FTC v. SkyBiz.com, Inc., et al.©www.mlmlegal.com
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FTC v. SkyBiz.com, Inc., et al.
Case: Federal Trade Commission v. SkyBiz.com, Inc., et al.
Subject Category: Pyramid
Agency Involved: FTC
Court: U.S. District Court for Oklahoma
Case Synopsis: In May 2001, the FTC filed suit in U.S. District Court in Tulsa, Oklahoma charging that Tulsa-based SkyBiz and its principals promoted a pyramid scheme with false earnings claims. After a hearing, the district court entered an injunction against Skybiz from continuing business, froze the assets of Skybiz and its related companies and owners, and ordered funds overseas to be repatriated to the U.S. Skybiz offered an opportunity selling personalized Web site businesses to consumers for $125. Skybiz attempted to avoid a pyramid selling scheme finding by offering to each new customer a set of Web site creation tools. However, the district court found that the “product” was of little value, and that many of the sites were never used by participants and were only purchased to gain access to the chain of commission payments generated from recruitment. On appeal, the 10th Circuit Court of Appeals upheld the injunction.
Legal Issue: Is the FTC entitled to an injunction against the continuation of the Skybiz.com program on the grounds it is an illegal pyramid scheme, and is the FTC entitled to an order mandating that Skybiz repatriate funds and documents held abroad to the U.S.?
Court Ruling: The 10th Circuit Court of Appeals upheld the injunction, finding that the FTC was likely to succeed on its claim that Defendants were operating a pyramid scheme both inside and outside of the United States, and the balance of harm weighed in favor of the FTC and the public. The court also ruled that the district court was within its power in applying the injunction to defendants’ international sales and assets, as the FTC Act can apply to trade outside U.S. borders in order to regulate U.S. commerce.
Practical Importance to Business of MLM/Direct Sales/Direct Selling/Network Marketing Plan/Multilevel Marketing: The FTC has the power to regulate to overseas activities in violation of the FTC Act of a U.S. MLM company if those activities are connected to the United States, and are affecting U.S. commerce or commerce between U.S. competitors in the foreign markets.
FTC v. SkyBiz.com, Inc., 01-5166 (10th Cir. 2003), (non-precedential):
F I L E D
United States Court of Appeals
Tenth Circuit
JAN 30 2003
PATRICK FISHER
Clerk
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
FEDERAL TRADE COMMISSION,
Plaintiff - Appellee,
v.
SKYBIZ.COM, INC.; WORLD
SERVICE CORPORATION;
WORLDWIDE SERVICE
CORPORATION; JAMES S. BROWN; No. 01-5166
ELIAS F. MASSO; KIER E. MASSO, D.C. No. 01-CV-396-K(E)
(N.D. Oklahoma)
Defendants - Appellants,and
NANCI CORPORATION
INTERNATIONAL; STEPHEN D.
MCCULLOUGH; NANCI H. MASSO;
ROBERT E. BLANTON; SKYBIZ
INTERNATIONAL LTD.,Defendants.
ORDER AND JUDGMENT*
Before O’BRIEN, Circuit Judge, McWILLIAMS, Senior Circuit Judge, and BRORBY,
Senior Circuit Judge.
*
This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.On May 30, 2001, the Federal Trade Commission (“FTC”), pursuant to 15 U.S.C.
§§ 45(a) and 53(b), filed an action for injunctive and other equitable relief in the United
States District Court for the Northern District of Oklahoma, naming as defendants
SkyBiz.Com, Inc., World Service Corporation, WorldWide Service Corporation, James S.
Brown, Elias F. Masso and Kier Masso, and others. The “others” named in the original
complaint are not parties to this appeal.1
In its complaint, the FTC charged the defendants with violating 15 U.S.C. § 45(a)
by engaging in deceptive acts or practices and sought “to secure permanent injunctive
relief, preliminary, and other equitable relief, ” pursuant to 15 U.S.C. § 53(b). As a part
of its request for preliminary relief, the FTC requested an ex parte temporary restraining
order (“TRO”) and a preliminary injunction. On June 6, 2001, after hearing, the district
court held that the interest of justice required that the ex parte application for a TRO be
heard without notice and entered a TRO against the six defendants. On June 8, 2001, the
court held a status conference at the defendants’ request and set a hearing on the FTC’s
application for a preliminary injunction for June 26, 2001. A three-day hearing was held
on the FTC’s request for a preliminary injunction on June 26-28, 2001, at the conclusion
1
After the filing of the initial complaint, SkyBiz International Ltd., a British Virgin
Islands corporation which did business in Tulsa, Oklahoma, was added as a party
defendant. SkyBiz International Ltd. appealed two rulings of the district court, our Nos.
01-5176 and 02-5004. Both appeals were dismissed on motions by SkyBiz International
Ltd., and that entity is not a party to the present appeal.-2-
of which the district court took the matter under advisement and ordered the parties to file
proposed findings of fact and conclusions of law. On August 31, 2001, the district court
in a 40-page opinion entered its “Findings of Fact and Conclusions of Law and Order for
Preliminary Injunction.” In that order the district court found, inter alia, “that the FTC`
will likely prevail on the merits” and that “the potential harm to the public [if the
preliminary injunction is not entered] outweighs any harm that the defendants may suffer
[if a preliminary injunction be issued] . . . .” The district court also ordered that the terms
of the preliminary injunction against the defendants be applied to the defendants’ “extra
territorial activity.” The defendants now appeal the order granting a preliminary
injunction and raise three issues: (1) the district court erred in finding that the FTC “will
likely prevail on the merits;” (2) the district court erred in finding that the potential harm
to the public if the preliminary injunction is not issued outweighs the potential harm to the
defendants if the preliminary injunction be issued; and (3) the district court erred in
applying the preliminary injunction to defendants’ overseas activities, or certain of such
activities.
The parties are in basic agreement that we review a district court’s grant of a
preliminary injunction for abuse of discretion and, in so doing, we review its findings of
fact for clear error and its underlying issues of law de novo. United States v. Power
Eng’g. Co., 191 F.3d 1224, 1230 (10th Cir. 1999), cert. denied 529 U.S. 1086 (2000);
Prairie Band of Potawatomi Indians v. Pierce, 253 F.3d 1234, 1243 (10th Cir. 2001).
-3-
As indicated, the hearing on FTC’s request for a preliminary injunction was arather extended one. At the hearing, the FTC presented 228 documents and called nine
witnesses, including the FTC’s expert economist, four consumers, an FTC investigator,
the Receiver under the TRO and two employees of the Receiver. The defendants
presented 17 documents and called four witnesses. Our study of the matter convinces us
that the district court did not err in finding that the FTC was “likely to prevail on the
merits” and that the potential harm to the public if an injunction did not issue outweighs
the harm to the defendants if an injunction be issued. In issuing the preliminary
injunction, the district court did not abuse its discretion. See Anderson v. City of
Bessemer, 470 U.S. 564, 573 (1985).
As indicated, the defendants also urge as error in this court that the district court
erred in directing that the preliminary injunction, or, at least, certain aspects of it, apply to
the defendants’ international sales and assets. In this regard, it should be noted that as
concerns the six appellants, SkyBiz.Com, Inc., and World Service Corporation are
Nevada corporations with their principal place of business in Tulsa, Oklahoma;
WorldWide Service Corporation is an Oklahoma corporation with its principal place of
business in Tulsa, Oklahoma; James S. Brown, the president of SkyBiz.Com, resides and
transacts business in the Northern District of Oklahoma; Elias F. Masso, the CEO of
World Service, resides and transacts business in the Northern District of Oklahoma; and
Kier Masso is, or has been, the secretary and treasurer of World Service, and resides and
-4-
transacts business in the Northern District of Oklahoma. So, all defendants who are
appellants in this court were “before the court,” so to speak. And, in this general
connection, all sales, domestic or foreign, “passed through” the Tulsa, Oklahoma, offices.
