DEBRA A. VALENTINE
General Counsel

RAYMOND E. MCKOWN, Bar No. 150975
JENNIFER LARABEE, Bar No. 176244
Federal Trade Commission
10877 Wilshire Blvd., Ste. 700
Los Angeles, CA 90024
(310) 824-4343 ph.
(310) 824-4380 fax

Attorneys for Plaintiff
FEDERAL TRADE COMMISSION

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION

FEDERAL TRADE COMMISSION, Plaintiff,

v.

QBI, INC., a California Corporation, and
JEFFREY ALLEN DONOHUE, individually and as an officer of QBI, Inc., Defendants.

No. _______

STIPULATED FINAL JUDGMENT AND ORDER FOR PERMANENT INJUNCTION

Plaintiff Federal Trade Commission ("Commission") has commenced this action by concurrently filing its Complaint for a permanent injunction and other equitable relief pursuant to Section 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C.  53(b), charging defendants QBI, Inc. ("QBI") and Jeffrey Allen Donohue ("Donohue"), with violations of Section 5 of the FTC Act, as amended, 15 U.S.C.  45, and this Stipulated Final Judgment and Order for Permanent Injunction ("Order"). The defendants have waived service of the Summons and Complaint. The parties, represented by the attorneys whose names appear hereafter, have agreed to the entry of this Order and have requested that the Court enter the same to resolve all matters in dispute in this action without trial or adjudication of any issue of law or fact herein.

IT IS HEREBY ORDERED, ADJUDGED, AND DECREED as follows:

FINDINGS

1. This Court has jurisdiction of the subject matter of this case and over defendants QBI and Donohue.

2. The Complaint states a claim upon which relief may be granted against the defendants, under Sections 5 and 13(b) of the FTC Act, as amended, 15 U.S.C.  45 and 53(b).

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

4. The defendants enter into this Order freely and without coercion and acknowledge that they understand the provisions of this Order and are prepared to abide by them.

5. The defendants waive all rights to appeal or otherwise challenge or contest the validity of this Order.

6. Venue in this district is proper under 28 U.S.C.  1391(b) and (c), and 15 U.S.C.  53(b).

7. The defendants have waived all claims under the Equal Access to Justice Act, 28 U.S.C.  2412.

8. The acts and practices of the defendants were or are in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C.  44.

DEFINITIONS

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

"Material" when used in reference to the sale of goods or services means likely to affect a person's choice of, or conduct regarding, goods or services;

"Document" is synonymous in meaning and equal in scope to the usage of the term in Federal Rules of Civil Procedure 34(a) and includes writings, drawings, graphs, charts, photographs, audio, and video recordings, computer records, and other data compilations from which the 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.

"Free" or similar representations such as "gift," "given without charge," "bonus," or other words or terms which tend to convey the impression to the consuming public that a product or service is to be provided to them at no cost, when used in conjunction with an offer of another product or service, means the "free" product or service costs nothing and the other product or service will be sold at its regular price.

"Regular Price" means the price, in the same quantity, quality and with the same service, at which the seller or advertiser of the product or service has openly and actively sold the product or service in the geographic market or trade area in which he is making a "free" or similar offer in the most recent and regular course of business, for a reasonably substantial period of time, i.e., a 30-day period. For products or services that fluctuate in price, the "regular" price shall be the lowest price at which any substantial sales were made during the aforesaid 30-day period.

"Travel Accommodations" includes any product or service commonly used by persons traveling, including without limitation, lodging, or tickets or passes for transportation by airplane, train, automobile, and ship.

"Clearly and Conspicuously" means the disclosure shall be in a type size and location sufficiently noticeable for an ordinary consumer to read and comprehend it, and in print that contrasts with the background against which it appears. In multipage documents, the disclosure shall appear on the cover or first page.

