National Electronic Healthcare Corporation,

DEBRA A. VALENTINE
General Counsel

JEFFERY T. DAHNKE
Federal Trade Commission
1961 Stout St., Suite 1523
Denver, Colorado 80294
303-844-2254
Attorneys for Plaintiff

UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA

FEDERAL TRADE COMMISSION, Plaintiff,

STEVE SHELTON, LYNNE SHELTON, GARY WHITE, LESLIE WHITE, NATIONAL ELECTRONIC HEALTHCARE CORPORATION, and ELECTRONIC HEALTHCARE PRODUCTS, INC., Defendants.

CV-N-97-712-ECR (RAM)

STIPULATED FINAL JUDGMENT AND ORDER FOR PERMANENT INJUNCTION

Plaintiff Federal Trade Commission ("FTC" or "Commission") commenced this action by filing its complaint against defendants Steve Shelton, Lynne Shelton, Gary White, Leslie White, National Electronic Healthcare Corporation, and Electronic Healthcare Products, Inc. ("defendants"), pursuant to Section 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 53(b), alleging violations of Section 5 of the FTC Act, 15 U.S.C. § 45, and the Commission’s Trade Regulation Rule entitled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures," 16 C.F.R. Part 436 ("Franchise Rule"). Plaintiff and defendants, by and through their respective counsel whose names appear hereafter, have agreed to entry of this Stipulated Final Judgment and Order for Permanent Injunction ("Order") upon the following terms and conditions, without adjudication of any issue of fact or law and without defendants admitting liability for any of the offenses alleged in the Commission’s complaint. On the joint motion of plaintiff and defendants, it is hereby ORDERED, ADJUDGED and DECREED as follows:

FINDINGS

This Court has jurisdiction of the subject matter and over the parties.
The complaint states a claim upon which relief may be granted against the defendants under Sections 5(a), 13(b), and 19 of the FTC Act, 15 U.S.C. §§ 45(a), 53(b), and 57b.
Defendants, freely and without coercion, waive all rights to appeal or otherwise challenge or contest the validity of this Order, subject to Paragraph XIV below, any further procedural steps, and any rights that may arise under the Equal Access to Justice Act, 28 U.S.C. § 2412, amended by Pub.L. 104-121, 100 Stat. 847, 863-64 (1996).
Entry of this Order is in the public interest.

DEFINITIONS

For purposes of this Order the following definitions shall apply:

A. "Franchise" means franchise as defined in Section 436.2(a) of the Federal Trade Commission’s Franchise Rule, 16 C.F.R. Part 436.

B. "Business venture" means any written or oral business arrangement, however denominated, whether or not covered by the Franchise Rule, which consists of payment of any financial consideration for:

(1) the right or means to offer, sell, or distribute goods or services (whether or not identified by a trademark, service mark, trade name, advertising, or other commercial symbol); and

(2) more than nominal assistance to any person or entity in connection with or incident to the establishment, maintenance, or operation of a new business or the entry by an existing business into a new line or type of business.

C. "Person" means a natural person, organization or other legal entity, including a corporation, partnership, proprietorship, association, cooperative, or any other group or combination acting as an entity.

ORDER

IT IS THEREFORE ORDERED that defendants, their successors, assigns, officers, agents, servants, employees and those persons in active concert or participation with them who receive actual notice of this Order by personal service or otherwise, in connection with the offering for sale or sale of any franchise or business venture, are hereby permanently enjoined from:

A. Making, or assisting in the making of, expressly or by implication, orally or in writing, any statement or representation of material fact that is false or misleading, including but not limited to, any false representation about:

(1) income, profits, or sales volume likely to be achieved by prospective purchasers;

(2) income, profits, or sales volume that has been achieved by other previous purchasers;

(3) nature and extent of the market demand for any product or service to be sold by any prospective purchasers;

(4) market value of any product or service to be sold by any prospective purchasers;

(5) authenticity of any reference purporting to be a franchise or business venture purchaser;

(6) typicality of the experiences of any reference purporting to be a franchise or business venture purchaser;

(7) nature, quality, and market value of any product or service sold or provided by defendants; or

(8) ability or likelihood of any person to find clients, accounts, or locations for any prospective purchasers.