In its 40-page order, the district court made the following comment in its
“Conclusions of Law” section of the order concerning the defendants’ “international
activities:”
1. As demonstrated by testimony, Defendants marketed
their program to consumers throughout the nation, thereby
affecting the passage of property or messages from one state
to another. Defendants also marketed their program to
consumers throughout the world, thereby affecting the
passage of property or messages from the United States to
foreign nations. Such transactions are “in or affecting
commerce among the several states or with foreign nations,”
as required by the FTC Act. See 15 U.S.C. §44.*****
2. In their Proposed Findings of Fact and Conclusions
of Law, Defendants seek to avoid extraterritorial application
of this Order. The Court finds that the terms of this Order
may apply extraterritorially. See Branch v. FTC, 141 F.2d 31
(7th Cir. 1944) (holding that FTC Act applies to trade outside
U.S. borders as a means of controlling domestic competition).In addition to the above, the district court in its preliminary injunctive order
referred specifically to defendants’ international activities, in Section M of the order, as
follows:
M. Repatriation of Assets and Documents Located in Foreign
Countries
It is further ordered that Defendants, whether acting-5-
through any trust, corporation, subsidiary, division or other
device, shall:
1. Take such steps as are necessary to transfer to the
territory of the United States of America all documents and
assets, not including property of the Masso Bankruptcy Estate
pursuant to 11 U.S.C. § 541, that are located outside of such
territory and are held by or for Defendants or are under
Defendants’ direct or indirect control, jointly, severally, or
individually; and
2. Provide the Commission and Receiver with a full
accounting of all documents and assets, not including property
of the Masso Bankruptcy Estate pursuant to 11 U.S.C. §541,
that are located outside of the territory of the United States of
America and are held by or for Defendants or are under
Defendants’ direct or indirect control, jointly, severally, or
individually; and
3. Hold and retain all transferred documents and
assets, not including property of the Masso Bankruptcy Estate
pursuant to 11 U.S.C. § 541, and prevent any transfer,
disposition, or dissipation whatsoever of any such assets or
funds, except for transfers to the Receiver; and
4. Provide plaintiff access to Defendants’ records and
documents held by financial institutions outside the territorial
United States, by signing the Consent to Release of Financial
Records attached hereto as Attachment A.Our study of the matter leads us to conclude that, under the circumstances above
described, the district court did not commit error in issuing a preliminary injunction, and
enjoining certain acts and practices of the defendants being committed both inside and
outside the United States. We do not regard Equal Employment Opportunity Comm’n v.
Arabian American Oil Co., 499 U.S. 244 (1991), superseded by statute as stated in U.S.
v. Wilkinson, 169 F.3d 1236 (10th Cir. 1999) as being dispositive of the extra-territorial
issue here presented. In that case, the Supreme Court held that the employee’s
-6-
protections under Title VII of the Civil Rights Act of 1964 did not extend to include
United States citizens employed abroad by American employers. In this same connection,
see Nieman v. Dryclean U.S.A. Franchise Co., Inc., 178 F.3d 1126 (11th Cir. 1999), cert.
denied, 528 U.S. 1118 (2000) (holding that the FTC’s Franchise Rule does not apply
extraterritorially). We deem the facts of the instant case to be different than those in
either of those cases. The facts of the instant case are somewhat similar to those in
Branch v. Federal Trade Comm’n, 141 F.2d 31 (7th Cir. 1944), a case relied on by the
district court in the instant case.
In conclusion, we emphasize that we are here concerned only with whether the
district court erred in granting a preliminary injunction. That order was entered on
August 31, 2001, and has been in place ever since. A hearing on FTC’s request that it be
granted a permanent injunction has not yet been held. We are simply holding by this
order and judgment that, based on the evidentiary material before it at the time, the
district court did not err in granting its preliminary injunction. Whether a permanent
injunction should issue remains to be decided. After remand, the district court shall
promptly hear and determine FTC’s request for a permanent injunction.
Judgment affirmed. Mandate shall issue forthwith.
ENTERED FOR THE COURT
Robert H. McWilliams
Senior Circuit Judge