I. PROHIBITED BUSINESS ACTIVITIES

IT IS THEREFORE ORDERED that the defendants QBI and Jeffrey Allen Donohue, both individually and as an officer and director of QBI, and each of their successors, assigns, officers, agents, servants, employees, attorneys and representatives, and all persons or entities directly or indirectly under their control, wholly or partially, 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, whether acting directly or through any corporation, subsidiary, division or device, in connection with the sale of any travel accommodations, are hereby permanently restrained and enjoined from:

a. Failing to disclose the following, set apart from other information in a rectangular box, clearly and conspicuously, before consumers are asked to pay money, open accounts, or submit consideration, in any advertisement, marketing announcement, or literature referencing the terms or conditions of any promotion that offers airline tickets to consumers and requires consumers to purchase hotel or motel accommodations in order to obtain airline tickets: "PURCHASE OF 7 [10] NIGHT HOTEL STAY REQUIRED TO RECEIVE AIRLINE TICKETS. WE DO NOT REPRESENT OR GUARANTEE THAT THE HOTEL ROOM RATES YOU MUST PAY TO RECEIVE THE AIRLINE TICKETS ARE THE LOWEST OR MOST COMPETITIVE IN THE MARKETPLACE. PLEASE READ ALL TERMS AND CONDITIONS BEFORE PARTICIPATING IN THE PROMOTION."
 
b. If any advertisement, marketing announcement, or literature referencing the terms or conditions of any promotion that offers airline tickets to consumers and requires them to purchase hotel or motel accommodations in order to receive airline tickets represents, expressly or by implication, that the rates for the hotel rooms are based on "rack rates," "standard rates," or a similar representation, the following clear and conspicuous disclosure shall also be made in the advertisement, marketing announcement, or literature: "THE RATES FOR THE HOTEL ACCOMMODATIONS YOU MUST PAY TO RECEIVE THE AIRLINE TICKETS ARE HIGHER THAN THE TYPICAL COST YOU WOULD PAY FOR THE ACCOMMODATIONS."
 
c. Failing to disclose, clearly and conspicuously, before consumers are asked to pay money, open accounts, or submit consideration, in any advertisement, marketing announcement, or literature referencing the terms or conditions of any promotion that is directly or indirectly conducted by or affiliated with either defendant:
 
1. all fees, costs, and charges, including without limitation document and rush fees, by dollar amount or category, provided that, if disclosure is by category the possible range of prices must be stated; and
 
2. all terms of any refund policy, or the fact that refunds are not provided;
 
d. Misrepresenting either defendant's ability to supply travel accommodations to consumers;
 
e. Misrepresenting that a consumer's travel needs pertaining to travel accommodations will be filled in a timely manner;
 
f. Misrepresenting that a consumer's travel needs pertaining to travel accommodations have been booked, reserved, secured, finalized, or accomplished;
 
g. Failing to refund any money, including deposits, paid by a consumer within ten days after a request to do so by the consumer where he or she has satisfied the terms necessary for its return;
 
h. Disseminating any advertisement or other literature that offers a "free" or similar offer of a product or service unless the "free" product or service will be given to the consumer without charge, and where any advertisement or other literature offers a "free" product or service in conjunction with another product or service, no more than the regular price shall be charged for the other product or service;
 
i. Marketing any "free" or similarly offered product or service unless the "free" product or service will be given to the consumer without charge, and where the "free" product or service is marketed in conjunction with another product or service, no more than the regular price shall be charged for the other product or service;
 
j. Misrepresenting, expressly or by implication, or failing to disclose, any fact material to a consumer's decision to purchase goods or services; and
 
k. Doing business with any entity which does not have in effect a written agreement with the defendants containing the following provisions:
"Retailer agrees to disclose, set apart from other information in a rectangular box, clearly and conspicuously, the following before consumers are asked to pay money, open accounts, or submit consideration, in any advertisement referencing the terms and conditions of the airline ticket promotion:
 