B. Violating, or assisting others to violate, any provisions of the Franchise Rule, 16 C.F.R. Part 436, including but not limited to:

(1) failing to provide potential franchisees with a complete and accurate disclosure document within the times stated in the Franchise Rule, 16 C.F.R. § 436.1(a);

(2) failing to provide potential franchisees with an earnings claim document when any earnings claim is made, as required by the Franchise Rule, 16 C.F.R. § 436.1(b)-(e); and

(3) failing to disclose, in immediate conjunction with any mass advertised earnings claim, the material basis for the claim (or the lack of such basis) and a warning that the earnings claim is only an estimate, as required by the Franchise Rule, 16 C.F.R. § 436.1(e)(3)-(4).

II.

IT IS FURTHER ORDERED that defendants National Electronic Healthcare Products, Electronic Healthcare Products, Inc., Steve Shelton, Lynne Shelton, Gary White, and Leslie White, and each of them, are hereby permanently enjoined from engaging, whether directly or indirectly, in concert with others or through any entity, in the offering for sale or sale of any franchise or business venture unless they first obtain a performance bond in the principal sum of Two Hundred Thousand Dollars ($200,000). The terms and conditions of the bond requirement are:

A. Each bond is conditioned upon compliance by defendant with this Order and with Section 5 of the FTC Act, 15 U.S.C. § 45.

B. Each bond shall remain in full force and effect as long as the defendant continues to engage in any activity requiring him to obtain the bond and for at least three (3) years thereafter.

C. Each bond shall cite this Order as the subject matter of the bond. Each bond shall be an insurance agreement providing surety for financial loss that is issued by a surety company

(1) admitted to do business in each state in which defendants do business and (2) that holds a Federal Certificate of Authority As Acceptable Surety On Federal Bond and Reinsuring.

D. Defendants shall not disclose the existence of the performance bond to any consumer, or other purchaser or prospective purchaser of any franchise or business venture that is advertised, promoted, offered for sale, sold, or distributed, without also disclosing clearly and prominently, at the same time, “AS REQUIRED BY ORDER OF THE U.S. DISTRICT COURT IN SETTLEMENT OF CHARGES THAT DEFENDANT ENGAGED IN FALSE AND MISLEADING REPRESENTATIONS IN THE MARKETING OF BUSINESS VENTURES".

E. Each bond shall be in favor of both the Federal Trade Commission for the benefit of any party injured as a result of any unfair or deceptive acts or practices, false advertising, or violation of this Order and any party so injured.

F. Defendants shall provide a copy of the bond to the Associate Director for the Division of Marketing Practices at the address specified in Section IX.E. of this Order, at least ten (10) days before the commencement of the activity for which the bond is required.

G. The bond requirements of this Order shall be in addition to, and not in lieu of, any bond required by federal, state, or local law, or the order of another court.

III.

IT IS FURTHER ORDERED that defendants, their successors, assigns, officers, agents, servants, employees and those persons in active concert or participation with them who receive actual notice of this Order by personal service or otherwise, in connection with the offering for sale or sale of any product or service, are hereby permanently enjoined from making, directly or through any other person, expressly or by implication, orally or in writing, any misrepresentation of material fact relating to the performance or attributes of any such product or service.

IV.

IT IS FURTHER ORDERED that judgment, subject to Paragraph V, is hereby entered in favor of the Commission and against defendants (A) National Electronic Healthcare Corporation, in the amount of $100,000; (B) Electronic Healthcare Products, Inc., in the amount of $100,000; (C) Gary White, in the amount of $100,000; (D) Leslie White, in the amount of $100,000; (E) Steve Shelton, in the amount of $80,000; and (F) Lynne Shelton, in the amount of $80,000; for the purpose of paying equitable monetary relief, including but not limited to, consumer redress and/or disgorgement and for paying attendant expenses of administering any redress fund. If the Commission determines, in its sole discretion, that redress to purchasers is wholly or partially impracticable, any funds not so used shall be deposited into the United States Treasury. The Commission in its sole discretion may use a designated agent to administer consumer redress. No portion of this judgment for equitable monetary relief shall be deemed a fine, penalty or punitive assessment, or forfeiture.

