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Case 2:19-cv-00867-RJS-EJF Document 82 Filed 12/17/19 Page 1 of 30

Darren H. Lubetzky Robert G. Wing (4445)


Savvas S. Diacosavvas Thomas M. Melton (4999)
Kevin McLean (16101)
Brian N. Lasky Assistant Attorneys General
Christopher Y. Miller Utah Attorney General’s Office
Laura A. Zuckerwise 160 East 300 South, Fifth Floor
(Each appearing per DUCivR 83-1.1(d)(1)) Salt Lake City, Utah 84114
Federal Trade Commission Tel: (801) 366-0310
Northeast Regional Office Attorneys for Plaintiff
One Bowling Green, Suite 318 UTAH DIVISION OF CONSUMER
New York, NY 10004 PROTECTION
Tel: (212) 607-2829

Attorneys for Plaintiff


FEDERAL TRADE COMMISSION

UNITED STATES DISTRICT COURT


DISTRICT OF UTAH, CENTRAL DIVISION

FEDERAL TRADE COMMISSION, and

UTAH DIVISION OF CONSUMER


PROTECTION,
Case No. 2:19-cv-00867-RJS
Plaintiffs,

v.

NUDGE, LLC, a Utah limited liability


company, et al.,

Defendants

PLAINTIFFS’ REPLY IN FURTHER SUPPORT OF MOTION


ON NOTICE FOR A TEMPORARY RESTRAINING ORDER AND ORDER
TO SHOW CAUSE WHY A PRELIMINARY INJUNCTION SHOULD NOT ISSUE
Case 2:19-cv-00867-RJS-EJF Document 82 Filed 12/17/19 Page 2 of 30

TABLE OF CONTENTS

Table of Authorities…………………………………………………………………………..iii

Table of Exhibits………………………………………………………………………………v

I. INTRODUCTION………………………………………………………………………...1

II. PLAINTIFFS ARE LIKELY TO SUCCEED ON THE MERITS BECAUSE


DEFENDANTS ARE ENGAGED IN PERVASIVE, UNLAWFUL CONDUCT……….2

A. DEFENDANTS FAIL TO REBUT PLAINTIFFS’ SUBSTANTIAL


SHOWING THAT THEY MISREPRESENT THE NATURE OF THEIR
SERVICES, PRODUCTS, AND CONSUMERS’ LIKELY EARNINGS,
DECEPTIVELY INDUCE CONSUMERS TO SHARE PERSONAL
FINANCIAL INFORMATION, AND FAILED TO FILE REQUIRED
INFORMATION WITH THE DIVISION OF CONSUMER PROTECTION…...2

1. Defendants Do Not Have a Funding Partner or Network as They Promise………2

2. Defendants Do Not Have Unique or Specialized Software or Tools……..……….3

3. Defendants Make Earnings Claims and Downplay Risk………………………….3

4. Defendants Induce Consumers To Disclose Personal Financial Information


And Extend Their Available Credit Through False Pretenses…………………….5

5. Defendants Failed to File Required Information with the Division in Violation


of Utah’s Business Opportunity Disclosure Act (“BODA”)……...………………6

B. DEFENDANTS’ DECEPTIVE CONDUCT CONTINUED THROUGH 2019….7

C. CONSUMERS WHO PURCHASE DEFENDANTS’ TRAININGS


TYPICALLY DO NOT SUCCEED AS REAL ESTATE INVESTORS….……...9

1. The Isaacson Survey Demonstrates the Pervasiveness of Defendants’


Misrepresentations and the Resulting Consumer Loss…………………………..10

2. Defendants’ Contrary Evidence Is Limited and Irrelevant……………………....12

3. Disclaimers Failed To Cure Misleading Net Impression……………………...…16

III. IRREPARABLE HARM WOULD RESULT ABSENT PRELIMINARY RELIEF……17

A. PLAINTIFFS HAVE DEMONSTRATED IRREPARABLE HARM…..………17

i
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B. PRELIMINARY INJUNCTIVE RELIEF IS NECESSARY,


APPROPRIATE, AND URGENT……...……………………………..…………19

C. AN ASSET FREEZE IS NECESSARY TO PRESERVE RELIEF FOR


CONSUMERS………………………………………………………………...…21

IV. CONCLUSION………………………………………..…………………………………22

ii
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TABLE OF AUTHORITIES
Cases
----
Alee v. Medrano, 416 U.S. 802 (1974) ......................................................................................... 19

Amoco Prod. Co. v. Village of Gambell, 480 U.S. 531 (1987) ..................................................... 18

APG Enterprises, Inc. v. Money & More, No. 2:08 CV 951(TC),


2009 WL 3297285 (D. Utah Oct. 14, 2009) .................................................................. 21-22

Brunswick Corp. v. Spinit Reel Co., 832 F.2d 513 (10th Cir. 1987) ............................................ 11

First Western Capital Management Co. v. Malamed, 874 F.3d 1136 (10th Cir. 2017) ............... 18

Fish v. Kobach, 840 F.3d 710 (10th Cir. 2016) ...................................................................... 18, 20

FTC v. Accusearch Inc., 570 F.3d 1187 (10th Cir. 2009)............................................................. 19

FTC v. Affiliate Strategies, Inc., 849 F. Supp. 2d 1085 (D. Kan. 2011) ....................................... 16

FTC v. Freecom Commc’ns, Inc., 401 F.3d 1192 (10th Cir. 2005) ........................................ 19, 21

FTC v. Gill, 71 F. Supp. 2d 1030 (C.D. Cal. 1999) ...................................................................... 16

FTC v. Inc21.com Corp., 745 F. Supp. 2d 975 (N.D. Cal. 2010) ................................................. 11

FTC v. Ivy Capital, Inc., No. 2:11-CV-283 JCM,


2013 WL 1224613 (D. Nev. Mar. 26, 2013) ...................................................................... 13

FTC v. John Beck Amazing Profits, LLC, 865 F. Supp. 2d 1052 (C.D. Cal. 2012) ................ 10, 11

FTC v. John Beck Amazing Profits, LLC, No. 2:09-cv-4719, 2009 WL 7844076
(C.D. Cal. Nov. 17, 2009) ........................................................................................ 9-10, 13

FTC v. Kutzner, No. 16-00999-BRO, 2017 WL 4685286 (C.D. Cal. Sept. 5, 2017) ................... 11

FTC v. Stefanchik, 559 F.3d 924 (9th Cir. 2009) .......................................................................... 10

FTC v. Tashman, 318 F.3d 1273 (11th Cir. 2003)........................................................................ 13

Harolds Stores, Inc. v. Dillard Dep’t Stores, Inc., 82 F.3d 1533 (10th Cir. 1996) ...................... 10

Hodgdon Powder Co. v. Alliant Techsystems, Inc., 512 F. Supp. 2d 1178 (D. Kan. 2007) ......... 15

iii
Case 2:19-cv-00867-RJS-EJF Document 82 Filed 12/17/19 Page 5 of 30

In re POM Wonderful LLC, No. 9344, 2013 WL 268926 (F.T.C. Jan. 10, 2013) ................... 16-17

Low v. Trump Univ., LLC, No. 3:10-cv-00940-GPC,


2016 WL 6732110 (S.D. Cal. Nov. 15, 2016) ............................................................... 14-15

Makaeff v. Trump Univ., LLC, 715 F.3d 254 (9th Cir. 2013) ....................................................... 15

O Centro Espirita Beneficiente Uniao Do Vegetal v. Ashcroft,


389 F.3d 973 (10th Cir. 2004) ....................................................................................... 21-22

Removatron Int’l Corp. v. FTC, 884 F.2d 1489 (1st Cir. 1989) ................................................... 16

