Wednesday, January 21, 2009
Court Rejects Challenge to Small Business Opportunity Plan Law
By STEVEN M. ELLIS, Staff Writer
A state law imposing disclosure requirements on small business opportunity offerings is not unconstitutionally vague, this district’s Court of Appeal held yesterday.
Upholding an injunction prohibiting two sellers of home-based Internet business startup plans from selling products or services without first complying with the Seller Assisted Marketing Plan Act, Div. Six ruled that language describing representations that purchasers can earn more than they invest gave adequate notice of the conduct triggering the requirements.
iMergent, Inc., and its subsidiary, StoresOnline, Inc., are self-described providers of “eCommerce” technology, training, and other web-based programs that purport to help start, operate, and maintain home-based businesses.
They market their services and products by conducting sales presentations at hotels and conference centers throughout the United States, and consumers are solicited by mail with offers of free gifts and meals to attend an initial 90-minute presentation.
Those who attend are invited to pay $20 to attend what defendants characterized as “a full-day Internet marketing training workshop” valued at $1,889.
However Ventura County District Attorney Gregory D. Totten brought suit in 2006 alleging the “workshop” was actually “a vigorous all-day sales pitch for [defendants’] Internet storefronts, website design and Internet marketing services.”
Pointing to testimonials on the defendants’ website by customers who claimed to have recouped their investments, and similar representations at sales presentations, Totten claimed the defendants had violated the SAMP Act by failing to make certain disclosures mandated from sellers who require an initial payment between $500 and $50,000, and represent that a purchaser “will earn, is likely to earn, or can earn an amount in excess of the initial payment paid by the purchaser for participation.”
The Legislature passed the act in 1978 in order to assist inexperienced or unsophisticated buyers in making an informed decision prior to investing in a business opportunity, and it requires seller assisted marketing plans to register with the Attorney General’s Office, provide significant disclosure statements to potential buyers prior to signing any contracts, and provide the buyer specific contractual rights after a purchase has been made.
iMergent and its subsidiary stipulated to a judgment requiring them to pay $1.2 million in restitution and refrain from violating the act’s disclosure requirements, but 10 months later the Attorney General sought a second injunction from the Ventura Superior Court, alleging iMergent had failed to comply with the stipulation.
The defendants contended on appeal that the act was void for vagueness, but Justice Steven Z. Perren flatly rejected their argument and affirmed the injunction.
“In a prior action, defendants stipulated to a final judgment in which they agreed to comply with the SAMP Act,” he wrote. “They will not now be heard to complain of a preliminary injunction which, in meaning and effect, is virtually identical to their earlier agreement.
“Defendants assert that the SAMP Act’s phrase “will earn, is likely to earn, or can earn” is vague. Their position brings to mind the response of Senator Sam Ervin, Jr., during the Watergate Hearings of 1973.
“When asked how he was sure of the meaning of certain words, Ervin replied, ‘Because I can understand the English language. It’s my mother tongue.’ We can do no better. We believe that ‘affirmed’ has equal clarity.”
Presiding Justice Arthur Gilbert and Justice Paul H. Coffee joined Perren in his opinion.
The case is People v. iMergent, Inc., B201302.
Copyright 2009, Metropolitan News Company