IT FURTHER ORDERED that given the pendency of proceedings for all defendants in the United States Bankruptcy Court for the District of Nevada (case numbers BK-N-98-30678, BK-N-98-30679, BK-N-98-31000, BK-N-98-31001), payment of the judgment amounts set forth in Paragraph IV of this Order shall be made as determined in the course of such bankruptcy proceedings. Nothing in this Order shall be deemed to prevent the Federal Trade Commission from (1) exercising any rights it may have in Bankruptcy Court to collect the judgment amount set forth in Paragraph IV, (2) pursuing any remedy available under the Bankruptcy Code against any defendant who has filed a financial statement with the Bankruptcy Court that failed to disclose any material asset, or materially misrepresented the value of any asset, or contained any other material misrepresentation or omission, or (3) seeking payment of the judgment amount set forth in Paragraph IV of this Order from any defendant whose discharge has been denied or revoked for any of the reasons listed in subsection (2) of this Paragraph. For purposes of enforcing the judgment under this Paragraph, defendants waive any right to contest any of the allegations in the complaint filed in this matter.

VI.

IT IS FURTHER ORDERED that, within five (5) business days after receipt by defendants of this Order as entered by the Court, defendants shall submit to the Commission a truthful sworn statement, in the form shown on Appendix A, that shall acknowledge receipt of this Order.

VII.

IT IS FURTHER ORDERED that, for a period of five (5) years from the date of entry of this Order, defendants shall:

A. Provide a copy of this Order to, and obtain a signed and dated acknowledgment of receipt of same from, each officer or director, each individual serving in a management capacity, all personnel involved in responding to consumer complaints or inquiries, and all sales personnel, whether designated as employees, consultants, independent contractors or otherwise, immediately upon employing or retaining any such persons, for any business where (1) defendants, either individually or collectively, are the majority owners of the business or directly or indirectly manage or control the business, and where (2) the business is engaged in the offering for sale or sale of any franchise or business venture.

B. Maintain for a period of three (3) years after creation, and upon reasonable notice, make available to representatives of the Commission, the original signed and dated acknowledgments of the receipt of copies of this Consent Decree, as required in Subsection A. of this Paragraph.

VIII.

IT IS FURTHER ORDERED that for a period of five (5) years from the date of entry of this Order, defendants, their successors, assigns, officers, agents, servants, employees, and those persons in active concert or participation with them who receive actual notice of this Order by personal service or otherwise, in connection with any business where (1) defendants, either individually or collectively, are the majority owners of the business or directly or indirectly manage or control the business, and where (2) the business engages in the offering for sale or sale of any franchise or business venture, are hereby enjoined from failing to create, and from failing to retain for a period of three (3) years following the date of such creation, unless otherwise specified:

A. Books, records, and accounts that, in reasonable detail, accurately and fairly reflect defendants’ cost of goods or services sold, revenues generated, and the disbursement of such revenues.

B. Records accurately reflecting the name, home address, and home telephone number of each person employed in any capacity by such business, including as an independent contractor; that person’s job title or position; the date upon which the person commenced work; and the date and reason for the person’s termination, if applicable. The businesses subject to this Paragraph shall retain such records for any terminated employee for a period of two (2) years following the date of termination.

C. Records containing the name, home address, home telephone number, dollar amount paid, quantity of items or services purchased, and description of items or services purchased, for all consumers to whom such business has sold, invoiced, provided, or shipped any goods or services.

D. Records that reflect, for every consumer complaint or refund request, whether received directly or indirectly or through any third party:

(1) the consumer’s name, address, telephone number, and the dollar amount paid by the consumer;

(2) the written complaint or refund request, if any, and the date of the complaint or refund request;

(3) the basis of the complaint, including the name of any salesperson complained against, and the nature and result of any investigation conducted concerning any complaint;

(4) each response and the date of the response;

(5) any final resolution and the date of the resolution; and

(6) in the event of a denial of a refund request, the reason for the denial.

E. Copies of all sales scripts, training materials, advertisements, or any other marketing materials utilized; provided that such copies of all sales scripts, training materials, advertisements, or other marketing materials utilized shall be retained for three (3) years after the last date of dissemination of any such materials.

IX.

IT IS FURTHER ORDERED that, in order that compliance with the provisions of this Order may be monitored:

A. Within fourteen (14) days from the date of entry of this Order, each defendant shall notify the Commission in writing of defendant’s current residence address, telephone number, and employment status (including self-employment). Such notice shall include the name, address, and telephone number of each business that defendant is affiliated with or employed by in any capacity, a statement of the nature of the business, and a statement of defendant’s duties and responsibilities in connection with the business or employment.

