United States v. Zaken Corp., Case No. CV 12–09631 DDP MANx.

CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
Writing for the CourtDEAN D. PREGERSON, District Judge.
Citation57 F.Supp.3d 1233
PartiesUNITED STATES of America, Plaintiff, v. The ZAKEN CORP., a California corporation also d/b/a The Zaken Corporation, QuickSell and QuickSell and Tiran Zaken, individually and as an officer of The Zaken Corp., Defendants.
Docket NumberCase No. CV 12–09631 DDP MANx.
Decision Date18 September 2014

57 F.Supp.3d 1233

UNITED STATES of America, Plaintiff
v.
The ZAKEN CORP., a California corporation also d/b/a The Zaken Corporation, QuickSell and QuickSell and Tiran Zaken, individually and as an officer of The Zaken Corp., Defendants.

Case No. CV 12–09631 DDP MANx.

United States District Court, C.D. California.

Signed Sept. 18, 2014.


57 F.Supp.3d 1237

Lisa K. Hsiao, Ann Entwistle, John W. Burke, U.S. Department of Justice, Washington, DC, Anoiel Khorshid, Office of U.S. Attorney, Los Angeles, CA, for Plaintiff.

William I. Rothbard, Law Office of William I. Rothbard, Santa Monica, CA, Bryan C. Altman, The Altman Law Group, Los Angeles, CA, for Defendants.

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

DEAN D. PREGERSON, District Judge.

Presently before the court is Plaintiff's Motion for Summary Judgment. Having considered the submissions of the parties, the court is inclined to grant the motion and adopt the following order.

I. Background

Defendants (collectively, “Zaken”) offer a “Wealth Building Home Business Plan” to consumers.1 (Declaration of Dani Stagg, Ex. D at 44.) For $148.00, plus shipping, purchasers become Associates of QuikSell Liquidations and receive a “kit” including instructions on how to locate excess inventories, “ ‘[i]nsider’ secret techniques,” “powerful and proven strategies,” “a simple seven-word phrase that instantly pays [purchasers] cash profits,” and other information. (Id. at 57–58, 97.) Zaken also offers purchasers additional “tools” for an additional charge. (Stagg Dec., Ex. E. at 85–86.)

Under Zaken's plan, consumers identify businesses seeking to liquidate excess inventory. Consumers then notify Zaken, which may proceed to negotiate an acquisition of the excess merchandise. If Zaken is successful in 1) buying the products identified by the consumer and 2) reselling the products at a profit, then Zaken pays purchasers fifty percent of the net proceeds. (Id. at 52–53.) Zaken advertises a “realistic ballpark figure” estimate that “2 to 4 hours a week working this business will earn [participants] an average of $3,000 to $6,0000.” (Stagg Dec. Ex. D. at 61.)

Effective March 1, 2012, the Federal Trade Commission broadened the scope of its “Business Opportunity Rule,” 16 C.F.R. § 437 et seq. , the earliest form of which was first promulgated in 1978. 76 FR 76816. Prior versions of the rule regulated and imposed certain disclosure requirements upon the sale of business opportunities, but only those costing over $500. 76 FR 76818. The 2012 revision eliminated this monetary threshold. 76 FR 76821. The 2012 changes also seek “to address the sale of deceptive work-at home schemes, where unfair and deceptive practices have been both prevalent and persistent.” 76 FR 76826. The FTC elaborated that “[s]ellers of fraudulent work-at-home opportunities deceive their victims with promises of an ongoing relationship in which the seller will buy the output that business opportunity purchasers produce, often misrepresenting to purchasers that there is a market for the purchasers' goods and services,” and that these schemes “frequently dupe consumers with false earnings claims.” Id.

On November 9, 2012, Plaintiff filed a complaint against Defendants for violations of the FTC's Business Opportunity

57 F.Supp.3d 1238

Rule and Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45(a).

II. Legal Standard

Summary judgment is appropriate where the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying those portions of the pleadings and discovery responses that demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). All reasonable inferences from the evidence must be drawn in favor of the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If the moving party does not bear the burden of proof at trial, it is entitled to summary judgment if it can demonstrate that “there is an absence of evidence to support the nonmoving party's case.” Celotex, 477 U.S. at 323, 106 S.Ct. 2548.

Once the moving party meets its burden, the burden shifts to the nonmoving party opposing the motion, who must “set forth specific facts showing that there is a genuine issue for trial.” Anderson, 477 U.S. at 256, 106 S.Ct. 2505. Summary judgment is warranted if a party “fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex, 477 U.S. at 322, 106 S.Ct. 2548. A genuine issue exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party,” and material facts are those “that might affect the outcome of the suit under the governing law.” Anderson, 477 U.S. at 248, 106 S.Ct. 2505. There is no genuine issue of fact “[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

It is not the court's task “to scour the record in search of a genuine issue of triable fact.” Keenan v. Allan, 91 F.3d 1275, 1278 (9th Cir.1996). Counsel has an obligation to lay out their support clearly. Carmen v. San Francisco Sch. Dist., 237 F.3d 1026, 1031 (9th Cir.2001). The court “need not examine the entire file for evidence establishing a genuine issue of fact, where the evidence is not set forth in the opposition papers with adequate references so that it could conveniently be found.” Id.

