Fed. Trade Comm'n v. Adept Mgmt., Inc.

• Decision Date: 18 April 2019
• Docket Number: Case No: 1:16-cv-00720-CL
• Parties: FEDERAL TRADE COMMISSION, Plaintiff, v. ADEPT MANAGEMENT, INC., et al., Defendants.
• Court: U.S. District Court — District of Oregon

FEDERAL TRADE COMMISSION, Plaintiff, v. ADEPT MANAGEMENT, INC., et al., Defendants.

Case No: 1:16-cv-00720-CL

UNITED STATES DISTRICT COURT DISTRICT OF OREGON MEDFORD DIVISION

April 18, 2019

FINDINGS OF FACT AND CONCLUSIONS OF LAW

TABLE OF CONTENTS

I. INTRODUCTION TO THE FEDERAL TRADE COMMISSION ACT ................................... 10

II. SUMMARY ................................................................................................................................. 11

III. FINDINGS OF FACT ................................................................................................................. 18

A. PRIOR RULINGS ................................................................................................................ 18

B. THE STANDARD MAIL SUBSCRIPTION BUSINESS .............................................................. 18

i) The standard mail subscription business involves legitimate relationships between the mailing operation and publishers. ................................................ 18

C. THE DEFENDANTS' DECEPTIVE MAILING OPERATION ...................................................... 21

i) Prior to 2010, the Defendants used similar deceptive mailers, operated through multiple companies, ignored cease and desist letters, and were involved in repeated litigation. ............................................................................................ 21

ii) Starting in 2010, the Defendants used the Corporate Defendants to perpetuate their deceptive scheme. .................................................................................... 23

D. THE CORPORATE DEFENDANTS ........................................................................................ 27

i) Reality Kats oversaw the deceptive mailing operation. ................................... 27

ii) H&A oversaw the deceptive mailing operation. .............................................. 28

iii) Maximillian coordinated the flow of funds among the Corporate Defendants. ......................................................................................................................... 29

iv) Liberty sent deceptive mailers and received orders and payments. ................. 29

v) Express sent deceptive mailers and received consumer orders and payments. ......................................................................................................................... 30

vi) United sent deceptive mailers and received consumer orders and payments. 31

vii) Associated sent deceptive mailers and received consumer orders and payments. ......................................................................................................... 32

viii) HCG LLC owned several Corporate Defendants and coordinated the transfer of funds among them. ...................................................................................... 32

ix) HCG Inc. was the parent company of Express. ............................................... 33

x) Adept managed mailing, receiving and processing operations for the Corporate Defendants. ..................................................................................... 33xi) Crown managed mailing, receiving, and processing operations for the Corporate Defendants. ..................................................................................... 33

xii) Atlas transferred consumer funds to Lovrien. .................................................. 34

xiii) North West Data performed customer service work for the operation. ........... 34

xiv) PPP NY performed call center operations, managed the website and responded to consumers. .................................................................................. 34

xv) PPP OR was formed in August 2015, with a registered address at the White City Building. ................................................................................................... 36

xvi) PPP Magazines appeared on the internet website printed on Defendants' mailers. ............................................................................................................. 36

xvii) CPE submitted orders and sent switch notices to consumers. ......................... 36

xviii) CAS submitted orders to publishers. ............................................................... 37

xix) MCE submitted orders to publishers. ............................................................... 37

xx) Magazine Link sent switch notices to consumers. .......................................... 38

xxi) SHA submitted orders to publishers and sent switch notices to consumers. .. 38

xxii) Wineoceros submitted orders to publishers. .................................................... 39

xxiii) Anchor sent orders to Bacon's and Kaylor's companies and paid them to submit the orders to publishers. ....................................................................... 39

xxiv) Clarity Group hired employees who performed worked for CAS, MCE, and Magazine Link. ................................................................................................ 39

xxv) Specialties was a conduit for payments to Bacon. ........................................... 40

E. THE INDIVIDUAL DEFENDANTS ......................................................................................... 40

i) Simpson, through Reality Kats, managed, controlled, and received the profits of the deceptive mailing operation. .................................................................. 40

(1) Simpson was an integral part of the formation and continuation of the deceptive mailing operation. ................................................................ 40

(2) Simpson designed the mailers, identified consumers to solicit, and provided direction to the Defendants. .................................................. 41

(3) Simpson developed the insert card system used by the Defendants. .. 43

(4) Simpson oversaw the finances of the operation and profited handsomely from the deceptive mailers. ............................................. 44(5) Simpson was aware the mailers were deceptive. ................................. 46

ii) J. Hoyal, through H&A, managed, controlled, and received the profits of the deceptive mailing operation. ............................................................................ 47

(1) J. Hoyal helped form and continue the deceptive mailing operation through the Corporate Defendants. ...................................................... 47

(2) J. Hoyal supervised and oversaw the deceptive mailing operation. ... 50

(3) J. Hoyal received regular reports about all aspects of the operation. . 50

(4) J. Hoyal directed the financial operations of the enterprise and profited handsomely from the deceptive mailers. ............................................. 52

(5) J. Hoyal reviewed and approved the deceptive mailers sent by the operation. ............................................................................................. 53

(6) J. Hoyal oversaw call center operations, the submission of orders to publishers, and switching consumers to unordered subscriptions. ..... 54

(7) J. Hoyal was aware the mailers were deceptive and provided direction on how to respond to consumer complaints. ........................................ 55

iii) L. Hoyal managed consumer money from the deceptive mailing operation through H&A. .................................................................................................. 58

(1) L. Hoyal transferred funds from H&A to related Hoyal entities and to Reality Kats. ......................................................................................... 59

(2) L. Hoyal was a primary financial beneficiary of the operation. .......... 60

(3) L. Hoyal participated in prior iterations of the deceptive mailing operation. ............................................................................................. 60

iv) Parducci used the Corporate Defendants to transfer consumer funds among the Defendants. ...................................................................................................... 61

(1) Parducci used Maximillian to funnel consumer funds between the Defendants, including to herself. ......................................................... 61

(2) Parducci performed bookkeeping functions for Reality Kats. ............. 62

(3) Parducci acted as manager of HCG LLC, signing documents and performing tasks integral to the continued success of the deceptive mailing operation. ................................................................................ 63

(4) Parducci held signatory authority over numerous other Corporate Defendants and performed various tasks on their behalf. .................... 64

(5) Parducci was integral in the operation of the interrelated entities as a common enterprise. .............................................................................. 64

v) Pugsley managed the mailing and receiving operation through multiple Corporate Defendants. ..................................................................................... 66

(1) Pugsley reviewed mailer proofs and was part of the process that sentthem to consumers. ............................................................................. 66

(2) Pugsley managed the operations of the mailing entities. ..................... 67

(3) Pugsley sent subscription orders to Bacon to submit to publishers and coordinated the submitting and switching of consumer orders. .......... 69

(4) Pugsley provided reports to Simpson, J. Hoyal, and Parducci on "absolutely everything." ..................................................................... 70

(5) Pugsley managed the financial operations of the mailing entities and profited from the deceptive mailers. .................................................... 70

(6) Pugsley was the corporate officer of Adept and Crown. ..................... 71

(7) Pugsley was aware of consumer complaints. ....................................... 72

vi) Lovrien oversaw the mailing and receiving

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