B. For a period of five (5) years from the date of entry of this Order, each defendant shall notify the Commission of the following:

(1) Any changes in defendant’s residence, mailing address, and telephone number, within ten (10) days of the date of such change; and

(2) Any changes in defendant’s employment status (including self-employment) within ten (10) days of such change. Such notice shall include the name, address, and telephone number of each business that defendant is affiliated with or employed by in any capacity, a statement of the nature of the business, and a statement of defendant’s duties and responsibilities in connection with the business or employment.

(3) Any proposed change in the structure of defendants National Electronic Healthcare Corporation and Electronic Healthcare Products, Inc., or any proposed change in the structure of any business entity owned or controlled, individually or collectively, by defendants Steve Shelton, Lynne Shelton, Gary White, or Leslie White, such as creation, incorporation, dissolution, assignment, sale, merger, creation, dissolution of subsidiaries, proposed filing of a bankruptcy petition, or change in the corporate name or address, or any other change that may affect compliance obligations arising out of this Order, thirty (30) days prior to the effective date of any proposed change; provided, however, that, with respect to any proposed change in the corporation about which defendants learn less than thirty (30) days prior to the date such action is to take place, defendants shall notify the Commission as soon as is practicable after learning of such proposed change.

C. One hundred eighty (180) days after the date of entry of this Order, each defendant shall provide a written report to the Commission, sworn to under penalty of perjury, setting forth in detail the manner and form in which each defendant has complied and is complying with this Order. This report shall include but not be limited to:

(1) Defendant’s then current residence address and telephone number;

(2) Defendant’s then current employment, business address, and telephone number, a description of the business activities of such employer, and defendant’s title and responsibilities for such employer; and

(3) A statement describing the manner in which defendant has complied and is complying with the injunctive provisions contained in Paragraphs I - III.

D. Upon written request by a representative of the Commission, defendants shall submit additional written reports (under oath, if requested) and produce documents on fifteen (15) days notice with respect to any conduct subject to this Order.

E. For the purposes of this Order, defendants shall, unless otherwise directed by the Commission’s authorized representatives, mail all written notifications to the Commission to: Associate Director, Division of Marketing Practices, Federal Trade Commission, 6th & Pennsylvania Ave., NW, Washington, D.C. 20580. Re: FTC v. Steve Shelton et al.

F. For the purposes of this Paragraph, "employment" includes the performance of services as an employee, consultant, or independent contractor, and "employer" includes any individual or entity for which defendants Steve Shelton, Lynne Shelton, Gary White, or Leslie White perform services as an employee, consultant, or independent contractor.

G. For purposes of the compliance reporting required by this Paragraph, the Commission is authorized to communicate directly with defendants.

IT IS FURTHER ORDERED that, for a period of five (5) years from the date of entry of this Order, for the purpose of further determining compliance with this Order, defendants shall permit representatives of the Commission, within three (3) business days of receipt of written notice from the Commission:

A. Access during normal business hours to any office, or facility storing documents, of any business where (1) defendants, either individually or collectively, are the majority owners of the business or directly or indirectly manage or control the business, and where the business is engaged in the offering for sale or sale of any franchise or business venture. In providing such access, defendants shall permit representatives of the Commission to inspect and copy all documents relevant to any matter contained in this Order; and shall permit Commission representatives to remove documents relevant to any matter contained in this Order for a period not to exceed five (5) business days so that the documents may be inspected, inventoried, and copied.

B. To interview the officers, directors, and employees, including all personnel involved in responding to consumer complaints or inquiries, and all sales personnel, whether designated as employees, consultants, independent contractors or otherwise, of any business to which Subsection A. of this Paragraph applies, concerning matters relating to compliance with the terms of this Order. The person interviewed may have counsel present.

Provided that, upon application of the Commission and for good cause shown, the Court may enter an ex parte order granting immediate access to defendants’ business premises for the purposes of inspecting and copying all documents relevant to any matter contained in this Order.

XI.

IT IS FURTHER ORDERED that the Commission is authorized to monitor defendants’ compliance with this Order by all lawful means, including but not limited to the following means:

A. The Commission is authorized to obtain discovery, upon leave of Court and for good cause shown, from any person in the manner provided by Chapter V of the Federal Rules of Civil Procedure, Fed. R. Civ. P. 26-37, including the use of compulsory process pursuant to Fed. R. Civ. P. 45, for the purpose of monitoring and investigating defendants’ compliance with any provision of this Order. The Court may grant leave to obtain discovery under this Subsection upon an ex parte application by the Commission.