RoDa Drilling Co. v. Siegal, 552 F.3d 1203 (10th Cir. 2009) ...................................................... 20

Schrier v. Univ. of Colo., 427 F.3d 1253 (10th Cir. 2005) ........................................................... 21

Tri-State Generation & Trans. Ass’n., Inc. v. Shoshone River Power, Inc.,
805 F.2d 351 (10th Cir. 1986) ............................................................................................ 19

Weinberger v. Romero-Barcelo, 456 U.S. 305 (1982) ................................................................. 18

Statutes

16 C.F.R. § 255.2 .......................................................................................................................... 16

Section 13(b) of the FTC Act, 15 U.S.C. § 53(b) ................................................................... 17, 18

Section 19 of the FTC Act, 15 U.S.C. § 57b ................................................................................ 21

Utah’s Business Opportunity Disclosure Act (“BODA”), Utah Code §13-15-5 ............................ 6

Utah’s Consumer Sales Practices Act (“CSPA”), Utah Code § 13-11 .................................... 17-18

Other Authorities

H.R. Conf. Rep. No. 93-624 (1973).............................................................................................. 18

iv
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TABLE OF EXHIBITS

Exhibit Exhibit Description Bates Range (FTC-PI)


Number
Exhibit 1 Declaration of Brian N. Lasky 8715-8717
Exhibit 1-A Letter from Darren Lubetzky, dated June 20, 8718-8720
2018
Exhibit 2 Supplemental Declaration of Daniel Larsen 8721-8723
Exhibit 2-A “Real Estate Success Audit Results” produced 8724-8725
by Response Marketing Group
Exhibit 2-B Letter from Response, dated February 2, 2017 8726-8728
Exhibit 2-C Email Dated July 12, 2019 with Attached 8729-8754
Transcript
Exhibit 3 Reply Report of Dr. Bruce Isaacson in 8755-8775
Response to the Rebuttal Expert Report of Dr.
Wayne D. Hoyer and the Expert Witness
Report of Brian Cadman, Ph.D.

v
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I. INTRODUCTION

Plaintiffs seek a temporary restraining order (“TRO”) to halt a long running deceptive

marketing scheme that has taken over $400 million from consumers and left many lives in

financial ruin. Defendants’ unlawful conduct is clear, supported by their own recorded words

and contemporaneous records. Following a marketing campaign rife with misrepresentations,

Defendants funnel consumers through a deceptive sales cycle of trainings and purported

mentorships in order to extract as much money as they can. In their opposition, Defendants

contend that they do not make express “get rich quick” claims and that they inform consumers

that real estate investing carries risk and requires time and effort. But Defendants fail to address

the overwhelming evidence of other types of earnings claims. They also ignore evidence that

Defendants defrauded consumers in other, perhaps more pernicious ways, including by blatantly

misrepresenting consumers’ access to funding and deceptively inducing consumers to extend

their credit to purchase more services from Defendants.

Unable to deny the substance of Plaintiffs’ claims, Defendants instead contend that

Plaintiffs’ evidence is stale and Plaintiffs’ investigation was overlong. But as recent evidence

submitted in support of this memorandum shows, Defendants’ misrepresentations in 2019 are

substantially similar to those made in earlier years. Nor should Defendants somehow be

rewarded for crafting a scam so complex, long-running, and vast that it required significant time

and resources to compile the evidence now before the Court.

Because Plaintiffs are likely to succeed on the merits and have demonstrated that

irreparable harm would result absent immediate relief – the only factors that Defendants contest

– this Court should issue a temporary restraining order to prevent Defendants from continuing to

defraud consumers and to preserve the availability of meaningful relief for consumers who have

1
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already been harmed.

II. PLAINTIFFS ARE LIKELY TO SUCCEED ON THE MERITS BECAUSE


DEFENDANTS ARE ENGAGED IN PERVASIVE, UNLAWFUL CONDUCT

A. DEFENDANTS FAIL TO REBUT PLAINTIFFS’ SUBSTANTIAL


SHOWING THAT THEY MISREPRESENT THE NATURE OF THEIR
SERVICES, PRODUCTS, AND CONSUMERS’ LIKELY EARNINGS,
DECEPTIVELY INDUCE CONSUMERS TO SHARE PERSONAL
FINANCIAL INFORMATION, AND FAILED TO FILE REQUIRED
INFORMATION WITH THE DIVISION OF CONSUMER PROTECTION

Defendants offer no credible evidence substantiating their claims concerning purported

key aspects of their training program. Plaintiffs’ uncontroverted evidence that nearly all of

Defendants’ customers lose money demonstrates the falsity of Defendants’ representations.

1. Defendants Do Not Have a Funding Partner or Network as They Promise

Although Defendants portray transactional funding for wholesale transactions (where

consumers do not have to put their own money down) as a key component of their training

program and a key driver of their student success,1 Defendants now admit they actually have no

unique or even direct relationship with any wholesale lender.2 As a result, Defendants do not

have a funding partner or network, as they repeatedly claim, and as such they cannot provide

“access” to any such network. In addition, Defendants present no evidence that any significant

number of their customers ever obtained such funding.3 (Defs.’ Opp. at 74-75.) Defendants

1
Pls.’ Mot. on Notice for TRO (“Pls.’ Br.”) at 12-13, 14-15, ECF No. 6; Marino Decl., Ex. A, at
FTC-PI-7535, ECF No. 19 (Audio Clips 1, 4, 5, and 7).
2
Defendants acknowledge they only refer customers to a website that aggregates links to other
third party lenders. Poelman Decl. at ¶ 18, ECF No. 71-30; Street Decl. at ¶¶ 3, 8, ECF No. 71-
38.
3
Defendants state that “[m]ore than 40 of the customers that submitted declarations also have
used the proof of funds service and the network to finance deals,” (Defs.’ Opp. to Pls.’ Mot. for
Prelim. Inj. (“Defs.’ Opp.”) at 27, 74-75, ECF No. 71), but in fact only five of their declarants
claim to have obtained any sort of funding from Defendants or their “network,” and not one
declarant claims to have received transactional funding for which they were not required to put
2
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contend they “cannot track the number of customers that have received [transactional] funding,”

(Defs.’ Opp. at 26) even though Defendants themselves purportedly offered transactional

funding before 2017.4 They offer no information as to how many times they actually provided

wholesale funding to their customers, if ever, in the period when they purportedly offered it.

2. Defendants Do Not Have Unique or Specialized Software or Tools

Defendants represent to consumers that they provide access to supposed specialized

software and tools that will enable consumers to find undervalued properties, automate deal

analysis, and identify potential cash buyers. But Defendants do not contest Plaintiffs’ evidence

that the software product (sold as part of the Advanced Training) provides information that is

generally available elsewhere for modest fees and that it does not enable consumers to put

together wholesale transactions.5 (Defs.’ Opp. at 28.)

3. Defendants Make Earnings Claims and Downplay Risk

Defendants argue they do not make express “get rich quick” claims, such as that

consumers can “attain a certain level of income” or “easily achieve success in real estate.”

