STATES DISTRICT COURT
FEDERAL TRADE COMMISSION, Plaintiff,
CAROUSEL OF TOYS USA, INC., a
Florida Corporation, and
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
2. 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.
3. Venue in the Southern District of Florida is proper under 28 U.S.C. §§ 1391(b) and (c), and 15 U.S.C. § 53(b).
4. 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.
5. Defendant Carousel of Toys USA, Inc. ("Carousel"), a Florida corporation, with its most recent place of business at 804 Federal Highway 1, Ste. # 5, Lake Park, Florida 33403, has offered and sold to investors carousel display rack business ventures for the sale of Disney and other licensed products to the public. Carousel has transacted business in the Southern District of Florida.
6. Defendant Kelie Brodzinski has been the sole officer and director of Carousel of Toys USA, Inc. In connection with the matters alleged herein, she has transacted business in the Southern District of Florida. 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.
7. 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
8. Since at least May 1995, the defendants have been engaged in a deceptive scheme to offer and sell purportedly profitable carousel display rack business ventures to members of the public. In order to induce purchasers to make a minimum investment of approximately $10,000, 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. The defendants have misrepresented the earnings potential of the business venture, and failed to provide prospective purchasers with the information required by the Commission's Franchise Rule that they need to evaluate these claims and the business venture itself. In addition, defendants have failed to disclose to prospective purchasers the nature of the costs associated with purchasing their business opportunity. Defendants represent that the investment fee is for the purchase of display racks and inventory, but fail to disclose that defendants charge distributors retail cost for their initial inventory, rather than wholesale cost. Furthermore, defendants fail to disclose, until after the distributor has purchased, that defendants deduct a substantial "set up" fee of approximately 30% from the distributor's investment before calculating the amount of inventory to provide to the distributor.
VIOLATIONS OF SECTION 5 OF THE FTC ACT
9. 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 retail sales of $200 to $400 per week per display rack, or an annual income of $50,000 to $100,000.
10. In truth and in fact, few, if any, purchasers attain the specific level of earnings represented by the defendants.
11. Therefore, defendants' representations as set forth in Paragraph 9 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).
12. In the course of offering for sale and selling carousel display rack business ventures, defendants have represented, expressly or by implication, that, in exchange for the payment required to purchase defendants' business venture, the purchaser will receive retail display racks and product inventory to stock those display racks to sell to the public to generate earnings as set out in Paragraph 9 above.
13. Defendants fail to disclose material information about costs associated with purchasing the business venture, included but not limited to the following:
14. In light of the representations set forth in Paragraph 12 above, defendants' failure to disclose material information about the costs associated with purchasing defendants' business venture is misleading and constitutes a deceptive act or practice in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).
THE FRANCHISE RULE
15. 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).
16. 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.
17. 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).
18. 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
19. 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.
20. 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.
21. 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
22. 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.
23. 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.
24. 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: