FTC v. Hoyal & Associates, Inc. ( 2021 )


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  •                                                                               FILED
    NOT FOR PUBLICATION
    JUN 11 2021
    UNITED STATES COURT OF APPEALS                         MOLLY C. DWYER, CLERK
    U.S. COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    FEDERAL TRADE COMMISSION,                        No.   19-35668
    Plaintiff-Appellee,                D.C. No. 1:16-cv-00720-CL
    v.
    MEMORANDUM*
    HOYAL & ASSOCIATES, INC., an
    Oregon corporation; et al.,
    Defendants-Appellants.
    FEDERAL TRADE COMMISSION,                        No.   19-35669
    Plaintiff-Appellee,                D.C. No. 1:16-cv-00720-CL
    v.
    HOYAL & ASSOCIATES, INC., an
    Oregon corporation; JEFFREY HOYAL,
    individually and as an officer of Hoyal &
    Associates, Inc.,
    Defendants-cross-
    defendants-Appellees,
    v.
    *
    This disposition is not appropriate for publication and is not precedent
    except as provided by Ninth Circuit Rule 36-3.
    DAVID P. LENNON; LENNON &
    KLEIN, P.C., a foreign business
    corporation,
    Third-party-defendants-
    Appellees,
    REALITY KATS, LLC, an Oregon limited
    liability company; DENNIS SIMPSON,
    Defendants-third-party-
    plaintiffs-cross-claimants-
    Appellants.
    Appeal from the United States District Court
    for the District of Oregon
    Mark D. Clarke, Magistrate Judge, Presiding
    Submitted June 9, 2021**
    Portland, Oregon
    Before: GRABER and IKUTA, Circuit Judges, and BENITEZ,*** District Judge.
    Dennis Simpson, Jeffery Hoyal, Lori Hoyal, and corporate defendants,
    Reality Kats, LLC, and Hoyal & Associates, Inc. (H&A), appeal from the district
    court’s judgment holding that they are subject to a permanent injunction and
    **
    The panel unanimously concludes this case is suitable for decision
    without oral argument. See Fed. R. App. P. 34(a)(2).
    ***
    The Honorable Roger T. Benitez, United States District Judge for the
    Southern District of California, sitting by designation.
    2
    monetary judgment. We have jurisdiction under 
    28 U.S.C. §§ 636
    (c)(3) and 1291.
    We affirm in part and vacate in part.
    Section 5 of the Federal Trade Commission Act (FTCA) makes it unlawful
    for any person or entity to engage in “unfair or deceptive acts or practices in or
    affecting commerce.” 
    15 U.S.C. § 45
    (a). When a corporate entity violates this
    section by making a deceptive representation, an individual may be found
    personally liable for such a corporate violation if he or she “participated directly”
    in the unlawful acts or practices, or “had the authority to control” the unlawful acts
    or practices at issue, and “had actual knowledge of the misrepresentations
    involved, was recklessly indifferent to the truth or falsity of the misrepresentations,
    or was aware of a high probability of fraud and intentionally avoided learning the
    truth.” FTC v. Com. Planet, Inc., 
    815 F.3d 593
    , 600 (9th Cir. 2016), overruled on
    other grounds by AMG Cap. Mgmt., LLC v. FTC, 
    141 S. Ct. 1341
     (2021). Under
    § 13(b) of the FTCA, 
    15 U.S.C. § 53
    (b), the Federal Trade Commission (FTC),“in
    proper cases,” may seek a permanent injunction to remedy a violation of § 45.
    This statutory authorization does not, however, allow the FTC to seek, and the
    court to award, equitable monetary relief. AMG Cap. Mgmt., LLC, 141 S. Ct. at
    1344.
    3
    In light of AMG Capital Management, we vacate the district court’s
    monetary judgment. See id. Therefore, we need not consider the parties’
    arguments relating to the monetary judgment, including Simpson and Reality Kats’
    laches and estoppel theories.
    The district court did not err in holding Simpson, Jeffrey Hoyal, and Lori
    Hoyal personally liable for the corporate defendants’ violations of § 45.1
    First, the district court did not err in concluding that the corporate
    defendants, including Reality Kats and H&A, operated as a common enterprise and
    were therefore liable for each other’s unlawful acts.
    Second, the district court did not err in holding that the mailers sent by the
    common enterprise were deceptive as a matter of law because the representations
    in the mailers created a “net impression” that was likely to mislead consumers
    acting reasonably. FTC v. Gill, 
    265 F.3d 944
    , 950, 956 (9th Cir. 2001). The
    appellants do not dispute the district court’s finding that the mailers created the
    “net impression” that any current subscription would be renewed automatically and
    1
    Dennis Simpson failed to challenge personal jurisdiction before the district
    court, so he cannot raise such a challenge here. Am. Ass’n of Naturopathic
    Physicians v. Hayhurst, 
    227 F.3d 1104
    , 1106 (9th Cir. 2000), as amended on
    denial of reh’g (Nov. 1, 2000) (holding that personal jurisdiction challenges “must
    be raised at the first available opportunity or, if they are not, they are forever
    waived”).
    4
    that the consumer was being offered the lowest price. FTC v. Stefanchik, 
    559 F.3d 924
    , 928 (9th Cir. 2009). Nor do they dispute on appeal that these representations
    were material. Contrary to the appellants’ argument, the mailers’ misleading “net
    impression” was not cured by the disclaimer on the reverse side of the mailers. See
    
    id.
     Further, the 2004 settlement agreement between some of the appellants and the
    state of Oregon does not undermine the district court’s determination that the
    representations on the mailers are deceptive under federal law. U.S. Const. art. VI.
    Third, the factual findings by the district court, which are not clearly
    erroneous, support the conclusion that Simpson, Jeffrey Hoyal, and Lori Hoyal are
    personally liable for the corporate defendants’ violations of § 45. The district court
    did not clearly err in finding that Simpson participated directly in the deceptive
    mailing operation because, through Reality Kats, he “managed subscription
    product marketing, modeling, database management, [and] analysis for the
    deceptive mailing operation.” The district court did not clearly err in concluding
    that Simpson had actual knowledge of or was recklessly indifferent to the
    deceptive practices, Com. Planet, Inc., 815 F.3d at 600, as he signed the 2015
    settlement, received some of the cease-and-desist letters, and was aware that the
    operation received complaints or inquiries from state attorneys general. Nor did
    the district court clearly err in finding that Lori Hoyal participated in the deceptive
    5
    mailing operation, or had the authority to control it, given that she was a 50%
    owner of H&A, held H&A’s corporate officer roles, and managed consumer
    money from the deceptive mailing operation through H&A. The 2004 settlement
    agreement with Oregon expressly prohibited the Hoyals from relying on the
    agreement as evidence of approval of their deceptive operations, and therefore does
    not negate the district court’s finding that the Hoyals had actual knowledge of or
    were recklessly indifferent to the deceptive practices. Id.
    Further, the district court did not err in holding that there was a reasonable
    likelihood of recurrence of the operation’s deceptive practices even though some of
    the corporate entities in the operation had ceased to exist before this lawsuit.2
    Simpson’s reliance on an out-of-circuit case, FTC v. Shire ViroPharma, Inc., 
    917 F.3d 147
     (3d Cir. 2019), is misplaced because the defendant in that case had
    stopped its challenged practice five years previously, and there was no evidence
    that it would carry out similar unfair practices in the future, 
    id. at 160
    . Here, by
    contrast, given the defendants’ record showing a “willingness to flout the law” in a
    2
    The 2015 settlement by some defendants with Oregon did not extinguish
    the mailing operation. After the 2015 settlement, the assets of the operation were
    transferred to the Hoyals’ nephew “to effectively run and maintain a subscription
    agency business.” And since 2015, Simpson continued to be involved in mailers,
    providing one of his former business partners with the same kind of services as he
    did for the deceptive mailing operation.
    6
    substantially similar manner over a decade, the district court did not err in
    concluding that Lori Hoyal, Jeffrey Hoyal, Simpson, and the corporate defendants,
    including Reality Kats, would likely commit future violations involving deceptive
    mailer operations.3 Sears, Roebuck & Co. v. FTC, 
    676 F.2d 385
    , 392 (9th Cir.
    1982). Therefore, the district court did not err in ordering the injunction against
    appellants. Evans Prods., 775 F.2d at 1086.4
    For the same reasons, the district court did not err in concluding that this is a
    “proper case” for the issuance of a permanent injunction under 
    15 U.S.C. § 53
    (b).
    Evans Prods., 775 F.2d at 1086; FTC. v. H. N. Singer, Inc., 
    668 F.2d 1107
    , 1110
    (9th Cir. 1982), overruled on other grounds by AMG Cap. Mgmt., LLC, 141 S. Ct.
    at 1341. We have long held that the FTC can obtain injunctive relief without
    initiating administrative proceedings. H.N. Singer, 
    668 F.2d at 1110
    . As indicated
    3
    For this reason, Simpson’s and Reality Kats’ argument that the case was
    brought under the impermissible theory that the defendants “could” violate the law,
    rather than the “likely to recur” theory fails. FTC v. Evans Prods. Co., 
    775 F.2d 1084
    , 1087 (9th Cir. 1985). So does their challenge that they were not allowed “an
    opportunity to explore discovery on this [theory].”
    4
    Reality Kats and Dennis Simpson also raise issues regarding, among other
    things, the order dismissing their third-party complaint and their cross-claim, and
    the district court’s evidentiary rulings, but fail to support them with arguments.
    Those issues “are deemed abandoned.” See Aguilar-Ramos v. Holder, 
    594 F.3d 701
    , 703 n.1 (9th Cir. 2010).
    7
    above, there is ample evidence supporting the district court’s conclusion that
    violations are “likely to recur.” Evans Prods., 
    775 F.2d at 1087, 1089
    .
    Finally, the injunction is neither impermissibly vague nor overbroad. The
    scope of the injunction is not confusing, and it bears a reasonable relation to the
    FTC’s goal of preventing similar future violations. FTC v. Colgate-Palmolive Co.,
    
    380 U.S. 374
    , 394–95 (1965); Portland Feminist Women’s Health Ctr. v. Advocs.
    for Life, Inc., 
    859 F.2d 681
    , 684–85 (9th Cir. 1988).
    AFFIRMED IN PART and VACATED IN PART.5
    5
    The parties will bear their own costs on appeal.
    8