CONSTANCE VECELLIO
PABLO M. ZYLBERGLAIT
SARAH L. KNAPP, CA Bar No. 200694
Federal Trade Commission
Division of Enforcement
600 Pennsylvania Ave., N.W.
Washington, D.C. 20580
(202) 326-2966 voice 326-2558 fax

KENNETH ABBE, CA Bar No. 172416
Local counsel
Federal Trade Commission
10877 Wilshire Blvd., Suite 700
Los Angeles, CA 90024
(310) 824-4318 or 824-4325 voice
(310) 824-4380 fax

Attorneys for Plaintiff

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

FEDERAL TRADE COMMISSION, Plaintiff

v.

NATIONAL SUPPLY & DISTRIBUTION CENTER, INC., a corporation, et al., Defendants.

CV-99-12828 HLH (AJWx)

STIPULATED FINAL JUDGMENT AND ORDER FOR PERMANENT INJUNCTION AND OTHER EQUITABLE RELIEF AS TO DEFENDANT SCOTT EARL

Plaintiff, the Federal Trade Commission ("FTC" or "Commission"), filed a complaint on December 7, 1999 for permanent injunction and other relief against defendants National Supply and Distribution Center Inc. ("NSDC"), Data Distribution Services, Inc. ("DDS") and Steven Rayman, pursuant to Sections 13(b) and 19 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 53(b) and 57b, and Section 6(b) of the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. § 6105(b). On December 28, 1999, plaintiff filed a First Amended Complaint naming Larry Ellis, Lee Siegel, and Scott Earl as additional defendants. The First Amended Complaint alleges that defendants have engaged in deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. §45(a), and the Telemarketing Sales Rule, 16 C.F.R. Part 310, in connection with the sale of office supplies.

Now the Commission and Defendant Scott Earl ("Earl") agree to a settlement of this action without trial or adjudication of any issue of law or fact herein. The Commission and Earl consent to entry of this Stipulated Final Judgment and Order for Permanent Injunction and Other Equitable Relief ("Order").

FINDINGS

1. This is an action by the Commission instituted under Sections 13(b) and 19 of the FTC Act, 15 U.S.C. §§ 53(b), 57b, and Section 6(b) of the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. § 6105(b). The First Amended Complaint seeks permanent injunctive relief against defendants in connection with the sale of nondurable office supplies and equitable monetary relief in the form of consumer redress and/or disgorgement.

2. The Court has jurisdiction over the subject matter of this case, and jurisdiction over defendant Earl. Venue in the Central District of California is proper as to Earl.

3. The First Amended Complaint states a claim upon which relief may be granted as to defendant Earl.

4. The Commission has the authority under Sections 13(b) and 19 of the FTC Act, 15 U.S.C. §§ 53(b), 57b, and Section 6(b) of the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. § 6105(b), to seek the relief it has requested against defendant Earl.

5. The activities of defendant Earl described in the First Amended Complaint are in or affecting commerce, as defined in Section 4 of the FTC Act, 15 U.S.C. § 44.

6. Defendant Earl, by stipulating and consenting to the entry of this Order, does not admit any of the allegations in the First Amended Complaint, except those contained in Findings 1 through 5 above. By executing this Order, the FTC does not admit that any defense to the First Amended Complaint is valid.

7. Entry of this Order is in the public interest.

DEFINITIONS

1. "Document" is synonymous in meaning and equal in scope to the usage of the term in Federal Rule of Civil Procedure 34(a), and includes writings, drawings, graphs, charts, photographs, audio and video recordings, computer records, and other data compilations from which information can be obtained and translated, if necessary, through detection devices into reasonably usable form. A draft or non-identical copy is a separate document within the meaning of the term.

2. "Consumer" means any person, including any individual, group, unincorporated association, limited or general partnership, corporation or other business entity.

3. "Telemarketing" means any business activity (which includes, but is 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, 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.

4. "Assisting others" means knowingly providing any of the following goods or services to another entity: (1) performing customer service functions, 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; (3) providing names of, or assisting in the generation of, potential customers; or (4) performing marketing services of any kind.

5. The terms "and" and "or" have both conjunctive and disjunctive meanings.

6. "Employment" includes any affiliation with any business, including the performance of services as an officer, owner, manager, supervisor, employee, consultant, or independent contractor; and "Employer" includes any and all individuals or entities for whom defendant Earl performs services as an employee, consultant, or independent contractor.

7. A requirement that any defendant "notify the Commission" shall mean that the defendant shall send the necessary information via first-class mail, costs prepaid, to the Associate Director for Enforcement, Federal Trade Commission, 600 Pennsylvania Avenue NW, Washington, D.C. 20580. Attn: FTC v. NSDC, Inc. et al., No. 99-12828 HLH (ANx) (U.S. Dist. Ct., C.D. Cal.).

8. "Including" as used in this Order means "including, without limitation."

I. BAN ON TELEMARKETING

IT IS HEREBY ORDERED that defendant Earl, whether acting directly or through any corporation, limited liability company, subsidiary, division or other device, is hereby permanently restrained and enjoined from engaging or participating in telemarketing, or assisting others who are engaging or participating in telemarketing.

II. PROHIBITED BUSINESS ACTIVITIES

A. IT IS FURTHER ORDERED that, in connection with the advertising, marketing, promoting, offering for sale, or sale of any good or service, defendant Earl, and his agents, servants, employees, and all persons or entities directly or indirectly under his control, and all other persons or entities in active concert or participation with him, who receive actual notice of this Order by personal service or otherwise, are hereby permanently restrained and enjoined from:

1. Misrepresenting, expressly or by implication, that any consumer, or any consumer's employee or other representative, ordered any good or service that was shipped, provided, and/or billed to the consumer;

 

2. Misrepresenting, expressly or by implication, any association with a consumer's regular supplier or provider of a good or service, or any association with the manufacturer of any product or equipment used by the consumer in conjunction with a good or service;

 

3. Misrepresenting, expressly or by implication, any previous business transactions including any previous sales of any goods or services;

 

4. Misrepresenting, expressly or by implication, a consumer's obligation to pay for any goods or services or attendant charges or fees;

 

5. Misrepresenting, expressly or by implication, the price of goods or services; or

 

6. Misrepresenting, expressly or by implication, any other fact material to a consumer's decision to buy or accept a good or service.

B. IT IS FURTHER ORDERED that defendant Earl and his agents, servants, employees, and all persons or entities directly or indirectly under his control, and all other persons or entities in active concert or participation with him who receive actual notice of this Order by personal service or otherwise, are hereby permanently restrained and enjoined from:

1. Violating Section 310.3(a)(4) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(4), by making false or misleading statements to induce any consumer to pay for goods or services, including statements that:

 

a. they are a consumer's regular supplier of office supplies or associated with the manufacturer or vendor of a consumer's photocopier;

 

b. the price of the office supplies used by a consumer is about to increase substantially;

 

c. a consumer will be charged the same price for office supplies that the consumer has been paying;

 

d. a consumer ordered the office supplies that were shipped or billed to the consumer; and

 

e. if a consumer wants to return an unordered shipment or a shipment ordered on the basis of false or misleading statements, the consumer has an obligation to pay a restocking fee;

 

2. Violating Section 310.4(d)(1) of the Telemarketing Sales Rule, 16 C.F.R. § 310.4(d)(1), by failing in outbound telephone calls to disclose promptly and in a clear and conspicuous manner the identity of the seller;

 

3. Violating Section 310.4(d)(2) of the Telemarketing Sales Rule, 16 C.F.R. § 310.4(d)(2), by failing in outbound telephone calls to disclose promptly and in a clear and conspicuous manner that the purpose of the call is to sell goods or services;

 

