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Federal Trade Commission v. Next-Gen, Inc.

United States District Court, W.D. Missouri, Western Division

July 17, 2018

FEDERAL TRADE COMMISSION, et al., Plaintiffs,
v.
NEXT-GEN, INC. et al., Defendants.

          TEMPORARY RESTRAINING ORDER WITH ASSET FREEZE, APPOINTMENT OF A TEMPORARY RECEIVER, AND OTHER EQUITABLE RELIEF, AND ORDER TO SHOW CAUSE WHY A PRELIMINARY INJUNCTION SHOULD NOT ISSUE

          GREG KAYS, CHIEF JUDGE UNITED STATES DISTRICT COURT.

         The Federal Trade Commission and the State of Missouri (together “Plaintiffs”) filed a Complaint for 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), and Sections 407.020, et seq., of the Missouri Merchandising Practices Act (“MMPA”). (Doc. 1). Plaintiffs have also filed a motion for a temporary restraining order, asset freeze, other equitable relief, and an order to show cause why a preliminary injunction should not issue against Defendants Next-Gen, Inc.; Westport Enterprises, Inc.; Opportunities Unlimited Publications, Inc.; Opportunities Management Co.; Summit Management Team, LLC; Contest America Publishers, Inc.; Reveal Publications, LLC; AOSR Corporation, formerly known as Subscription Reporter Corporation, formerly known as Sweepstakes Reporter Co., Inc.; Lighthouse FLA Enterprises, LLC; Gamer Designs, LLC; Kevin R. Brandes; and William J. Graham (collectively “Defendants”). (Doc. 2). Defendants have filed Suggestions in Opposition (Doc. 32), and Plaintiffs have filed Reply Suggestions (Doc. 36).

         FINDINGS OF FACT

         The Court, having considered the Complaint, the Motion for a Temporary Restraining Order, declarations, exhibits, and the suggestions filed in support thereof and any opposition thereto, finds that:

         A. This Court has jurisdiction over the subject matter of this case, and there is good cause to believe that it will have jurisdiction over all parties hereto and that venue in this district is proper.

         B. There is good cause to believe that Defendants have engaged in and are likely to engage in acts or practices that violate Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and Section 407.020 of the MMPA, and that Plaintiffs are therefore likely to prevail on the merits of this action. Plaintiffs have established a likelihood of success in showing that:

. Defendants have distributed through the mail, to consumers throughout the United States and abroad, deceptive (1) sweepstakes notifications, (2) so-called “games of skill, ” and (3) newsletter subscription solicitations.
. Defendants' mailers give consumers the false impression that they have won, or are likely to win, a substantial cash prize that the consumers must pay a fee to obtain.
. Since 2013, the Defendants have taken in at least $110 million from consumers via their mailers.

         C. There is good cause to believe that immediate and irreparable harm will result from Defendants' ongoing violations of the FTC Act and the MMPA unless Defendants are restrained and enjoined by order of this Court.

         D. There is good cause to believe that immediate and irreparable damage to the Court's ability to grant effective final relief for consumers-including monetary restitution, rescission, disgorgement, or refunds-will occur from the sale, transfer, destruction or other disposition or concealment by Defendants of their assets or records, unless Defendants are immediately restrained and enjoined by order of this Court.

         E. Good cause exists for appointing a temporary receiver over the Receivership Entities, freezing Defendants' assets, and permitting Plaintiffs and the Receiver to take expedited discovery.

         F. Weighing the equities and considering Plaintiffs' likelihood of ultimate success on the merits, a temporary restraining order with an asset freeze, the appointment of a temporary receiver, expedited discovery, and other equitable relief is in the public interest.

         G. This Court has authority to issue this Order pursuant to Section 13(b) of the FTC Act, 15 U.S.C. § 53(b); Section 407.100 of the MMPA; Federal Rule of Civil Procedure 65; and the All Writs Act, 28 U.S.C. § 1651.

         H. No. security is required of any agency of the United States for issuance of a temporary restraining order. Fed.R.Civ.P. 65(c).

         DEFINITIONS

         A. “Asset” means any legal or equitable interest in, right to, or claim to, any property, wherever located and by whomever held.

         B. “Corporate Defendants” means Next-Gen, Inc.; Westport Enterprises, Inc.; Opportunities Unlimited Publications, Inc.; Opportunities Management Co.; Summit Management Team, LLC; Contest America Publishers, Inc.; Reveal Publications, LLC; AOSR Corporation; Lighthouse FLA Enterprises, LLC; and Gamer Designs, LLC; and each of their subsidiaries, affiliates, successors, and assigns.

