UNITED STATES DISTRICT COURT FEDERAL TRADE COMMISSION, Plaintiff, CIVIL NO. v. MAG-TOPIA, INC. ("MTI") and ROBERT FLARIDA, Defendants. COMPLAINT FOR INJUNCTION
STEPHEN CALKINS ANN I. JONES Federal Trade Commission TARA M. FLYNN Federal Trade Commission ATTORNEYS FOR PLAINTIFF Plaintiff, the Federal Trade Commission (“FTC” or “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, and the Telemarketing and Consumer Fraud and Abuse Prevention Act (“Telemarketing Act”), 15 U.S.C. § 6101 et seq., to obtain preliminary and permanent injunctive relief, rescission or reformation 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 Commission’s Telemarketing Sales Rule, 16 C.F.R. Part 310. JURISDICTION AND VENUE 2. This Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331, 1337(a), and 1345 and 15 U.S.C. §§ 53(b), 57b, 6102(c), and 6105(b). 3. Venue in the Central District of California is proper under §§ 28 U.S.C. § 1391(b) and (c), and 15 U.S.C. § 53(b). THE PARTIES 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 also enforces the Telemarketing Sales Rule, which prohibits deceptive and abusive telemarketing. 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 is appropriate in each case, and to obtain consumer redress. 15 U.S.C. §§ 53(b) and 57b. 5. Defendant Mag-Topia, Inc. ("MTI") is a California corporation, with its office and principal place of business located at 2098-A South Grand Avenue, Santa Ana, California 92707. MTI transacts or has transacted business in this District. 6. Defendant Robert Flarida is president and sole owner of defendant MTI. 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. He transacts or has transacted business in this District. COMMERCE 7. At all times relevant to this complaint, the defendants have maintained a substantial course of trade in the offering for sale and sale, through telemarketing, of prize promotions, in or affecting commerce, as “commerce” is defined in Section 4 of the FTC Act, 15 U.S.C. § 44. DEFENDANTS’ BUSINESS PRACTICES 8. Since at least 1996, Defendants MTI and Robert Flarida have operated a magazine promotion scheme in the guise of a prize promotion. The defendants’ salespeople telephone consumers, many of them senior citizens, throughout the United States and notify them that they have been selected to receive or have won a valuable prize. The MTI salespeople typically inform these consumers that the prize is one of the following: (1) a new automobile, such as a Ford Escort; (2) a cash award ranging from $1,500 to $15,000; (3) a "big screen" television; or (4) a "diamond" watch claimed to be worth over $1,000. MTI’s salespeople represent to consumers that all of the prizes are valuable. 9. MTI’s salespeople instruct consumers that in order to receive their prize, they must pay a processing fee and send a check or money order to MTI by overnight mail. The amount MTI’s salespeople request as a processing fee ranges from $250.00 to $900.00. In numerous instances, MTI’s salespeople instruct consumers to write "magazines" or "magazine package" on the memo lines of their checks or money orders. They also instruct consumers to call MTI to confirm that they have sent their checks or money orders. As a result of MTI salespeople’s oral assurances that consumers have been selected to receive or have won a valuable prize, consumers agree to send the requested amount of money. Once a consumer calls to confirm that he or she has sent the required check or money order, the MTI representative asks for the air bill number for the package containing the check or money order. 10. Most, if not all, consumers who send money to MTI receive a magazine order form from MTI that requests consumers to select a number of magazines from a pre-printed list. In numerous instances, however, consumers do not receive the selected magazines. 11. In numerous instances, consumers do not receive any of the promised prizes from MTI. If consumers do receive a prize from MTI, it is the "diamond" watch. If consumers request an alternative prize, MTI offers them one of the following alternative awards: a vase, skin care treatments, a seven-piece cookware set, a rice cooker, or an oriental rug. VIOLATIONS OF SECTION 5 OF THE FTC ACT COUNT I 12. In numerous instances in connection with their telemarketing of prize promotions, the defendants represent, expressly or by implication, that consumers who participate in the defendants’ promotions will receive a prize worth more than the amount that consumers pay to the defendants. 13. In truth and in fact, in numerous instances, consumers who participate in the defendants’ promotions do not receive a prize worth more than the amount consumers pay to the defendants. 