Opinion
Case No. 05-61682-CIV-LENARD/KLEIN.
December 5, 2005
REPORT AND RECOMMENDATION THAT THE COURT ENTER THE REQUESTED PRELIMINARY INJUNCTION AS TO USA BEVERAGES, INC (FLORIDA)
1. This matter was referred to this Court by the Honorable Joan A. Lenard, United States
District Court for the Southern District of Florida, pursuant to her direction to the Defendants to show cause, if there is any, why the Court should not enter a Preliminary Injunction, in the form provided by the Federal Trade Commission enjoining the violations of law alleged in the Commission's complaint, continuing the freeze of their assets, continuing the Receivership, and imposing such additional relief as may be necessary.
2. Having considered the Federal Trade Commission's Memorandum of Points and Authorities in support of its Motion for a Temporary Restraining Order, the exhibits thereto, the additional declarations submitted by the FTC in support of an entry of a Preliminary Injunction, and the FTC's revised Proposed Preliminary Injunction, this Court offers the following Report and Recommendation.
I. PROCEDURAL POSTURE
1. On October 19, 2005, the Federal Trade Commission ("FTC" or "Commission") filed a Complaint against USA Beverages, Inc., a Florida corporation and a New Mexico corporation, Dilraj Mathauda, Sirtaj Mathauda, Jeff Pearson, David Mead and Silvio Carrano alleging violations of Section 5 of the FTC Act and of the FTC's Trade Regulation Rule entitled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures" ("Franchise Rule" or "Rule"), 16 C.F.R. § 436, in connection with the marketing of coffee display rack business ventures. The Commission's Complaint seeks a permanent injunction and other equitable relief in this matter, pursuant to section 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 53(b).
2. At the same time the Commission sought, and on November 4, 2005, this Court granted ex parte the Commission's Motion for a Temporary Restraining Order and for an Order to Show Cause Why a Preliminary Injunction Should Not Issue, pursuant to Rule 65(b) of the Federal Rules of Civil Procedure, Fed.R.Civ.P. 65, and issued a Temporary Restraining Order Freezing Assets, Appointing a Temporary Receiver, and Providing Additional Equitable Relief (the "Temporary Restraining Order" or "TRO").
3. The TRO initially set November 10, 2005 for the Order to Show Cause hearing before this Court.
4. At the FTC's request, that hearing was rescheduled to November 21, 2005.
5. On November 17, 2005, the FTC submitted a Stipulated Preliminary Injunction as to David Mead and USA Beverages, a New Mexico corporation, of which Mr. Mead was President. On November 18, this Court entered that Stipulated Preliminary Injunction ("the Mead Preliminary Injunction.")
6. Also, on November 17, the FTC sought an extension of the TRO as to defendants USA Beverages, a Florida corporation ("USA Beverages (Florida)"), Dilraj Mathauda, Sirtaj Mathauda, Jeff Pearson, and Silvio Carrano in order to have more time to attempt service on those individual defendants, who reside in Costa Rica. The Court granted that motion and extended the TRO until December 6, 2005. This Court also issued an Order Resetting the Order to Show Cause Hearing for Thursday December 1, 2005 at 10:00 a.m.
7. At the FTC's request, this Court subsequently reset the Order to Show Cause Hearing to Monday December 5, 2005 at 10:00 a.m.
8. Defendant David Mead is the Registered Agent for USA Beverages, Inc. (Florida). (Jones Dec. at ¶ 2 and Att. A).
The FTC has offered the Declaration of Carol L. Jones, an FTC investigator, dated December 1, 2005, in further support of entry of a Preliminary Injunction in this matter. All references to that declaration herein take the form "Jones Dec. at ____").
9. On Wednesday November 30, 2005, the FTC informed David Mead by telephone that the Order to Show Cause Hearing was reset to Monday December 5, 2005 at 10:00 a.m. before this Court. (Id. at ¶ 6).
10. On Thursday December 1, 2005, the FTC sent an email copy of the Court Order resetting the Order to Show Cause Hearing for December 5, 2005 to David Mead, as registered agent for USA Beverages (Florida). (Id. at ¶ 7).
