UNITED
STATES DISTRICT COURT FEDERAL TRADE COMMISSION, Plaintiff, v. DIANE M. JONAS, individually and as a principal of the Business Opportunity Center, Inc.; PAUL A. JONAS, individually; JAMES W. RAIM d/b/a Market Systems, Ltd., individually; ROBERT BRIAN ROEMER, individually; and as Treasurer of the Business Opportunity Center, Inc.; and THE BUSINESS OPPORTUNITY CENTER, INC., a Florida corporation, d/b/a The Neutralizer, Defendants. --CIV-- COMPLAINT FOR PERMANENT INJUNCTION AND OTHER EQUITABLE RELIEF Plaintiff, the Federal Trade Commission ("FTC" or "the Commission"), for its complaint alleges: 1. The FTC brings this action under Sections 13(b) and 19 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. 53(b) and 57b, to secure a permanent injunction, preliminary injunctive relief, rescission of contracts, restitution, disgorgement, appointment of a receiver, and other equitable relief for defendants' unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. 45(a), and the FTC's Trade Regulation Rule entitled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures ("the Franchise Rule" or "the Rule"), 16 C.F.R. 436. JURISDICTION AND VENUE 2. This Court has jurisdiction over this matter pursuant to 28 U.S.C. 1331, 1337(a), and 1345, and 15 U.S.C. 53(b) and 57b. 3. Venue in the United States District Court for the Southern District of Florida is proper under 28 U.S.C. 1391(b) and (c), and 15 U.S.C. 53(b). PLAINTIFF 4. Plaintiff, the Federal Trade Commission, is an independent agency of the United States Government created by statute. 15 U.S.C. 41 et seq. The Commission is charged, inter alia, with enforcement of Section 5(a) of the FTC Act, 15 U.S.C. 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce. The Commission is authorized to initiate federal district court proceedings to enjoin violations of the FTC Act in order to secure such equitable relief as may be appropriate in each case. 15 U.S.C. 53(b) and 57b. DEFENDANTS 5. Defendant Business Opportunity Center, Inc. ("BOC"), a Florida corporation, promotes and sells the Alcohol Neutralizer vending machine business ventures, within the jurisdiction of this Court. 6. Defendant Diane Jonas is an officer and principal owner of defendant BOC. At all times material to this complaint, acting alone or in concert with others, she has formulated, directed, controlled, or participated in the acts and practices of the corporate defendant, including the acts and practices set forth in this complaint. 7. Defendant Paul Jonas is a principal owner of defendant BOC. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of the corporate defendant, including the acts and practices set forth in this complaint. 8. Defendant James Raim doing business as ("d/b/a") Market Systems, Ltd., is the president of Market Systems, Ltd., an unincorporated business, which manufacturers and distributes the Alcohol Neutralizer. He conceived of the Alcohol Neutralizer vending machine business venture. Defendant Raim d/b/a Market Systems now provides the Alcohol Neutralizer and promotional medical materials to the defendant BOC, which promotes and sells such business ventures. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of the corporate defendant, including the acts and practices set forth in this complaint. 9. Defendant Robert Brian Roemer is an attorney employed by the corporate defendant. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of the corporate defendant, including the acts and practices set forth in this complaint. COMMERCE 10. At all times relevant to this complaint, the defendants have maintained a substantial course of trade in the offering for sale and sale of the Alcohol Neutralizer vending machine business venture in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. 44. DEFENDANTS' BUSINESS ACTIVITIES 11. Defendants BOC, Diane Jonas, Paul Jonas, and Roemer sell vending machine franchises to market the "Alcohol Neutralizer." The Alcohol Neutralizer is an herbal capsule that all of the defendants claim will rapidly lower the amount of alcohol in the blood of people who have been drinking and reduce or minimize inebriation. Defendants BOC and Roemer encourage franchisees to target consumers who fear being arrested for drunk driving. 12. Alcohol Neutralizer is a relatively new product, which was manufactured and first marketed in vending machines by James Raim d/b/a Market Systems sometime in early 1994. Sometime in December 1994 or January 1995, defendants BOC, Diane Jonas, and Paul Jonas began marketing the Alcohol Neutralizer business venture, and defendant Raim d/b/a Market Systems began supplying the Alcohol Neutralizer and promotional medical materials to BOC for distribution to potential franchisees. 