IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION

FEDERAL TRADE COMMISSION

In the Matter of

LICENSED PRODUCTS U.S.A., INC., a Wyoming corporation
EQUIPMENT WHOLESALERS OF AMERICA, INC., a Florida corporation
SPORTS CENTERS OF AMERICA, INC., a Florida corporation
AMERICAN MARKETING SYSTEMS, INC., a Florida corporation
WILLIAM HOOPER, individually and as an officer of Equipment Wholesalers of America, Inc., and Licensed Products U.S.A., Inc.
DALE SAWYER, individually and as an officer of Licensed Products U.S.A., Inc.,
JOHN WHEATON, individually and as an officer of Sports Centers of America, Inc.,
DAVID HOWARD, individually and as a former officer of American Marketing Systems, Inc., and
LARRY HOWARD individually and as an officer or senior manager of one or more of the corporate defendants

COMPLAINT FOR PERMANENT INJUNCTION AND OTHER EQUITABLE RELIEF


Plaintiff, the Federal Trade Commission ("Commission"), for its complaint alleges:

  1. The Commission brings this action under Sections 13(b) and 19 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C.  53(b) and 57b, to secure a permanent injunction, preliminary injunctive relief, rescission of contracts, restitution, disgorgement, and other equitable relief for defendants' unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C.  45(a), and the Commission's Trade Regulation Rule entitled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures ("the Franchise Rule" or "the Rule"), 16 C.F.R. Part 436.

JURISDICTION AND VENUE

  1. This Court has jurisdiction over this matter pursuant to 28 U.S.C.  1331, 1337(a) and 1345, and 15 U.S.C.  53(b) and 57b.
  2. Venue in the Middle District of Florida is proper under 28 U.S.C.  1391(b) and (c), and 15 U.S.C.  53(b).

PLAINTIFF

  1. The Commission is an independent agency of the United States Government created by statute. 15 U.S.C.  41 et seq. The Commission is charged, inter alia, with enforcement of Section 5(a) of the FTC Act, 15 U.S.C.  45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce. The Commission is authorized to initiate federal district court proceedings to enjoin violations of the FTC Act in order to secure such equitable relief as may be appropriate in each case. 15 U.S.C.  53(b) and 57b.

DEFENDANTS

  1. Defendant Licensed Products U.S.A., Inc. ("LP"), a Wyoming corporation with its principal place of business at Merritt Island, Florida, offers and sells to investors carousel display rack business ventures for the sale of Disney licensed products to the public. LP has transacted business in the Middle District of Florida.
  2. Defendant Equipment Wholesalers of America, Inc. ("EWA"), a Florida corporation with its principal place of business at Cape Canaveral, Florida, is the parent corporation of defendants AMS and SCA, and is the head of a maze of interrelated businesses which defendants operate as a common enterprise. EWA transacts business in the Middle District of Florida.
  3. Sports Centers of America, Inc. ("SCA"), a Florida corporation with its principal place of business at Merritt Island, Florida, offers and sells to investors carousel display rack business ventures for the sale to the public of products licensed by the National Football League, the National Hockey League, the National Basketball Association, and other sports leagues. SCA has transacted business in the Middle District of Florida.
  4. Defendant American Marketing Systems, Inc. ("AMS"), a Florida corporation with its principal place of business at Merritt Island, Florida, has offered and sold to investors carousel display rack business ventures for the sale of Walt Disney Company, Warner Brothers, and Coca Cola licensed products to the public. AMS has transacted business in the Middle District of Florida.
  5. Defendant William Hooper is an officer and director of EWA and LP. In connection with the matters alleged herein, he has transacted business in the Middle District of Florida. From at least 1994 through the present, acting alone or in concert with others, he has formulated, directed, controlled or participated in the acts and practices of corporate defendants EWA and LP, including the acts and practices set forth in this complaint.
  6. Defendant Dale Sawyer is an officer and director of LP. In connection with the matters alleged herein, he has transacted business in the Middle District of Florida. From at least 1994 through the present, acting alone or in concert with others, he has formulated, directed, controlled or participated in the acts and practices of corporate defendant, LP, including the acts and practices set forth in this complaint.
  7. Defendant John Wheaton is an officer and director of SCA. In connection with the matters alleged herein, he has transacted business in the Middle District of Florida. From at least February 19, 1996 through the present, acting alone or in concert with others, he has formulated, directed, controlled or participated in the acts and practices of corporate defendant, SCA, including the acts and practices set forth in this complaint.
  8. Defendant David Howard is a former officer and director of AMS. In connection with the matters alleged herein, he has transacted business in the Middle District of Florida. From 1995 until at least December 31, 1996, acting alone or in concert with others, he formulated, directed, controlled or participated in the acts and practices of corporate defendant, AMS, including the acts and practices set forth in this complaint.
  9. Defendant Larry Howard is an officer or senior manager of one or more of the corporate defendants. In connection with the matters alleged herein, he has transacted business in the Middle District of Florida. From at least 1995 through the present, acting alone or in concert with others, he has formulated, directed, controlled or participated in the acts and practices of one or more of the corporate defendants, including the acts and practices set forth in this complaint.

