United States of America v. The Zaken Corp et al

Filing 41

ORDER DENYING PLAINTIFFS MOTION FOR PRELIMINARY INJUNCTION WITHOUT PREJUDICE 8 by Judge Dean D. Pregerson . (lc). Modified on 8/1/2013 .(lc).

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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UNITED STATES OF AMERICA,

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Plaintiff,

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v.
THE ZAKEN CORP., a
California corporation also
d/b/a The Zaken Corproation,
QuickSell and QuickSell and
TIRAN ZAKEN, individually
and as an officer of The
Zaken Corp.,
Defendants.
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Case No. CV 12-09631 DDP (MANx)
ORDER DENYING PLAINTIFF’S MOTION
FOR PRELIMINARY INJUNCTION

[Dkt. No. 8]

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Presently before the court is Plaintiff’s Motion for a

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Preliminary Injunction.

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the submissions of the parties, the court denies the motion and

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adopts the following order.

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I.

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Having heard oral argument and considered

Background
Defendants (collectively, “Zaken”) offer a “Wealth Building

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Home Business Plan” to consumers.1

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D at 44.)

(Declaration of Dani Stagg, Ex.

For $148.00, plus shipping, purchasers become Associates

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This order uses the term “consumer” and “purchaser”
interchangeably.

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of QuikSell Liquidations and receive a “kit” including instructions

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on how to locate excess inventories, “‘[i]nsider’ secret

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techniques,” “powerful and proven strategies,” “a simple seven-word

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phrase that instantly pays [purchasers] cash profits,” and other

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information.

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additional “tools” for an additional charge.

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at 85-86.)

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(Id. at 57-58, 97.)

Zaken also offers purchasers
(Stagg Dec., Ex. E.

Under Zaken’s plan, consumers identify businesses seeking to
liquidate excess inventory.

Consumers then notify Zaken, which may

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proceed to negotiate an acquisition of the excess merchandise.

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Zaken is successful in 1) buying the products identified by the

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consumer and 2) reselling the products at a profit, then Zaken pays

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purchasers fifty percent of the net proceeds.

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Zaken advertises a “realistic ballpark figure” estimate that “2 to

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4 hours a week working this business will earn [participants] an

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average of $3,000 to $6,0000.”

If

(Id. at 52-53.)

(Stagg Dec. Ex. D. at 61.)

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Effective March 1, 2012, the Federal Trade Commission

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broadened the scope of its “Business Opportunity Rule,” 16 CFR §

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437.0 et seq., the earliest form of which was first promulgated in

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1978.

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imposed certain disclosure requirements upon the sale of business

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opportunities, but only those costing over $500.

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2012 revision eliminated this monetary threshold.

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The 2012 changes also seek “to address the sale of deceptive work-

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at home schemes, where unfair and deceptive practices have been

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both prevalent and persistent.”

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that “[s]ellers of fraudulent work-at-home opportunities deceive

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their victims with promises of an ongoing relationship in which the

76 FR 76816.

Prior versions of the rule regulated and

76 FR 76826.

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76 FR 76818.

The

76 FR 76821.

The FTC elaborated

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seller will buy the output that business opportunity purchasers

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produce, often misrepresenting to purchasers that there is a market

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for the purchasers’ goods and services,” and that these schemes

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“frequently dupe consumers with false earnings claims.”

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Id.

On November 9, 2012, Plaintiff (“the government”) filed a

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complaint against Defendants for violations of the Business

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Opportunity Rule.2

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enjoining Zaken from violating the Business Opportunity Rule (“the

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Rule”) and ordering Defendants to preserve their assets.

Plaintiff now seeks a preliminary injunction

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Defendants oppose the motion on the ground that the Rule is not

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applicable to them.

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II.

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Legal Standard
Typically, a private party seeking a preliminary injunction

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must show (1) that he is likely to succeed on the merits, (2) that

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he is likely to suffer irreparable harm in the absence of

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preliminary relief, (3) that the balance of equities tips in his

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favor, and (4) that an injunction is in the public interest.

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Winter v. Natural Res. Defense Counsel, 555 U.S. 7, 20 (2008).