B. The Commission is authorized to use representatives posing as consumers and suppliers to defendants, defendants’ employees, or any other entity managed or controlled in whole or in part by defendants, individually or collectively, without the necessity of identification or prior notice.

C. Nothing in this Order shall limit the Commission’s lawful use of compulsory process, pursuant to Sections 9 and 20 of the FTC Act, 15 U.S.C. §§ 49 and 57b-1, to investigate whether defendants have violated any provision of this Order or Section 5 of the FTC Act, 15 U.S.C. § 45.

XII.

IT IS FURTHER ORDERED that the freeze of defendants’ assets shall be lifted upon entry of this Order.

XIII.

IT IS FURTHER ORDERED that subject to Paragraphs V and XIV, the terms and conditions of this Order shall constitute a full and final judgment and resolution of any and all civil claims the Commission has against the defendants arising from (1) the Complaint filed in this matter, (2) any acts or omissions by the defendants that form the basis thereof, and (3) the involvement of defendants Steve Shelton, Lynne Shelton, Gary White, and Leslie White in any way in the business activities of defendants National Electronic Healthcare Corporation and Electronic Healthcare Products, Inc.

XIV.

IT IS FURTHER ORDERED that this Court shall retain jurisdiction of this matter for the purposes of enabling any of the parties to this Order to apply to the Court at any time for such further orders or directives as may be necessary or appropriate for the interpretation or modification of this Order, for the enforcement of compliance with it, or for the punishment of violations of it.

DATED:
_________________________________
United States District Judge

The parties hereby stipulate and agree to the terms and conditions of this Stipulated Final Judgment and Order for Permanent Injunction as set forth above and consent to the entry thereof.

FEDERAL TRADE COMMISSION:

Dated:
_________________________
Jeffery T. Dahnke
Attorney for Plaintiff

DEFENDANTS:

Dated:
_________________________
STEVE SHELTON
individually and as an officer, director, and owner of defendants National Electronic Healthcare Corporation and Electronic Healthcare Products, Inc.

Dated:
_________________________
LYNNE SHELTON
individually and as an officer, director, and owner of defendants National Electronic Healthcare Corporation and Electronic Healthcare Products, Inc.

Dated:
_________________________
GARY WHITE
individually and as an officer, director, and owner of defendants National Electronic Healthcare Corporation and Electronic Healthcare Products, Inc.

Dated:
_________________________
LESLIE WHITE
individually and as an officer, director, and owner of defendants National Electronic Healthcare Corporation and Electronic Healthcare Products, Inc.

NATIONAL ELECTRONIC HEALTHCARE CORPORATION:

Dated:

By:
_________________________
Steve Shelton
President

ELECTRONIC HEALTHCARE PRODUCTS, INC.:

Dated:

By:
_________________________
Steve Shelton
President

Dated:
_________________________
Del Hardy, Esq.
Attorney & Counselor at Law
96 Winter Street
Reno, Nevada 89503
702-322-7422
Attorney for Defendants

Dated:
___________________________________________
Jeri Coppa-Knudson
145 Mt. Rose Street
Reno, Nevada 89509
702-329-1528
Chapter 7 Trustee for Defendants National
Electronic Healthcare Corp. and Electronic
Healthcare Products, Inc.

APPENDIX A

UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA

FEDERAL TRADE COMMISSION, Plaintiff,

STEVE SHELTON, LYNNE SHELTON, GARY WHITE, LESLIE WHITE, NATIONAL ELECTRONIC HEALTHCARE CORPORATION, and ELECTRONIC HEALTHCARE PRODUCTS, INC., Defendants.

CV-N-97-712-ECR (RAM)

AFFIDAVIT OF DEFENDANT ______________

[Name of defendant], being duly sworn, hereby states and affirms as follows:

1. My name is _______________. My current residence address is _________________

____________. I am a defendant in the above captioned matter.

2. On [date], I received a copy of the STIPULATED FINAL JUDGMENT AND ORDER FOR PERMANENT INJUNCTION, which was signed by the Honorable Edward C. Reed and entered by the Court on [date of entry of Order]. A true and correct copy of the Order

/ / /

I received is appended to this Affidavit.

I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct.

Executed on [date], at [city and state].

_______________________________
[Full name of defendant]

State of ______________________, City of __________________ Subscribed and sworn to before me this ______ day of _________, 1998.

_______________________________
Notary Public

My Commission Expires:

_______________________________