14. Therefore, the representations 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). VIOLATIONS OF THE TELEMARKETING SALES RULE 15. In the Telemarketing Act, 15 U.S.C. § 6101, et seq., Congress directed the FTC to prescribe rules prohibiting deceptive and abusive telemarketing acts or practices. On August 16, 1995, the FTC promulgated the Telemarketing Sales Rule, 16 C.F.R. Part 310, with a Statement of Basis and Purpose, 60 Fed. Reg. 43842 (Aug. 23, 1995). The Rule became effective December 31, 1995. 16. Defendants are "sellers" or "telemarketers" engaged in "telemarketing" of a "prize promotion" as those terms are defined in the Telemarketing Sales Rule. 16 C.F.R. § 310.2(r), (t), (u), and (q). 17. The Telemarketing Sales Rule prohibits telemarketers and sellers from failing to disclose, in a clear and conspicuous manner and before a customer pays for goods or services in any prize promotion, (1) the odds of being able to receive the prize or the factors used in calculating the odds, (2) that no purchase or payment is required to win a prize or to participate in a prize promotion, and (3) the no purchase/no payment method of participating in a prize promotion. 16 C.F.R. § 310.3(a)(1)(iv). 18. The Telemarketing Sales Rule’s Statement of Basis and Purpose explains that, "[t]he Commission intends that the disclosures be made before the consumer sends funds to a seller or telemarketer or divulges to a telemarketer or seller credit card or bank account information. Thus, a telemarketer or seller who fails to provide the disclosures until the consumer’s payment information is in hand violates the Rule." 60 Fed. Reg. 43842, 43852 (Aug. 23, 1995). 19. The Rule additionally prohibits sellers and telemarketers from misrepresenting any material aspect of a prize promotion, including but not limited to the nature or value of a prize. 16 C.F.R. § 310.3(a)(2)(v). 20. Pursuant to Section 3(c) of the Telemarketing Act, 15 U.S.C. § 6102 (c), and Section 18(d)(3) of the FTC Act, 15 U.S.C. § 57a(d)(3), violations of the Telemarketing Sales 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). COUNT II 21. In numerous instances, in connection with the telemarketing of prize promotions, the defendants have failed to clearly and conspicuously disclose, before the consumer pays, (a) the odds of being able to receive the prize or the factors used in calculating the odds; (b) that no purchase or payment is required to win a prize or participate in a prize promotion; and (c) the no purchase/no payment method of participating in the prize promotion. 22. Therefore, defendants have engaged in a deceptive telemarketing act or practice in violation of Section 310.3(a)(1)(iv) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(1)(iv). COUNT III 23. In connection with the telemarketing of prize promotions, the defendants, in numerous instances, have represented, expressly or by implication, that consumers who participate in the defendants’ promotions will receive a prize worth more than the amount that consumers pay to the defendants. 24. In truth and in fact, in numerous instances, consumers who participate in the defendants’ promotions do not receive a prize worth more than the amount consumers pay to the defendants. 25. Therefore, the defendants have engaged in a deceptive telemarketing act or practice in violation of Section 310.3(a)(2)(v) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(2)(v). CONSUMER INJURY 26. Consumers throughout the United States have suffered and continue to suffer substantial monetary loss as a result of the defendants' unlawful acts or practices. In addition, the defendants have been unjustly enriched as a result of their unlawful practices. Absent injunctive relief by this Court, the defendants are likely to continue to injure consumers, reap unjust enrichment, and harm the public interest. THIS COURT'S POWER TO GRANT RELIEF 27. 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. 28. Section 19 of the FTC Act, 15 U.S.C. § 57b, and Section 6(b) of the Telemarketing Act, 15 U.S.C. § 6105(b), authorize this Court to grant such relief as the Court finds necessary to redress injury to consumers or other persons resulting from the defendants’ violations of the Telemarketing Sales Rule, including the rescission and reformation of contracts and the refund of money. 29. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy the 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 Section 6(b) of the Telemarketing Act, 15 U.S.C. § 6105(b), and pursuant to its own equitable powers:
Date: May 19, 1997 Respectfully Submitted, STEPHEN CALKINS __________________________ ANN I. JONES Federal Trade Commission __________________________ TARA M. FLYNN Federal Trade Commission ATTORNEYS FOR PLAINTIFF |