COMMERCE

  1. At all times relevant to this complaint, the defendants have maintained a substantial course of trade in the offering for sale and sale of carousel display rack business ventures in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C.  44.

DEFENDANTS' BUSINESS ACTIVITIES

  1. Since at least 1995, the defendants have operated a common enterprise to defraud consumers throughout the United States, through the deceptive marketing of purportedly profitable carousel display rack business ventures to members of the public. In operating their common enterprise, the corporate defendants have shared the basic format of the business, as well as employees, references, locators, U.S. mail equipment, and a common goal to sell the business ventures. In order to induce members of the public to make a minimum investment of approximately $15,000, the defendants have exploited the Disney name and other popular trademarks, representing that carousel racks displaying these products are successful and profitable because of the popularity of these licensed products. Defendants have misrepresented the earnings potential of the business venture, misrepresented that certain locating companies they recommend can place business opportunity purchasers' display racks in profitable locations, and failed to provide prospective purchasers with the information required by the Commission's Franchise Rule that they need to evaluate these claims.

VIOLATIONS OF SECTION 5 OF THE FTC ACT

COUNT ONE

  1. In the course of offering for sale and selling carousel display rack business ventures, defendants have represented, expressly or by implication, that purchasers can reasonably expect to achieve a specific level of earnings, such as yearly income of $3,600 per carousel display rack, or an annual income of $36,000 for a 10 carousel display rack business venture.
  2. In truth and in fact, few, if any, purchasers attain the specific level of earnings represented by the defendants.
  3. Therefore, defendants' representations as set forth in Paragraph 14 are false and misleading and constitute deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C.  45(a).

COUNT TWO

  1. In the course of offering for sale and selling carousel display rack business ventures, defendants have represented, expressly or by implication, that certain companies they recommend can place carousel display racks in profitable locations for purchasers of defendants' business ventures.
  2. In truth and in fact, in numerous instances, the companies that defendants recommend rarely, if ever, place carousel display racks in profitable locations for purchasers of defendants' business ventures.
  3. Therefore, defendants' representations as set forth in Paragraph 17 are false and misleading and constitute deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C.  45(a).

THE FRANCHISE RULE

  1. The business ventures sold by the defendants are franchises, as "franchise" is defined in Section 436.2(a) of the Franchise Rule, 16 C.F.R.  436.2(a).
  2. The Franchise Rule requires a franchisor to provide prospective franchisees with a complete and accurate basic disclosure statement containing twenty categories of information, including information about the history of the franchisor and its officers, the terms and conditions under which the franchise operates, and information about other franchisees. 16 C.F.R.  436.1(a)(1) - (a)(20). Disclosure of this information enables a prospective franchisee to assess the potential risks involved in the purchase of the franchise.
  3. The Franchise Rule additionally requires: (1) that the franchisor give prospective franchisees a document disclosing the material basis (or the lack of such basis) for any oral, written, or visual earnings or profit representations it makes to a prospective franchisee, 16 C.F.R.   436.1(b)-(e); and (2) that the franchisor, in immediate conjunction with any generally disseminated earnings claim, disclose the number and percentage of prior purchasers known to have earned as much or more than the amount claimed, and include a warning that the earnings claim is only an estimate. 16 C.F.R.  436.1(e)(3)-(4).
  4. Pursuant to Section 18(d)(3) of the FTC Act, 15 U.S.C. 57a(d)(3), and 16 C.F.R.  436.1, violations of the Franchise Rule constitute unfair or deceptive acts or practices in or affecting commerce, in violation of Section 5(a) of the FTC Act, 15 U.S.C.  45(a).

VIOLATIONS OF THE FRANCHISE RULE

COUNT THREE

  1. In numerous instances in connection with the offering of franchises, as "franchise" is defined in the Rule, 16 C.F.R.  436.2(a), defendants have failed to provide prospective franchisees with accurate and complete disclosure documents within the time period required by the Franchise Rule, thereby violating Section 436.1(a) of the Rule, 16 C.F.R.  436.1(a), and Section 5 of the FTC Act, 15 U.S.C. 45.

COUNT FOUR

  1. In numerous instances in connection with the offering of franchises, as "franchise" is defined in the Rule, 16 C.F.R.  436.2(a), defendants have made earnings claims within the meaning of the Rule, 16 C.F.R.  436.1(b)-(e), but have failed to give prospective franchisees the earnings claim document required by the Rule or have failed to disclose the information required by the Rule in immediate conjunction with the claims, thereby violating Sections 436.1(b)-(e) of the Rule, 16 C.F.R.  436.1(b)-(e), and Section 5 of the FTC Act, 15 U.S.C. 45.

CONSUMER INJURY

  1. Consumers in many areas of the United States have suffered substantial monetary loss as a result of defendants' unlawful acts or practices. Absent injunctive relief by this Court, defendants are likely to continue to injure consumers and harm the public interest.

THIS COURT'S POWER TO GRANT RELIEF

  1. Section 13(b) of the FTC Act, 15 U.S.C.  53(b), empowers this Court to grant injunctive and other ancillary relief, including consumer redress, disgorgement and restitution, to prevent and remedy any violations of any provision of law enforced by the Commission.
  2. Section 19 of the FTC Act, 15 U.S.C.  57b, authorizes this Court to grant such relief as the Court finds necessary to redress injury to consumers or other persons resulting from defendants' violations of the Franchise Rule, including the rescission and reformation of contracts, and the refund of money.
  3. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy injury caused by the defendants' law violations.

PRAYER FOR RELIEF

WHEREFORE, plaintiff requests that this Court, as authorized by Sections 13(b) and 19 of the FTC Act, 15 U.S.C.  53(b) and 57b, and pursuant to its own equitable powers:

  1. Award plaintiff such preliminary injunctive and ancillary relief as may be necessary to avert the likelihood of consumer injury during the pendency of this action and to preserve the possibility of effective final relief, including but not limited to temporary and preliminary injunctions and an order freezing each defendants' assets;
  2. Enter judgment against the defendants and in favor of the plaintiff for each violation alleged in the complaint;
  3. Permanently enjoin the defendants from violating the Franchise Rule and the FTC Act, as alleged herein;
  4. Award such relief as the Court finds necessary to redress injury to consumers resulting from the defendants' violations of the Franchise Rule and the FTC Act, including but not limited to, rescission of contracts, the refund of monies paid, and the disgorgement of ill-gotten monies; and
  5. Award plaintiff the costs of bringing this action, as well as such other and additional relief as the Court may determine to be just and proper.

Respectfully submitted,

Stephen Calkins
General Counsel

_______________________

Myra Howard
Betsy Broder
Attorneys for Plaintiff
Federal Trade Commission
6th Street & Pennsylvania Ave., N.W., Room 238
Washington, D.C. 20580
(202) 326-2047 or (202) 326-2968
(202) 326-3395 (facsimile)