Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—9th Cir.: Preliminary injunction and asset freeze in alleged Internet billing scheme upheld, (Apr 9, 2014)

By Linda O’Brien, J.D., LL.M.

In an action against individual marketers and their companies for allegedly engaging in a deceptive marketing scheme to sell memberships to phony money-making programs, the entry of a preliminary injunction that froze the defendants’ assets and appointed a court-supervised receiver over those assets was proper, the U.S. Court of Appeals in San Francisco has ruled (FTC v. Johnson, April 8, 2014, Per Curiam).

The FTC filed suit against Sharla Johnson, Duane Fielding, and several companies they controlled, alleging violations of the FTC Act. The FTC charged that the defendants used websites to deceptively offer memberships for phony government grants to pay personal expenses and other money-making programs, and then charged consumers unauthorized monthly fees for the memberships. The defendants’ websites also featured deceptive positive reviews and testimonials that misrepresented the benefits of the grant services. The district court granted a preliminary injunction prohibiting the defendants from marketing the deceptive memberships, froze the assets of the individual and corporate defendants, and appointed a receiver to ensure that the funds could be returned to consumers if the FTC prevailed in the suit. The defendants appealed.

The Ninth Circuit found that the district court did not err in determining that the assets of the individual defendants were within the scope of the preliminary injunction and therefore frozen and subject to a receivership. A court is authorized to impose a preliminary injunction on assets that are controlled by a party, even if that party did not expressly own or possess those assets. In this case, there was ample evidence that each of the entity defendants was controlled partly or entirely by the individual defendants. Moreover, many of the entities were capitalized entirely with funds from the individual defendants. In rejecting Johnson’s argument that her assets were not subject to receivership, the court noted that, although she held substantial interest in several entities, the receiver presented evidence that Johnson contributed no assets or funds to the entities and received assets from other individual defendants for little or no consideration.

Additionally, the district court had jurisdiction to include the defendants’ assets in the preliminary injunction. A receiver is granted complete jurisdiction and control over receivership property located within another district as long as the receiver makes required filings in the district where the property is located within ten days of the order of appointment. The defendants conceded that required filings were made by the receiver in each district where the defendants’ assets were located. Consequently, the district court’s exercise of jurisdiction over those assets was proper, the court concluded.

The case is No. 13-15768.

Attorneys: Joseph Ronald Brooke, Jr. for the Federal Trade Commission. Phillip E. Lowry (Christensen & Jensen, PC) for Sharla Johnson, Orange Cat Investments, Zibby, LLC, and Zibby Flight Service, LLC.

Companies: Orange Cat Investments; Zibby, LLC; Zibby Flight Service, LLC; iPrerogative, LLC; Rotortrends, LLC; SLI, LLC; Trigger, LLC; Network Agenda, LLC; Anthon Holdings, Corp.

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