actually pass the tests.
10) Although Defendants claim to have access to a steady stream of case referrals that they will provide to their qualifying kit buyers, [D]efendants, in fact, have very few cases to refer. Further, Defendants do not refer 10-20 cases per week to consumers; instead, the few consumers who actually qualify for referrals only receive a few cases over several months. Finally, when cases actually are referred, Defendants often fail to pay consumers for their work in a timely fashion. As a result, few consumers who purchase Defendants' paralegal training and employment opportunity earn any income, let alone the earnings promised by Defendants.
On October 17, 2000, the Honorable James D. Whittemore, United States District Judge, granted Plaintiff's Ex Parte Motion for Temporary Restraining Order against each of the Defendants named in this action. Through this Temporary Restraining Order, Defendants were enjoined from promoting, advertising, marketing, offering for sale, and/or selling any goods or services related to paralegal training or paralegal employment opportunities. In connection with the Temporary Restraining Order entered by Judge Whittemore, the Court froze the assets of each of the Defendants and ordered the preservation of the Defendants' records. The Court appointed a temporary Receiver for the corporate Defendants and imposed a stay of all other civil proceedings or actions during the pendency of the Receivership. The Receiver took custody of the business premises in Sarasota, Florida.
On November 3, 2000, this case was reassigned to the undersigned. (Dkt. 29). This Court referred the Construed Motion for Preliminary Injunction and Motion to Modify the Temporary Restraining Order, (Dkts. 4, 35), to the assigned United States Magistrate Judge for the issuance of a Report and Recommendation. (Dkt. 27).
On November 13-14, 2000, the Honorable Thomas B. McCoun, III, United States Magistrate Judge, held a hearing, based on the undersigned's referral of Plaintiff's Construed Motion for Preliminary Injunction and Emergency Motion to Modify Temporary Restraining Order. (Dkts. 4, 35). On November 21, 2000, Magistrate Judge McCoun entered a Report and Recommendation on the above-mentioned motions. (Dkt. 45). Within the Report and Recommendation, in pertinent part, Magistrate Judge McCoun recommended that the Motion for Preliminary Injunction be granted and that Defendants, and Defendants' agents, be enjoined from "promoting, marketing, offering for sale, or selling any goods or services related to paralegal training or paralegal employment opportunities." (Dkt. 45). Magistrate Judge McCoun further recommended that the temporary appointment of the Receiver be made permanent, with the proper authority, as is necessary and consistent with the circumstances of this case, granted to the Receiver.
On December 6, 2000, Defendants filed their Objection to Report and Recommendation of Magistrate Judge on Motion for Preliminary Injunction and Memorandum in Support. (Dkt. 48). Defendants object to the Report and Recommendation by stating, in pertinent part, that: 1) Plaintiff does not have a substantial likelihood to prevail on the merits; 2) Balancing the interests of the respective parties clearly weighs against the entering of an injunction; and, 3) Any injunction which may be entered should be limited.
On December 22, 2000, Plaintiff responded to Defendants' Objection to Report and Recommendation. (Dkt. 52).
III. Discussion
A. Standard of Review
Pursuant to 28 U.S.C. § 636(b)(1)(c), a party may file written objections to the findings of a Magistrate Judge within ten (10) days of being served with the Report and Recommendation. The District Judge shall make a de novo review of those portions of the Report and Recommendation to which objections are made. See Gropp v. United Airlines, Inc., 817 F. Supp. 1558, 1561 (M.D.Fla. 1993). The District Judge must evaluate portions of the Report and Recommendation not objected to under a clearly erroneous standard of review. See id. at 1562.
1. Substantial Likelihood of Prevailing on the Merits
Defendants object to the Report and Recommendation by stating that Plaintiff does not have a substantial likelihood of prevailing on the merits, which is an essential element in obtaining injunctive relief. (Dkt. 48). In support of this objection, Defendant's state that Defendants have not been engaged in a continuing and ongoing violation of the Federal Trade Commission Act. (Dkt. 48). Defendants state that 15 U.S.C. § 53(b), cannot be used to remedy a past violation, without a showing by the Plaintiff, that the violations complained of are continuing or are likely to
Under section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45(a), unfair or deceptive acts or practices, in or affecting commerce, are prohibited. "Misrepresentations or omissions of material facts made to induce the purchase of goods or services constitute deceptive acts or practices that violate § 5(a) of the [Federal Trade Commission] Act." FTC v. Slimamerica. Inc., 77 F. Supp.2d 1263, 1272 (S.D.Fla. 1999) (citing FTC v. World Travel Vacation Brokers. 861 F.2d 1020, 1029 (7th Cir. 1988); FTC v. Wilcox. 926 F. Supp. 1091, 1098 (S.D.Fla. 1995)).
Pursuant to 15 U.S.C. § 53(b), upon reasonable belief "that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission," the Federal Trade Commission is authorized to bring an action in a district court to seek to enjoin such violative actions. "Upon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest . . . a preliminary injunction may be granted without bond . . . . 15 U.S.C. § 53(b).
When determining whether to issue a preliminary injunction, a Court must consider the likelihood that the Federal Trade Commission will succeed on the merits, and, must balance the equities involved. See FTC v. University Health, Inc., 938 F.2d 1206, 1217 (11th Cir. 1991). When seeking a preliminary injunction, the Federal Trade Commission is not required to prove irreparable damages. See id. at 1218. The Federal Trade Commission must, however, show, in order to obtain a preliminary injunction, that the violations complained of are continuing, or likely to continue. See FTC v. Marketing Response Group, Inc., 1996 WL 420865, at *2 (M.D.Fla. 1996) (citing FTC v. Evans Products Co., 775 F.2d 1084, 1087 (9th Cir. 1985)).
After thoroughly reviewing Defendants' objections, the Court finds that Plaintiff has satisfactorily met the burden for the issuance of a preliminary injunction. Plaintiff has shown this Court that the violations complained of by Plaintiff are ongoing, and/or, likely to continue or resume. (11/15/00 Hearing Transcript) (Dkt. 4, Exhibits 1-24). Evidence brought out in the hearing before the Magistrate Judge, as well as exhibits submitted in the record of this case, indicate that Defendants have operated as a common enterprise to market, sell, and distribute work-at-home paralegal opportunities. (11/15/00 Hearing Transcript) (Dkt. 4, Exhibits 1-24). Defendants primarily accomplished the marketing, sale, and distribution of the work-at-home paralegal opportunities by marketing and selling a training kit, which sold for approximately $295.00-$495.00. (11/15/00 Hearing Transcript) (Dkt. 4, Exhibits 1-24).
While Defendants appear to claim that they have ceased all actions that are considered misrepresentations, the Court finds otherwise. Defendants have continued to market, sell, and distribute work-at-home paralegal opportunities by promising financial rewards, that, according to the record of this case, as well as evidence and testimony submitted at the hearing conducted on Plaintiff's Motion for Preliminary Injunction, are misleading and gross misrepresentations of actual financial rewards and opportunities available and actually obtained by similarly situated individuals. (11/15/00 Hearing Transcript) (Dkt. 4, Exhibits 1-24). As it appears within the record that Defendants continued, at least up until the date that the Temporary Restraining Order was entered, to exploit consumers with promises of substantial income, and delivery of an inoperable product, the Court finds that there is substantial likelihood that Plaintiff will prevail on the merits of its claim.
2. Balancing of Interests
According to Defendants, the balance of interests involved in this case clearly weighs against the entrance of an injunction. (Dkt. 48). In support of this allegation, and the Objection to the Report and Recommendation, Defendants state that the harm to Plaintiff is minimal, should the injunction be denied, while, the harm to the Defendants is great, should the injunction be granted. (Dkt. 48). Defendants rely on the allegation that a handful of Defendants' current employees will allegedly be forced from their jobs as independent contractors. (Dkt. 48). In response to Defendants' objections, Plaintiff states that Defendants' actions and practices have caused grave injury to thousands of consumers, and, therefore, any alleged harm that will be suffered by the small number of independent contractors and/or employees associated with Defendants is greatly outweighed by the potential harm suffered by consumers. (Dkt. 52).
This Court has reviewed this entire case and finds that while several independent contractors and employees of Defendants may lose business, or their jobs, as a result of enjoining Defendants, the consuming public will greatly benefit. There are many more consumers that have been, or could be, harmed by Defendants' actions, than employees or independent contractors that have benefitted. (11/15/00 Hearing Transcript) (Dkt. 4, Exhibits 1-24). Therefore, the Court finds that the benefit of the public far exceeds the potential harm suffered by Defendants. As such, the entry of a preliminary injunction is appropriate. In fact, the Court notes that in a situation, such as this, where proffered testimony elicited at the hearing on this matter suggests that some of Defendants' employees or independent contractors have continued questionable activities, despite the entry of a Temporary Restraining Order, a preliminary injunction is warranted. (11/15/00 Hearing Transcript) (Dkt. 4, Exhibits 1-24).
3). Limited Injunction
Defendants next object to the scope of the recommended preliminary injunction. Defendants state that the Court should enjoin Defendants only from: 1) Services relating to credit repair; 2) Running advertisements, except for advertisements in the form set forth in tear sheets entered into evidence, or as modified by the Court; and, 3) Altering the advertisements permitted without first obtaining approval from the Federal Trade Commission. (Dkt. 48). Further, Defendants state that Defendants should be permitted to continue to advertise and sell divorce petition forms to the public, since the Federal Trade Commission has not complained about this practice. (Dkt. 48). Defendants state that they are willing to modify their web page in any manner deemed appropriate by the Court and will make no alterations of that web page without obtaining prior authorization from the Federal Trade Commission. (Dkt. 48).
While the Court notes Defendants' request for the entry of a very limited preliminary injunction, the Court finds that such limitations as those suggested by Defendants are not warranted. Defendants have engaged continuously in actions that appear to violate the Federal Trade Commission Act. (11/15/00 Hearing Transcript) (Dkt. 4, Exhibits 1-24). The preliminary injunction recommended by the Magistrate Judge in this case is necessary to force Defendants from continuing the actions to which the Federal Trade Commission complains. Further, the Court notes that Defendants would have this Court advise Defendants on how to legally run their business[es]. However, this Court is not in a position to act as Defendants' legal advisor, and will not be placed in such a situation. While the Court appreciates the "appearance" that Defendants' are willing to comply with the law, the court notes Defendants' actions taken during the Federal Trade Commission's investigations into Defendants' actions, and during the time that the Temporary Restraining Order entered in this case was in effect. (11/15/00 Hearing Transcript) (Dkt. 4, Exhibits 1-24). As such, this Court finds that Plaintiff's Motion for Preliminary Injunction shall properly be granted.
As to all portions of the Report and Recommendation not objected to by Defendants, the Court finds no clear error. Accordingly, it is
ORDERED that the Report and Recommendation, (Dkt. 45), be ADOPTED and incorporated by reference; and Defendants' objections, (Dkt. 48), be OVERRULED. The Clerk of the Court be DIRECTED to send out copies of the Report and Recommendation entered by Magistrate Thomas B. McCoun, III, on November 21, 2000, (Dkt. 45), with this Order, to all parties and counsel of record.