13. Defendants BOC, Diane Jonas, Paul Jonas, Raim d/b/a Market Systems, and Roemer market, or have marketed, the Alcohol Neutralizer business venture on the West Coast, in Ohio, Pennsylvania, Massachusetts, Florida, Texas, and Georgia. Defendant BOC advertises the Alcohol Neutralizer on television and at trade shows around the country. Defendant BOC also distributes a business opportunity brochure, in which the defendants expressly claim that the Neutralizer's ingredients have been approved or are generally recognized as safe by the U.S. Food and Drug Administration ("FDA"), and that an independent medical study conducted by researchers at Harvard Medical School found that a Neutralizer ingredient or ingredients guard against the toxic side effects of alcohol consumption and will rapidly lower one's blood alcohol level. Defendant BOC also includes a potential profit projection in its brochure, which shows potential earnings up to $810,000.00. 14. Potential investors who call defendant BOC reach a sales representative. BOC's sales representative repeats the medical and FDA claims made in the brochure and encourages the investor to call the business references listed in the brochure, which do not include the names of existing franchisees. BOC's sales representative also mails to the investor additional information, including a basic disclosure document and samples of the product, and encourages the potential investor to try the Alcohol Neutralizer. BOC's sales representative also tells an investor that the basic franchise package requires a minimum purchase of five vending machines for $4,475. VIOLATIONS OF SECTION 5 OF THE FTC ACT 15. Section 5(a) of the FTC Act, 15 U.S.C. 45(a), prohibits unfair or deceptive acts or practices in or affecting commerce. 16. Misrepresentations of material fact constitute unfair or deceptive acts or practices prohibited by Section 5(a) of the FTC Act. COUNT ONE 17. Paragraphs 1 through 16 are incorporated herein by reference. 18. In numerous instances, in connection with the advertising, promotion, marketing, offering for sale, or sale of franchises or business ventures, the defendants have represented, directly or by implication, that the Alcohol Neutralizer or its ingredients are approved or generally recognized as safe ("GRAS") by FDA for use in lowering a person's blood alcohol level and in guarding against the toxic side effects of alcohol consumption. 19. In truth and in fact, the FDA has neither approved nor listed as GRAS the Alcohol Neutralizer or any of its ingredients, alone or in combination, for use in lowering a person's blood alcohol level or in guarding against the toxic side effects of alcohol consumption. 20. Therefore, the defendants' representations regarding FDA approval or GRAS listing, as set forth in Paragraph 18 above, were and are false and misleading and constitute deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. 45(a). COUNT TWO 21. Paragraphs 1 through 20 are incorporated herein by reference. 22. In numerous instances, in connection with the advertising, promotion, marketing, offering for sale, or sale of franchises or business ventures, the defendants have represented, directly or by implication, that an independent medical study by researchers from Harvard Medical School shows that the Alcohol Neutralizer or one or more of its ingredients will guard against toxic side effects of alcohol consumption and, thus, will rapidly lower the amount of alcohol in a person's blood. 23. In truth and in fact, the Harvard Medical School study did not show that any ingredient or combination of ingredients in the Alcohol Neutralizer guards against the toxic side effects of alcohol consumption, or that any ingredient or combination of ingredients in the Alcohol Neutralizer will rapidly lower the amount of alcohol in a person's blood. 24. Therefore, the defendants' representations regarding the Harvard Medical School study, as set forth in Paragraph 22 above, were and are false and misleading and constitute deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. 45(a). THE FRANCHISE RULE 25. The business ventures sold by the defendants are franchises, as "franchise" is defined in Section 436.2(a) of the Franchise Rule, 16 C.F.R. 436.2(a). 26. The Franchise Rule requires a franchisor to provide prospective franchisees with a complete and accurate basic disclosure statement containing twenty categories of information, including information about the history of the franchisor, the terms and conditions under which the franchise operates, and information about other franchisees. 16 C.F.R. 436.1(a)(1) - (a)(20). Disclosure of this information enables a prospective franchisee to assess potential risks involved in the purchase of the franchise. 