(Defs.’ Opp. at 67.) Instead, Defendants purportedly tell consumers that real estate investing

“takes time and effort and involves risk.” (Defs.’ Opp. at 66-68.) Defendants’ persistent focus

on the phrase “get rich quick” is an effort to obscure the fact that they regularly make earnings

claims and downplay risk. For example:

any of their own money down. (Adiska Decl. at ¶ 13, ECF No. 71-46 (one lender); Hamilton
Decl. at ¶ 8, ECF No. 71-72 (one lender); Meier Decl. at ¶ 14, ECF No. 71-92 (undisclosed
number of lenders); Petrich Decl. at ¶ 14, ECF No. 71-100 (used the network to fund one deal);
Tidball Decl. at ¶ 11, ECF No. 71-110 (used the network to fund one deal); ECF No. 71-46
through 71-114.).
4
Poelman Decl. at ¶ 17, ECF No. 71-30.
5
Pls.’ Br. at 29-30, 62-63 & nn.223, 227; Nicolais Report, Tab 29, at 8, 31-44, FTC-PI-7819,
7842-7855.
3
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 Through a Preview speaker who falsely claimed Defendants make money by continually

financing consumers’ deals: “it’s win-win. The more deals you do, the more money we

make, the more money you make;” (Pls.’ Br. at 16 & n.50)

 Through a Preview speaker who suggested Defendants’ program could provide

“generational” wealth for “kids” and “grandkids” and that “[i]f you can send e-mail,

you’ll be able to do all of this;” (Pls.’ Br. at 16-17 & n.51)

 Through Seed Capital, whose employees told consumers they could expect to earn

$100,000 a year or $10,000 per deal through Defendants’ program;6 (Pls.’ Br. at 25-56 &

nn.84-86)

 Through Workshop speakers who talked about “how easy it was to make a lot of money

using their program for flipping homes” or claimed consumers should have little

difficulty doing five deals in their first year; (Pls.’ Br. at n.73)

 Through a Workshop speaker, who in discussing the number of deals Defendants’

customers do, says “my assumption is that today is like most all days and there could be,

there could be anywhere from 600 to 800 deals that have come through the office so far

today already of students wanting to fund deals;” (Pls.’ Br. at 32 & n.115) and

 Through salespeople and telemarketers who told consumers that “we would make our

initial investment back and a lot more,” that “I would be able to pay off my debts through

real estate investments within the first year,” that “within six months, I would make back

6
Defendants try to distract from Seed Capital’s income claims by suggesting that projecting
income is legally permissible under regulations relating to consumers’ reasonably expected
income. (Defs.’ Opp. at 28, citing to Marino Decl., Ex. T, at FTC-PI-7656-57, ECF 6-29). In so
doing, Defendants do not dispute the main issue here, which is that Seed Capital regularly made
income claims to consumers about the earnings they purportedly could expect to make using
Defendants’ program and that Defendants were aware of this practice. Pls.’ Br. at nn. 85-89.
4
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the money I had spent on Inner Circle,” and that “I was guaranteed to make money.”

(Pls.’ Br. at nn. 71, 138.)

All of this evidence is consistent with Dr. Isaacson’s survey (“Isaacson Survey”), which is

discussed below, and Defendants offer no evidence to show that these examples were not typical

of Defendants’ marketing and trainings.

4. Defendants Induce Consumers To Disclose Personal Financial Information


And Extend Their Available Credit Through False Pretenses

Plaintiffs have demonstrated that Defendants falsely induce consumers to reveal their

personal finances and extend their available credit so that Defendants can sell consumers more

expensive training packages.7 Defendants do not address evidence showing that they mislead

consumers into working with Seed Capital to open new credit card accounts to have more funds

to conduct real estate deals when, in fact, the additional credit is designed to ensure consumers

have the means to buy more expensive training packages. Defendants also fail to provide any

legitimate reason for why their sales representatives collected consumers’ personal financial

information, including detailed credit card information (for instance, consumers’ “credit card

type”, “balance”, “credit limit” and “credit available”).8

Defendants instead argue that the prices for the Advanced Training and Inner Circle

packages are pre-set on order forms so that the decision as to “how much to charge customers for

Advanced Training is determined prior to customers showing up at the events and completing the

forms.” (Defs.’ Opp. at 77.) However, the fact that the prices on the Advanced Training order

7
Pls.’ Br. at 65-66 & nn.240-243. Defendants encouraged consumers to obtain new credit by
either increasing their credit card limits or applying for a half dozen or more credit cards through
Seed Capital. Pls.’ Br. at 23-26, 32-33 & n.116, 66 & n.241; Marino Decl. at ¶ 5, ECF 6-29
(Audio Clip 10).
8
See, e.g., Larsen Decl., Ex. T at FTC-PI-7030, ECF No. 6-28.
5
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forms are pre-set is irrelevant, since there are different levels of packages that range in cost from

$19,000 to as much as $40,000. The price range amongst the varying packages allows sales

representatives to encourage consumers to purchase the most expensive packages they can

afford.9 Similarly, Defendants’ telemarketers have discretion to charge consumers varying

amounts for the Inner Circle package, from as low as $1,999 to over $20,000.10

5. Defendants Failed to File Required Information with the Division in


Violation of Utah’s Business Opportunity Disclosure Act (“BODA”)

Defendants violated Utah’s Business Opportunity Disclosure Act (“BODA”). They did

not file information with the Division of Consumer Protection, and they did not provide

consumers the disclosures required by §13-15-5. Defendants do not dispute they failed to file the

required information with the Division and failed to give consumers the required disclosures.11

9
Pls.’ Br. at 20-21 & n.68. For instance, Plaintiffs’ consumer declarants paid between $10,000
and $40,000 for advanced training packages. E.g., Baisley Decl., Tab 1, at ¶ 4 ($40,000 for
Buying Summit); Stratton Decl., Tab 2, at ¶¶ 19-20 ($10,000 for Boots on the Ground); Cortes
Decl., Tab 3, at ¶ 15 ($37,997 for Diamond Elite 360 package); Page Decl., Tab 4, at ¶ 5
($27,000 for Edge Buying Summit); Khuong Decl., Tab 5, at ¶ 13 ($19,997 for Diamond
package); Kreiner Decl., Tab 8, at ¶ 13 ($50,000 for Diamond package); Gonzalez Decl., Tab 10,
at ¶ 8 ($11,997 for Silver Real Estate Investment Training package); Dooling Decl., Tab 11, at
¶ 7 ($39,997 for Buying Summit).
10
Pls.’ Br. at 37 & n.134; compare Sanchez Decl., Ex. FF at FTC-PI-673, ECF No. 6-5 (order
confirmation letter consumer received for Inner Circle package shows consumer charged
$20,995) with Larsen Second Supp. Decl., Ex. B at FTC-PI-8727 (order confirmation letter
consumer received for Inner Circle package shows consumer charged $4,995). Defendants’
consumer declarants reported paying between $14,000 and $27,000 for Inner Circle packages.
E.g. Barabe Decl. at ¶ 7, ECF No. 71-51 ($14,000); Barr Decl. at ¶ 6, ECF No. 71-52 ($22,000);
Custer Decl. at ¶ 9, ECF No. 71-59 ($15,995); Edgar Decl. at ¶ 5, ECF No. 71-68 ($22,995);
Taylor, P. Decl. at ¶ 6, ECF No. 71-108 ($27,000).
11
In their Opposition, Defendants make a single reference to BODA in a conclusory footnote
referring the Court to their Motion to Dismiss. (Defs.’ Opp. at 66 n.263.) As set forth in the
Response of the Utah Division of Consumer Protection to Defendants’ Motion to Dismiss,
Defendants offer assisted marketing plans as defined by BODA. Defendants’ current filing
proves it. An assisted marketing plan consists of the sale or lease of any products, equipment,
supplies, or services that are sold to the purchaser for $500 or more for the purpose of enabling
the purchaser to start a business, if the seller represents that the sales or marketing program will
6
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B. DEFENDANTS’ DECEPTIVE CONDUCT CONTINUED THROUGH 2019

Defendants suggest (Defs.’ Opp. at 36, 42) that Plaintiffs’ evidence of what Defendants

told consumers in the 2012 to 2018 period does not reflect what Defendants told consumers in

2019. That suggestion is false.

Plaintiffs’ evidence clearly shows that Defendants repeatedly represented to consumers

that once they purchase Defendants’ training packages, they will get access to tools to find

undervalued properties and money from Defendants’ funding partner to purchase the

properties.12 As a result of these supposed competitive advantages, Defendants represented that

consumers are likely to complete profitable real estate transactions and earn significant income.13

Defendants continued to make these same claims in 2019.

