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United States v. The Zaken Corp.

United States District Court, Ninth Circuit

July 31, 2013

UNITED STATES OF AMERICA, Plaintiff,
v.
THE ZAKEN CORP., a California corporation also d/b/a The Zaken Corproation, QuickSell and QuickSell and TIRAN ZAKEN, individually and as an officer of The Zaken Corp., Defendants.

ORDER DENYING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION [Dkt. No. 8]

DEAN D. PREGERSON, District Judge.

Presently before the court is Plaintiff's Motion for a Preliminary Injunction. Having heard oral argument and considered the submissions of the parties, the court denies the motion and adopts 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 CFR ยง 437.0 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 ("the government") filed a complaint against Defendants for violations of the Business Opportunity Rule.[2]Plaintiff now seeks a preliminary injunction enjoining Zaken from violating the Business Opportunity Rule ("the Rule") and ordering Defendants to preserve their assets. Defendants oppose the motion on the ground that the Rule is not applicable to them.

II. Legal Standard

Typically, a private party seeking a preliminary injunction must show (1) that he is likely to succeed on the merits, (2) that he is likely to suffer irreparable harm in the absence of preliminary relief, (3) that the balance of equities tips in his favor, and (4) that an injunction is in the public interest. Winter v. Natural Res. Defense Counsel , 555 U.S. 7, 20 (2008). Preliminary relief may be warranted where a party (1) shows a combination of probable success on the merits and the possibility of irreparable harm, or (2) raises serious questions and the balance of hardships tips in favor of a TRO. See Arcamuzi v. Continental Air Lines, Inc. , 819 F.2d 935, 937 (9th Cir. 1987). "These two formulations represent two points on a sliding scale in which the required degree of irreparable harm increases as the probability of success decreases." Id . Under both formulations, the party must demonstrate a "fair chance of success on the merits" and a "significant threat of irreparable injury."[3] Id.

Here, however, Section 13(b) of the Federal Trade Commission Act imposes a more lenient standard upon the plaintiff. Federal Trade Commission v. Affordable Media , 179 F.3d 1228, 1233 (9th Cir. 1999). In a statutory enforcement action such as this one, irreparable injury is presumed. Federal Trade Commission v. World Wide Factors, Ltd. , 882 F.2d 344, 347 (9th Cir. 1989). Plaintiff, therefore, need not show irreparable harm. Affordable Media , 179 F.3d at 1233. Thus, as the parties appear to agree, the only issue here is whether the government has shown a likelihood of success on the merits.

III. Discussion

Defendants contend that Plaintiffs cannot demonstrate a likelihood of success on the merits because Defendants do not offer a "business opportunity, " and therefore do not fall within the ambit of the Business Opportunity Rule. "[A]n agency's interpretation of its own regulations is controlling unless plainly erroneous or inconsistent with the regulations being interpreted.". Long Island Care at home, Ltd. v. Coke , 551 U.S. 158, 171 (2007) (internal quotations and alterations omitted). The Rule defines a business opportunity as a commercial arrangement in which:

(1) A seller solicits a prospective purchaser to enter into a ...

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