| STEPHEN CALKINS General Counsel DAVID M. NEWMAN
(Calif. Bar No. 54218) Attorneys for Plaintiff UNITED
STATES DISTRICT COURT FEDERAL TRADE COMMISSION, Plaintiff, v. PARADE OF
TOYS, INC., a Kansas Corporation; Case No. COMPLAINT
FOR PERMANENT INJUNCTION Plaintiff, the Federal Trade Commission ("Commission"), for its complaint alleges: 1. The Commission 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, 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 Commission'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. Part 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 District of Kansas is proper under 28 U.S.C. §§ 1391(b) and (c), and 15 U.S.C.§ 53(b). PLAINTIFF 4. The 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 Parade of Toys, Inc. ("Parade"), a Kansas corporation, with its most recent place of business at 13845 W. 107th Street, Lenexa, Kansas 66215, has offered and sold to investors carousel display rack business ventures for the sale of Disney and other licensed products to the public. Parade has transacted business in the District of Kansas. 6. Defendant Wonderful World of Toys, Inc. ("Wonderful"), a Kansas corporation, with its most recent place of business at 108 N. Chester Street, Olathe, Kansas 66061, has offered and sold to investors carousel display rack business ventures for the sale of Disney and other licensed products to the public. Wonderful has transacted business in the District of Kansas. 7. Defendant Robert E. Bouckhout has been the president and director of Parade. In connection with the matters alleged herein, he has transacted business in the District of Kansas. 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 defendants, including the acts and practices set forth in this complaint. 8. Defendant Dennis Vaughan has been an officer or senior manager of Parade or Wonderful. In connection with the matters alleged herein, he has transacted business in the District of Kansas. 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 Parade or Wonderful, including the acts and practices set forth in this complaint. 9. Defendant Megan Wall has been an officer or senior manager of Parade or Wonderful. In connection with the matters alleged herein, she has transacted business in the District of Kansas. 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 Parade or Wonderful, 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 carousel display rack business ventures in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44. DEFENDANTS' BUSINESS ACTIVITIES 11. Since at least July, 1994, the defendants have engaged in a deceptive scheme to offer and sell purportedly profitable carousel display rack business ventures to members of the public. In order to induce consumers to make a minimum investment of $18,900, the defendants have exploited the Disney name and other popular trademarks, representing that carousel racks displaying these products are successful and profitable because of the popularity of these licensed products. The defendants have misrepresented the earnings potential of the business venture, and failed to provide prospective purchasers with the information required by the Commission's Franchise Rule that they need to evaluate these claims and the business venture itself. The defendants have also failed to disclose material information about the costs associated with purchasing the business venture and have provided prospective purchasers with the names of purported existing distributors who were in fact shills for the defendants. VIOLATIONS OF SECTION 5 OF THE FTC ACT COUNT ONE 12. In the course of offering for sale and selling carousel display rack business ventures, defendants have represented, expressly or by implication, that purchasers can reasonably expect to achieve a specific level of earnings, such as retail sales of eight to ten dollars per day per carousel, or an annual income of $50,000 to $100,000. 13. In truth and in fact, few, if any, purchasers attain the specific level of earnings represented by the defendants. 14. Therefore, defendants' representations as set forth in Paragraph 12 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 15. In the course of offering for sale and selling carousel display rack business ventures, defendants have represented, expressly or by implication, that, in exchange for the payment required to purchase defendants' business venture, the purchaser will receive retail display racks and product inventory to stock those display racks to sell to the public to generate earnings as set out in Paragraph 12 above. 16. Defendants fail to disclose material information about the costs associated with purchasing the business venture, including but not limited to the fact that Defendants will charge purchasers of defendants' business venture a substantial "set up" or "license" fee as part of the purchasers' initial investments. 17. In light of the representations set forth in Paragraph 15 above, defendants' failure to disclose material information about the costs associated with purchasing defendants' business venture, as described in Paragraph 16, above, is misleading and constitutes a deceptive act or practice in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT THREE 18. In the course of offering for sale and selling carousel display rack business ventures, defendants have provided to prospective distributors as references the names of persons whom they represent to be existing distributors of defendants. 19. In truth and in fact, the individuals whose names are provided to prospective distributors as references have, in many cases, never been distributors of defendants. 20. Therefore, defendants' representations as set forth in Paragraph 18 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 21. The business ventures sold by the defendants are business opportunity franchises, as "franchise" is defined in Section 436.2(a) of the Franchise Rule, 16 C.F.R. § 436.2(a). 22. 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 seller of the franchise, the terms and conditions of the proposed business relationship, and the names, addresses and telephone numbers of a cross-section of prior franchise purchasers. 16 C.F.R. § 436.1(a)(1) - (a)(20). Disclosure of this information enables a prospective franchisee to check out the franchisor's sales claims and assess the potential risks and benefits involved in the purchase of the franchise. 23. The Franchise Rule additionally requires: (1) that the franchisor give prospective franchisees a document disclosing the material basis (or the lack of such basis) for any oral, written, or visual earnings or profit representations it makes to a prospective franchisee, 16 C.F.R. §§ 436.2(b)-(e); and (2) that the franchisor, in immediate conjunction with any generally disseminated earnings claim, disclose the number and percentage of prior purchasers known to have earned as much or more than the amount claimed, and include a warning that the earnings claim is only an estimate. 16 C.F.R. § 436.1(e)(3)-(4). 24. 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). VIOLATIONS OF THE FRANCHISE RULE COUNT FOUR 25. 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 have failed to provide prospective franchisees with accurate and complete disclosure documents within the time period required by the Franchise Rule, thereby violating Section 436.1(a) of the Rule, 16 C.F.R. § 436.1(a), and Section 5 of the FTC Act, 15 U.S.C. § 45. COUNT FIVE 26. 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 have made earnings claims within the meaning of the Rule, 16 C.F.R. § 436.1(b)-(e), but have failed to give prospective franchisees the earnings claim document required by the Rule or have failed to disclose the information required by the Rule in immediate conjunction with the 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 27. Consumers in many areas of the United States have suffered substantial monetary loss as a result of defendants' unlawful acts or practices. 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 28. 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 Commission. 29. 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. 30. 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:
Respectfully submitted, Stephen Calkins _______________________________ |