Wednesday, March 20, 2019
Preliminary Injunction Against Alleged Scam Was Proper Despite Extraterritorial Effect
By a MetNews Staff Writer
A British Virgin Islands company yesterday lost its challenge to a preliminary injunction obtained by the Federal Trade Commission of its operations, with a three-judge panel rejecting the contention that the order goes too far by interfering with the telemarketer’s foreign business activities, including a freeze on its foreign assets.
The appellant, Hardwire Interactive, Inc., allegedly offered consumer free trials of products at no cost beyond the shipping expense—then enrolled the consumers in “continuity programs,” charging for goods that were not ordered.
According to the FTC’s June 25, 2018 complaint, filed in the U.S. District Court for the Southern District of California:
“Defendants advertise, market, promote, distribute, and sell skincare products, electronic cigarettes, and dietary supplements online. Defendants claim to offer trials of these products for just the cost of shipping and handling, typically $4.95 or less. Instead. Defendants charge consumers who accept the trial offers as much as $98.71 for a single shipment and enroll them in a continuity program costing the same amount on a monthly basis. Additionally. Defendants frequently also charge consumers for additional products and enroll consumers in continuity programs related to these additional products, all without the consumers’ knowledge or consent. Consumers who discover Defendants’ charges and seek a refund often find that they are unable to get their money back because of Defendants’ undisclosed refund restrictions. Defendants have brought in tens of millions of dollars through their deceptive trial offers.”
Orders Placed Online
Orders were placed online, with credit card information secured for the supposed purpose of paying for the shipping. The complaint alleges that “[i]n numerous instances, Defendants debit consumers’ bank accounts on a recurring basis without obtaining a written authorization signed or similarly authenticated from consumers for preauthorized electronic fund transfers from their accounts, thereby violating” the Electronic Fund Transfer Act.
Yesterday’s opinion affirms a preliminary injunction granted by District Court Judge Michael M. Anello.
“The district court correctly found on the record before it that the FTC will likely succeed in showing that Hardwire’s foreign activities independently involved material domestic conduct, including domestic call centers, payment gateways, and marketing operations,” the opinion declares. “The record further supports the district court’s finding that the FTC will likely succeed in showing that Hardwire and U.S.-based Triangle are a common enterprise, and thus Triangle’s material domestic conduct and actions causing injury within the United States can be attributed to Hardwire as well.”
Hardwire’s Pledge Disregarded
The opinion says the evidence shows that there is no actual separation between Hardwire and Triangle, formerly based in San Diego, with its principal place of business now in Florida.
Hardwire told Anello the preliminary injunction was inappropriate because it was prepared to conduct all of its operations outside the United States. The opinion says Anello “properly disregarded Hardwire’s promises” and “focused instead on the evidence currently before it to find a likelihood of material domestic conduct and reasonably foreseeable injury in the United States.”
It goes on to proclaim:
“After finding likelihood of success on the merits, the district court properly balanced the equities and the public interest to find that enjoining Hardwire’s international enterprise, including freezing its foreign assets, was necessary to protect United States consumers, particularly in light of the frequent movement of funds throughout the world among Triangle, Hardwire, and related bank accounts under their control.”
The case is FTC v. Hardwire Interactive, Inc., 18-56161.
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