Plaintiffs have obtained a partial transcript of a recorded Preview Event held by

Defendants on July 10, 2019 in New York.14 The partial transcript contains the following

statements made by one of Defendants’ presenters, Wayne Gray, which are substantially similar

to misleading statements in the earlier seminars cited in Plaintiffs’ prior briefing:

allow the purchaser to derive income from the assisted marketing plan that exceeds the price
paid. Utah Code §13-15-2(1)(a) and (iv). In their Opposition, Defendants further confirm that
they told consumers that Defendants’ coaching, funding, software, properties, and customer
support, offered as a package, would enable a purchaser to derive income exceeding its cost.
(Defs.’ Opp. at 67, 73, 75, 76.) This demonstrates that Defendants were offering an assisted
marketing plan.
12
Pls.’ Br. at 62-63 & nn.222-230.
13
Pls.’ Br. at 60-61 & nn.214-220.
14
Plaintiffs obtained the transcript and a cover email in connection with another lawsuit filed on
September 30, 2019 by the Plaintiffs against one of Defendants’ competitors, FTC v. Zurixx,
LLC, No. 19-cv-00713-DAK (D. Utah). The Zurixx defendants are represented by the same
counsel as Defendants in this case. The cover email attaching the partial transcript indicates
Zurixx executives coordinated the recording and transcribed the event. The cover email and the
attached partial recordings are attached as an Exhibit to the Larsen Second Supp. Decl., Ex. C at
FTC-PI-8730-54.
7
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 We have the investing network that will fund one hundred percent of the capital for any
real estate deal you want to do. Now I say this clearly, I talked to a few of you up here on
stage we don’t do this because we love you. I don’t mean that disrespectfully. Your all
fans of Shark Tank, how many of you would agree to this, Barbara [crosstalk 00:01:33]
does not put her money in to people’s products on Shark Tank because she loves them.
Yes? (Larsen Second Supp. Decl., Ex. C at FTC-PI-8733.)

 Hey guys, if we had the ability to help every one of you in this room get properties, not
just find them on your own, if we could actually send them to you. If we could help you
get properties below wholesale, how many of you say that would be a nice advantage?
(Larsen Second Supp. Decl., Ex. C at FTC-PI-8735.)

 We will give you the properties, and I want to be real clear. There's a reason we're going
to do this. Most of you will need my network’s funding to buy them. (Larsen Second
Supp. Decl., Ex. C at FTC-PI-8741.)

 [inaudible 00:00:04].com said that last year, 2018, the national gross average profit on a
residential flip in this country was $64,284 and 70% of those flips are on houses that cost
less than $200,000. You don’t have to do this 20 times a year to be successful. Some of
you in the room say, “Wait, what if I did that three or four times a year?” Not going to
make you rich, but would it solve any problems? Money gives you freedom to do what
makes you happy. If I had time to go into this, Tony Robbins taught me years ago, know
why you want to make the money. How many of you love to travel? That’s awesome.
That’s freedom. How many of you want to help your kids out? Not as many as want to
travel. That’s fine. How many of you want to help your kids out of the house? Let me see
your hands. Money lets you do what makes you happy. (Larsen Second Supp. Decl., Ex.
C at FTC-PI-8744.)

 And number three, write this in your notes, access to my network’s money. The money to
do the deals. Hey folks, at the three day class, we’re going to show you exactly how we
feed you the properties, how they fund the deals. After the three day class, do me a favor.
I’m cutting all this out. I just want you to write down the one that says strategic funding
partner. Write this down quickly. This is what 99 percent of you that join me in a few
minutes are going to end up using. You say, “What is this?” Think Shark Tank. For our
clients, we have a network of investors that will put up 100 percent of the capital as I’ve
said, any deal you want to do. [inaudible 00:05:13] Quikflip, [inaudible 00:05:14] If they
put up the money for you, is that a win for you? Yes or no? (Larsen Second Supp. Decl.,
Ex. C at FTC-PI-8746.)

As indicated above, Defendants state that they will provide properties to consumers; they state

that most of their customers use their funding network; they state that their customers will

receive 100% of the funding for any deal they want to do; and they imply that their customers

8
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will make money from flipping houses. But these claims are false; the only actual funding

service Defendants provided to consumers at the time of these statements was access to a third-

party website that provides links to some unaffiliated lenders.15

C. CONSUMERS WHO PURCHASE DEFENDANTS’ TRAININGS


TYPICALLY DO NOT SUCCEED AS REAL ESTATE INVESTORS

Voluminous evidence shows that consumers took away from Defendants’ trainings the

net impression that people who purchase the training packages are likely to complete profitable

real estate transactions and earn significant income. (Pls.’ Br. at nn.214-218 and accompanying

text.) But consumers typically do not complete profitable real estate transactions and do not earn

significant income. (Pls.’ Br. at nn.219-220 and accompanying text.) Defendants’ own tuition

reimbursement records reveal that less than 2% of consumers who paid for a Workshop received

reimbursement.16 Similarly, Defendants’ “Done-a-Deal” program17 records show only 456

customers (or less than 4% of the nearly 12,000 consumers who purchased Advanced

Training),18 received this incentive for completing a real estate deal (profitable or otherwise).

These records strongly suggest that only a tiny portion of Defendants’ customers make money.19

15
See supra n.2.
16
Defendants offer to reimburse consumers the amount they paid to attend the Workshop if they
provide proof they completed a single transaction within three or six months after the training.
Pls.’ Br. at 20 & n.66; Sanderson Decl. at ¶¶ 25, 44, ECF No. 71-6 (noting “over 1,000 real
estate and tax lien students” have received reimbursement checks since 2011, which is less than
2% of “the 54,249 unique students who paid for and attended Response’s 3-day real estate
Workshop” from June 2014 to June 2017).
17
To help their marketing efforts, Defendants offer money to their Advanced Training customers
who submit documentation showing they have completed a real estate transaction. Sanderson
Decl. at ¶ 31, ECF No. 71-6. The amount of the cash incentive ranges from $25 for consumers
who only submit proof of the deal, up to $500 for consumers who post a video testimonial on
YouTube. Larsen Decl., Ex. Z, at FTC-PI-7365-66, ECF No. 6-25.
18
Sanderson Decl. at ¶¶ 33, 44, ECF No. 71-6 (calculated by multiplying the 54,249 students
who paid for a Workshop by the 22% of students who purchased Advanced Training).
19
See FTC v. John Beck Amazing Profits, LLC, No. 2:09-cv-4719, 2009 WL 7844076, at *6
9
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1. The Isaacson Survey Demonstrates the Pervasiveness of Defendants’


Misrepresentations and the Resulting Consumer Loss

The results of the Isaacson Survey demonstrate that the overwhelming majority of

Defendants’ customers lose money on the training: 92.8% of survey respondents were told that

they would earn more money investing in real estate than they would pay for the training;20 only

36.1% of survey respondents used what they learned in the training to conduct a real estate

transaction, many of which resulted in losses;21 and only 4.6% of respondents earned more

money through real estate transactions than they had paid for the training.22 While Defendants

contend that the results of the Isaacson Survey should be discounted, their own data validates the

Isaacson Survey’s conclusions. Defendants’ data confirms that the overwhelming majority of

Defendants’ customers do not complete a transaction and almost everyone loses money on the

training.23

Defendants try to undermine the Isaacson Survey’s findings by asserting several

purported methodological defects in the survey, but none have merit.24 (Defs.’ Opp. at 40-41.)

(C.D. Cal. Nov. 17, 2009) (finding it “highly unlikely” that typical consumer of defendants’
system could purchase homes for “pennies on the dollar” where only 0.2% of consumers
qualified for tuition refund predicated on completing real estate deals and providing testimonial).
20
Isaacson Report at 44, ECF No. 6-32.
21
Isaacson Report at 39-40, 42-43, ECF No. 6-32 (showing that 50% of respondents who
conducted at least one transaction indicated that they lost money on a transaction and 27.1% of
those who conducted at least one transaction indicated that they broke even).
22
Isaacson Report at 44-46, ECF No. 6-32.
23
Pls.’ Br. at 19-20.
24
The Tenth Circuit has long recognized the benefit of consumer survey evidence where the
survey has been “conducted according to generally accepted survey principles.” Harolds Stores,
Inc. v. Dillard Dep’t Stores, Inc., 82 F.3d 1533, 1544 (10th Cir. 1996) (internal quotation marks
omitted); see also FTC v. Stefanchik, 559 F.3d 924, 928 (9th Cir. 2009) (affirming grant of
summary judgment against seller of program that purported to teach consumers how to become
wealthy through selling mortgages where 92% of survey respondents said they made no money
from program); FTC v. John Beck Amazing Profits, LLC, 865 F. Supp. 2d 1052, 1075 (C.D. Cal.
2012) (granting summary judgment against seller of wealth coaching program where only 1.7%
10
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For example, Defendants claim that disclosing that the survey was sponsored by the FTC

violated proper survey protocols. However, numerous courts have rejected similar attacks,

recognizing that such disclosures are appropriate to allay consumer suspicions about being

telephoned without notice by a third party and asked probing questions on issues such as the

consumers’ training experiences and expenditures. See FTC v. Kutzner, No. 16-00999-BRO,

2017 WL 4685286, at *4 (C.D. Cal. Sept. 5, 2017) (overruling objection to survey submitted by

Dr. Isaacson that included disclosure of FTC’s survey sponsorship); see also John Beck Amazing

Profits, 865 F. Supp. 2d at 1064-65 (pre-survey notification letter from FTC); FTC v. Inc21.com

Corp., 745 F. Supp. 2d 975, 993 n.11 (N.D. Cal. 2010) (telephone disclosure).25

Defendants also argue (Defs.’ Opp. at 41) that the Isaacson Survey’s results are flawed

because they claim the survey population was not representative.26 However, Defendants offer

no basis to conclude that the survey’s sampling is unfair. See Brunswick Corp. v. Spinit Reel

Co., 832 F.2d 513, 523 & n.6 (10th Cir. 1987) (rejecting claim survey universe was “too narrow”

where defendant “offered no evidence to show that such a universe would not be a fair sample of

those who are likely to purchase” product). For example, Defendants attack the population

sample because they allege it had a disproportionate number of customers who purchased

of survey respondents made a profit).


25
See Reply Report of Bruce Isaacson (“Isaacson Reply Report”) at ¶¶ 26-30.
26
After Defendants learned about Plaintiffs’ investigation in 2018, FTC counsel requested that
Defendants produce information identifying their customers in response to the FTC’s civil
investigative demands. Declaration of Brian Lasky (“Lasky Decl.”) at ¶ 3, FTC-PI-8717.
Defendants objected to this request. Lasky Decl. at ¶ 4, FTC-PI-8717. Despite not having
access to Defendants’ full customer information, Plaintiffs were able to identify a population of
Defendants’ customers from business registration records maintained by a state agency. Dr.
Isaacson’s report sets forth how the survey population was generated and the controls used to
“qualify” respondents. Isaacson Report at ¶¶ 5, 34-36 & Ex. 2 at FTC-PI-8005-07, ECF No. 6-
32.
11
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Advanced Training,27 but this would, at most, indicate that the survey was limited to Defendants’

more motivated students.28 Defendants also attack the Isaacson Survey for having a “low

response rate” but the survey’s actual response rate was 12.4% or 28.6%, depending on the

manner of calculation, either of which are appropriate rates for such a survey.29

2. Defendants’ Contrary Evidence Is Limited and Irrelevant

Defendants nevertheless contend that Plaintiffs cannot succeed on the merits because

“[m]any students who utilized Defendants’ teachings have been successful.” (Defs.’ Opp. at 66.)

They offer no evidence as to how many of their customers made more money than they paid to

Defendants.30 Instead, they offer four categories of evidence, none of which undermines the

strong conclusions drawn from Plaintiffs’ evidence: (a) declarations from sixty-nine consumers;

(b) a so-called “quarterly audit;” (c) customer surveys filled out at the conclusion of the

trainings; and (d) a report from Dr. Mark Weiss who Defendants retained to opine on the value

of their real estate training.

a. Declarations from Sixty-Nine Consumers: Defendants have not asserted that their

customer declarants are representative of their 200,000 training purchasers,31 and in fact they are

not. Twenty-five of these consumers either work for Defendants or are paid “ambassadors” who

speak at Defendants’ trainings.32 For that reason, they are interested parties and their statements

27
Hoyer Decl. at ¶ 23, ECF No. 71-3.
28
See Isaacson Reply Report at ¶¶ 16-18. Likewise, the fact that the survey population was
limited to consumers who had established a business entity through June 1, 2017 benefits
Defendants because it allowed time for consumers to have finished their training and completed
real estate deals. Isaacson Reply Report at ¶ 32.
29
Isaacson Reply Report at ¶ 25. The other purported criticisms of the Isaacson Survey are
addressed in the Isaacson Reply Report, filed herewith.
30
Sanderson Decl. at ¶ 20, ECF No. 71-6.
31
Poelman Decl. at ¶ 9, ECF No. 71-30.
32
Ault Decl. at ¶ 9, ECF No. 71-49; Benton & Joshi Decl. at ¶ 12, ECF No. 71-53; Bourlier
12
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should carry little weight. The remaining forty-four consumer declarations submitted by

Defendants at best establish that a miniscule number of Defendants’ clients eventually had a

successful real estate deal, which is consistent with Plaintiffs’ findings. See John Beck Amazing

Profits, 2009 WL 7844076, at *7 (holding that defendants’ evidence consisting of seventeen

consumer declarations and affidavits from testimonialists did not rebut FTC’s evidence, because

there was no evidence that “a significant percentage of consumers who purchase [defendants’]

system are similarly successful”). These declarations do not substantiate Defendants’ earnings

claims, and unsubstantiated earnings claims are deceptive under the FTC Act. See FTC v.

Tashman, 318 F.3d 1273, 1277 (11th Cir. 2003) (“[defendant] had no basis for the

representations it made”); FTC v. Ivy Capital, Inc., No. 2:11-CV-283 JCM, 2013 WL 1224613,

at *8 (D. Nev. Mar. 26, 2013) (“Courts have long held that unsubstantiated claims of high

potential earnings, even without specific figures, are deceptive under the [FTC A]ct.”), aff’d in

rel. part, 616 F. App’x 360 (9th Cir. 2015).33

b. Quarterly Audit: Defendants refer (Defs.’ Opp. at 33) to a “quarterly audit” they

conducted of Advanced Training purchasers who completed a real estate transaction.

Defendants published these audit results in marketing materials, representing that a high

Decl. at ¶ 13, ECF No. 71-55; Cruz Decl. at ¶ 12, ECF No. 71-58; Custer Decl. at ¶ 23, ECF No.
71-59; Derman Decl. at ¶ 13, ECF No. 71-61; Dooley Decl. at ¶ 20, ECF No. 71-64; Dozier
Decl. at ¶ 16, ECF No. 71-65; Gilbert Decl. at ¶ 14, ECF No. 71-71; Johnston Decl. at ¶ 8, ECF
No. 71-79; Lauchner Decl. at ¶ 12, ECF No. 71-83; Liguori Decl. at ¶ 12, ECF No. 71-84; Lucht
Decl. at ¶ 13, ECF No. 71-85; Mandracchia Decl. at ¶ 19, ECF No. 71-87; Marano Decl. at ¶ 16,
ECF No. 71-88; Martin Decl. at ¶ 13, ECF No. 71-90; Meier Decl. at ¶ 17, ECF No. 71-92;
Perdomo Decl. at ¶ 18, ECF No. 71-98; Petrich Decl. at ¶ 16, ECF No. 71-100; Posa Decl. at
¶ 16, ECF No. 71-101; Rice Decl. at ¶ 15, ECF No. 71-104; Sheppard Decl. at ¶ 13, ECF No. 71-
105; Thomas Decl. at ¶ 13, ECF No. 71-109; Tippets Decl. at ¶ 15, ECF No. 71-111; Whitworth
Decl. at ¶ 12, ECF No. 71-113.
33
Even the experiences of these declarants do not show that Defendants’ promises of low cost
financing, cash buyers, and the like were anything more than illusory. Only five of these sixty-
13
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percentage of Advanced Training students whom they surveyed reported doing a transaction.34

However, the survey percentages that Defendants published greatly overstate their actual survey

results. Defendants added to the reported total number of people who completed a transaction

others who did not complete a survey, but instead bought a real estate asset from Defendants at

the Buying Summit or had participated in Defendants’ tuition reimbursement or Done-A-Deal

programs.35 Combining these data sets led to a false and misleading result. Taking out the

improperly included data, Defendants’ own survey results indicate that only 20% of consumers

in 2016, and 15% in 2015, reported completing a real estate transaction of some kind (whether

profitable or not) within the prior twelve months.36

c. Satisfaction Surveys: Defendants’ emphasis on onsite “customer satisfaction

surveys” that purportedly show that consumers were satisfied with their products and services is

similarly unavailing. The satisfaction surveys do not address whether, after the trainings,

Defendants’ customers are able to complete profitable real estate transactions that allow them to

more than make back the money they paid to Defendants.37 Instead, they ask, for example, about

the consumer’s “overall experience” and whether staff and the instructor were “courteous and

professional.”38 See Low v. Trump Univ., LLC, No. 3:10-cv-00940-GPC, 2016 WL 6732110, at

nine consumers accessed funding from Defendants or Defendants’ “network.” Supra n.3.
34
See, e.g., Larsen Decl., Ex. O, at FTC-PI-6397, ECF No. 6-26 (advanced training brochure
from 2017 seminar indicating that “[o]f those surveyed, 70% have done a deal!”) (emphasis in
original); Cortes Decl., Ex. L, at FTC-PI-604, ECF No. 6-5; Norris Decl., Ex. O, at FTC-PI-
2050, ECF No. 6-11.
35
Sanderson Decl. at ¶¶ 28-29, ECF No. 71-6; Marino Decl., Ex. K at FTC-PI-7668, ECF No. 6-
29 (Response’s “Done-a-Deal Audit” website page).
36
See Isaacson Reply Report at ¶ 54. Defendants refer (Defs.’ Opp. at 33) to results of its “most
recent audit,” but provide no underlying data or further discussion about it. Sanderson Decl. at ¶
35, ECF No. 71-6.
37
See Isaacson Reply Report at ¶¶ 45-46.
38
Larsen Decl., Ex. Y, at FTC-PI-7279, ECF No. 6-28.
14
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*9 (S.D. Cal. Nov. 15, 2016) (holding that fact that 5,000 students of real estate training seminar

provided “positive feedback” does not “make[] it more or less probable that the core

representations are true or not”); see also Makaeff v. Trump Univ., LLC, 715 F.3d 254, 271 (9th

Cir. 2013).39 Moreover, these satisfaction surveys should be given little weight because they

were administered prematurely.40 Response’s Chief Executive Officer recognizes that even

“days or weeks after the consumer completed a three-day workshop … it generally was

premature to assess how well the student was doing with implementing the training …”41

Accordingly, the fact that many customers give onsite positive ratings to Defendants’ training

does not bear on the issues now in dispute.

d. Dr. Weiss’ report: Defendants retained Dr. Weiss in 2018 (soon after they

learned of Plaintiffs’ investigation) to “observe and evaluate the real estate instruction” that

Defendants offer. (Defs.’ Opp. at 23.) Dr. Weiss purports to have experience in “learning

technology,” but not real estate investing. (Defs.’ Opp. at 23.)42 Defendants offer no basis to

conclude that he is qualified to offer expert opinion concerning Defendants’ real estate training.

39
See Shari Seidman Diamond, Reference Guide on Survey Research, Reference Manual on
Scientific Evidence (3d Ed. 2011), at 373 (“One indication that a survey offers probative
evidence is that it was designed to collect information relevant to the legal controversy (e.g., to
estimate damages in an antitrust suit or to assess consumer confusion in a trademark case).
Surveys not conducted specifically in preparation for, or in response to, litigation may provide
important information, but they frequently ask irrelevant questions …”).
40
See Isaacson Reply Report at ¶ 49.
41
Smith Decl. at ¶ 8, ECF No. 71-24. Additionally, the surveys were distributed by Defendants’
employees at the events, and were often collected by the instructors themselves. See Hodgdon
Powder Co. v. Alliant Techsystems, Inc., 512 F. Supp. 2d 1178, 1181-82 (D. Kan. 2007)
(excluding plaintiff’s survey that was conducted from “plaintiff’s promotional booth” by
plaintiff’s employees); Ruby Tr. 106-107, 109, ECF No. 6-18; Stratton Decl. at ¶¶ 28-29, ECF
No. 6-4; Isaacson Reply Report at ¶¶ 47-48.
42
His report indicates he owned a distribution business before pursuing his academic degrees,
but he does not indicate he has any knowledge or experience about real estate investing. Weiss
Decl. at 1, ECF No. 71-44.
15
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3. Disclaimers Failed To Cure Misleading Net Impression

Throughout their brief, Defendants marshal disclaimers from their advertisements and

presentations that they contend should immunize their misrepresentations. However,

Defendants’ disclaimers do not address misrepresentations as to core aspects of their training

program discussed above, including for instance limited access to funding. Nor can these

disclosures exculpate Defendants’ deliberate deceptive conduct. Further, the evidence shows

that consumers who attended Defendants’ trainings took away the net impression that they would

earn significant income as a result of Defendants’ trainings; the disclaimers therefore did not

correct Defendants’ earnings misrepresentations.43 (See supra 3-5, 9-12.) Ineffective

disclaimers do not undermine the FTC’s likelihood of success in demonstrating that Defendants

misrepresented consumers’ earning potential. See FTC v. Affiliate Strategies, Inc., 849 F. Supp.

2d 1085, 1107 (D. Kan. 2011); Removatron Int’l Corp. v. FTC, 884 F.2d 1489, 1497 (1st Cir.

1989) (“Disclaimers or qualifications in any particular ad are not adequate to avoid liability

unless they are sufficiently prominent and unambiguous to change the apparent meaning of the

claims and to leave an accurate impression.”); FTC v. Gill, 71 F. Supp. 2d 1030, 1044 (C.D. Cal.

1999) (disclaimers do not “automatically exonerate” deceptive conduct).

43
That the disclaimers did not undermine consumers’ net impressions is further demonstrated by
the disclaimers’ text. First, some of the disclaimers appear to encourage consumers to purchase
advanced training in order to be successful, reinforcing Defendants’ misrepresentations. (e.g.,
Defs.’ Opp. at 16, 21.) Moreover, many of the disclaimers include some variation on a “results
not typical” warning. The Commission in POM Wonderful construed the FTC’s Guides
Concerning Use of Endorsements and Testimonials in Advertising, 16 C.F.R. § 255.2, to say that
“ads with endorsements will likely be interpreted as conveying that the endorser’s experience is
representative of what consumers will generally achieve, even when they include disclaimers
such as ‘Results not typical’ and ‘These Testimonials are based on the experiences of a few
people and you are not likely to have similar results.’” In re POM Wonderful LLC, No. 9344,
16
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Defendants contend that the Division is unlikely to succeed on the merits of Count VIII

because the disclaimers cleanse any misrepresentations that would otherwise be unconscionable

under Utah’s Consumer Sales Practices Act (“CSPA”). (Defs.’ Opp. at 77-78.) The Division

has demonstrated a likelihood of success on the merits for its CSPA count. (Pls.’ Br. at 67-68

and accompanying notes.) The disclaimers are unavailing because, as discussed above, they do

not alter consumers’ net impression that they will earn significant income, and they do not

address that Defendants used consumers’ personal financial information to induce consumers to

pay for more of Defendants’ products.44

III. IRREPARABLE HARM WOULD RESULT ABSENT PRELIMINARY RELIEF

A. PLAINTIFFS HAVE DEMONSTRATED IRREPARABLE HARM

As Plaintiffs explained in their Supplemental Memorandum of Law (ECF No. 55),

Congress stated unequivocally that when the FTC seeks injunctive relief under Section 13(b) of

the FTC Act, the two-prong standard, and not the four-part common law standard, applies. (Pls.’

Supp. Mem. of L. in Further Supp. of Mot. on Notice for TRO (“Pls.’ Supp. Br.”) at 1-4, ECF

No. 55.) Section 13(b) of the FTC Act states expressly that courts can grant preliminary relief

based on “weighing the equities and considering the Commission’s likelihood of ultimate

success.” The legislative history confirms that Congress intended the two-prong standard to

apply to the FTC Act, explaining in categorical language that it did not “in any way” intend to

2013 WL 268926, at *13 n.12 (F.T.C. Jan. 10, 2013).


44
While the disclaimers do not cure Defendants’ misrepresentations, they do evidence
Defendants’ knowledge that most consumers would not make back more than they paid for the
training. (Defs.’ Opp. at 16 (“Most students that attend THIS introductory preview event do not
make money”), 21 (“results may not be typical”), 78 (achievements of successful past consumers
should not be viewed as “common”).) The unconscionability section of the CSPA indicates that
the court “shall consider circumstances which the supplier knew or had reason to know” in
determining whether an act or practice is unconscionable. Utah Code § 13-11-5(3) (emphasis
17
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depart from the two-prong standard, and that it would be inappropriate “to burden the

Commission with the requirements imposed by the traditional equity standard which the

common law applies to private litigants.” H.R. Conf. Rep. No. 93-624, at II(16) (1973).

The Tenth Circuit has recently addressed the issue of when to apply the two-prong

standard to statutes that – unlike the FTC Act – contain no textual indication that Congress

intended courts to depart from the traditional four-part standard. First Western Capital

Management Co. v. Malamed, construing statutes where Congress was silent as to which

standard to apply, held that courts may presume irreparable harm where injunctive relief is

mandatory, but not where it is merely authorized. 874 F.3d 1136, 1140 (10th Cir. 2017) (citing

Fish v. Kobach, 840 F.3d 710, 751 n.24 (10th Cir. 2016)). This holding is inapplicable here.

The Tenth Circuit did not hold in either First Western or Fish that courts should ignore an

unequivocal statement of Congress – such as the express recitation of the two-prong standard in

Section 13(b) of the FTC Act – merely because the injunctive relief provided by a statute is

permissive and not mandatory. Indeed, such a reading would put First Western and Fish in

conflict with the Supreme Court’s holding in Weinberger v. Romero-Barcelo, 456 U.S. 305

(1982), that courts should apply the two-prong standard where Congress has provided the

necessary “clear and valid legislative command.” Romero-Barcelo, 456 U.S. at 313-14; see also

Fish, 840 F.3d at 751 n.24 (citing Amoco Prod. Co. v. Village of Gambell, 480 U.S. 531 (1987),

for the proposition that courts should not apply a presumption of irreparable harm “without a

proper textual basis in the statute.”).

In any event, for the reasons stated in Plaintiffs’ Supplemental Brief, Plaintiffs have

demonstrated that the harm Defendants are causing will be irreparable without preliminary

added).
18
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injunctive relief. (Pls.’ Supp. Br. at 7-16.) In particular, Defendants ignore longstanding Tenth

Circuit precedent holding that if a plaintiff “cannot collect a money judgment, then failure to

enter [a] preliminary injunction would irreparably harm it.” Tri-State Generation & Trans.

Ass’n., Inc. v. Shoshone River Power, Inc., 805 F.2d 351, 355 (10th Cir. 1986). Defendants do

not dispute that they have already spent or transferred a substantial portion of the funds that

would be subject to disgorgement or redress. (Pls.’ Supp. Br. at 8.)

Defendants likewise do not dispute that impending bankruptcy and harm to consumers’

credit ratings can qualify as irreparable harm. (Defs.’ Opp. at 60.) Such harm has already

resulted to Defendants’ customers who were encouraged to use their retirement savings and

credit cards to pay for Defendants’ programs. (Pls.’ Supp. Br. at 10-13.) Without preliminary

relief, such harm will continue to impact Defendants’ current and future customers. That

Defendants stopped advertising and hosting trainings after the Complaint was filed (Defs.’ Opp.

at 6-7) does not obviate the need for preliminary injunctive relief. See FTC v. Accusearch Inc.,

570 F.3d 1187, 1201-02 (10th Cir. 2009) (finding defendant’s violative conduct likely to recur

even where conduct ceased before litigation commenced); FTC v. Freecom Commc’ns, Inc., 401

F.3d 1192, 1204 (10th Cir. 2005) (citing Alee v. Medrano, 416 U.S. 802, 810 (1974), for the

proposition that “[i]t is settled that an action for an injunction does not become moot merely

because the conduct complained of has terminated, if there is a possibility of recurrence”).

Indeed, Defendants describe their suspension of sales as merely “temporar[y].” (Defs.’ Opp. at

65.)

B. PRELIMINARY INJUNCTIVE RELIEF IS NECESSARY,


APPROPRIATE, AND URGENT

Despite learning about Plaintiffs’ investigation in January 2018, Defendants have

continued to act with impunity. In the summer of 2018, for example, they took nearly $60,000
19
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from two retired consumers, both over 70 years old, who were forced to seek employment to pay

off their credit card debt.45 They admit that they have charged over 20,000 consumers in 2019

alone. (Defs.’ Opp. at 2.) Yet they contend that there is no urgent need for injunctive relief

because Plaintiffs have allegedly delayed in bringing this action.