11. On December 1, 2005, the FTC also sent David Mead, as registered agent for USA Beverages (Florida) via Federal Express overnight delivery, a copy of the Order resetting the Order to Show Cause Hearing to December 5, 2005. (Id. at 7).
12. Despite diligent efforts, the FTC has not been able to serve the individual defendants in Costa Rica — Dilraj Mathauda, Sirtaj Mathauda, Jeff Pearson and Silvio Carrano — with copies of the summons, complaint, TRO, or any of the other documents relating to the Order to Show Cause Hearing.
13. Because the FTC has been unable to serve the individual defendants, it is only asking the Court to enter a Preliminary Injunction as to USA Beverages (Florida) at this time.
14. Other than defendant David Mead, no party and no counsel for any party has made an appearance in this case. Therefore, there is no opposition to the entry of a Preliminary Injunction against USA Beverages (Florida).
15. In support of its Motion for a Temporary Restraining Order and Order to Show Cause why a Preliminary Injunction should not Issue, the Federal Trade Commission offered six volumes of evidence, including declarations from three purchasers of the USA Beverages business venture, the operators of an answering service in South Carolina whose service, unbeknownst to the declarants, was used to further the USA Beverages scheme, an investigator for the New Mexico Attorney General's office, an investigator for the FTC, and an exhibit that included information from a credible inside source. (Those exhibits are cited to herein as "TRO Ex. ____").
16. In further support of entry of a Preliminary Injunction in this matter, the FTC has submitted an additional declaration of its investigator, Carol Jones, that attaches 59 complaints the FTC has received from purchasers of the USA Beverages business opportunity. Together those complainants paid USA Beverages more than $1.2 million dollars. (Jones Dec. at ¶ 5 and Atts. D and E). The FTC has also submitted the Second Declaration of Robert G. Carey, an employee of the Receiver appointed in this matter. Among other things, Mr. Carey's declaration describes the steps the Receiver has taken in this matter, and describes the phone calls he has had with more than 20 victims of the USA Beverages schemes. (Cited herein as "Carey Dec.").
II. FACTS
17. The evidence offered by the FTC amply demonstrates that, beginning in at least May of 2005, defendants, using the name USA Beverages, and two affiliated corporate forms — USA Beverages, Inc. (Florida) and USA Beverages, Inc. (New Mexico) — telemarketed a coffee display rack business opportunity scam. (TRO Exs. 1-7; Jones Dec. at Atts. A, D and E).
18. Defendants claimed to be operating out of Las Cruces, New Mexico, but actually operated USA Beverages from an office in Costa Rica, while using a small space in Florida to send marketing materials to consumers and receive checks from consumers. (TRO Exs. 5, 1, 2, 4, 6, 7; Carey Dec. at ¶¶ 4-21).
19. In order to make it appear to consumers that USA Beverages was operated from the United States, defendants used international Voice over Internet Protocol ("VoIP") toll-free telephone service and answering services and cell phones with U.S. telephone numbers. (TRO Ex. 5 6; Carey Dec. at ¶¶ 16-23).
20. Defendants lured prospective purchasers to their scheme by placing classified advertisements in newspapers throughout the United States and Canada. (TRO Ex. 5 at ¶ 24; TRO Ex. 6 at Att. C; TRO Ex. 1 at ¶ 3 and Att. A; TRO Ex. 2 at ¶¶ 5, 33 and Att. FF; TRO Ex. 7 at ¶ 2 and Att. A)
21. The classified advertisements solicited prospective purchasers interested in operating a lucrative coffee distribution route, typically claiming purchasers could make $2,000 per week. (TRO Ex. 6 at C; TRO Ex. 1 at ¶ 3 and Att. A; TRO Ex. 2 at ¶¶ 5, 33 and Att. FF; TRO Ex. 7 at ¶ 2 and Att. A).
22. Then, through the use of a carefully orchestrated sales pitch that included false earnings claims, phony references and bogus claims that defendants have already secured retail locations for placement of the coffee display racks, defendants convinced consumers to spend tens of thousands of dollars to purchase USA Beverages business ventures. (TRO Ex. 5 at Att. A (sales script); TRO Ex. 6 at Atts. D-K (sales pitches); TRO Exs. 1, 2, 7 (consumer declarations); Jones Dec. at Att. D (consumer complaints); Carey Dec. at ¶ 25.
23. The FTC has received 59 complaints from consumers who purchased the USA Beverages business opportunity and together lost more than $1.2 million. (Jones Dec. at Atts. D and E).
24. The FTC also provided strong evidence that defendants Dilraj and Sirtaj Mathauda are recidivists.
25. Defendant Dilraj Mathauda was a defendant in the matter ofFTC v. North East Telecommunications, Ltd., 96-6081-CIV-LENARD. In that case, the FTC alleged that defendant Dilraj Mathauda, using the name Roger Ford, was a salesperson for an investment opportunity scheme that involved soliciting consumers to pay defendants to prepare and submit pager license applications which was based on representations that the consumers would get such licenses and be able to make substantial sums of money leasing those licenses to larger firms. (TRO Dec. Ex. 6 at Atts. O-Q)
In its complaint, the FTC named Roger Ford, but through discovery learned that Ford was an alias for defendant Dilraj Mathauda. Thus, the Commission amended its complaint and the final order is against Dilraj Mathauda a/k/a Roger Ford. See TRO. Ex. 6 at O and Q.
26. In January, 1998, the Court entered a default Judgment against Dilraj Mathauda and five of his co-defendants. The Order prohibits them from, inter alia, "[f]alsely representing, directly or by implication, that the purchase of any investments, goods or services . . . is likely to generate substantial profits" and "using for any purpose whatsoever any aliases, assumed names or telephone names that are different from their legal names." (Id. at Q, p. 5-6.). Yet, once again, Dilraj Mathauda, using an alias, is acting as a salesperson, and in this case a principal, of a scheme falsely claiming that consumers can earn substantial sums of money.
27. Indeed, the USA Beverages scheme appears to be only the most recent business opportunity scheme operated by defendants Dilraj and Sirtaj Mathauda. Last year, through the Apex scheme, Dilraj and Sirtaj Mathauda misrepresented that consumers could make substantial sums of money operating combination soda and snack machines, and then closed the doors of the business leaving numerous purchasers in that scheme with nothing or with virtually worthless machines. (TRO Ex. 5 at 22; TRO Exs 8-19 (all Apex victims)).
28. The Mathaudas have gone to great lengths to hide their involvement with both the Apex and USA Beverages scheme.
29. However, the FTC confidential source(s) tied the Mathaudas to both USA Beverages and Apex. (TRO Ex. 5 at ¶ 22). Also, the toll-free phone numbers used in both the Apex scheme and the USA Beverages scheme were provided by Dow Management to Costa Rica, and, in the case of Apex, the toll-free number was paid for with defendant Sirtaj Mathauda's credit card. (TRO Ex. 6 at Att. W (showing Dow Networks account for 800-858-6807, and related numbers (p. 10), paid for with the credit card of Sirtaj Mathauda (p. 8), the customer service agreement shows "Unitech trading group" as the customer, but it was faxed to Dow using an Apex fax cover page (pp. 5-6), and like USA Beverages, Unitech's address is in Escazu, Costa Rica (p. 4); and TRO Ex. 6 at R (showing Dow Networks account for USA Beverages in Costa Rica for the toll free numbers used by USA Beverages).
30. Furthermore, the marketing material used for the two schemes shows that the defendants used some of the same material to market the USA Beverages scheme that they had used to market the Apex scheme. See e.g. USA Beverages Mission Statement provided by defendants to David Todd (TRO Ex. 1 at Att. I, p. 2) and Apex Mission Statement provided to Clifford Merritt (TRO Ex. 13 at Att. B, p. 3; USA Beverages Company Profile provided by defendants to David Todd (TRO Ex. 1 at Att. I, p. 3) and Apex Company Profile received by Clifford Merritt (TRO Ex. 13 at Att. B, p. 4); USA Beverages "Why is Everyone So Excited . . ." provided by defendants to David Todd (Ex. 1 at Att. I p. 5) and Apex's "Why is Everyone So Excited . . ." received by Clifford Merritt (Ex. 13 at Att. B, p. 7); USA Beverages "Most Commonly Asked Questions" provided by defendants to David Todd (Ex. 1 at Att. I, p. 8) and Apex's "Most Commonly Asked Questions" received by Clifford Merritt (Ex. 13 at Att. B. p. 8).
III. LEGAL ISSUES
A. Jurisdiction and Venue Are Proper
31. This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. §§ 1331, 1337(a), and 1345, and 15 U.S.C. §§ 53(b) and 57b.
32. This action arises under the FTC Act, 15 U.S.C. § 45(a)(1), which is a federal statute. Venue in the United States District Court for the Southern District of Florida is proper under 28 U.S.C. §§ 1391(b), (c) and (d), and 15 U.S.C. § 53(b). Defendant USA Beverages (Florida) is incorporated in Florida and used an address in the Southern District of Florida at 1000 S. Dixie Highway, W, Suite 1, and all of the individual defendants transacted business through USA Beverages (Florida).
B. Proper Notice has Been Given for the Issuance of a Preliminary Injunction
33. Rule 65(a) of the Federal Rules of Civil Procedure prohibit issuance of a preliminary injunction unless notice has been given to the adverse party. In this case, David Mead, as registered agent of USA Beverages (Florida) has received a copy of the TRO that includes an Order to Show Cause why the Preliminary Injunction Should not Issue and notice of the Order to Show Cause Hearing. (Jones Dec. at ¶¶ 2, 3, 6 and 7).
C. Issuance of the Proposed Preliminary Injunction is Appropriate
34. "Section 13(b) of the [FTC Act] authorizes the FTC to seek, and the district courts to grant, preliminary and permanent injunctions against practices that violate any of the laws enforced by the Commission." FTC v. Gem Merchandising Corp., 87 F.3d 466, 468 (11th Cir. 1996). This "unqualified grant of statutory authority . . . carries with it the full range of equitable remedies. . . ." Id.; see also FTC v. Amy Travel Service, Inc., 875 F.2d 564, 571-572 (7th Cir. 1989),cert. denied, 493 U.S. 954 (1989).
Specifically, it is the second proviso of Section 13(b), 15 U.S.C. § 53(b), that gives the Commission authority to bring an action seeking a permanent injunction in district court and the court authority to grant the full range of equitable relief, including preliminary relief and an asset freeze. See FTC v. U.S. Oil Gas Corp., 748 F.2d 1431, 1432-34 (11th Cir. 1984);FTC v. H.N. Singer, Inc., 668 F.2d 1107, 1110-13 (9th Cir. 1982).
35. The Eleventh Circuit evaluates two factors in determining whether to grant injunctive relief under Section 13(b): (1) the likelihood the FTC will ultimately succeed on the merits, and (2) a balance of the equities. FTC v. University Health, Inc., 938 F.2d 1206, 1217 (11th Cir. 1991) (citations omitted).
36. Unlike private litigants, the Commission need not prove irreparable injury, which is presumed to exist in statutory enforcement actions. Id. at 1218. (Citations omitted). In balancing the equities, private concerns may be considered, but public equities must receive far greater weight. FTC v. World Travel Vacation Brokers, 861 F.2d 1020, 1029-30 (7th Cir. 1988). The Commission's evidence satisfies this two-pronged test.
1. The FTC Act Is Likely To Succeed on the Merits
37. The evidence demonstrates that defendants have violated both Section 5 of the FTC Act, and the Franchise Rule.
a. Defendants Have Violated Section 5 of the FTC Act
38. Section 5(a) of the FTC Act, 15 U.S.C. Section 45(a)(1), provides that "unfair or deceptive acts or practices in or affecting commerce are hereby declared unlawful."
39. To establish liability for deceptive practices under Section 5 of the FTC Act, the FTC must establish that (1) there was a representation; (2) the representation was likely to mislead consumers acting reasonably under the circumstances, and (3) the representations was material. FTC v. Tashman 318 F.3d 1273, 1277 (11th Cir. 2003) (citations omitted).