III. Discussion

A. Section 5(a) of the FTC Act

Section 5(a) of the FTC Act prohibits unfair or deceptive acts or practices in or affecting commerce, and provides for injunctive and equitable relief against violators. 15 U.S.C. § 45(a) ; F.T.C. v. Network Servs. Depot, Inc., 617 F.3d 1127, 1138 (9th Cir.2010). A practice or representation is deceptive if it is likely to mislead consumers acting reasonably under the circumstances, and is material. F.T.C. v. Stefanchik, 559 F.3d 924, 928 (9th Cir.2009). Courts look to the overall impression conveyed by a representation, and not merely to literal truth. F.T.C. v. Cyberspace.Com LLC, 453 F.3d 1196, 1200 (9th Cir.2006).

While Zaken disputes that it violated Section 5(a) of the FTC Act, it provides no argument, authority, or evidence to support that position. Plaintiff, in contrast, cites to numerous instances in which Zaken directly or indirectly represented that

57 F.Supp.3d 1239

purchasers of Defendants' business opportunity would earn substantial income. Defendants, for example, explicitly guaranteed that the “entire good-faith deposit of $148 will be sent right back” if consumers “haven't made at least $4,000” and they “return the kit” in the first thirty days of purchase. (Pl.'s Ex. 11, Attach. F.) Defendants suggested that such an outcome was unlikely, representing, for example, that “the average commission check [associates] get ... will be approximately $4,280!” and presenting a “realistic ballpark figure” estimate that “2 to 4 hours a week working this business will earn [participants] an average of $3,000 to $6,0000” (Pl.'s Ex. 12 at 67:15–15;) Stagg Decl., Ex. D. at 61.

In truth, purchasers of Defendants' business opportunity have not earned a substantial income. (Pl.'s Ex. 29, Attach. A.) Over the business's ten-year history, over 100,000 consumers bought the basic QuikSell kit for $148. Fewer than 1% of consumers ever earned any income at all. Consumers collectively earned approximately $260,000 in sales commission payments, based on available records and testimonials. (Pl.'s Ex. 29, Attach. A.) In 2011 and 2013, not a single consumer made any income using QuikSell. (Id. ) In 2012, Zaken paid commissions to only five QuikSell purchasers, and those commissions were a fraction of the amounts Zaken claimed consumers would earn. (Pl.'s Ex. 29, Attach. A.)

Consumers spent an additional $10,130,433 total on other QuikSell “upsell” tools. (Pl.'s Ex. 30, Attach. A.) Some consumers were encouraged to “spend [an additional] $2,300” to purchase one such tool if they were “serious about this business and ... really want[ed] to make the kind of money others have made.” (Yee Dep., Pl.'s Ex. 14 at 105:21–23). This particular tool, however, consisted of largely outdated telephone numbers of companies who were out of business. (Yee Dep., Pl.'s Ex. 14 at 108:15–21.)

It was reasonable for consumers to rely on Zaken's representations. The Government need not prove that each individual consumer relied on the deceptive acts or practices. FTC. v. Commerce Planet, Inc., 878 F.Supp.2d 1048, 1072 (C.D.Cal.2012). Here, reliance is shown by the undisputed fact that more than 110,000 consumers bought Zaken's products. FTC v....

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1 practice notes
  • Fed. Trade Comm'n v. Ideal Fin. Solutions, Inc., 2:13-cv-00143-JAD-GWF
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. District of Nevada
    • February 23, 2016
    ...F.2d 364, 370 (9th Cir. 1982) (citing F.T.C. v. Colgate-Palmolive Co., 380 U.S. 374, 394-95 (1965)). 52. United States v. Zaken Corp., 57 F. Supp. 3d 1233, 1242 (C.D. Cal. 2014) (citing Commerce Planet, Inc., 878 F. Supp. 2d at 1086). 53. See ECF 223 at 8 (finding that Ideal's billing recor......
1 cases
  • Fed. Trade Comm'n v. Ideal Fin. Solutions, Inc., 2:13-cv-00143-JAD-GWF
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. District of Nevada
    • February 23, 2016
    ...F.2d 364, 370 (9th Cir. 1982) (citing F.T.C. v. Colgate-Palmolive Co., 380 U.S. 374, 394-95 (1965)). 52. United States v. Zaken Corp., 57 F. Supp. 3d 1233, 1242 (C.D. Cal. 2014) (citing Commerce Planet, Inc., 878 F. Supp. 2d at 1086). 53. See ECF 223 at 8 (finding that Ideal's billing recor......

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