Plaintiffs conducted a comprehensive, multifaceted investigation into a complex scam

that took in more than $400 million and persisted for at least seven years. The scope and scale of

the investigation is reflected in the voluminous record put before this Court. Fish, 840 F.3d at

753 (“The question . . . is whether the delay was reasonable, was not a decision by the party to

‘sit on its rights,’ and did not prejudice the opposing party.”); RoDa Drilling Co. v. Siegal, 552

F.3d 1203, 1212 (10th Cir. 2009) (affirming preliminary injunction where delay was “not

unreasonable”). Defendants learned of Plaintiffs’ investigation in January 2018, and their

conduct served to lengthen the investigation. They did not comply with Civil Investigative

Demands issued to them by the FTC, in particular refusing to comply with demands for

individual testimony.46 Defendants further interfered with Plaintiffs’ investigation by pressuring

witnesses to withdraw complaints they filed with government agencies. (Pls.’ Br. at 47-50 and

accompanying notes.) They should not be permitted to benefit from these tactics.47

45
Kling Decl., Tab 14, at ¶¶ 4, 15, 25, 26, 38, 39, 74, ECF No. 6-16.
46
See Lasky Decl. at ¶ 5 & Ex. A, FTC-PI-8717, 8719.
47
While delay can be “one factor to be considered among others” in determining whether
preliminary injunctive relief is appropriate, Fish, 840 F.3d at 753, it should be given less weight
in a case such as this, where Plaintiffs are government entities seeking injunctive relief to protect
the public. Moreover, Defendants’ only argument that they were prejudiced is that the delay
increased the amount of money they took from consumers, potentially enlarging the amount they
may ultimately be made to return to consumers. (Defs.’ Opp. at 59.) Making more money has
not prejudiced Defendants. Fish, 840 F.3d at 753 (failure to show that defendants were
prejudiced by delay is sufficient to reject delay rationale).
20
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C. AN ASSET FREEZE IS NECESSARY TO PRESERVE RELIEF FOR


CONSUMERS

Defendants do not dispute that an asset freeze is appropriate where a future monetary

award may not be collectible. They do not contest any of the following facts: they have taken in

a total of approximately $400 million from consumers (Pls.’ Supp. Br. at 8); they have dissipated

much of their gains as profit distributions, including approximately $34 million from Nudge

Enterprise bank accounts to the Individual Defendants (id.); and significant funds have been

squandered on the Individual Defendants’ lavish lifestyle, including more than $6.2 million

toward the maintenance and use of private aircraft.48 (Pls.’ Supp. Br. at 9.) An asset freeze is

appropriate and necessary to preserve consumers’ access to redress on the basis of these

uncontested facts.

Defendants instead contend that the Tenth Circuit and Judge Campbell have found that

asset freezes are a “disfavored” type of injunction, which serves to heighten judicial scrutiny of a

request for an asset freeze. (Defs.’ Opp. at 61.) But Defendants cite no Tenth Circuit cases that

support that proposition49 and exaggerate Judge Campbell’s holding in APG Enterprises, Inc. v.

48
Defendants appear to contend that not all of the $400 million would be susceptible to
disgorgement, as not every consumer was injured. (Defs.’ Opp. at 61.) The Tenth Circuit has
held, however, that defendants’ gross receipts are the appropriate measure for calculating
consumer loss in cases arising under the FTC Act. Freecom Commc’ns, Inc., 401 F.3d at 1206-
07. At this point, Plaintiffs are entitled to the presumption that Defendants’ gross receipts of
approximately $400 million represent their ill-gotten gains. Of that $400 million, Defendants
took in approximately $95 million through their telemarketing efforts. Kelly Decl. at ¶ 12, ECF
No. 6-30. Section 19 of the FTC Act, 15 U.S.C. § 57b, authorizes this Court to grant relief
related to Defendants’ telemarketing conduct, as stated in Count IV of the Complaint.
Defendants have not moved to dismiss Count IV. It is unlikely that when this case reaches a
final resolution Defendants will have $95 million available for consumer redress absent an asset
freeze.
49
The two Tenth Circuit cases that Defendants cite do not involve or discuss asset freezes. See
Schrier v. Univ. of Colo., 427 F.3d 1253, 1256 (10th Cir. 2005) (appellant sought an injunction
seeking reinstatement in his former position of employment); O Centro Espirita Beneficiente
Uniao Do Vegetal v. Ashcroft, 389 F.3d 973, 975 (10th Cir. 2004 (en banc) (preliminary
21
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Money & More, No. 2:08 CV 951(TC), 2009 WL 3297285 (D. Utah Oct. 14, 2009). In APG

Enterprises, Judge Campbell declined to grant an asset freeze that would have frozen not only

the defendants’ assets, but also the accounts and assets of “a variety of other associated

individuals including spouses, children, officers, agents, and even their attorneys.” 2009 WL

3297285, *4. The court concluded that “[c]onsidering its expansive breadth, such an injunction

would unquestionably alter the parties’ relationship and the relative status within that

relationship.” Id. Defendants also ignore abundant caselaw granting asset freezes requested by

the FTC against businesses permeated with misrepresentations and deceit. (Pls.’ Br. at 78-80

(collecting cases).) An asset freeze remains necessary and appropriate here.

IV. CONCLUSION

For these reasons, Plaintiffs respectfully request that the Court grant the requested TRO.

Dated: December 17, 2019 Respectfully submitted,

/s/ Laura A. Zuckerwise


Darren H. Lubetzky
Savvas S. Diacosavvas
Brian N. Lasky
Christopher Y. Miller
Laura A. Zuckerwise
(Each appearing per DUCivR 83-1.1(d)(1))
Federal Trade Commission
Northeast Regional Office
One Bowling Green, Suite 318
New York, NY 10004
Tel: (212) 607-2829
Email: dlubetzky@ftc.gov
Email: sdiacosavvas@ftc.gov
Email: blasky@ftc.gov
Email: cmiller@ftc.gov

injunction enjoining United States from prohibiting sacramental use of psychoactive substance
for religious purposes).
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Case 2:19-cv-00867-RJS-EJF Document 82 Filed 12/17/19 Page 29 of 30

Email: lzuckerwise@ftc.gov

Attorneys for Plaintiff


FEDERAL TRADE COMMISSION

Dated: December 17, 2019 /s/ Robert G. Wing


(Signed by Filing Attorney with
permission of Plaintiff’s Attorney)
/s/ Laura A. Zuckerwise
Robert G. Wing (4445)
Thomas M. Melton (4999)
Kevin McLean (16101)
Assistant Attorneys General
Utah Attorney General’s Office
160 East 300 South, Fifth Floor
Salt Lake City, Utah 84114
Tel: (801) 366-0310
Email: rwing@agutah.gov
Email: tmelton@agutah.gov
Email: kmclean@agutah.gov

Attorneys for Plaintiff


UTAH DIVISION OF CONSUMER
PROTECTION

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Case 2:19-cv-00867-RJS-EJF Document 82 Filed 12/17/19 Page 30 of 30

CERTIFICATE OF SERVICE

I hereby certify that on December 17, 2019, I caused a true and correct copy of the
foregoing PLAINTIFFS’ REPLY IN FURTHER SUPPORT OF MOTION ON NOTICE FOR A
TEMPORARY RESTRAINING ORDER AND ORDER TO SHOW CAUSE WHY A
PRELIMINARY INJUNCTION SHOULD NOT ISSUE, and supporting papers, to be served on
the following attorneys for Defendants by submission of the foregoing through the Court’s
cm/ecf system:

Erick A. Christiansen EChristiansen@parsonsbehle.com


Zack L. Winzeler ZWinzeler@parsonsbehle.com
Alan S. Mouritsen AMouritsen@parsonsbehle.com
Gregory H. Gunn GGunn@parsonsbehle.com
Leonard L. Gordon LLGordon@venable.com
Alexandra Megaris AMegaris@venable.com
J. Douglas Baldridge JBaldridge@venable.com
Stephen R. Freeland SRFreeland@venable.com
Michael A. Munoz MAMunoz@venable.com

Dated: December 17, 2019 /s/ Laura A. Zuckerwise


Laura A. Zuckerwise
Attorney for Plaintiff
Federal Trade Commission

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