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Preliminary relief may be warranted where a party (1) shows a

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combination of probable success on the merits and the possibility

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of irreparable harm, or (2) raises serious questions and the

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balance of hardships tips in favor of a TRO.

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Continental Air Lines, Inc., 819 F.2d 935, 937 (9th Cir. 1987).

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“These two formulations represent two points on a sliding scale in

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which the required degree of irreparable harm increases as the

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probability of success decreases.”

Id.

See Arcamuzi v.

Under both formulations,

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The Complaint also alleges that Defendants have violated
Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45(a).
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the party must demonstrate a “fair chance of success on the merits”

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and a “significant threat of irreparable injury.”3

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Id.

Here, however, Section 13(b) of the Federal Trade Commission

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Act imposes a more lenient standard upon the plaintiff.

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Trade Commission v. Affordable Media, 179 F.3d 1228, 1233 (9th Cir.

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1999).

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irreparable injury is presumed.

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Wide Factors, Ltd., 882 F.2d 344, 347 (9th Cir. 1989).

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therefore, need not show irreparable harm.

Federal

In a statutory enforcement action such as this one,
Federal Trade Commission v. World
Plaintiff,

Affordable Media, 179

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F.3d at 1233.

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here is whether the government has shown a likelihood of success on

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the merits.

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III. Discussion

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Thus, as the parties appear to agree, the only issue

Defendants contend that Plaintiffs cannot demonstrate a

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likelihood of success on the merits because Defendants do not offer

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a “business opportunity,” and therefore do not fall within the

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ambit of the Business Opportunity Rule.

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interpretation of its own regulations is controlling unless plainly

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erroneous or inconsistent with the regulations being interpreted.”.

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Long Island Care at home, Ltd. v. Coke, 551 U.S. 158, 171 (2007)

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(internal quotations and alterations omitted).

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business opportunity as a commercial arrangement in which:

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“[A]n agency’s

The Rule defines a

(1) A seller solicits a prospective purchaser to enter
into a new business; and

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Even under the “serious interests” sliding scale test, a
plaintiff must satisfy the four Winter factors and demonstrate
“that there is a likelihood of irreparable injury and that the
injunction is in the public interest.” Alliance for the Wild
Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir. 2011).
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(2) The prospective purchaser makes a required payment;
and

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(3) The seller, expressly or by implication, orally or in
writing, represents that the seller or one or more
designated persons will:

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(i) Provide locations for the use or operation of
equipment, displays, vending machines, or similar
devices, owned, leased, controlled, or paid for by the
purchaser; or
(ii) Provide outlets, accounts, or customers, including,
but not limited to, Internet outlets, accounts, or
customers, for the purchaser’s goods or services; or
(iii) Buy back any or all of the goods or services that
the purchaser makes, produces, fabricates, grows, breeds,
modifies, or provides, including but not limited to
providing payment for such services as, for example,
stuffing envelopes from the purchaser’s home.

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16 C.F.R. § 437.1(c).

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means furnishing the prospective purchaser with existing or

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potential locations, outlets, accounts, or customers . . . or

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otherwise assisting the prospective purchaser in obtaining his or

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her own locations, outlets, accounts or customers . . . .”

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C.F.R. § 437.1(m).

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training does not constitute “providing locations, outlets,

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accounts, or customers.”

“Providing outlets, accounts, or customers

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General advice about business development and

Id.

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As an initial matter, Plaintiff has not established that

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Defendants represents that it will take any action that might fall

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under the third prong of the Rule.

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Zaken represents that it “will attempt to negotiate a deal with the

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located company.

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the merchandise at a profit,” then Zaken will pay the consumer a

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portion of the profits.

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Rule encompasses even implicit representations that a seller will

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take certain actions covered by Section 437.1(c)(ii) and (iii), the

By Plaintiff’s own description,

If that deal is completed and [Zaken] can sell

(Mot. at 12 (emphases added)).

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While the

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record as currently presented to the court establishes only that

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Zaken represents that it may take such action.4

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A.

“Outlets” or “Customers”

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The representation issue aside, the government argues that

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Defendants’ scheme falls under 16 C.F.R. § 437.1(c)(ii) because

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Defendants promise that Zaken will itself serve as purchasers’

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customer.