         C. “Defendant(s)” means Corporate Defendants and Individual Defendants, individually, collectively, or in any combination.

         D. “Document” is synonymous in meaning and equal in scope to the usage of “document” and “electronically stored information” in Federal Rule of Civil Procedure 34(a), Fed.R.Civ.P. 34(a), and includes writings, drawings, graphs, charts, photographs, sound and video recordings, images, Internet sites, web pages, websites, electronic correspondence, including email and instant messages, contracts, accounting data, advertisements, FTP Logs, Server Access Logs, books, written or printed records, handwritten notes, telephone logs, telephone scripts, receipt books, ledgers, personal and business canceled checks and check registers, bank statements, appointment books, computer records, customer or sales databases and any other electronically stored information, including Documents located on remote servers or cloud computing systems, and other data or data compilations from which information can be obtained directly or, if necessary, after translation into a reasonably usable form. A draft or non-identical copy is a separate document within the meaning of the term.

         E. “Electronic Data Host” means any person or entity in the business of storing, hosting, or otherwise maintaining electronically stored information. This includes, but is not limited to, any entity hosting a website or server, and any entity providing “cloud based” electronic storage.

         F. “Individual Defendant(s)” means Kevin R. Brandes and William J. Graham, individually, collectively, or in any combination.

         G. “Receiver” means the temporary receiver appointed in Section XII of this Order and any deputy receivers that shall be named by the temporary receiver.

         H. “Receivership Entities” means (1) the Corporate Defendants and (2) any other entity that has conducted any business related to the Defendants' distribution of deceptive sweepstakes or other prize mailers, including receipt of Assets derived from any activity that is the subject of the Complaint in this matter, and that the Receiver determines is controlled or owned by any Defendant.

         ORDER

         I. PROHIBITION AGAINST DECEPTIVE REPRESENTATIONS

         IT IS THEREFORE ORDERED that Defendants, Defendants' officers, agents, employees, and attorneys, and all other persons in active concert or participation with them, who receive actual notice of this Order by personal service or otherwise, whether acting directly or indirectly, in connection with the distribution of sweepstakes or other prize mailers, including but not limited to sweepstakes promotions, games of skill, or newsletter subscription solicitations, are temporarily restrained and enjoined from misrepresenting or assisting others in misrepresenting, expressly or by implication, any material fact, including but not limited to representations that a consumer has won or is likely to win a prize.

         II. PROHIBITION AGAINST DECEPTIVE OMISSIONS

         IT IS FURTHER ORDERED that Defendants, Defendants' officers, agents, employees, and attorneys, and all other persons in active concert or participation with them, who receive actual notice of this Order by personal service or otherwise, whether acting directly or indirectly, in connection with the distribution of sweepstakes or other prize mailers, including but not limited to sweepstakes promotions, games of skill, or newsletter subscription solicitations, are temporarily restrained and enjoined from failing to clearly and conspicuously disclose, or assisting others in failing to clearly and conspicuously disclose, any material fact, including but not limited to:

A. That there are multiple rounds in each game of skill;
B. That in order to win a substantial cash prize, consumers will have to pay fees in addition to the initial registration or processing fee to advance to subsequent rounds; or
C. That the final qualifying question is different and more complex than the initial qualifying questions.

         III. PROHIBITION ON RELEASE OF CUSTOMER INFORMATION IT IS FURTHER ORDERED that Defendants, Defendants' officers, agents, employees, and attorneys, and all other Persons in active concert or participation with any of them, who receive actual notice of this Order, whether acting directly or indirectly, are hereby temporarily restrained and enjoined from:

A. Selling, renting, leasing, transferring, or otherwise disclosing, the name, address, birth date, telephone number, email address, credit card number, bank account number, Social Security number, or other financial or identifying information of any person that any Defendant obtained in connection with any activity that pertains to the subject matter of this Order; and
B. Benefitting from or using the name, address, birth date, telephone number, email address, credit card number, bank account number, Social Security number, or other financial or identifying information of any person that any Defendant obtained in connection with any activity that pertains to the subject matter of this Order.

         Provided, however, that Defendants may disclose such identifying information to a law enforcement agency, to their attorneys as required for their defense, as required by any law, regulation, or court order, or in any filings, pleadings or discovery in this action in the manner required by the Federal Rules of Civil Procedure and by any protective order in the case.

         IV. ASSET FREEZE

         IT IS FURTHER ORDERED that Defendants and their officers, agents, employees, and attorneys, and all other persons in active concert or participation with any of them, who receive actual notice of this Order, whether acting directly or indirectly, are hereby temporarily restrained and enjoined from:

A. Transferring, liquidating, converting, encumbering, pledging, loaning, selling, concealing, dissipating, disbursing, assigning, relinquishing, spending, withdrawing, granting a lien or security interest or other interest in, or otherwise disposing of any Assets that are:
1. owned or controlled, directly or indirectly, by any Defendant;
2. held, in part or in whole, for the benefit of any Defendant;
3. in the actual or constructive possession of any Defendant; or
4. owned or controlled by, in the actual or constructive possession of, or otherwise held for the benefit of, any corporation, partnership, asset protection trust, or other entity that is directly or indirectly owned, managed or controlled by any Defendant.
B. Opening or causing to be opened any safe deposit boxes, commercial mail boxes, or storage facilities titled in the name of any Defendant or subject to access by any Defendant, except as necessary to comply with written requests from the Receiver acting pursuant to its authority under this Order;
C. Incurring charges or cash advances on any credit, debit, or ATM card issued in the name, individually or jointly, of any Corporate Defendant or any corporation, partnership, or other entity directly or indirectly owned, managed, or controlled by any Defendant or of which any Defendant is an officer, director, member, or manager. This includes any corporate bankcard or corporate credit card account for which any Defendant is, or was on the date that this Order was signed, an authorized signor; or
D. Cashing any checks or depositing any money orders or cash received from consumers, clients, or customers of any Defendant.

         The Assets affected by this Section shall include: (1) all Assets of Defendants as of the time this Order is entered; and (2) Assets obtained by Defendants after this Order is entered if those Assets are derived from any activity that is the subject of the Complaint in this matter or that is prohibited by this Order. This Section does not prohibit any transfers to the Receiver or repatriation of foreign Assets specifically required by this order.

         V. DUTIES OF ASSET HOLDERS AND OTHER THIRD PARTIES

         IT IS FURTHER ORDERED that any financial or brokerage institution, Electronic Data Host, credit card processor, payment processor, merchant bank, acquiring bank, independent sales organization, third party processor, payment gateway, insurance company, business entity, or person who receives actual notice of this Order (by service or otherwise) and that (a) holds, controls, or maintains custody, through an account or otherwise, of any Document on behalf of any Defendant or any Asset that is: owned or controlled, directly or indirectly, by any Defendant; held, in part or in whole, for the benefit of any Defendant; in the actual or constructive possession of any Defendant; or owned or controlled by, in the actual or constructive possession of, or otherwise held for the benefit of, any corporation, partnership, asset protection trust, or other entity that is directly or indirectly owned, managed or controlled by any Defendant; (b) holds, controls, or maintains custody of any Document or Asset associated with credits, debits or charges made on behalf of any Defendant, including reserve funds held by payment processors, credit card processors, merchant banks, acquiring banks, independent sales organizations, third party processors, payment gateways, insurance companies, or other entities; or (c) has held, controlled, or maintained custody of any such Document, Asset, or account at any time since the date of entry of this Order shall:

A. Hold, preserve, and retain within its control and prohibit the withdrawal, removal, alteration, assignment, transfer, pledge, encumbrance, disbursement, dissipation, relinquishment, conversion, sale, or other disposal of any such Document or Asset, as well as all Documents or other property related to such Assets, except by further order of this Court;
B. Deny any Person, except the Receiver, access to any safe deposit box, commercial mail box, or storage facility that is titled in the name of any Defendant, either individually or jointly, or otherwise subject to access by any Defendant;
C. Provide Plaintiff's counsel and the Receiver, within three (3) days of receiving a copy of this Order, a sworn statement setting forth:
1. The identification number of each such account or Asset;
2. The balance of each such account, or a description of the nature and value of each such Asset as of the close of business on the day on which this Order is served, and, if the account or other Asset has been closed or removed, the date closed or removed, the total funds removed in order to close the account, and the name of the person or entity to whom such account or other Asset was remitted; and
3. The identification of any safe deposit box, commercial mail box, or storage facility that is either titled in the name, individually or jointly, of any Defendant, or is otherwise subject to access by any Defendant; and
D. Upon the request of Plaintiff's counsel or the Receiver, promptly provide Plaintiff's counsel and the Receiver with copies of all records or other Documents pertaining to such account or Asset, including originals or copies of account applications, account statements, signature cards, checks, drafts, deposit tickets, transfers to and from the accounts, including wire transfers and wire transfer instructions, all other debit and credit instruments or slips, currency transaction reports, 1099 forms, and all logs and records pertaining to safe deposit boxes, commercial mail boxes, and storage facilities.

         Provided, however, that this Section does not prohibit any transfers to the Receiver or repatriation of foreign Assets ...


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