40. In this case, defendants made misrepresentations about likely earnings, company-selected references, and placement of display racks. Each of the representations challenged in this case meets the test for establishing liability for deceptive acts or practices under Section 5 of the FTC Act.
41. Each of these representations was false and therefore is likely to, and in fact has, misled consumers acting reasonably.
42. Each of these representations was also material. These representations were expressly made by the defendants to prospective purchasers. "Express claims or deliberately-made implied claims used to induce the purchase of a particular good or service are presumed to be material." FTC v. Wilcox, 926 F. Supp. 1091, 1098 (S.D. Fla. 1995) (citing Thompson Medical Co., Inc. v. FTC, 104 F.T.C. 648 (1984), aff'd, 253 U.S. App. D.C. 18, 791 F.2d 189 (D.C. Cir. 1986), cert. denied, 479 U.S. 1086;FTC v. Kitco of Nevada, Inc., 612 F. Supp. 1282, 1291 (D. Minn. 1985)). When claims at issue are express, it is appropriate to infer that reasonable consumers interpret them to mean what they say. FTC v. Wolf, 1997-1 CCH Trade Cas. ¶ 71,713 at 79,079 (S.D. Fla. Jan. 30, 1996); FTC v. Atlantex Assocs., 1987-2 Trade Cas. (CCH) ¶ 67,788 at 59,254-55 (S.D. Fla. Nov. 25, 1987) citing Southwest Sunsites, Inc., 106 F.T.C. 39 (1985), aff d, 785 F.2d 1431 (9th Cir. 1986).
43. The representations were also material because they went the heart of a consumer's decision to purchase a business opportunity. FTC v. Wolf, 1997-1 CCH Trade Cas. ¶ 71,713 at 79,079.
44. Additionally, courts in the Eleventh Circuit, and elsewhere, have held that misrepresentations regarding income, company-selected references and placement of display racks are violations of Section 5 of the FTC Act.
45. False income claims made to induce the purchase of franchises or business opportunities are violations of Section 5(a) of the FTC Act. Wolf at 79,078-79,079; FTC v. Jordan Ashley, Inc., 1994-1 Trade Cas. (CCH) ¶ 70,570 at 72,096 (S.D. Fla. 1994); FTC v. Minuteman 53 F. Supp.2d 248, 258 (EDNY 1998); FTC v. Kitco, 612 F. Supp. 1282, 1292 (D. Minn. 1985).
46. Misrepresentations regarding company selected references is a violation of Section 5 of the FTC Act. Wolf at 79,079;Jordan Ashley at 72,096.
47. False claims regarding location assistance is a violation of Section 5 of the FTC Act. Wolf at 79,078-79,079; Jordan Ashley, at 72,096.
b. Defendants Violate the Franchise Rule
48. The Franchise Rule is intended to insure that prospective franchisees have the complete and accurate information they need to decide whether to invest in a franchise.
49. Violation of the Franchise Rule is considered a per se violation of Section 5 of the FTC Act. Jordan Ashley, 1994-1 Trade Cas. at n. 3.
50. Defendants apparently recognized the applicability of the Franchise Rule to the business ventures they sold and, therefore, consistently provided prospective franchisees with a basic disclosure document in the form required by Section 436.1(a) of the Franchise Rule, 16 C.F. R § 436.1(a).
There can be no dispute that Defendants are selling business ventures that meet the Franchise Rule's definition of "franchise." 16 C.F.R. 436.2(a)(ii). See Jordan Ashley at 72,098 (finding that business ventures sold by a very similar display rack scam met the Franchise Rule definition of "franchise").
51. Yet, defendants consistently violate the Franchise Rule by failing to make required disclosures in their initial disclosure document, failing to make required disclosures in conjunction with their earnings claims and failing to make required disclosures in conjunction with their advertising containing earnings claims.
i. Failure to Make Required Disclosures
52. Defendants failed to make all of the disclosures required by the Franchise Rule in the franchisor's initial disclosure documents. The Franchise Rule specifies twenty different types of information that must be disclosed. 16 CFR § 436.1.
53. Among the required disclosures that the proposed defendants failed to make were: (i) the names, employment history, and litigation history of the individual proposed defendants: Dilraj Mathauda, Sirtaj Mathauda, Jeffrey Pearson, and Silvio Carrano, who were actually operating the company (pursuant to 16 CFR § 436. 1(a)(2), (4), and (5)); (ii) the fact that USA Beverages had been selling coffee display rack business ventures only since May 2005 (pursuant to 16 CFR § 436.1(a)(3)); (iii) the cost to begin operating a USA Beverages business venture and the company's refund policy, (pursuant to 16 § 436.1(a)(7)); and (iv) the required disclosures regarding USA Beverages' financial condition (pursuant to 16 CFR § 436. 1(a)(20)).
ii. Earnings Disclosure Violations
54. Defendants also failed to make the disclosures required to be made in conjunction with any earnings claims. Specifically, sections 436.1(b) (c) of the Franchise Rule, require a franchisor to disclose, in immediate conjunction with any earnings claim, the availability of material which constitutes a reasonable basis for the earnings claim is available to prospective franchisees. The franchisor must also provide the earnings claim disclosure document no later than ten days before the earlier of execution of a purchase agreement or payment for one of the defendants' business ventures. 16 C.F.R. §§ 436.1(b) (c).
55. Defendants made earnings claims to prospective franchisees, but do not make the disclosures required by the Rule, nor, at any point, do they provide the required earnings disclosure document.
iii. Advertising Disclosure Violations
56. Defendants failed to make the disclosures required in conjunction with any advertising containing earnings claims. Specifically, Section 436.1(e)(4) of the Rule, 16 C.F.R. § 436.1(e)(4), requires that a franchisor clearly and conspicuously disclose, in immediate conjunction with any generally disseminated earnings claim, additional information including the number and percentage of prior purchasers known by the franchisor to have achieved the same or better results.
57. Defendants' classified advertisements constituted generally disseminated advertising containing earnings claims, but did not contain the required disclosures. See e.g. TRO Ex. 6 at Att. C; TRO Ex. 1 at An. A; Wilson Dec. TRO Ex. 3 at F; TRO Ex. 7 at Att. A.
2. Equities of Protecting the Public and Remedying Injury Outweigh the Non-Existent Equity of Allowing Defendants to Resume their Scam
58. The public's interest in preventing consumers from being victimized by defendants' scheme far outweighs any possible interest the defendants may have in continuing to operate their business fraudulently.
59. When a court balances the hardships of the public interest against the private interest, "the public interest should receive greater weight." FTC v. World Wide Factors, 882 F.2d at 347. Defendants operated a scam. To prevent future harm, it is necessary for the Court to issue an injunction. Without an injunction as to USA Beverages (Florida) defendants will be able to use the corporate form to resume their scheme and injure additional consumers. This case is particularly appropriate for an injunction because a number of the defendants have a track record of perpetrating business opportunity frauds, and there is no reason to think that they will not do so again.
60. As described above, defendants Dilraj and Sirtaj Mathauda previously operated a business opportunity scheme under the name of Apex that left many victims in its wake. Defendants' past misconduct gives rise to the inference that there is a reasonable likelihood of future violations. SEC v. R.J. Allen Assoc's, Inc., 386 F. Supp. 866, 877 (S.D. Fla. 1974).
3. An Equity Receiver is Appropriate
61. USA Beverages' entire business model is permeated with fraud. Defendants have shown no ability or inclination to abide by the law. Appointing a receiver for USA Beverages (Florida) is essential to ensure that USA Beverages complies with the Order, and to prevent the destruction of evidence and the concealment or dissipation of assets.
USA Beverages (Florida) is currently covered by the Mead Stipulated Preliminary Injunction as an affiliate of USA Beverages (New Mexico). However, in order to make absolutely clear the applicability of preliminary injunctive relief as to USA Beverages (Florida) and the Receiver's authority over USA Beverages (Florida) it is appropriate to enter an order specifying that USA Beverages (Florida) is itself under order.