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“customer” because it never buys anything from them.

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5.)

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(Reply at 6.)

Zaken argues that it is not consumers’
(Surreply at

“When a statute does not define a term, a court should

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construe that term in accordance with its ‘ordinary, contemporary,

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common meaning.’”

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988 (9th Cir. 2005) (quoting San Jose Christian College v. City of

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Morgan Hill, 360 F.3d 1024, 1034 (9th Cir. 2004).).

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look to dictionary definitions to determine the “plain meaning” of

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a term.

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or service,” or “one who frequents any place of sale for the sake

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of purchasing,” or “one who customarily purchases from a particular

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tradesman.”

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Inc.,

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Dictionary Online, Oxford University Press, http:// www.oed.com

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(May 2013).

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Cleveland v. City of Los Angeles, 420 F.3d 981,

Id. at 1034.

Courts may

A customer is “one who purchases a commodity

Merriam-Webster Online Dictionary, Merriam-Webster,

http://

www.merriam-webster.com (May 2013); Oxford English

With these definitions in mind, the court agrees that Zaken

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is not consumers’ “customer.”

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“customer” requires a purchase of some sort.

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purchases a service from consumers.

The ordinary meaning of the term
Zaken, however, never

Consumers, or “lead finders,”

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Whether those actions constitute conduct falling within the
Rule is a separate question, discussed below.
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as Zaken styles them, do not necessarily receive or require

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anything of value in exchange for the information they share with

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Zaken.5

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any purchase, sale, or exchange of any kind.

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consumer’s efforts do ultimately result in purchases and sales of

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goods, the consumer is not a party to any of those transactions.

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Under such circumstances, Zaken’s contingency arrangement with

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consumers does not render it a “customer” under the Rule.

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In some cases, the consumers’ efforts will not result in
Even when the

The government also argues that Zaken promises consumers

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“outlets for the excess merchandise that prospective purchasers

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identify.”

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as the outlet, but rather to third-party inventory buyers.

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the government is correct that these outlets for excess merchandise

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are critical to the success of consumers’ businesses, the Rule

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clearly states that a purveyor such as Zaken must represent that it

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will provide outlets for consumers’goods or services.

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merchandise for which Zaken arguably provides an “outlet” does not

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belong to consumers.

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(Reply at 6.)

B.

This argument refers not to Zaken itself
While

The excess

“Buyback”

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Even if Zaken does not provide customers or outlets to

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consumers, its offer may nevertheless fall under the Rule if it

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represents that it will “buy back” any of the services that the

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consumer provides.

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regulation nor its motivating statement of purpose provides any

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insight as to how one might “buy back” a service, the regulation

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itself provides one example of an arrangement falling under the

16 C.F.R. § 437.1(c)(iii).

While neither the

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It remains unclear at this stage whether consumers can or do
share information with liquidators other than Zaken.
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Rule.6

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envelopes and printed material, then “provid[es] payment” to the

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consumer for the service of stuffing the envelopes, the Rule

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applies.

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“provide payment” to consumers in exchange for any service or good.

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Rather, Zaken in essence offers consumers an incentive to provide

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information that may or may not yield them some ultimate benefit.

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The government’s attempt to apply the Rule to the contingency

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arrangement between Zaken and its purchasers is therefore

Where a purveyor of an opportunity provides a consumer with

Id.

As discussed above, however, Zaken does not offer to

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inconsistent with 16 C.F.R. § 437.1(c)(iii), which requires, at the

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very least, that a seller of a business opportunity pay the

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purchaser for performing a service.

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IV.

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Conclusion
For the reasons stated above, Plaintiff has not demonstrated a

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likelihood of success on the merits.

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Preliminary Injunction is therefore DENIED, without prejudice.7

Plaintiff’s Motion for a

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IT IS SO ORDERED.

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Dated: July 31, 2013
DEAN D. PREGERSON
United States District Judge

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Such an arrangement would likely not entail a “buy back” of
services alone, as the purveyor typically would provide the
consumer with physical materials before buying them back in
assembled form.
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This order shall not be read to apply to other relief
Plaintiff may seek outside the Business Opportunity Rule.
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