F.T.C. v. Stefanchik, 07-35359.

• Citation: 559 F.3d 924
• Decision Date: 13 March 2009
• Docket Number: No. 07-35359.,07-35359.
• Parties: FEDERAL TRADE COMMISSION, Plaintiff-Appellee, v. John STEFANCHIK, individually and as an officer and director of Beringer Corporation; Beringer Corporation, a Washington corporation doing business as Stefanchik Organization, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

559 F.3d 924

FEDERAL TRADE COMMISSION, Plaintiff-Appellee, v. John STEFANCHIK, individually and as an officer and director of Beringer Corporation; Beringer Corporation, a Washington corporation doing business as Stefanchik Organization, Defendants-Appellants.

No. 07-35359.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted January 22, 2009.

Filed March 13, 2009.

Deirdre Glynn Levin, Seattle, WA, for defendant-appellant Beringer Corporation.

John Stefanchik, Pro se, Mercer Island, WA, defendant-appellant.

Leslie Rice Melman, Washington, D.C., for plaintiff-appellee.

Appeal from the United States District Court for the Western District of Washington, Ricardo S. Martinez, District Judge, Presiding. D.C. No.C-04-1852-RSM.

Before: THOMAS M. REAVLEY,^* Senior Circuit Judge, RICHARD C. TALLMAN and MILAN D. SMITH, JR., Circuit Judges.

OPINION

REAVLEY, Senior Circuit Judge:

We must decide in this case whether the district court correctly granted summary judgment to the Federal Trade Commission ("FTC") in this suit brought against John Stefanchik and Beringer Corporation under the Federal Trade Commission Act and the Telemarketing Sales Rule. The FTC alleged that the defendants made false and deceptive claims while marketing a program purporting to teach purchasers how to become wealthy by buying and selling privately held mortgages. Concluding that the defendants failed to meet the FTC's overwhelming evidence of deceptive claims with evidence to create a triable issue of fact, we AFFIRM the district court's judgment.

I.

John Stefanchik is the author of a book entitled Wealth Without Boundaries. The purpose of the book, as well as related video and audio tapes, course materials, and work-shops, was to present Stefanchik's method for making substantial amounts of money by working very few hours in one's spare time. Stefanchik's method called for a person to search local real estate records, locate holders of privately held mortgages, or "paper," and then either purchase the paper or broker deals with companies interested in purchasing the paper. Stefanchik touted his method in direct mail marketing materials as "[t]he easiest way to make $10,000+++ every 30 days ... guaranteed."

In 2002 Stefanchik organized the Beringer Corporation as a Washington state corporation with himself as the president, director, and sole shareholder. Beringer in turn holds the copyrights to Stefanchik's book and other material that comprise the "Stefanchik Program." Stefanchik also entered into an oral agreement with Justin Ely of Atlas Marketing, Inc. for Atlas to market the Stefanchik Program and handle customer service. According to Atlas' president, Scott Christensen, Atlas' sole business was to sell products and services for Stefanchik and Beringer under the name "The Stefanchik Organization." Atlas promoted the Stefanchik Program through direct mail, telemarketing, and a website, and it paid Stefanchik and Beringer a royalty of 15% to 22% of the sales.

Atlas used direct mail to generate interest in Stefanchik's book, which sold for a nominal amount. Many of the materials included Stefanchik's picture and signature and claimed that purchasers could easily make $10,000 or more per month by using his method. Those who purchased the book were then targeted for telemarketing calls and urged to purchase more services and instruction in the form of printed material, videos, seminars, and "coaching" services. The telemarketers assured potential purchasers that by using the Stefanchik method they could make $3,000 to $5,000 per deal by working only five to ten hours per week and that privately held mortgages were easily found. They also told purchasers that a personal coach would be available to answer questions and provide assistance. The cost to individual purchasers for the program ranged from $3,000 to over $8,000.

The FTC filed a complaint against Stefanchik and Beringer, as well as Atlas, Ely, Christensen, and another corporate entity controlled by Ely.¹ The FTC alleged that the defendants violated the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 45(a), by making false, misleading and deceptive claims that consumers could quickly make large amounts of money in their spare time by purchasing the Stefanchik Program and that the coaches were experienced and readily available to assist them in the paper business. It also alleged that the defendants violated the Telemarketing Sales Rule ("TSR"), 16 C.F.R. § 310.3(a)(2)(iii) and (a)(4), by making these misleading representations.

