STATES DISTRICT COURT
Magistrate Judge Seltzer
FEDERAL TRADE COMMISSION, Plaintiff,
DIANE M. JONAS, PAUL A. JONAS,
JAMES W. RAIM,
PLAINTIFF'S APPLICATION FOR
SECOND EX PARTE TEMPORARY RESTRAINING
ORDER AND FOR ORDER TO SHOW CAUSE WHY
A PRELIMINARY INJUNCTION SHOULD
NOT ISSUE AGAINST SIX ADDED DEFENDANTS
Plaintiff Federal Trade Commission ("Commission"), pursuant to Rule 65(b) of the Federal Rules of Civil Procedure and Local Rule 7.1.E, applies ex parte to this Court for a second temporary restraining order with asset freeze against the six defendants added in the amended complaint and appointment of a temporary receiver for the corporate and partnership defendants, Market Systems, Ltd., Natural Health Systems, Inc., and Progressive Products, Inc., and for an order to show cause why a preliminary injunction should not issue and why a permanent receiver should not be appointed. In support of this application, the Commission states:
1. That the Commission has filed an amended complaint naming six additional defendants, Market Systems, Ltd., Natural Health Systems, Inc., Progressive Products, Inc., Tami Brennan McClure, Paul S. Janus, and Richard A. Herbert, M.D., alleging that they have engaged and continue to engage in acts and practices in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45.
2. That this Court has jurisdiction of the subject matter of this case and there is good cause to believe it will have jurisdiction over all parties.
3. That the Commission submits with this application a memorandum of points and authorities, the attached declaration, and extensive evidence amply demonstrating a likelihood that the six added defendants have engaged in the deceptive acts and practices alleged and, absent relief by this Court, are likely to continue to do so.
4. That advance notice to the defendants may result in dissipation or concealment of assets and destruction of documents, which would cause immediate and irreparable damage by impeding the Commission's efforts to redress consumer loss.
5. That there is good cause to believe that immediate and irreparable damage will be done to the public and to this Court's ability to grant full and effective relief among the parties absent entry of the proposed order.
6. That issuing a temporary restraining order with asset freeze and appointment of a temporary receiver will preserve the possibility of full and effective relief by maintaining the status quo pending the hearing on the order to show cause why a preliminary injunction should not issue.
7. That, because the Commission seeks to avoid any notice to defendants that might result in a dissipation or concealment of assets or documents, it is also filing an application to file all documents in this matter under a temporary seal.
8. That the proposed temporary restraining order would:
a. temporarily restrain the six added defendants from further violations of Section 5 of the FTC Act, 15 U.S.C. 45(a), as alleged in the complaint (para. II.A, .B);
b. temporarily restrain the six added defendants from destroying documents and records (para. II.C);
c. temporarily restrain the six added defendants from transferring information about consumers to other persons or entities (para. II.D);
d. temporarily restrain the six added defendants from disposing of individual or corporate assets and from failing to keep adequate financial records (para. III);
e. appoint a temporary equity receiver with authority to preserve all corporate and partnership assets and records (para. IV);
f. require the six added defendants to turn over all corporate assets, records, and information to the receiver (para. V);
g. temporarily stay actions against the receivership defendants, except actions that would be exempted from the automatic stay in a bankruptcy action (para. VI);
h. provide for payment of the receiver (para. VII);
i. temporarily restrain financial institutions from releasing assets of the six added defendants para. IX.A-.B);
j. require financial institutions and other entities to file a statement describing any assets held on behalf of the six added defendants (para. IX.C);
k. require financial institutions and other entities to allow the Commission's representatives access to inspect and to copy records of the six added defendants' accounts and assets or to provide copies of the records (para. IX.D);
l. temporarily require financial institutions and other entities with possession, custody, or control of the six added defendants' assets or property to cooperate with the receiver's efforts to take possession of the assets of the receivership estate (para. IX.E);
m. temporarily require the receiver to allow the parties reasonable access to the records of the three added receivership defendants (para. X);
n. require the six added defendants to complete financial statements, describing their present individual and corporate financial condition (para. XI);
o. require the parties to exchange witness lists and other evidence prior to the hearing on the order to show cause (para. XIII);
p. temporarily permit depositions on three business days notice and require responses to requests for admissions within five business days after service (par. XII);
q. permit agents of the Commission or of the receiver to serve the temporary order upon persons or entities having possession, custody, or control of the six added defendants' assets (para. XIV);
r. permit consumer reporting agencies to furnish to the Commission and the receiver consumer credit reports of the added defendants (para. XV);
s. require the six added defendants to show cause why a preliminary injunction should not issue extending the temporary relief until an adjudication on the merits of this case; and
t. provide that this Court retain jurisdiction of this matter for all purposes.
9. That, weighing the equities and considering the Commission's likelihood of success in its causes of action, a temporary restraining order is in the public interest.
10. That there is good cause to appoint a temporary receiver.
11. That Gerald B. Wald, Esq., of Murai, Wald, Biondo & Moreno, P.A., was appointed by this Court the receiver for the corporate defendant Business Opportunity Center and has expressed a willingness to serve as temporary receiver for the three added corporate/partnership defendants, and the Commission submits his name for the Court's consideration.
For the foregoing reasons, the Commission requests issuance of a temporary restraining order against the six added defendants, an order appointing a temporary receiver, and an order to show cause why a preliminary injunction should not issue and why a permanent receiver should not be appointed, in the form of the proposed orders accompanying this application.
LAWRENCE H. NORTON
RULE 65(b) DECLARATION
1. My name is Areta L. Kupchyk. I am an attorney representing the Federal Trade Commission ("Commission"), an agency of the United States government. My business address is 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. I am a member in good standing of the bar of the State of Maryland and the bar of the United States District Court for the District of Maryland. All the statements contained in this declaration are made and based upon personal knowledge and belief, and, if called upon to testify as a witness, I could and would testify to them. This declaration is submitted pursuant to Federal Rule of Civil Procedure 65(b).
2. For the reasons discussed below, the Commission has not provided the six defendants newly named in the amended complaint with notice of its Ex Parte Application for A Second Temporary Restraining Order, Order Appointing a Temporary Receiver, and Order To Show Cause Why a Preliminary Injunction Should Not Issue, and Why a Permanent Receiver Should Not Be Appointed ("Application").
3. The evidence that the Commission has compiled in this case, as discussed in the memorandum of points and authorities supporting the Commission's Application, shows that the six added defendants have violated the Federal Trade Commission Act, 15 U.S.C. 45(a), in connection with the marketing of Alcohol Neutralizer. They have engaged in a continuous and concerted course of deceptive and fraudulent activity, and they have attempted to frustrate law enforcement efforts. As a result of the six added defendants' violations of the Federal Trade Commission Act, consumers will lose money.
4. The systematic fraud and the presence of easily concealed, portable assets provide motivation and opportunity for concealment and dissipation of assets. Their attempts to frustrate law enforcement efforts indicate the six added defendants' unwillingness to participate in good faith in ordinary law enforcement processes.
5. There is good cause to believe that immediate and irreparable damage to the Commission's ability to achieve final effective relief for consumers in the form of monetary redress will occur from the sale, transfer, or other disposition or concealment by the six added defendants of their assets, and the destruction, transfer, or other disposition or concealment by the six added defendants of their records, if advance notice of the Commission's Application is provided to them. For this reason, the Commission has not provided the six added defendants with advance notice of its Application.
6. Appointing a temporary receiver without notice to the six added defendants or their creditors will protect the interests of all consumers and all other creditors of Defendants Market Systems, Ltd., Natural Health Systems, Inc. and Progressive Products, Inc.
7. For the reasons set forth above, the Commission submits that it is in the interests of justice that its Ex Parte Application be heard without notice.
8. Also for the reasons set forth above, the Commission submits that there is good cause to appoint a temporary receiver for the added corporate defendants without notice to their creditors.
I declare under penalty of perjury that the foregoing is true and correct to the best of my knowledge and belief.
Executed on _________________, 1995
ARETA L. KUPCHYK