UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE

FEDERAL TRADE COMMISSION,
Plaintiff,

v.

GREENHORSE COMMUNICATIONS, INC.,
a corporation, and

LYNN HABERSTROH,
an individual, Defendants.

CIVIL ACTION NO.

 

COMPLAINT FOR PERMANENT INJUNCTION
AND OTHER EQUITABLE RELIEF

Plaintiff, the Federal Trade Commission ("FTC" or "the Commission"), for its Complaint alleges:

1. The FTC 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 obtain preliminary and permanent injunctive relief, rescission or reformation 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 FTC's Trade Regulation Rule entitled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures" ("the Franchise Rule"), 16 C.F.R.  436.

JURISDICTION AND VENUE

2. This Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C.  1331, 1337(a) and 1345, and 15 U.S.C.  53(b) and 57b.

3. Venue in the United States District Court for the District of New Hampshire is proper under 28 U.S.C.  1391(b) and (c), and 15 U.S.C.  53(b).

THE PARTIES

4. Plaintiff FTC 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 also enforces the Franchise Rule. 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 is appropriate in each case, and to obtain consumer redress. 15 U.S.C.  53(b) and 57b.

5. Defendant GreenHorse Communications, Inc. ("GreenHorse"), a New Hampshire corporation with its principal place of business at 1 Bayside Road, Greenland, New Hampshire, promotes and sells the GreenHorse Opportunity business venture. GreenHorse has transacted business in the District of New Hampshire.

6. Defendant Lynn Haberstroh is an officer and director of GreenHorse. At all times material to this complaint, acting alone or in concert with others, she has formulated, directed, controlled or participated in the acts and practices of the corporate defendant, including the acts and practices set forth in this complaint. She has transacted business in the District of New Hampshire.

COMMERCE

7. At all times relevant to this complaint, the defendants have maintained a substantial course of trade in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C.  44.

DEFENDANTS’ BUSINESS ACTIVITIES

8. Since at least November 1996, the defendants have been engaged in a common course of conduct to offer and sell a purportedly profitable GreenHorse Opportunity business venture to members of the public for a minimum investment of $14,000-$15,000.

9. The defendants market the GreenHorse Opportunity business venture primarily through newspaper advertisements that include a telephone number for interested consumers to call for more information. When consumers call, GreenHorse’s sales representatives typically tell them that, as GreenHorse Area Developers, they will be able to earn a substantial income selling Internet website design, construction, and hosting services to small businesses. Referring to the figures set forth in the company’s promotional materials, GreenHorse sales representatives typically tell prospective purchasers that, by working part-time on this business, they can reasonably expect to earn $14,000-$15,000 within their first 2-6 months of operation and $60,000-$134,992 within their first year.

VIOLATIONS OF THE FRANCHISE RULE

10. The business venture sold by the defendants is a franchise, as "franchise" is defined in Section 436.2(a) of the Franchise Rule, 16 C.F.R.  436.2(a).

11. In the course of offering for sale or selling franchises, defendants have provided or represented they will provide, significant assistance to the purchaser in the purchaser’s method of operation.

12. 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 the names and addresses of other franchisees. 16 C.F.R. 436.1(a)(1)-(a)(20). Disclosure of this information enables a prospective franchisee to assess any potential risks involved in the purchase of the franchise.

13. The Franchise Rule additionally requires: (1) that the franchisor give prospective franchisees a document disclosing the material basis (or 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).

14. 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).

COUNT I

15. In numerous instances in connection with the offering of a franchise, as "franchise" is defined in the Franchise Rule, 16 C.F.R.  436.2(a), the defendants have failed to provide prospective franchisees with a basic disclosure document, thereby violating Section 436.1(a) of the Rule, 16 C.F.R.  436.1(a), and Section 5(a) of the FTC Act, 15 U.S.C. 45(a).

COUNT II

16. In numerous instances in connection with the offering of a franchise, as "franchise" is defined in the Rule, 16 C.F.R.  436.2(a), the 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, thereby violating Sections 436.1(b)-(e) of the Rule, 16 C.F.R.  436.1(b)-(e), and Section 5(a) of the FTC Act, 15 U.S.C. 45(a).

THIS COURT'S POWER TO GRANT RELIEF

17. 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.

18. 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 the defendants’ violations of the Franchise Rule, including the rescission and reformation of contracts, and the refund of money.

19. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy the 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;

2. Permanently enjoin the defendants from violating the FTC Act and the Franchise Rule, as alleged herein;

3. 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 or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies; and

4. Award plaintiff the costs of bringing this action, as well as such other additional relief as the Court may determine to be just and proper.

Date:________ , 1998

Respectfully submitted,

DEBRA VALENTINE
General Counsel

ANDREW D. CAVERLY
Acting Regional Director

DANIEL P. BARRY, MA BBO REG. NO. 564037
PAMELA J. WOOD, MA BBO REG. NO. 533590

Federal Trade Commission
Boston Regional Office
101 Merrimac Street
Boston, Massachusetts 02114
(617) 424-5960
(617) 424-5998 (facsimile number)
Attorneys for Plaintiff