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People v. iMergent

January 20, 2009

THE PEOPLE, PLAINTIFF AND RESPONDENT,
v.
IMERGENT, INC., ET AL., DEFENDANTS AND APPELLANTS.



(Ventura County Super. Ct. No. 56-2007-00287557-CU-MC-VTA). Ken W. Riley, Judge, Steven Hintz, Judge*fn1

The opinion of the court was delivered by: Perren, J.

CERTIFIED FOR PUBLICATION

Defendants, iMergent, Inc., and its subsidiary, StoresOnline, Inc., are self-described providers of "eCommerce" technology, training, and other web-based programs that purport to help start, operate, and maintain home-based businesses. Recognizing the danger that such products and services present to unsophisticated purchasers, California enacted the Seller Assisted Marketing Plan (SAMP) Act (Civ. Code, § 1812.200 et seq.)*fn2 Among other things, this legislation imposes a duty on the seller of SAMP's to make certain disclosures to the Attorney General and the prospective purchasers (§§ 1812.203, 1812.205, 1812.206, 1812.207), and provides a procedure for the purchaser to cancel any contract for the sale of a SAMP (§ 1812.209). The law applies to all sellers who represent that the purchaser "will earn, is likely to earn, or can earn an amount in excess of the initial payment paid by the purchaser for participation in the seller assisted marketing plan." (§ 1812.201, subd. (a)(1).) Defendants contend that this phrase is unconstitutionally vague. As we shall explain, the words to which defendants object cannot, in any rational way, be construed as failing to provide adequate notice of the conduct that triggers the requirements of the SAMP Act. The statute, sub judice, gives "'". . . the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly. . . ."'" (Williams v. Garcetti (1993) 5 Cal.4th 561, 567-568.) Defendants' contention is further called into question by the stipulated judgment and permanent injunction, entered in a prior action less than a year before the instant complaint was filed, in which they agreed to refrain from violating the very act whose clarity of language they now question.

Defendants appeal from an order granting a motion for a preliminary injunction filed by the Attorney General and the Ventura County District Attorney on behalf of the People of the State of California (plaintiffs). The injunction prohibits defendants from selling their products and services without first complying with the disclosure provisions of the SAMP Act and the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17537.1). Defendants contend the order granting the injunction must be reversed because the SAMP Act is unconstitutionally vague on its face. They alternatively claim the trial court abused its discretion in issuing a mandatory injunction that prohibits them from engaging in lawful conduct. We affirm.

FACTS AND PROCEDURAL HISTORY

Defendants sell a package of services and products that purport to assist in the establishment of home-based Internet businesses or, as defendants put it, "a fully functional eCommerce website." Defendants market these services and products by conducting sales presentations at hotels and conference centers throughout the United States. Consumers are solicited by mail with offers of free gifts and meals to attend an initial 90-minute presentation. Those who attend are invited to pay $20 to attend what defendants characterize as "a full-day Internet marketing training workshop" valued at $1,889. Plaintiff contends this "workshop" is actually "a vigorous all-day sales pitch for [defendants'] Internet storefronts, website design and Internet marketing services."

During the second presentation, defendants offer packages containing either three or six licenses for websites, at costs ranging from $2,700 to $4,900. Customers are encouraged to purchase the more expensive package, regardless of whether they have any business experience or a product to sell. Both presentations include numerous testimonials from prior customers who claim to have earned large incomes using defendants' products. As of July 24, 2007, defendants' website (Storesonlinepro.com) included several such testimonials, all of which included representations that the customer had recouped his initial investment.

Similar representations were made at sales presentations held in Pasadena, Van Nuys, and Oxnard in 2007. For example, one speaker represented that "the average successful merchant on StoresOnline replaces their entire income and on average works two hours a day." Another speaker stated that while "all testimonials are not earnings claims" and "you could make less money than my examples today, . . . by the same token, you can make, what? More; and a lot more."

In December 2003, defendants conducted two sales seminars in the city of Ventura, at which 61 consumers purchased defendants' products. Plaintiffs located and interviewed 27 of these individuals in May 2007. Most had purchased six websites at a cost of $4,700 to $4,900, and almost all had spent a considerable amount of time (up to hundreds of hours) attempting to start businesses. Twenty-four of the 27 were unable to even activate any websites, and the remaining three generated less than $1,000 in sales.

In 2006, plaintiffs filed a complaint against defendants alleging violations of the SAMP Act, the UCL, and the False Advertising Law (FAL) (Bus. & Prof. Code, § 17200 et seq.). In conjunction with the filing of the complaint, the parties stipulated to a final judgment in which defendants agreed to pay over $1.2 million in restitution and costs. Defendants were also permanently enjoined from selling or offering to sell SAMP's (1) prior to timely filing the required disclosures with the Attorney General; (2) without providing data substantiating any claims regarding the SAMP's income or earning potential to prospective purchasers at the first in-person communication; and (3) without providing other disclosures and information to potential purchasers as provided in the SAMP Act. Defendants were also required to provide plaintiff with advance notice of the time, place and location of any seminars to be held in California, and to comply with any requests for copies of the invitations used to market the seminars and audio recordings of those seminars.

On July 24, 2007, approximately 10 months after the stipulated judgment and permanent injunction were filed in the prior action, plaintiff filed the instant complaint alleging that defendants had violated the stipulated final judgment in the prior action, the SAMP Act, the UCL, and the FAL. The allegations in the complaint were based on information obtained by investigators who attended sales presentations, as well as a review of defendants' current marketing materials and website. On August 7, 2007, the trial court issued a temporary restraining order (TRO) under authority of Business and Professions Code sections 17203 and 17535 that was substantially identical to the permanent injunction filed in the prior action.

On August 21, 2007, defendants filed a petition for a writ of supersedeas in this court challenging the TRO. While that petition was pending, the trial court issued a preliminary injunction containing the same restrictions as the TRO. We subsequently denied the writ petition challenging the TRO. Defendants filed a second writ petition challenging the preliminary injunction, which we denied on October 12, 2007. This appeal followed.

DISCUSSION

I. Constitutionality of the ...


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