In support of a motion for summary judgment, the FTC introduced evidence tending to show that, contrary to Stefanchik's marketing claims, it was in fact very difficult for individuals to amass wealth using the Stefanchik method, and that the claims of making substantial amounts of money in one's spare time were deceptive and misleading. The FTC's evidence included declarations from individual consumers who purchased the program only to find that the method was extremely time consuming and yielded little, if any, profit. The FTC also introduced the following: survey results from a marketing expert showing that only a small percentage of customers were able to broker deals using Stefanchik's method; a declaration from a former Stefanchik coach who averred that few consumers made money using the program and that Stefanchik had been informed that the telemarketers were misleading consumers; and evidence from Beringer's company database that also showed a lack of results by consumers.

In opposing summary judgment, Stefanchik and Beringer challenged the FTC's method of compiling the survey data but did not offer any consumer declarations, contrary survey information, or other evidence showing that the followers of the Stefanchik method actually amassed substantial wealth as claimed in the marketing material. The district court concluded that the FTC's consumer declarations and survey, as well as the defendants' own advertising and marketing materials, were sufficient to show that the defendants made false and unsubstantiated earnings claims that led consumers to believe they could earn large amounts of money in the paper business with little or no effort. The court concluded that the coaching claims were also deceptive because the evidence showed that the coaches lacked basic knowledge of the real estate industry and were unable to help the consumers with questions. The court determined that Beringer and Stefanchik were jointly and severally liable under the FTC Act and the TSR for misrepresentations in marketing the program. In addition to ordering injunctive relief, the court determined that the damages amounted to $17,775,369 and entered judgment for that amount.

II.

Stefanchik and Beringer challenge the district court's grant of summary judgment on both liability and damages. Our standard of review is a familiar one. We review de novo the district court's grant of summary judgment. McDonald v. Sun Oil Co.² We view the evidence in a light most favorable to the non-moving party and decide whether there are any genuine issues of material fact and whether the district court correctly applied the substantive law. FTC v. Gill.³

A party moving for summary judgment must initially identify "those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett.⁴ "Once the moving party meets its initial burden, however, the burden shifts to the non-moving party to set forth, by affidavit or as otherwise provided in Rule 56, specific facts showing that there is a genuine issue for trial." Horphag Research Ltd. v. Garcia.⁵

A.

Section 5 of the FTC Act prohibits, inter alia, "unfair or deceptive acts or practices in or affecting commerce."⁶ "An act or practice is deceptive if `first, there is a representation, omission, or practice that, second, is likely to mislead consumers acting reasonably under the circumstances, and third, the representation, omission, or practice is material.'"⁷ Deception may be found based on the "net impression" created by a representation. FTC v. Cyberspace.Com LLC.⁸

Stefanchik and Beringer contend that the FTC failed to meet its burden of proof on summary judgment. They challenge the survey results of the FTC's expert and assert that opinions from their own experts created a fact issue for trial. We disagree with these contentions.

The FTC's summary judgment evidence included voluminous examples of the Stefanchik advertising and telemarketing materials. The evidence gave the net impression that by working only five to ten hours per week, a consumer easily could earn $10,000 per month using Stefanchik's method to broker deals in the paper business. Consumers were promised that saleable paper was easily discovered and that they would have access to competent personal coaches to guide them in the business. However, the FTC submitted declarations from multiple individuals who averred that, upon purchasing Stefanchik's program, they discovered it was virtually impossible to locate privately held mortgages that could be re-sold within the short time period promised by the marketing materials and that the coaches Stefanchik provided to assist them were of little help.

The FTC's survey results, which were compiled by a marketing expert from American University, were consistent with the individual declarations. The survey was sent to a random sample of 1,002 customers. Out of 380 responses indicating the consumer had purchased the program and had not received a refund, only one person reported buying or selling at least one mortgage and making money on the deal. Approximately 92% of the respondents said they made no money from the program, and only 6% said their personal coach was useful or very useful.

The FTC's evidence further included a...