27. The Franchise Rule additionally requires: (1) that the franchisor have a reasonable basis for any oral, written, or visual earnings or profit representations made by a franchisor to a prospective franchisee, 16 C.F.R. 436.1(b)(2), (c)(2) and (e)(1); (2) that the franchisor provide to prospective franchisees a document containing information substantiating the earnings claim, 16 C.F.R. 436.1(b)-(e); and (3) that the franchisor, in immediate conjunction with any generally disseminated earnings claim, disclose the material basis (or the lack of such basis) for the earnings claim and include a warning that the earnings claim is only an estimate. 16 C.F.R. 436.1(e)(3)-(4). 28. Pursuant to Section 18(d)(3) of the FTC Act, 15 U.S.C. 57a(d)(3), and 16 C.F.R. 436.1, violations of the Franchise Rule constitute unfair or deceptive acts or practices in or affecting commerce, in violation of Section 5(a) of the FTC Act, 15 U.S.C. 45(a). 29. In connection with the promotion of vending machine franchises, the defendants have offered and in many instances have provided to franchisees the services of a person able to secure the sites for the franchisees' vending machines. 30. In the course of offering for sale and selling business ventures, defendants have provided, or represented that they will provide, significant assistance to the purchaser in the purchaser's method of operation. VIOLATIONS OF THE FRANCHISE RULE COUNT THREE 31. Paragraphs 1 through 30 are incorporated herein by reference. 32. In numerous instances in connection with the promotion, offering for sale and sale of franchises, as "franchise" is defined in the Rule, 16 C.F.R. 436.2(a), defendants BOC, Diane Jonas, and Paul Jonas have failed to provide prospective franchisees with specific items of information required by the Franchise Rule, including, but not limited to, a complete and accurate disclosure of the names and addresses of franchisees and of statistical information about the number of franchises terminated, not renewed, and reacquired by the franchisor, in violation of Section 436.1(a)(16) of the Rule (or the alternative requirements of Item 20 of the UFOC); and Section 5 of the FTC Act, 15 U.S.C. 45. COUNT FOUR 33. Paragraphs 1 through 32 are incorporated herein by reference. 34. In numerous instances in connection with the offering of franchises, as "franchise" is defined in the Rule, 16 C.F.R. 436.2(a), defendants BOC, Diane Jonas, and Paul Jonas have made earnings claims within the meaning of the Rule, 16 C.F.R. 436.1(b)-(e), but have failed to have a reasonable basis for such claims at the times they were made, or have failed to disclose the information required by the Rule in immediate conjunction with such claims, thereby violating Sections 436.1(b)-(e) of the Rule, 16 C.F.R. 436.1(b)-(e), and Section 5 of the FTC Act, 15 U.S.C. 45. CONSUMER INJURY 35. Consumers in many areas of the United States who purchase Alcohol Neutralizer franchises are likely to suffer substantial monetary loss as a result of defendants' unlawful acts or practices. In addition, consumers who use the Alcohol Neutralizer for the purpose of lowering or minimizing their blood alcohol levels could suffer physical harm. Absent injunctive relief by this Court, defendants are likely to continue to injure consumers and harm the public interest. THIS COURT'S POWER TO GRANT RELIEF 36. Section 13(b) of the FTC Act, 15 U.S.C. 53(b), empowers this Court to grant injunctive and other ancillary relief, including consumer redress, disgorgement and restitution, to prevent and remedy any violations of any provision of law enforced by the Federal Trade Commission. 37. Section 19 of the FTC Act, 15 U.S.C. 57b, authorizes this Court to grant such relief as the Court finds necessary to redress injury to consumers or other persons resulting from defendants' violations of the Franchise Rule, including the rescission and reformation of contracts, and the refund of money. 38. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy injury caused by the defendants' law violations. PRAYER FOR RELIEF WHEREFORE, plaintiff requests that this Court, as authorized by Sections 13(b) and 19 of the FTC Act, 15 U.S.C. 53(b) and 57b, and pursuant to its own equitable powers: 1. Award plaintiff such preliminary injunctive and ancillary relief as may be necessary to avert the likelihood of consumer injury during the pendency of this action and to preserve the possibility of effective final relief; 2. Permanently enjoin the defendants from violating the Franchise Rule and the FTC Act, as alleged herein, in connection with the offering and promotion of business ventures, distributorship, business opportunities and franchises; 3. Award such relief as the Court finds necessary to redress injury to consumers resulting from the defendants' violations of the Franchise Rule and the FTC Act, including but not limited to, rescission of contracts, the refund of monies paid, and the disgorgement of ill-gotten monies; and 4. Award plaintiff the costs of bringing this action, as well as such other and additional relief as the Court may determine to be just and proper. Respectfully Submitted, STEPHEN CALKINS LAWRENCE H. NORTON __________________________ |