F.T.C. v. J.K. Publications, Inc.
| Decision Date | 07 April 2000 |
| Docket Number | No. CV 99-0044ABC(AJWX).,CV 99-0044ABC(AJWX). |
| Citation | 99 F.Supp.2d 1176 |
| Parties | FEDERAL TRADE COMMISSION, Plaintiffs v. J.K. PUBLICATIONS, INC., et al., Defendants. |
| Court | U.S. District Court — Central District of California |
David Spiegel, Douglas Wolfe, Tracey Brown, Federal Trade Commission, Washington, D.C., Jennifer Larabee, Federal Trade Commission, Los Angeles, CA, for Plaintiff/Petitioner/Appellant.
Scott Furstman, Santa Monica, CA, Brian Clark, Jones & Vargas, Las Vegas, NV, Joel Levine, Encino, CA, for Defendant/Respondent/Appellee.
Plaintiff Federal Trade Commission's ("FTC") Motion for Summary Judgment (the "Motion") and Defendant Maurice O'Bannon's ("O'Bannon") Motion for Summary Judgment (the "O'Bannon Motion") came on regularly for hearing before this Court on April 3, 2000. After considering the materials submitted by the parties, argument of counsel, and the case file, it is hereby ORDERED that: (1) the FTC's Motion is GRANTED, in part, on the issue of liability as to defendants J.K. Publications, Inc. ("JKP"), Herbal Care, Inc. ("Herbal Care"), MJD Services Corp. ("MJD"), Kenneth H. Taves ("Ken Taves"), and Teresa Callei Taves ("Teresa Taves"); (2) the FTC's Motion is DENIED, in part, on the issue of damages with respect to JKP, Herbal Care, MJD, Ken Taves and Teresa Taves; (3) the FTC's Motion against O'Bannon is DENIED; and (4) the O'Bannon Motion is GRANTED.
On January 6, 1999, the FTC filed a complaint for a permanent injunction and other equitable relief, and an ex parte motion for a temporary restraining order ("TRO") without prior notice to the defendants. The complaint alleges that the defendants had committed unfair and deceptive business practices in violation of section 5(a) of the FTC Act, 15 U.S.C. § 45(a). The Court issued a TRO on the same day against the following defendants: JKP; Ken Taves and Teresa Taves, individually and as officers of JKP, also dba Netfill, netfill.com, N-Bill, Webtel and Online Billing; Net Options, Inc.; Gary Neal Mittman, individually and as an officer of Net Options, Inc.; and MJD. The TRO froze the defendants' assets and required, inter alia, that the defendants be temporarily enjoined from conducting certain business practices and the defendants disclose all assets held by them, for their benefit or under their direct or indirect control. The Court also appointed a receiver, Robb Evans and Robb Evans & Associates ("Receiver") to administer the defendants' businesses.
On January 7, 1999, the FTC served the complaint and TRO on the defendants. On January 20, 1999, the FTC filed an amended complaint naming the following additional defendants: Herbal Care; TAL Services, Inc. ("TAL"); Adult Banc, Inc. ("Adult Banc"); Discreet Bill, Inc. ("Discreet Bill"); Dennis Rappaport ("Rappaport"), individually and as an officer of TAL, Adult Banc, Inc. and Discreet Bill; O'Bannon, individually and as an officer of TAL and MJD. The amended complaint also added an allegation that the defendants engaged in a common enterprise while violating the FTC Act.
On March 5, 1999, the Court issued a preliminary injunction order against Gary Mittman and Adult Banc. On March 15, 1999, the Court issued a preliminary injunction order against JKP, MJD, Ken Taves and Teresa Taves. On May 4, 1999, the Court issued Findings of Fact and Conclusions of Law holding Ken Taves in contempt of the Court's TRO by failing to disclose the property located at 6837 Zumirez Drive in Malibu, California ("Zumirez Property") and causing the transfer of the Zumirez Property to an entity called Trans Global on or about February 12, 1999. The Court ordered Ken Taves to pay $2,050,000, the estimated sale price of the property, into the receivership estate within seven days to purge himself of the contempt. The Court also ordered that Ken Taves shall be imprisoned until he complies with the order if he fails to pay the $2,050,000 within the prescribed time. To this date, Ken Taves has not purged himself of this contempt. He remains imprisoned at the Metropolitan Detention Center ("MDC") in Los Angeles.
On May 5, 1999, the Court issued a separate Findings of Fact and Conclusions of Law holding Ken and Teresa Taves in contempt of the Court's preliminary injunction order by, inter alia, failing to disclose an account at Euro Bank in the Cayman Islands with an estimated $6.2 million in assets and failing to prevent dissipation of the Euro Bank account. Ken and Teresa Taves were ordered to take all steps possible and necessary to ensure the repatriation of the $6.2 million or else face imprisonment. Although the couple have signed various documents to repatriate the monies, the Receiver has not recovered the monies to this date.1
On June 10, 1999, the Court entered a stipulated final judgment and preliminary injunction order against Gary Mittman and Adult Banc. On July 29, 1999, the Clerk entered a default against Discreet Bill and TAL. On August 11, 1999, the Clerk entered a default against Rappaport. On February 8, 2000, the Court entered default judgment and permanent injunction against Rappaport.
On November 29, 1999, the FTC filed the motion for summary judgment against JKP, MJD, Herbal Care, Ken Taves, Teresa Taves and O'Bannon. On December 6, 1999, O'Bannon filed an opposition to the Motion. On December 13, 1999, JKP, Herbal Care and Ken Taves filed their opposition to the Motion. On the same day, Teresa Taves filed her opposition to the Motion. On December 20, 1999, the FTC filed its reply.2
On December 20, 1999, O'Bannon filed his own motion for summary judgment.3 On December 22, 1999, the FTC filed its opposition to the O'Bannon Motion. On February 24, 2000, O'Bannon filed a reply.4
JKP, MJD and TAL. JKP and MJD were Nevada corporations engaged in operating 14 adult-content Internet web sites. JKP was incorporated on September 14, 1995. From at least June 1997 through October 1998, JKP conducted business under the names Netfill and N-Bill. MJD was incorporated on May 5, 1998. At some point in 1998, MJD supposedly purchased JKP's book of business. From May 1998 through December 1998, MJD conducted business under the name Webtel. In 1998, JKP and/or MJD also conducted business under the names On-line Billing and Assist Online. On October 16, 1998, TAL was incorporated in Nevada. A month or two later, MJD transferred its book of business to TAL. JKP, MJD and TAL operated out of the same Malibu, California offices.7 The same employees worked for these companies.
Herbal Care & Discreet Bill. Herbal Care was a California corporation co-founded in the mid-1980s by Ken and Teresa Taves. During times relevant to this action, Herbal Care sold no products. Instead, in 1997 and 1998, its sole "business" consisted of paying the employees of JKP, purportedly after JKP provided the funds to Herbal Care. Discreet Bill, a Nevada corporation, took over Herbal Care's role of paying JKP employees in the fall of 1998.
Ken and Teresa Taves. Ken Taves and Teresa Taves, husband and wife, are the owners, officers and directors of JKP and Herbal Care. In 1998 alone, Ken and Theresa Taves were each paid a salary of at least $1.7 million for their services to JKP.8 Ken Taves was actively involved in the daily operations of his companies. He also held himself out to employees and third parties as the final decision maker for all key matters.
With respect to MJD, Ken Taves is not identified as an officer or director on corporate documents. Also, Ken Taves had informed a third party that he was a mere "consultant" for the company. However, the evidence shows that he had ownership in and/or control over MJD.9 According to his employees, Ken Taves held himself out as a final decision maker for matters involving MJD. Additionally, Ken Taves was the only person responsible for making payments to Automated Transaction Services, Inc. ("ATS"), the company which processed the defendant companies' credit and debit card transactions,10 on behalf of both JKP and MJD. As discussed below, Ken Taves was also the only person who submitted JKP and MJD's e-mail charge requests to ATS for processing. Moreover, according to Randall Ball,11 all of the "entities" — Netfill, N-Bill, Online Billing, Webtel, TAL and MJD — were part and parcel of the same company over which Ken Taves had "control." (Ball Depo. at 12-14.)12 "The names [merely] changed periodically." (Id.)13 Further, in December 1998, when one of MJD's merchant accounts was terminated, Ken Taves contacted the agent who assisted MJD in obtaining the account to inquire about the reason for the termination. At the very least, the record shows that Ken Taves was actively involved in MJD and the two companies — JKP and MJD — and their principals were cohorts in the same scheme.14
Teresa Taves has been married to Ken Taves since 1982. (T. Taves Depo. at 800.)15 Before her marriage, in the 1970s, she worked for five years at Security Pacific Bank. (Id. at 683.) She started as a bank teller, advanced to the position of chief teller and later transferred to the bank's loan department. (Id.) After leaving the bank, she worked for six months for a real estate company and two years in sales for a garment company. (Id. at 684.) Around 1985, a few years into her marriage, Teresa Taves worked for Herbal Care, the company she and her husband co-founded. She handled customer service and the shipping of products for approximately three years. (Id. at 684-85.) Then, the company "kind of dissolved" because "it just wasn't a strong company." (Id. at 686-87.) During the next five years, with the exception of time-off for maternity leave, Teresa Taves worked part-time at another company formed by Ken Taves, handling shipping and answering calls. (Id. at 687.) The...
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