GREGG SHAPIRO
Federal Trade Commission
600 Pennsylvania Ave., N.W., Rm. 200
Washington, D.C. 20580
(202) 326-3549 (voice)
(202) 326-3392 (facsimile)

JEROME M. STEINER, JR.
Federal Trade Commission
901 Market St., Ste. 570
San Francisco, CA 94103
(415) 356-5270

BLAINE T. WELSH
Assistant United States Attorney
701 E. Bridger Ave., Ste. 800
Las Vegas, NV 89101
(702) 388-6336

Attorneys for Plaintiff

UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA

FEDERAL TRADE COMMISSION,

Plaintiff,

v.

DAYTON FAMILY PRODUCTIONS, INC., et al.,

Defendants.

CV-S-97-00750-PMP (LRL)

[proposed] JUDGMENT BY DEFAULT

AGAINST DEFENDANTS FREDERICK M. DAVIDSON AND RICHARD S. HART

Plaintiff, the Federal Trade Commission (“Commission”), commenced this action by filing its complaint seeking an injunction and other relief against various defendants, including defendant Frederick M. Davidson ("Davidson"), in connection with the operation of an allegedly fraudulent telemarketing business that promoted investments in films produced and/or directed by Lyman Dayton. On July 3, 1997, the Commission filed a first amended complaint that named additional parties, including defendant Richard S. Hart ("Hart"). The amended complaint alleges that the defendants engaged in unfair or deceptive acts or practices in violation of Section 5 of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. 45, and seeks a permanent injunction and monetary relief pursuant to Section 13(b) of the FTC Act. Pursuant to Rule 55(a) of the Federal Rules of Civil Procedure, the Clerk of Court entered a default against defendant Davidson on September 8, 1997, and against defendant Hart on September 29, 1997. The Commission now has moved this Court for entry of a judgment by default against defendants Davidson and Hart, pursuant to Rule 55(b)(2) of the Federal Rules of Civil Procedure. Having considered the memorandum and exhibits filed in support of this motion, and all other pleadings and files in this action, and now being fully advised in the premises, the Court finds:

  1. This is an action by the Commission instituted under Sections 5 and 13(b) of the FTC Act, 15 U.S.C. 45 and 53(b), and the Telemarketing Sales Rule ("TSR"), 16 C.F.R. Part 310. The amended complaint seeks both permanent injunctive relief and consumer redress for alleged unfair or deceptive acts or practices by the defendants in connection with the telephonic solicitations of investments for films.
  2. The Commission has the authority under Section 13(b) of the FTC Act to seek the relief it has requested.
  3. This Court has jurisdiction over the subject matter of this case, and has jurisdiction over defendants Hart and Davidson. Venue in the District of Nevada is proper, and the amended complaint states a claim upon which relief may be granted against defendants Hart and Davidson under Sections 5 and 13(b) of the FTC Act and under the TSR.
  4. The activities of defendants Hart and Davidson are in or affecting commerce, as defined in 15 U.S.C. 44.
  5. Defendants Hart and Davidson have failed to answer the amended complaint or otherwise defend themselves in this action. Accordingly, defendants Hart and Davidson are in default.
  6. To the best of this Court’s information and knowledge, neither defendant Hart nor defendant Davidson is an infant, neither has been declared incompetent, and neither is currently in the military or otherwise exempted from default judgment under the Soldiers’ and Sailors’ Civil Relief Act of 1940.
  7. It is proper in this case to issue a permanent injunction prohibiting defendants Hart and Davidson from engaging in telemarketing or assisting others engaged in telemarketing, and to prohibit them from making misrepresentations in connection with the advertising, promotion, marketing or sale of products, services or investments of any kind, and to provide for monitoring by the Commission of defendants’ compliance with such a permanent injunction.
  8. It is proper in this case to enter a monetary judgment against defendants Hart and Davidson to redress consumer injury which resulted from violations of the FTC Act by defendants. The proper measure of consumer injury is the amount of money paid by consumers to defendants during the times when defendants Hart and Davidson were associated with the defendants’ efforts to raise money from consumers for film partnerships, less the actual cost of any films made during those respective periods. Redress to consumers is warranted because defendants’ misrepresentations were of a type generally relied upon by consumers.
  9. This action and the relief awarded herein are in addition to, and not in lieu of, other remedies as may be provided by law, including both civil and criminal remedies.
  10. Entry of this Order is in the public interest.

IT IS THEREFORE ORDERED, ADJUDGED AND DECREED AS FOLLOWS:

DEFINITIONS

For purposes of this Order, the following definitions shall apply:

A. “Telemarketing” shall mean any business activity (whether or not covered by the TSR and including, but not limited to, initiating or receiving telephone calls, managing others who initiate or receive telephone calls, operating an enterprise that initiates or receives telephone calls, owning an enterprise that initiates or receives telephone calls, or otherwise participating as an officer, director, employee or independent contractor in an enterprise that initiates or receives telephone calls) that involves attempts to induce consumers to purchase any item, good, service, partnership interest, trust interest or other beneficial interest, to make a charitable contribution, or to enter a contest for a prize, by means of telephone sales presentations, either exclusively or in conjunction with the use of other forms of marketing. Provided that the term “telemarketing” shall not include transactions that are not completed until after a face-to-face contact between the seller or solicitor and the consumers solicited.

B. “Assisting others engaged in telemarketing” means knowingly providing any of the following goods or services to any person or entity engaged in telemarketing: (1) performing customer service functions for an entity engaged in telemarketing, including, but not limited to, receiving or responding to consumer complaints; (2) formulating or providing, or arranging for the formulation or provision of, any telephone sales script or any other marketing material for an entity engaged in telemarketing; (3) providing names of, or assisting in the generation of, potential customers for an entity engaged in telemarketing; or (4) performing marketing services of any kind for an entity engaged in telemarketing.

TELEMARKETING BAN

I. THEREFORE, IT IS HEREBY ORDERED that defendants Hart and Davidson are each permanently restrained and enjoined from either (1) engaging in telemarketing, or (2) assisting others engaged in telemarketing.

OTHER CONDUCT PROHIBITIONS

II. IT IS FURTHER ORDERED that defendants Hart and Davidson and their agents, employees, officers, servants and attorneys, and all other persons or entities in active concert or participation with any of them who receive actual notice of this order by personal service or otherwise, in connection with the advertising, promotion, offer for sale, or sale of any item, product, good, service, or investment interest of any kind, including but not limited to investments in films, are hereby restrained and enjoined from:

A. Misrepresenting, directly or by implication, the returns, revenues, or profits that any film has generated for investors;

B. Misrepresenting, directly or by implication, the performance (including gross revenues generated and box office receipts) of any film;

C. Misrepresenting, directly or by implication, the awards received by any film or by any person who has worked on or been associated with a film;

D. Misrepresenting the likely profits to be made through any investment involving films or any other investment;

E. Misrepresenting, directly or by implication, the amount of money or other capital that will be raised for any investment involving films or any other investment;

F. Misrepresenting, directly or by implication, the purposes for which funds raised from consumers will be used;

G. Misrepresenting, directly or by implication, the costs associated with the advertising, promotion, offer for sale, or sale of any item, product, good, service, or investment, including but not limited to any investment involving films;

H. Misrepresenting, in any manner, directly or by implication, the risk, liquidity, market value, resale value, or expected income or profit associated with any item, product, good, service, or investment, including but not limited to any investment involving films;

I. Misrepresenting, in any manner, directly or by implication, or failing to disclose any fact material to a consumer's decision to purchase any item, product, good, service, or investment, including but not limited to any investment involving films; and

J. Conducting or participating in any telemarketing solicitation without compliance with all applicable federal and state registration and bond requirements.

RECORD KEEPING PROVISIONS

III. IT IS FURTHER ORDERED that, for a period of seven years from the date of entry of this Order, defendants Hart and Davidson and their agents, employees, officers, attorneys, servants, corporations, successors, and assigns, and those persons in active concert or participation with them who receive actual notice of this Order by personal service or otherwise, in connection with any business where

(1) that defendant is the majority owner of the business or directly or indirectly manages or controls the business, and where

(2) the business engages in, or assists others engaged in, telemarketing

are hereby restrained and enjoined from failing to create, and from failing to retain for a period of three years following the date of such creation, unless otherwise specified:

A. Books, records and accounts that, in reasonable detail, accurately and fairly reflect the cost of goods or services sold, revenues generated, and the disbursement of such revenues.

B. Records accurately reflecting: the name, address, and telephone number of each person employed in any capacity by such business, including as an independent contractor; that person's job title or position; the date upon which the person commenced work; and the date and reason for the person's termination, if applicable. The businesses subject to this Paragraph shall retain such records for any terminated employee for a period of two (2) years following the date of termination.

C. Records containing the names, addresses, phone numbers, dollar amounts paid, quantity of items or services purchased, and description of items or services purchased, for all consumers to whom such business has sold, invoiced or shipped any goods or services.

D. Records that reflect, for every consumer complaint or refund request, whether received directly or indirectly or through any third party:

(1) the consumer's name, address, telephone number and the dollar amount paid by the consumer;

(2) the written complaint or refund request, if any, and the date of the complaint or refund request;

(3) the basis of the complaint, including the name of any salesperson complained against, and the nature and result of any investigation conducted concerning any complaint;

(4) each response and the date of the response;

(5) any final resolution and the date of the resolution; and

(6) in the event of a denial of a refund request, the reason for the denial; and

E. Copies of all sales scripts, training packets, advertisements, or other marketing materials utilized.

MONITORING

IV. IT IS FURTHER ORDERED that, in order that compliance with the provisions of this Order may be monitored:

A. Defendants Hart and Davidson each shall notify the Commission in writing, within ten days of the date of entry of this Order, of his current residential address, mailing address, business and home telephone numbers, and employment status, including the names, telephone numbers, and business addresses of any current employers.

B. For a period of seven years from the date of entry of this Order, defendants Hart and Davidson each shall notify the Commission in writing within 30 days of any changes in his residential or mailing addresses, telephone numbers, or employment status.

C. 180 days after the date of entry of this Order, defendants Hart and Davidson each shall provide a written report to the Commission, sworn to under penalty of perjury, setting forth in detail the manner and form in which they have complied and are complying with this Order. This report shall include but not be limited to:

(1) Defendant's then current residence address and telephone number;

(2) Defendant's then current employment, business addresses and telephone numbers, a description of the business activities of each such employer, and defendant's title and responsibilities for each employer; and

(3) A copy of each acknowledgment of receipt of this Order obtained by defendant pursuant to Paragraph IX.

D. For the purposes of this Order, all written notifications to the Commission shall be mailed to:

Associate Director for Service Industry Practices
Room H-200
Federal Trade Commission
Washington, D.C. 20580
Re: FTC v. Dayton Family Productions

E. For the purposes of Subparagraphs IV.A and IV.B, "employment" includes the performance of services as an employee, consultant, or independent contractor; and "employers" include any entity or individual for whom any individual defendant performs services as an employee, consultant, or independent contractor.

V. IT IS FURTHER ORDERED that the Commission is authorized to monitor defendants’ compliance with this Order by all lawful means, including but not limited to the following means:

A. The Commission is authorized, without further leave of court, to obtain discovery from any person in the manner provided by Chapter V of the Federal Rules of Civil Procedure, Fed. R. Civ. P. 26 - 37, including the use of compulsory process pursuant to Fed. R. Civ. P. 45, for the purpose of monitoring and investigating any defendant’s compliance with any provision of this Order.

B. The Commission is authorized to use investigators posing as consumers and suppliers to either defendant, his employees, or any other entity managed or controlled in whole or in part by either defendant, without the necessity of identification or prior notice.

C. Nothing in this Order shall limit the Commission’s lawful use of compulsory process, pursuant to Sections 9 and 20 of the FTC Act, 15 U.S.C. 49, 57b-1, to investigate whether any defendant has violated any provision of this Order or Section 5 of the FTC Act, 15 U.S.C. 45.

VI. IT IS FURTHER ORDERED that, for a period of seven years from the date of entry of this Order, for the purpose of further determining compliance with this Order, each defendant shall permit representatives of the Commission, within three business days of receipt of written notice from the Commission:

A. Access during normal business hours to any office, or facility storing documents, of any business where

(1) that defendant is the majority owner of the business or directly or indirectly manages or controls the business, and where

(2) the business is engaged in, or assists others engaged in, telemarketing.

In providing such access, each defendant shall permit representatives of the Commission to inspect and copy all documents relevant to any matter contained in this Order; and shall permit Commission representatives to remove documents relevant to any matter contained in this Order for a period not to exceed five business days so that the documents may be inspected, inventoried, and copied.

B. To interview the officers, directors, and employees, including all personnel involved in responding to consumer complaints or inquiries, and all sales personnel, whether designated as employees, consultants, independent contractors or otherwise, of any business to which Subsection (A) of this Paragraph applies, concerning matters relating to compliance with the terms of this Order. The person interviewed may have counsel present.

Provided that, upon application of the Commission and for good cause shown, the Court may enter an ex parte order granting immediate access to defendants’ business premises for the purposes of inspecting and copying all documents relevant to any matter contained in this Order.

MONETARY RELIEF

VII. IT IS FURTHER ORDERED that judgment is hereby entered against defendant Davidson in the amount of SIX MILLION DOLLARS ($6,000,000) and against defendant Hart in the amount of FOUR MILLION NINE HUNDRED THOUSAND DOLLARS ($4,900,000) for equitable monetary relief, including but not limited to consumer redress, and for paying any attendant expenses of administering any redress fund. The Commission in its sole discretion may use a designated agent to administer consumer redress. If the Commission, in its sole discretion, determines that redress is wholly or partially impractical, any funds not so used shall be deposited into the United States Treasury as an equitable disgorgement remedy. Defendants shall have no right to contest the manner of distribution chosen by the Commission or its designated agent.

ORDER DISTRIBUTION

VIII.IT IS FURTHER ORDERED that, for a period of seven years from the date of entry of this Order, defendants Hart and Davidson each shall:

A. Provide a copy of this Order to, and obtain a signed and dated acknowledgment of receipt of same from, each officer or director, each individual serving in a management capacity, all personnel involved in responding to consumer complaints or inquiries, and all sales personnel, whether designated as employees, consultants, independent contractors or otherwise, immediately upon employing or retaining any such persons, for any business where

(1) that defendant is the majority owner of the business or directly or indirectly manages or controls the business, and where

(2) the business engages in, or assists others engaged in, telemarketing; and

B. Maintain for a period of three years after creation, and upon reasonable notice make available to representatives of the Commission, the original signed and dated acknowledgments of the receipt of copies of this Order, as required in Subparagraph A of this Paragraph.

LISTS

IX. IT IS FURTHER ORDERED that defendants Hart and Davidson and their officers, agents, servants, employees, and attorneys, and all other persons or entities in active concert or participation with them who receive actual notice of this Order by personal service or otherwise, are permanently restrained and enjoined from selling, renting, leasing, transferring, or otherwise disclosing the name, address, telephone number, credit card number, bank account number, e-mail address, or other identifying information of any person who paid any money to any defendant, at any time prior to entry of this Order, in connection with investments involving films. Provided that defendants Hart and Davidson may disclose such identifying information to a law enforcement agency or as required by any law, regulation, or court order.

RETENTION OF JURISDICTION

X. IT IS FURTHER ORDERED that this Court shall retain jurisdiction of this matter for all purposes.

ENTRY OF THIS JUDGMENT

XI. IT IS FURTHER ORDERED that there is no just reason for delay of entry of this judgment, and, pursuant to Fed. R. Civ. P. 54(b), the Clerk shall enter this Order immediately.

IT IS SO ORDERED.

________________________________
The Honorable Philip M. Pro
United States District Judge