4. Violating Section 310.3(b) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(b), by providing substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in any act or practice that violates Section 310.3(a) or Section 310.4 of the Telemarketing Sales Rule, 16 C.F.R §§ 310.3(a) or 310.4; or

 

5. Violating or assisting others in violating any other provision of the Telemarketing Sales Rule, 16 C.F.R. Part 310.

A copy of the Telemarketing Sales Rule is appended to this Order as Attachment A and is incorporated herein as if fully rewritten. In the event that the Telemarketing Sales Rule is amended by the Commission in a manner which would create a new or different standard applicable to Defendant's obligations under this Order, Defendant's compliance with the Telemarketing Sales Rule as so amended shall not be deemed a violation of this Order.

III. PROHIBITIONS AGAINST DISTRIBUTION OF CUSTOMER LISTS

IT IS FURTHER ORDERED that Defendant Earl, and his agents, servants, employees, and all persons or entities directly or indirectly under his control, and all other persons or entities in active concert or participation with him 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 or other identifying information of any person who paid any money to defendants National Supply & Distribution Center, Inc. or Data Distribution Services, Inc. at any time, in connection with the offering for sale or sale of any good or service; provided, however, that defendant may disclose such identifying information to a law enforcement agency or as required by any law, regulation or court order, and shall disclose such identifying information to the Commission pursuant to this Order.

IV. ACKNOWLEDGMENT OF RECEIPT OF ORDER AND REAFFIRMATION OF FINANCIAL STATEMENT

IT IS FURTHER ORDERED that, within five (5) business days after entry of this Order, defendant Earl shall submit to the Commission a truthful sworn and notarized statement, in the form shown on Appendix 1, that shall acknowledge receipt of this Order as entered and shall reaffirm and attest to the truthfulness, accuracy, and completeness of defendant Earl's January 10, 2000 financial statement and the loan application for the purchase of real property dated October 2, 1999. The Commission is authorized to verify all information provided in the financial statement with all appropriate third parties, including, but not limited to, financial institutions.

V. RIGHT TO REOPEN

IT IS FURTHER ORDERED that the Commission's agreement to this Order, which does not require defendant Earl to pay restitution, is expressly premised upon the truthfulness, accuracy and completeness of defendant Earl's January 10, 2000 financial statement and the loan application for the purchase of real property dated October 2, 1999. Said financial information contains material information upon which the FTC has relied in negotiating and agreeing to the terms of this Order. If, upon motion by the Commission to the Court, the Court finds that defendant Earl failed to submit to the Commission the sworn statement required by Paragraph IV of this Order, or failed to disclose any material asset with a value exceeding $1,000, or materially misrepresented the value of any asset, or made any other material misrepresentation in or omission from his financial information described above, the Commission may request that this Order be reopened for the purpose of requiring a judgment for consumer redress in the amount of $2,000,000 against defendant Earl in favor of the Commission, less any amount previously received from any defendant in this action for sales from the Long Beach location, or less any amount recovered through his cooperation; provided, however, that in all other respects this Order shall remain in full force and effect unless otherwise ordered by this Court. For purposes of this Paragraph, and any subsequent proceedings to enforce payment, including but not limited to a non-dischargeability complaint filed in a bankruptcy proceeding, defendant Earl stipulates to all of the allegations in the Commission's First Amended Complaint.

VI. RECORD-KEEPING

IT IS FURTHER ORDERED that, for a period of three (3) years from the date of entry of this Order, Defendant Earl, in connection with any and every business entity of which he is a majority owner, or which he otherwise controls, is hereby restrained and enjoined from failing to create, and to retain, in a location under his control, for a period of three (3) 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 three (3) 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, or from whom such business accepted money or other items of value;

 

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;

 

E. Copies of all sales scripts, training materials, advertisements, or other marketing materials utilized; provided that copies of all sales scripts, training materials, advertisements, or other marketing materials utilized shall be retained for three (3) years after the last date of dissemination of any such materials.

VII. MONITORING OF DEFENDANT EARL

IT IS FURTHER ORDERED that, in order that compliance with the provisions of this Order may be monitored, for a period of three (3) years commencing with the date of entry of this Order, defendant Earl shall notify the Commission of the following:

A. Any change of residence, mailing address or telephone number, within ten (10) days of the date of such change;

 

B. Any change in employment status (including self-employment) within ten (10) business days of such change; such notice shall include the name and address of each business with which defendant Earl is affiliated or employed, a statement of the nature of the business, and a statement of defendant Earl's duties and responsibilities in connection with the business; and

 

C. Any proposed change in the structure of any business entity owned or controlled by defendant Earl, such as creation, incorporation, dissolution, assignment, sale, creation or dissolution of subsidiaries, or any other changes that may affect compliance obligations arising out of this Order--within thirty (30) days prior to the effective date of any proposed change; provided, however, that with respect to any proposed change in structure of such business about which defendant Earl learns less than thirty (30) days prior to the date such action is to take place, he shall notify the Commission as soon as practicable after learning of such proposed change.

VIII. ACCESS TO BUSINESS PREMISES

IT IS FURTHER ORDERED that, for a period of three (3) years from the date of entry of this Order, for the purpose of further determining compliance with this Order, defendant Earl shall permit representatives of the Commission, within three (3) 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 and every business entity of which defendant Earl is the majority owner, or which he otherwise controls. In providing such access, defendant Earl 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 (5) business days so that the documents may be inspected, inventoried, and copied; and

 

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 Section 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 all premises at which defendant Earl conducts business or stores documents, for the purposes of inspecting and copying all documents relevant to any matter contained in this Order.

IX. FTC'S AUTHORITY TO MONITOR COMPLIANCE

IT IS FURTHER ORDERED that the Commission is authorized to monitor defendant's compliance with this Order by all lawful means, including the following:

A. The Commission is authorized (without further leave of this Court, but on notice to defendant Earl as required by the Federal Rules of Civil Procedure) to obtain discovery from any person subject to this Order in the manner provided by Chapter V of the Federal Rules of Civil Procedure, Fed. R. Civ. P. 26-37, and to obtain discovery from persons not subject to this Order through the use of compulsory process pursuant to Federal R. Civ. P. 45, for the purpose of investigating compliance with any provision of this Order;

 

B. The Commission is authorized (without the necessity of prior notice) to use representatives posing as consumers to defendant Earl, his employees, or any and every business entity of which he is a majority owner, or which he otherwise controls;

 

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, for the purpose of investigation of compliance with this Order or Section 5 of the FTC Act, 15 U.S.C. § 45. 

X. WAIVER OF CLAIMS

Defendant Earl waives all claims under the Equal Access to Justice Act, 28 U.S.C. § 2412, as amended by Pub. L. 104-121, 110 Stat. 847, 863-64 (1996), and all rights to seek appellate review or otherwise challenge or contest the validity of this Order, or the temporary or preliminary orders entered in this proceeding, and further waives and releases any claim he may have against the FTC, the Receiver, or their employees, agents, or representatives.

XI. APPEARANCE FOR TESTIMONY

IT IS FURTHER ORDERED that defendant Earl shall appear for his deposition and trial or other hearing testimony in this action, upon written notice to his counsel of record, without the service of a subpoena or payment of any witness fee, and shall provide complete and truthful testimony. Defendant Earl agrees to provide, upon request of the Commission, complete and truthful testimony by affidavit.

XII. COSTS AND ATTORNEYS FEES

IT IS FURTHER ORDERED that each party to this Order bear its own costs and attorneys fees incurred in connection with this action.

XIII. RETENTION OF JURISDICTION

IT IS FURTHER ORDERED that this Court shall retain jurisdiction of this matter for purposes of construction, modification and enforcement of this Order.

XIV. ENTRY OF THIS ORDER

IT IS FURTHER ORDERED that, pursuant to Federal Rule of Procedure 54(b), there is no just reason for delay and the

Clerk of Court immediately shall enter this Order as a final judgment as to defendant Earl upon Court approval.

SO STIPULATED:

APPENDIX 1

DEBRA A. VALENTINE
General Counsel
Federal Trade Commission

CONSTANCE VECELLIO
PABLO M. ZYLBERGLAIT
SARAH L. KNAPP, CA Bar No. 200694
Federal Trade Commission
Division of Enforcement
600 Pennsylvania Ave., N.W.
Washington, D.C. 20580
(202) 326-2966 voice 326-2558 fax

KENNETH ABBE, CA Bar No. 172416
Local counsel
Federal Trade Commission
10877 Wilshire Blvd., Suite 700
Los Angeles, CA 90024
(310) 824-4318 or 824-4325 voice
(310) 824-4380 fax

Attorneys for Plaintiff

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

FEDERAL TRADE COMMISSION, Plaintiff

v.

NATIONAL SUPPLY & DISTRIBUTION CENTER, INC., a corporation, et al., Defendants.

CV-99-12828 HLH (AJWx)

DEFENDANT SCOTT EARL'S AFFIDAVIT RE:

(1)ACKNOWLEDGMENT OF SERVICE OF STIPULATED FINAL JUDGMENT AND ORDER; AND

(2)REAFFIRMATION OF JANUARY 10, 2000 FINANCIAL STATEMENT

Scott Earl, being duly sworn, hereby states and affirms:

1. I am a defendant in the above-entitled action. My current residence address is 18385 Santa Eugenia Street, Fountain Valley, CA 92908. I am a citizen of the United States and over the age of eighteen. I have personal knowledge of the facts set forth in this Affidavit.

 

2. I agreed to entry of a Stipulated Final Judgment and Order ("Stipulated Order") against me to settle the charges in the Commission's Complaint. I read the provisions of the Stipulated Order, including Attachment A (the Telemarketing Sales Rule, 16 C.F.R. Part 310) before signing it. I understand all the provisions of the Stipulated Order. By signing the Stipulated Order I agreed to be bound by those provisions.

 

3. On ________, 2000, I received a copy of the Stipulated Order which was signed by a United States District Judge and entered by the Court on ________, 2000. A true and correct copy of the Stipulated Order that I received, including Attachment A (the Telemarketing Sales Rule), is appended to this affidavit. The Stipulated Order, including Attachment A (the Telemarketing Sales Rule), was _____ pages in length. I reviewed the document and confirmed it was the document I had previously signed.

 

4. In January 2000 I provided to Plaintiff Federal Trade Commission ("Commission") a completed and signed document titled "Financial Statement of Individual Defendant" ("Financial Statement"), which I dated January 10, 2000. I also provided the Commission with a copy of the loan application for the purchase of real property dated October 2, 1999.

 

5. I understand that my Financial Statement and the loan application for the purchase of real property dated October 2, 1999 contain material information upon which the Commission relied in negotiating and agreeing to the terms in the Stipulated Order related to payment of redress and suspension of the judgment amount of $2 million.

 

6. I hereby reaffirm and attest to the truthfulness, accuracy, and completeness of my January 10, 2000 Financial Statement and the loan application for the purchase of real property dated October 2, 1999.

 

7. I understand that if, upon motion by the Commission, the Court finds that the Financial Statement or the loan application for the purchase of real property dated October 2, 1999 I submitted failed to disclose any material asset, or materially misrepresented the value of any asset, or finds that I made any other material misrepresentation in or omission from these documents, a judgment amount of $2,000,000 will be entered by the Court.

I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct. Executed on March , 2000, at _______________________, California.

Scott Earl

State of ___________________, City of ______________________

Subscribed and sworn to before me this __ day of _____, 2000.

Notary Public
My Commission Expires: