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Federal Trade Commission v. Stefanchik

March 13, 2009

FEDERAL TRADE COMMISSION, PLAINTIFF-APPELLEE,
v.
JOHN STEFANCHIK, INDIVIDUALLY AND AS AN OFFICER AND DIRECTOR OF BERINGER CORPORATION; BERINGER CORPORATION, A WASHINGTON CORPORATION DOING BUSINESS AS STEFANCHIK ORGANIZATION, DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the Western District of Washington Ricardo S. Martinez, District Judge, Presiding D.C. No. C-04-1852-RSM.

The opinion of the court was delivered by: Reavley, Senior Circuit Judge

FOR PUBLICATION

OPINION

Argued and Submitted January 22, 2009 -- Seattle, Washington

Before: Thomas M. Reavley,*fn1 Senior Circuit Judge, Richard C. Tallman and Milan D. Smith, Jr., Circuit Judges.

OPINION

We must decide in this case whether the district court correctly granted summary judgment to the Federal Trade Commission ("FTC") in this suit brought against John Stefanchik and Beringer Corporation under the Federal Trade Commission Act and the Telemarketing Sales Rule. The FTC alleged that the defendants made false and deceptive claims while marketing a program purporting to teach purchasers how to become wealthy by buying and selling privately held mortgages. Concluding that the defendants failed to meet the FTC's overwhelming evidence of deceptive claims with evidence to create a triable issue of fact, we AFFIRM the district court's judgment.

I.

John Stefanchik is the author of a book entitled Wealth Without Boundaries. The purpose of the book, as well as related video and audio tapes, course materials, and workshops, was to present Stefanchik's method for making substantial amounts of money by working very few hours in one's spare time. Stefanchik's method called for a person to search local real estate records, locate holders of privately held mortgages, or "paper," and then either purchase the paper or broker deals with companies interested in purchasing the paper. Stefanchik touted his method in direct mail marketing materials as "[t]he easiest way to make $10,000 every 30 days . . . guaranteed."

In 2002 Stefanchik organized the Beringer Corporation as a Washington state corporation with himself as the president, director, and sole shareholder. Beringer in turn holds the copyrights to Stefanchik's book and other material that comprise the "Stefanchik Program." Stefanchik also entered into an oral agreement with Justin Ely of Atlas Marketing, Inc. for Atlas to market the Stefanchik Program and handle customer service. According to Atlas' president, Scott Christensen, Atlas' sole business was to sell products and services for Stefanchik and Beringer under the name "The Stefanchik Organization." Atlas promoted the Stefanchik Program through direct mail, telemarketing, and a website, and it paid Stefanchik and Beringer a royalty of 15% to 22% of the sales.

Atlas used direct mail to generate interest in Stefanchik's book, which sold for a nominal amount. Many of the materials included Stefanchik's picture and signature and claimed that purchasers could easily make $10,000 or more per month by using his method. Those who purchased the book were then targeted for telemarketing calls and urged to purchase more services and instruction in the form of printed material, videos, seminars, and "coaching" services. The telemarketers assured potential purchasers that by using the Stefanchik method they could make $3,000 to $5,000 per deal by working only five to ten hours per week and that privately held mortgages were easily found. They also told purchasers that a personal coach would be available to answer questions and provide assistance. The cost to individual purchasers for the program ranged from $3,000 to over $8,000.

The FTC filed a complaint against Stefanchik and Beringer, as well as Atlas, Ely, Christensen, and another corporate entity controlled by Ely.*fn2 The FTC alleged that the defendants violated the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 45(a), by making false, misleading, and deceptive claims that consumers could quickly make large amounts of money in their spare time by purchasing the Stefanchik Program and that the coaches were experienced and readily available to assist them in the paper business. It also alleged that the defendants violated the Telemarketing Sales Rule ("TSR"), 16 C.F.R. § 310.3(a)(2)(iii) and (a)(4), by making these misleading representations.

In support of a motion for summary judgment, the FTC introduced evidence tending to show that, contrary to Stefanchik's marketing claims, it was in fact very difficult for individuals to amass wealth using the Stefanchik method, and that the claims of making substantial amounts of money in one's spare time were deceptive and misleading. The FTC's evidence included declarations from individual consumers who purchased the program only to find that the method was extremely time consuming and yielded little, if any, profit. The FTC also introduced the following: survey results from a marketing expert showing that only a small percentage of customers were able to broker deals using Stefanchik's method; a declaration from a former Stefanchik coach who averred that few consumers made money using the program and that Stefanchik had been informed that the telemarketers were misleading consumers; and evidence from Beringer's company database that also showed a lack of results by consumers.

In opposing summary judgment, Stefanchik and Beringer challenged the FTC's method of compiling the survey data but did not offer any consumer declarations, contrary survey information, or other evidence showing that the followers of the Stefanchik method actually amassed substantial wealth as claimed in the marketing material. The district court concluded that the FTC's consumer declarations and survey, as well as the defendants' own advertising and marketing materials, were sufficient to show that the defendants made false and unsubstantiated earnings claims that led consumers to believe they could earn large amounts of money in the paper business with little or no effort. The court concluded that the coaching claims were also deceptive because the evidence showed that the coaches lacked basic knowledge of the real estate industry and were unable to help the consumers with questions. The court determined that Beringer and Stefanchik were jointly ...


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