'PURCHASE OF 7 [10] NIGHT HOTEL STAY REQUIRED TO RECEIVE AIRLINE TICKETS. WE DO NOT REPRESENT OR GUARANTEE THAT THE HOTEL ROOM RATES YOU MUST PAY TO RECEIVE THE AIRLINE TICKETS ARE THE LOWEST OR MOST COMPETITIVE IN THE MARKETPLACE. PLEASE READ ALL TERMS AND CONDITIONS BEFORE PARTICIPATING IN THE PROMOTION;'
 
Retailer further agrees to disclose, clearly and conspicuously, the following before consumers are asked to pay money, open accounts, or submit consideration, in any advertisement referencing the terms and conditions of the airline ticket promotion:
 
All fees, costs, and charges by dollar amount or category, provided that, if disclosure is by category the possible range of hotel room rates must be stated; and
 
All terms of any refund policy, or the fact that refunds are not provided.
 
Retailer agrees to truthfully and accurately represent, after verifying the information with the defendants or their successors or assigns: the defendants', or their successors' or assigns', ability to supply travel accommodations; whether travel accommodations will be filled in a timely manner; whether travel accommodations have been booked, reserved, secured, finalized, or accomplished; and any other material fact pertaining to the promotion.
 
Retailer further agrees that if any advertisement, marketing announcement, or literature referencing the terms or conditions of any promotion that offers airline tickets to consumers and requires them to purchase hotel or motel accommodations in order to receive airline tickets represents, expressly or by implication, that the rates for the hotel rooms are based on "rack rates," "standard rates," or a similar representation, the following clear and conspicuous disclosure shall also be made in the advertisement, marketing announcement, or literature: 'THE RATES FOR THE HOTEL ACCOMMODATIONS YOU MUST PAY TO RECEIVE THE AIRLINE TICKETS ARE HIGHER THAN THE TYPICAL COST YOU WOULD PAY FOR THE ACCOMMODATIONS.'"

II. COMMISSION'S RELIANCE ON DEFENDANTS' REPRESENTATIONS

The Commission's agreement to this Order is expressly premised upon the truthfulness, accuracy, and completeness of the financial condition of the defendants and the restitutionary payments they have made, as represented in their respective financial statements dated January 7, 2000 (Donohue), and January 7, 2000 (QBI), submitted documents that are listed in Attachment A, and the Declaration of Jeffrey Donohue dated April 6, 2000, upon which the Commission relied in negotiating and agreeing to the terms of this Order. If, upon motion by the Commission, this Court finds that either defendant failed to file the sworn statement required by this Paragraph, or filed a financial statement that failed to disclose any material asset, or materially misrepresented the value of any asset, or made any other material misrepresentation in or omission from the financial statement, documents listed in Attachment A, or the Declaration of Jeffrey Donohue, the Court shall enter judgment against the defendants, in favor of the Commission, in the amount of $51,525, which is intended to represent the total amount of unjust enrichment obtained by defendants, and which will become immediately due and payable. 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, the defendants waive any right to contest any of the allegations in the Commission's Complaint.

III. REAFFIRMATION OF FINANCIAL STATEMENTS AND ACKNOWLEDGMENT OF RECEIPT OF ORDER BY DEFENDANTS

IT IS FURTHER ORDERED that within five business days after receipt of this Order as entered by the Court, each defendant shall submit to the Commission a truthful sworn and notarized statement, in the form shown on Attachment B, that shall acknowledge receipt of this Order as entered and shall reaffirm and attest to the truthfulness, accuracy, and completeness of that defendant's financial statement.

IV. DISTRIBUTION OF ORDER BY DEFENDANTS

IT IS FURTHER ORDERED that, for a period of three years from the date of entry of this Order, the defendants 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 either defendant is the majority owner of the business or directly or indirectly manages or controls the business, and the business is engaged in the sale, distribution, or marketing of travel accommodations; 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 subsection (a) of this Paragraph.

V. RECORD KEEPING

IT IS FURTHER ORDERED that, for a period of three years from the date of entry of this Order, in connection with any business where either defendant is the majority owner of the business or directly or indirectly manages or controls the business, and where the business is engaged in the sale, distribution, or marketing of travel accommodations, the defendants 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 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 customers 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;
 
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 years after the last date of dissemination of any such materials; and
f. Copies of each contract made with any business entity for the sale of travel accommodations from or to either defendant.

VI. COMPLIANCE REPORTING

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

a. For a period of three years from the date of entry of this Order, each defendant shall notify the Commission of the following:
 
1. any changes in a defendant's residence, mailing addresses, and telephone numbers, within ten days of the date of such change;
 
2. any changes in a defendant's employment status (including self-employment) within ten days of such change. Such notice shall include the name and address of each business that the defendant is affiliated with or employed by, a statement of the nature of the business, and a statement of the defendant's duties and responsibilities in connection with the business or employment; and
 
3. any proposed change in the structure of defendant QBI such as creation, incorporation, dissolution, assignment, sale, merger, creation, dissolution of subsidiaries, proposed filing of a bankruptcy petition, or change in the corporate name or address, or any other change that may affect compliance obligations arising out of this Order, thirty days prior to the effective date of any proposed change; provided, however, that, with respect to any proposed change in the corporation about which a defendant learns less than thirty days prior to the date such action is to take place, that defendant shall notify the Commission as soon as is practicable after learning of such proposed change;
 
b. One hundred eighty days after the date of entry of this Order, each defendant shall provide a written report to the FTC, sworn to under penalty of perjury, setting forth in detail the manner and form in which the defendant has complied and is complying with this Order. This report shall include but not be limited to:
 
1. the defendant's then current residence address and telephone number;
 
2. the 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;
 
3. a copy of each acknowledgment of receipt of this Order obtained by the defendant pursuant to Paragraph IV; and
 
4. A statement describing the manner in which defendant has complied and is complying with Paragraphs I, and IV;
 
c. Upon written request by a representative of the Commission, each defendant shall submit additional written reports (under oath, if requested) and produce documents on thirty days' notice with respect to any conduct subject to this Order;
 
d. For the purposes of this Order, each defendant shall, unless otherwise directed by the Commission's authorized representatives, mail all written notifications to the Commission to: Assistant Regional Director, Western Region, Federal Trade Commission, 10877 Wilshire Boulevard, Suite 700, Los Angeles, California 90024;
 
e. For the purposes of this Paragraph, "employment" includes the performance of services as an employee, consultant, or independent contractor; and "employers" include any individual or entity for whom either defendant performs services as an employee, consultant, or independent contractor; and
 
f. For purposes of the compliance reporting required by this Paragraph, the Commission is authorized to communicate solely with the undersigned counsel for defendants, or such other counsel as either defendant, or the undersigned counsel, may designate in writing to the Commission.

VII. MONITORING COMPLIANCE WITH THE ORDER

IT IS FURTHER ORDERED that the Commission is authorized to monitor the 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 the defendants' compliance with any provision of this Order;
 
b. The Commission is authorized to use representatives posing as consumers and suppliers to the employees of either defendant, 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 either defendant has violated any provision of this Order or Section 5 of the FTC Act, 15 U.S.C. 45;
 
d. During the period in which the defendants are required to maintain records pursuant to this Order, they shall permit representatives of the Commission, within seven days of receipt of a written notice from the Commission:
 
1. to have access during normal business hours to any office, or facility storing documents, of any business where either defendant is the majority owner, or any business that either defendant directly or indirectly manages or controls which engages in the sale, distribution, or marketing of travel accommodations. In providing such access, the defendants 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; and
 
2. 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 engaged in the sale, distribution, or marketing of travel accommodations, concerning matters relating to compliance with the terms of this Order, subject to the reasonable convenience of the defendants and their counsel and the person to be interviewed, and without restraint or interference from the defendants, at a location reasonably convenient to the person to be interviewed or deposed, the defendants and their, and the Commission. The person interviewed may have counsel present.

VIII. COSTS AND ATTORNEYS FEES

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

IX. CONTINUING JURISDICTION

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

X. NOTICE OF ENTRY OF ORDER

IT IS FURTHER ORDERED that entry in the docket of this Order by the Clerk of Court shall constitute notice to the defendants of the terms and conditions of this Order, and that the defendants waive all rights to contest in any future proceeding whether they were properly served with this Order.

XI. ENTRY BY CLERK

There being no just reason for delay, the Clerk of the Court is hereby directed to enter this Order.

The parties hereby stipulate to the entry of the foregoing Order, which shall constitute a final order in this action.

SIGNED AND STIPULATED BY:

Dated:___________________, 2000

_____________________________
Raymond E. McKown
Jennifer Larabee
Federal Trade Commission
Attorneys for Plaintiff

Dated: ___________________, 2000

QBI, Inc. by Jeffrey Allen
Donohue, Its President

Dated:___________________, 2000

_____________________________
Jeffrey Allen Donohue,
individually, and as an
officer of QBI, Inc.

APPROVED AS TO FORM AND CONTENT:

Dated:____________________, 2000

______________________________
John F. Libby
Manatt, Phelps & Phillips, LLP
Attorney for Defendants
QBI, Inc., and Jeffrey Allen Donohue

IT IS SO ORDERED.

Dated this _______day of __________________, 2000.

____________________________
United States District Judge

ATTACHMENT A

1. The 1996 federal income tax return of Jeff Donohue and Victoria Collins.

2. QBI checks # 7329 (dated 10-1-99), # 7330 (dated 10-1-99), # 7331 (dated 10-1-99), # 7332 (dated 10-1-99), #7333 (dated 7333), and # 5500 (dated 8-14-98).

3. Information in the February 14, 2000, 3:09 p.m. E-Mail from John Libby to Raymond McKown.

4. Information in the February 29, 2000, 3:36 p.m. E-Mail from John Libby to Raymond McKown.

5. Information in the March 20, 2000, letter from John Libby to Raymond McKown.

6. Information stated in and attached to the March 24, 2000, letter from John Libby to Raymond McKown.

7. QBI Bates stamped documents # QBI 001846 through QBI 002954.

8. QBI Bates stamped documents # QBI 002955 through QBI 003212.

9. QBI Bates stamped documents # QBI 002955A through # QBI 003054A.

Dated: April 6, 2000

Jeffrey Allen Donohue

ATTACHMENT B

UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
SOUTHERN DIVISION

FEDERAL TRADE COMMISSION, Plaintiff,

v.

QBI, INC., a California Corporation, and
JEFFREY ALLEN DONOHUE,
an individual and as an officer of QBI, Inc., Defendants.

No. _______

AFFIDAVIT OF DEFENDANT ACKNOWLEDGING RECEIPT OF SIGNED ORDER AND REAFFIRMING FINANCIAL STATEMENTS

Jeffrey Allen Donohue, being duly sworn, hereby states and affirms as follows:

1. My name is Jeffrey Allen Donohue. My current residence address is ________________ . I am a citizen of the United States and am over the age of eighteen. I have personal knowledge of the facts set forth in this Affidavit.
 
2. I am a defendant in FTC v. QBI, Inc., et seq. No. (United States District Court for the Central District of California).
 
3. On [date] , I received a copy of the Stipulated Final Judgment and Order for Permanent Injunction ("Order"), which was signed by the Honorable [name of Judge] on [date] . A true and correct copy of the Order I received is appended to this Affidavit. I have read the signed Order.
 
4. I hereby state that the information contained in the financial statements I signed on January 7, 2000, and the information identified in Attachment A of the Stipulated Final Judgment and Order for Permanent Injunction, was true, accurate, and complete at the time the financial statements and Attachment A were respectfully signed.

I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct. Executed on [date] , at [city, state] .

Jeffrey Allen Donohue,
individually an on behalf
of QBI, Inc.

State of ________, City of __________.

Subscribed and sworn to before me this ___ day of ______, 2000.

Notary Public

My Commission Expires: