FTC v. Kyle Kimoto , 763 F.3d 1094 ( 2014 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
FEDERAL TRADE COMMISSION, No. 11-18023
Plaintiff-Appellee,
D.C. No.
v. 2:09-cv-01349-
PMP-RJJ
GRANT CONNECT, LLC, et al.,
Defendants,
OPINION
and
KYLE R. KIMOTO,
Defendant-Appellant.
Appeal from the United States District Court
for the District of Nevada
Philip M. Pro, Senior District Judge, Presiding
Argued and Submitted
April 7, 2014—Pasadena, California
Filed August 15, 2014
Before: Sidney R. Thomas, Milan D. Smith, Jr.,
and Morgan Christen, Circuit Judges.
Opinion by Judge Milan D. Smith, Jr.
2 FTC V. KIMOTO
SUMMARY*
Federal Trade Commission
The panel affirmed in part and vacated in part the district
court’s summary judgment in favor of the Federal Trade
Commission, and its order permanently enjoining Kyle
Kimoto from engaging in a variety of marketing tactics and
ordering him to pay restitution.
The district court found that Vertek, Kimoto’s wholly
controlled company, had committed multiple violations of the
Federal Trade Commission Act, through its misleading
advertising and various marketing schemes.
The panel held that the district court properly held
Kimoto personally liable for both injunctive relief and the
requirement to pay restitution with respect to Vertek’s Line
of Credit Scheme, Grant Connect Scheme, and Work From
Home Scheme. The panel also held that Kimoto could not be
held liable for either injunctive relief or restitution with
respect to the Acai Total Burn Scheme. The panel vacated
that part of the district court’s grant of summary judgment
and permanent injunction based on Vertek’s violations of the
FTC Act in connection with the Acai Total Burn Scheme.
The panel held that individual liability for corporate
malfeasance was available for violations of the Electronic
Fund Transfer Act because such violations are also deemed
to be violations of the FTC Act, and that Kimoto was liable
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
FTC V. KIMOTO 3
for Vertek’s violations of the Electronic Fund Transfer Act
because of his personal involvement in concocting and
carrying out the several schemes that violated the Act.
The panel held that the scope of the district court’s
permanent injunction was not overbroad. The panel
remanded so that the district court could modify the
permanent injunction and the amount of restitution as
required by this decision.
COUNSEL
Peter Borenstein (argued) and Michael Dirscoll (argued), Law
Students, University of Loyola Law School, Los Angeles,
California;(argued); Erica L. Reilley, Jones Day, Los
Angeles, California; Daniel Patrick Selmi, Los Angeles,
California, for Defendant-Appellant.
Theodore P. Metzler (argued), Burke W. Kappler, and Dotan
Weinman, Attorneys; Roberto Anguizola, Assistant Director;
John F. Daly, Deputy General Counsel for Litigation; Federal
Trade Commission, Washington, D.C.; Blaine T. Welsh,
Assistant United States Attorney, Las Vegas, Nevada, for
Plaintiffs-Appellees.
4 FTC V. KIMOTO
OPINION
M. SMITH, Circuit Judge:
Kyle Kimoto (Kimoto) appeals from the district court’s
grant of summary judgment to the Federal Trade Commission
(FTC), and its order permanently enjoining Kimoto from
engaging in a variety of marketing tactics, and ordering him
to pay restitution. The district court found that
Vertek—Kimoto’s wholly controlled company—had
committed multiple violations of the FTC Act, 15 U.S.C.
§§ 41–58, through its misleading advertising, and further
found that Kimoto was both personally involved in the
practices and knew that the advertising was misleading or
was recklessly indifferent as to that possibility. On this basis
the district court permanently enjoined Kimoto personally
from engaging in a variety of advertising practices and
ordered him to pay restitution.
On appeal, Kimoto argues that the FTC presented
insufficient evidence of his involvement in Vertek’s
violations of the FTC Act to personally enjoin him or require
him to pay restitution. Specifically, Kimoto argues that he
cannot be held liable for Vertek’s schemes related to the
marketing of what are styled the Line of Credit scheme, the
Grant Connect scheme, the Work From Home scheme, and
the Acai Total Burn scheme, because the campaigns were not
launched until after Kimoto was imprisoned as a result of
prior violations of the FTC Act committed through a different
company. Kimoto further argues that he cannot be
individually liable for Vertek’s misdeeds under the Electronic
Fund Transfer Act (EFTA), codified in part at 15 U.S.C.
§ 1693. Finally, Kimoto claims that the district court’s
injunction—barring him from engaging in what are described
FTC V. KIMOTO 5
as negative-option marketing, continuity programs,
preauthorized electronic fund transfers, the use of
testimonials, and marketing or selling products related to
grants, credit, business opportunities, diet supplements, or
nutraceuticals—is overly broad.
We affirm the district court’s grant of summary judgment
to the FTC in part, and vacate the district court’s grant of
summary judgment to the FTC solely with respect to the Acai
Total Burn scheme.
FACTUAL AND PROCEDURAL BACKGROUND
Kimoto’s fraudulent business practices have drawn FTC
scrutiny for over a decade, and have resulted in three distinct
enforcement actions against him. Kimoto’s various schemes
have employed several unifying features: in each, Kimoto
lured consumers with a deceptively advertised headline
product, and then enrolled them in “upsells,” or negative-
option “free trials” that required consumers to undergo a
burdensome cancellation process in order to avoid
inadequately disclosed recurring monthly fees.
Two such schemes provide the relevant background for
this appeal. In 2003, the FTC brought an enforcement action
against Kimoto and one of his companies, Assail, Inc. FTC
v. Assail, Inc., 410 F.3d 256, 259 n.1 (5th Cir. 2005). The
FTC alleged that Kimoto enticed customers with an offer to
purchase a preapproved MasterCard through Assail, but that
when they tried to do so Assail provided them either with
applications for cash-secured debit cards, or with unusable
plastic cards bearing an unauthorized reproduction of the
MasterCard logo. Id. When customers accepted the offer for
the ostensible credit cards, Assail also enrolled them in
6 FTC V. KIMOTO
additional negative-option “free trials” that ceased to be free
after an introductory period. Id. Assail then charged
consumers recurring fees both for the “credit cards” and for
the “free trials,” and erected a variety of barriers to effective
cancellation. Id. On appeal, the Fifth Circuit held that
Kimoto, through Assail, “committed multiple, egregious
violations of the [FTC Act].” Id. at 264. The district court in
Assail imposed a permanent injunction barring Kimoto from
engaging in telemarketing and also ordered Kimoto to pay
$106 million in restitution. Subsequently, the FTC initiated
criminal charges against Kimoto for his role in the Assail
scheme. United States v. Kimoto, 588 F.3d 464, 470 (7th Cir.
2009).
Apparently undeterred by the injunction, Kimoto moved
to Las Vegas and formed a corporate entity to engage in
Internet marketing schemes, which eventually became the
Vertek Group, LLC. To avoid regulatory scrutiny, Kimoto
entrusted his then-wife, Juliette Kimoto, with legal ownership
of the entity. According to Kimoto’s ex-wife, this structure
had the added—and intended—benefit of permitting her to
profit from the company in the event that Kimoto was
incarcerated.
Although Mrs. Kimoto was the titular owner of Vertek,
Kimoto organized and ran the company. Kimoto hired many
of the employees who had been involved in the Assail
scheme, including Michael Henriksen and Tasha Jn Paul.
Kimoto also arranged for Michael Henriksen’s brother’s
business, Global Gold, to be the first “product provider” for
the scheme and recruited two more Assail veterans, Randy
O’Connell and James Gray—through their business
consulting and staffing company O’Connell Gray, LLP—to
help “with the logistics of accepting transactions on the
FTC V. KIMOTO 7
[Internet] . . . .” With his team in place, Kimoto directed and
participated in the development of several deceptive
marketing campaigns.
A. The Line of Credit Scheme
One of Vertek’s first schemes involved the marketing of
a “$7,500 Unsecured Credit Line” with promises such as “No
Credit Check! No Employment Verification! No Security
Deposit! Bankruptcy? No problem! Approval Guaranteed!”
The advertisements failed to mention that consumers could
only use the “line of credit” to make purchases from Global
Gold’s online store.1 Consumers who clicked on the
advertisements would be taken to so-called “landing pages,”
which were deceptive websites where consumers could sign
up for the scheme. Consumers entered personal data on two
screens, which contained check boxes indicating that the
customers agreed to certain terms and conditions, as well as
a privacy policy.
A section entitled “Offer Details” appeared in small print
further down the page, below the “Submit” button. The
details stated that customers would be charged a $39.95
monthly fee if they did not cancel the service, and that they
would be automatically signed up for additional programs,
each of which had its own “free trial” period, followed by
recurring monthly charges.
The terms and conditions suggested that consumers would
receive a traditional credit card. Hidden deep in the fine
print, however, the terms and conditions noted that the line of
1
Vertek marketed the same scheme under numerous brands, including
Global Gold, First Plus Platinum, and First National Gold.
8 FTC V. KIMOTO
credit could only be used “to purchase merchandise
exclusively at the Global Gold Credit Services Web site.”
The terms and conditions also noted, more than twenty
paragraphs into the fine print that the consumer “accepted
enrollment for up to 2 additional promotional product offers
. . . .”
Consumers who signed up for the line of credit often
believed that they would receive a credit card, and also
complained that they never agreed to be charged for the
“upsells.” When consumers tried to cancel, Global Gold’s
customer service operation made it exceedingly difficult,
needlessly transferring customers to different websites or
phone numbers, even though all of the calls ended up in the
same service center. The scheme ran from June 2007 until
May 2009, when the FTC shut it down. During that time,
after considerable effort on their parts, approximately 94
percent of subscribers cancelled their subscriptions.
B. The Grant Connect Scheme
Like the Line of Credit scheme, the Grant Connect
scheme relied on misleading advertising and hidden
“upsells.” The Grant Connect landing pages featured pictures
of President Obama and Vice President Biden, or of a scantily
clad female model holding cash. The pages stated that
billions of dollars in government grants were available to
individuals “to help [them] with [their] financial situation,”
including funding home purchases, child care, debt
consolidation, medical costs, and other personal expenses.
The sites offered an “easy to use program” to “instantly find
the Grant that’s right for you,” and included phony
testimonials from individuals claiming that they had received
hundreds of thousands of dollars in government grants.
FTC V. KIMOTO 9
The “landing pages” used the same deceptive two-step
ordering process as the Line of Credit scheme. The
inconspicuous offer details included an initial $2.78
processing fee along with automatic recurring monthly
charges of $39.95, as well as enrollment in two additional
offers with their own trial periods and negative-option
monthly charges.
Customers who purchased Grant Connect were directed
to the Grant Connect website, where they discovered that
most government grants cannot be used for personal
expenses. Despite this fact, Global Gold representatives (who
also handled calls related to the Grant Connect scheme) told
users they could find grants for things like expanding a
business, buying a home, and other personal expenses. The
Grant Connect scheme began in March 2008. By the time the
FTC shut down the site in May 2009, and after considerable
effort on their parts, more than 91 percent of Grant Connect’s
customers had cancelled their memberships.
C. The Work From Home Scheme
The Work From Home scheme operated along similar
lines. Misleading advertisements promised that consumers
could make a substantial income quickly and easily while
working from home. One such program, marketed as
Domain Processing or One Hour Wealth Builder, claimed
that users could “immediately begin earning hundreds to
thousands of dollars a day, in just a few minutes of [their]
spare time,” through buying and selling expired Internet
domain names. Indeed, the site claimed that users could
make $174,150 a year working for fewer than four hours a
day. A different program, My Search Cash, offered a “free”
10 FTC V. KIMOTO
trial kit for an “easy to use system” to make “$50,000 or more
a year” using eBay and Google.
Not only were these earning claims unsubstantiated, the
sites also included false testimonials extolling the simplicity
of making money using the systems. The Work From Home
scheme used the same two-step ordering process, and also
included two “free” negative-option trials. The Work From
Home scheme began in March 2008 and continued until the
FTC took over the sites in July 2009. By the time the FTC
stepped in, after considerable effort on their parts,
approximately 63 percent of customers who signed up for the
offers had cancelled.
D. Kimoto’s Trial and Incarceration
Kimoto’s criminal trial for his involvement in the Assail
scheme began in late March 2008. Kimoto, 588 F.3d at 470.
After a ten-day trial, the jury convicted Mr. Kimoto on one
count of conspiracy, one count of mail fraud, and twelve
counts of wire fraud. Id. at 468. During his trial and his
subsequent incarceration, Kimoto ceased to actively
participate in Vertek’s daily activities.
E. The Acai Total Burn Scheme
The final version of Vertek’s scheme involved the
marketing of Acai berries, a popular nutritional supplement.
Consumers were told that Acai Total Burn would help them
build muscle, increase their metabolism, lose weight, gain
energy, reduce fatigue, and retard the aging process. These
claims were unsubstantiated.
FTC V. KIMOTO 11
The Acai Total Burn scheme used the same deceptive two
page ordering process, inconspicuous disclosures, and
automatic enrollment in additional negative-option trials as
the other schemes. Acai Total Burn was available to
consumers for only two months, from June 5, 2009, through
July 30, 2009. During that time, the program enrolled 670
customers, 159 of whom had already cancelled when the FTC
took over the site.
F. Prior Proceedings
In July 2009, the FTC brought suit against many of the
participants in the schemes, including Vertek, Global Gold,
Steven Henriksen, and Mrs. Kimoto. The FTC sought,
among other relief, a temporary restraining order, which the
district court granted the following day, and a preliminary
injunction. The FTC amended its complaint to add
allegations regarding additional iterations of the scheme, as
well as to add Kimoto, Michael Henriksen, Tasha Jn Paul,
Johnnie Smith, and others as defendants.
Following discovery, the FTC and various defendants
moved for summary judgment. The district court found no
genuine dispute of material fact regarding whether the Line
of Credit, Grant Connect, Work From Home, and Acai Total
Burn schemes were deceptively marketed; that the negative-
option upsells were inadequately disclosed; that the
testimonials were false; and that defendants violated the
EFTA by debiting consumers’ accounts without written
authorization. Kimoto does not challenge these findings on
appeal.
The district court also found that the corporate defendants
operated as a common enterprise, because “[a]ll the various
12 FTC V. KIMOTO
offers were run by the same individuals using different
company names,” the defendants “swapped and shared
personnel,” as well as “blurred the lines of corporate
separateness in their activities,” and “engaged in concerted
and coordinated action across campaigns, and [making] their
profits interdependent.” Kimoto, initially proceeding pro se,
was the only defendant to appeal from the district court’s
judgment.
JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction over Kimoto’s appeal from the
district court’s grant of summary judgment and entry of a
permanent injunction under 28 U.S.C. § 1291. We review de
novo the district court’s grant of summary judgment. FTC v.
Stefanchik, 559 F.3d 924, 927 (9th Cir. 2009). We view the
evidence in the light most favorable to the non-moving party
and decide whether there are any genuine issues of material
fact and whether the district court correctly applied the
substantive law. Id. Where the district court chooses to
impose an equitable remedy, we review its decision for an
abuse of discretion. Id. at 931.
DISCUSSION
Kimoto contends that there is insufficient evidence of his
personal involvement in many of the schemes to hold him
personally liable. Kimoto further argues that his liability for
Vertek’s actions ended when he left the company to prepare
for his criminal trial, and that he cannot be individually liable
for Vertek’s misdeeds under the EFTA.
Kimoto also contends that the district court’s injunction,
which bars him from engaging in negative-option marketing,
FTC V. KIMOTO 13
continuity programs, preauthorized electronic fund transfers,
the use of testimonials, and marketing or selling products
related to grants, credit, business opportunities, diet
supplements, or nutraceuticals, is overly broad. We address
these arguments in turn.
I. Personal Liability
Individuals may be held liable for injunctive relief based
on corporate entity violations of the FTC Act if (1) the
corporation committed misrepresentations of a kind usually
relied on by a reasonably prudent person and resulted in
consumer injury, and (2) individuals participated directly in
the violations or had authority to control the entities. FTC v.
Publ’g Clearing House, Inc., 104 F.3d 1168, 1170–71 (9th
Cir. 1997). In order to hold an individual liable for restitution
as a result of the misconduct of a corporation, the FTC must
also show that the individual “had knowledge that the
corporation or one of its agents engaged in dishonest or
fraudulent conduct, that the misrepresentations were the type
upon which a reasonable and prudent person would rely, and
that consumer injury resulted.” Id. at 1171 (quoting FTC v.
Am. Standard Credit Sys., Inc., 874 F. Supp. 1080, 1089
(C.D. Cal. 1994)). To satisfy the knowledge requirement, the
FTC must show “that [a defendant] ‘had actual knowledge of
material misrepresentations, [was] recklessly indifferent to
the truth or falsity of a misrepresentation, or had an
awareness of a high probability of fraud along with an
intentional avoidance of the truth.’” Id. The FTC need not
show that a defendant intended to defraud consumers in order
for that individual to be personally liable. Id. And “[t]he
extent of an individual’s involvement in a fraudulent scheme
alone is sufficient to establish the requisite knowledge for
personal restitutionary liability.” FTC v. Affordable Media,
14 FTC V. KIMOTO
179 F.3d 1228, 1235 (9th Cir. 1999). Applying this standard,
we conclude that the district court properly held Kimoto
personally liable for both injunctive relief and the
requirement to pay restitution with respect to all of the
schemes described above, with the exception of the Acai
Total Burn scheme.
A. Line of Credit Scheme
Kimoto does not challenge his individual liability for
injunctive relief with respect to the Line of Credit scheme.
Further, the government’s evidence establishes that Kimoto
possessed the requisite scienter to be personally liable for
restitution because he either knew that Vertek was engaged
in deceptive advertising in connection with the Line of Credit
scheme or was recklessly indifferent as to that fact. Publ’g
Clearing House, 104 F.3d at 1171. Kimoto arranged Vertek’s
entire operation. He organized the companies, recruited
personnel who had been involved in his prior deceptive
marketing schemes, and directed Vertek’s activities. This
alone is enough to conclude that he had knowledge sufficient
to support personal liability for restitution damages. Id.
(“The extent of an individual’s involvement in a fraudulent
scheme alone is sufficient to establish the requisite
knowledge for personal restitutionary liability.”).
Additionally, Kimoto declared that he thought it was
“important for [him] to understand and know [the language
on the deceptive landing pages], because that was [his] job to
take it out to the affiliate marketer.” In light of Kimoto’s
prior troubles with the FTC, which also involved
inadequately disclosed “upsells,” his level of participation in
the scheme and knowledge of deceptive web pages shows
that he knew about, or was recklessly indifferent as to
FTC V. KIMOTO 15
Vertek’s deceptive practices. See Publ’g Clearing House,
104 F.3d at 1171 (holding an individual liable where she filed
a business license at the direction of someone facing criminal
charges due to deceptive telemarketing, and had worked at a
predecessor company that had been shut down due to a fraud
investigation); FTC v. Amy Travel, 875 F.2d, 564, 574–75
(7th Cir. 1989) (holding individuals liable where they wrote
deceptive scripts and managed the day-to-day activities of the
corporation).
Kimoto argues that the FTC has not established the
requisite scienter because he sought the advice of counsel,
and was imprisoned at the time Vertek received many of the
consumer complaints and chargebacks related to Global Gold.
Kimoto is mistaken on both counts. It is well established that
“reliance on advice of counsel [is] not a valid defense on the
question of knowledge” required for individual liability. FTC
v. Cyberspace.Com, LLC, 453 F.3d 1196, 1202 (9th Cir.
2006) (quoting Amy Travel, 875 F.2d at 575). Nor is it
relevant that many of the consumer complaints and
chargebacks—which can constitute evidence of an
individual’s knowledge—were received after Kimoto was
incarcerated. As previously discussed, Kimoto was well
aware of the fraudulent nature of the schemes before he was
imprisoned. The fact that he did not receive additional
information that would have heightened his knowledge of
Vertek’s FTC Act violations does not absolve him.
B. Grant Connect Scheme
Kimoto is personally liable for Vertek’s false advertising
of the Grant Connect scheme because he both controlled
Vertek at the time the scheme was organized, and directly
participated in establishing the scheme. According to his
16 FTC V. KIMOTO
fellow con artists, Kimoto was “responsible for creating and
organizing Vertek.” He “assembled a team to assist him in
conducting the business of Vertek . . . , which included
Defendants Michael Henriksen and Tasha Jn Paul,” and
“personally participated in the operation[] of Vertek [] until
he began full-time preparation for his criminal trial.”
“During the time that he participated in the operation[] of
Vertek [], [] Kimoto directed the activities of Vertek [].”
Accordingly, Kimoto controlled Vertek at least until the
beginning of his trial in March 2008. In 2007, more than a
year before Kimoto’s criminal trial, Vertek began drafting
deceptive terms and conditions for the scheme, as well as
deceptive landing pages and advertisements. Vertek also
created the logo for the scheme. Kimoto thus participated in
the claimed violations through his control of, and
involvement in, Vertek during the period that Vertek drafted
the misleading advertising.
Kimoto also personally participated in concocting the
Grant Connect scheme. Kimoto introduced his idea for the
scheme to O’Connell Gray in 2006, after which James Gray
sent Kimoto login credentials for several grant search
products in order to enable Tasha Jn Paul to create a “highly
detailed roadmap of how all the sites and offers interrelate.”
Kimoto also negotiated the roles and responsibilities of
Vertek and O’Connell Gray with respect to the Grant Connect
scheme. Following these discussions, O’Connell Gray sent
Kimoto a draft letter of intent regarding the “Government
Grant Venture” between O’Connell Gray and a “Kyle
Komoto [sic] entity to be named.” Finally, in early 2008,
Kimoto received the misleading “program specifics” and
phony “testimonials” for Grant Connect.
FTC V. KIMOTO 17
Kimoto argues that he cannot be held liable because Grant
Connect was not marketed to consumers until after his
imprisonment. Our case law makes clear that an individual
is liable for corporate violations of the FTC Act where that
individual “participated directly in the violation.” Publ’g
Clearing House, 104 F.3d at 1170. Here, Vertek’s violation
consisted of the deceptive marketing that underlay the Grant
Connect scheme, marketing that Kimoto participated in
designing and approving. Kimoto does not allege, nor does
the record show, that the marketing materials surrounding
Grant Connect materially changed after he ceased his active
participation in the scheme. Accordingly, Kimoto is
personally liable for Vertek’s violations in connection with
the Grant Connect scheme because of his personal
involvement in that violation—drafting the misleading
advertisements that constituted the violation. The fact that
Kimoto did not continue his participation after his criminal
trial began does not alter the simple fact that he participated
in creating the very material found to be misleading by the
district court.
Kimoto possessed the requisite scienter to be personally
liable for restitution because he either knew that Vertek was
engaged in deceptive advertising in connection with the Grant
Connect scheme or was recklessly indifferent as to that fact.
Publ’g Clearing House, 104 F.3d at 1171. Gray sent Kimoto
program specifics and testimonials for Grant Connect on
February 15, 2008, many months before the product
launched. Clearly the testimonials could not have been
legitimate since the product had not yet launched. Kimoto
thus had knowledge that the scheme was deceptive.
18 FTC V. KIMOTO
C. Work From Home Scheme
Kimoto wrote the deceptive text for the landing pages
associated with the Domain Processing scheme, one of the
Work From Home schemes, to redesign the website, and to
design the landing pages and deceptive advertisements.
Kimoto also received the product description for the scheme,
which deceptively promised that participants could earn
inflated incomes.
Kimoto possessed the requisite scienter to be personally
liable for restitution because he either knew that Vertek was
engaged in deceptive advertising in connection with the Work
From Home scheme or was recklessly indifferent as to that
fact, Publ’g Clearing House, 104 F.3d at 1171, for the same
reasons that he knew, or was recklessly indifferent as to the
possibility that the statements associated with the Line of
Credit scheme and Grant Connect scheme were
misleading—namely, his history of trouble with the FTC
related to “upsells,” his orchestration of the enterprise that
brought the scheme to fruition, and the clearly overstated
incomes contained in the draft product description that he
received.
D. Acai Total Burn Scheme
Unlike the other schemes previously described, however,
the evidence does not show that Kimoto controlled Vertek at
the time the Acai Total Burn scheme was developed, nor does
it show that he directly participated in the scheme. Kimoto
was incarcerated on April 18, 2008, whereas work on the
Acai Berry scheme did not begin until February 2009.
Accordingly, Kimoto cannot be held liable for either
injunctive relief or restitution with respect to the Acai Total
FTC V. KIMOTO 19
Burn scheme. We vacate that part of the district court’s grant
of summary judgment and permanent injunction based on
Vertek’s violations of the FTC Act in connection with the
Acai Total Burn scheme.
II. Liability Under the EFTA
Although Kimoto does not contest that Vertek violated
the EFTA, he argues that there is no individual liability for
corporate violations of that Act. We disagree. The EFTA
provides that “a violation of any requirement imposed under
[the EFTA] shall be deemed a violation [of the FTC Act].”
15 U.S.C. § 1693o(c). The EFTA further provides that “[a]ll
of the functions and powers of the Federal Trade Commission
under the Federal Trade Commission Act are available to the
Federal Trade Commission to enforce compliance by any
person subject to the jurisdiction of the Federal Trade
Commission with the requirements imposed under this
subchapter.” Id. The EFTA provides no enforcement
mechanism of its own, instead relying on the enforcement
provisions in the authorizing statutes of the agencies tasked
with enforcing the FTC Act. See 15 U.S.C. §§ 1693o(b)–(c).
As previously discussed, where the FTC seeks a permanent
injunction for violations of the FTC Act under 15 U.S.C.
§ 53(b) it can, under appropriate circumstances, hold an
individual personally liable for corporate violations of the
FTC Act. Affordable Media, 179 F.3d at 1234. In light of the
above, we hold that individual liability for corporate
malfeasance is available for violations of the EFTA because
such violations are also deemed to be violations of the FTC
Act, and that Kimoto is liable for Vertek’s violations of the
EFTA because of his personal involvement in concocting and
carrying out the several schemes that violated the EFTA,
which are more fully discussed above.
20 FTC V. KIMOTO
III. Scope of the Injunction
Kimoto next challenges the scope of the district court’s
injunction on several grounds. First, he contends that the
injunction is not tailored to his specific bad acts. Second, he
argues that the injunction’s ban on certain types of marketing
and advertising, and on all use of testimonials, is
impermissibly broad. Finally, Kimoto argues that the
injunction’s ban on all electronic fund transfers is overbroad.
None of these arguments is availing.
To determine if an injunction is overbroad, we consider
“(1) the seriousness and deliberateness of the violation;
(2) [the] ease with which the violative claim may be
transferred to other products; and (3) whether the respondent
has a history of prior violations.” FTC v. John Beck Amazing
Profits, LLC, 888 F. Supp. 2d 1006, 1012 (C.D. Cal. 2012)
(citing In re Stouffer Foods Corp., 118 F.T.C. 746, 811
(1994)). The Commission “is not limited to prohibiting the
illegal practice in the precise form in which it is found to
have existed in the past.” FTC v. Ruberoid Co., 343 U.S.
470, 473 (1952). And those “caught violating” the FTC Act
“must expect some fencing in.” FTC v. Nat’l Lead Co.,
352 U.S. 419, 431 (1957). Accordingly, injunctive relief
under the FTC Act may be framed “broadly enough to
prevent respondents from engaging in similarly illegal
practices in future advertisements.” FTC v. Colgate-
Palmolive Co., 380 U.S. 374, 395 (1965). The injunction will
be upheld so long as it bears a “reasonable relation to the
unlawful practices found to exist.” Id. at 394–95.
Vertek operated as a common enterprise with other
companies involved in the scheme. Where corporate entities
operate together as a common enterprise, each may be held
FTC V. KIMOTO 21
liable for the deceptive acts and practices of the others. FTC
v. Network Servs. Depot, Inc., 617 F.3d 1127, 1143 (9th Cir.
2010). Kimoto, in turn, is personally liable for Vertek’s
violations of the FTC Act in connection with each of the
schemes previously discussed, except for the Acai Total Burn
scheme, by virtue of his having personally participated in
each of the deceptive schemes, and by virtue of his control
over Vertek prior to his incarceration. Kimoto has also
consistently engaged in variations on the same deceptive
marketing scheme, which, in its latest iteration alone, has
defrauded consumers of more than $29 million. As the
record reveals, the common elements employed in each of the
frauds concocted by Kimoto is easily transferable both to new
product lines and to new modes of communication with
consumers. Accordingly, because the district court’s
injunction was based on Vertek’s violations of the FTC Act
in connection with the Line of Credit, Grant Connect, and
Work From Home schemes, it is not overbroad but is, instead,
reasonably tailored to “prevent respondent[] from engaging
in similarly illegal practices in future advertisements.”
Colgate-Palmolive Co., 380 U.S. at 395.
CONCLUSION
For the reasons above we AFFIRM the district court’s
grant of summary judgment to the FTC in part, and VACATE
the district court’s grant of summary judgment to the FTC
with respect to the Acai Total Burn scheme. We REMAND
to the district court so that it may modify the permanent
injunction and the amount of restitution as required by this
opinion. Each party shall bear its own costs.
AFFIRMED in part, VACATED in part, and
REMANDED for further proceedings.