62. Courts have found the appointment of a receiver appropriate where, as here, such appointment would assist in ensuring the defendant's compliance with the court's orders. United States v. City of Detroit, 476 F. Supp. 512, 520 (E.D. Mich. 1979);Newman v. State of Alabama, 466 F. Supp. 628, 635 (M.D. Ala. 1979). To allow defendants to retake control of the corporate form would be tantamount to allowing the proverbial fox to guard the henhouse.
63. In this case, the Receiver has been in control of the business since November 7, 2005. No one has even come forward asserting an interest in USA Beverages. (Carey Dec. at ¶ 26).
64. However, without a corporate receiver in place, defendants may try to use US A Beverages (Florida) to injure consumers through their unlawful acts, conceal evidence of their wrongdoing, and dissipate whatever funds defendants have in order to avoid paying redress to the consumers they have harmed.
4. A Freeze of the Assets of USA Beverages (Florida) Are Necessary to Preserve the Possibility of Effective Consumer Redress
65. Pursuant to its broad equitable authority to issue injunctions under Section 13(b), the Court may order an asset freeze during the pendency of an action seeking permanent injunctive relief. FTC v. U.S. Oil Gas Corp., 748 F.2d at 1434.
66. An asset freeze is appropriate where, as here, it is necessary to preserve the possibility of restitution for victimized consumers. See FTC v. Southwest Sunsites, Inc., 665 F.2d at 717-19. The scope of the monetary liability for Defendants' unlawful conduct is enormous and provides considerable motivation for defendants to place their assets beyond the Court's reach. Although the Receiver has not yet identified substantial assets that would be available in the U.S. for redress, the asset freeze coupled with the appointment of a receiver gives the Receiver, and the FTC, a tool for searching for additional assets. Defendants have already moved large sums of money paid by USA Beverages victims to Costa Rica. (Carey Dec. at Att. A (showing wire transfers of $428,000 in October alone from USA Beverages (Florida)'s bank account at Wachovia Bank in Florida to a bank account at Banco Cuscatalan in Costa Rica (pp. 8-11 of bank statement); TRO Ex. 6 at Att. X, pp. 8-10, 16-18. 38-41, 78-80 (showing transfer of hundreds of thousands of dollars in July and August from USA Beverages (Florida)'s amount at Wachovia bank to Banco Cuscatalan in Costa Rica)) Without an asset freeze, it is virtually certain that defendants will attempt to shield any further assets they have in the United States moving them to Costa Rica or elsewhere to avoid paying restitution to injured consumers.
67. An asset freeze may be imposed where the possibility of dissipation of assets exists. FSLIC v. Sahni, 868 F.2d 1096, 1097 (9th Cir. 1989); FTC v. Sage Seminars, 1995-2 Trade Cas. (CCH) ¶ 71,256, 76,116 (N.D. Cal. 1995). Indeed, the Eleventh Circuit has noted the importance of asset freezes in cases that seek equitable final remedies: "[a] request for equitable relief invokes the district court's inherent equitable powers to order preliminary relief, including an asset freeze, in order to assure the availability of permanent relief." Levi Strauss Co. v. Sunrise Int'l Trading Inc., 51 F.3d. 982, 987 (11th Cir. 1995).
In Sahni, the Ninth Circuit reversed a district court's denial of an asset freeze where the district court required a showing of a likelihood of dissipation. The court held that "[s]o long as the district court continued to believe that FSLIC was likely to succeed on the merits, the court should only have required FSLIC to show a possibility of dissipation of assets." Requiring a showing of a "likelihood" of dissipation "placed an unnecessarily heavy burden on FSLIC." Sahni, 868 F.2d at 1097.
III. RECOMMENDATION
68. The FTC has offered a strong factual basis for finding that it is likely to succeed on the merits of proving that USA Beverages (Florida) engaged in deceptive acts and practices in violation of Section 5 of the FTC Act and violated the Franchise Rule and that the balance of the equities supports entering a preliminary injunction as to USA Beverages (Florida).
69. Therefore, this Court recommends GRANTING the FTC's Proposed Preliminary Injunction as to Defendant USA Beverages (Florida).
DONE AND SUBMITTED.