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Federal Trade Commission v. BurnLounge, Inc.

United States Court of Appeals, Ninth Circuit

June 2, 2014

FEDERAL TRADE COMMISSION, Plaintiff-Appellee,
v.
BURNLOUNGE, INC., a Corporation; JUAN ALEXANDER ARNOLD, an individual, Defendants-Appellants, and JOHN TAYLOR, an individual; ROB DEBOER, an individual, Defendants. FEDERAL TRADE COMMISSION, Plaintiff-Appellee,
v.
BURNLOUNGE, INC., a Corporation; JUAN ALEXANDER ARNOLD, an individual, ROB DEBOER, an individual, Defendants, and JOHN TAYLOR, an individual, Defendant-Appellant. FEDERAL TRADE COMMISSION, Plaintiff-Appellant,
v.
ROB DEBOER, an individual, Defendant-Appellee, and JOHN TAYLOR, an individual, Defendant, BURNLOUNGE, INC., a Corporation; JUAN ALEXANDER ARNOLD, an individual, Defendants

Argued and Submitted, Pasadena, California: December 6, 2013.

Page 879

Appeal from the United States District Court for the Central District of California. D.C. No. 2:07-cv-03654-GW-FMO. George H. Wu, District Judge, Presiding.

Lawrence B. Steinberg (argued) and Efrat M. Cogan, Buchalter Nemer, P.C., Los Angeles, California, for Defendants-Appellants BurnLounge, Inc. and Juan Alexander Arnold.

W. James Jonas III, W. James Jonas III, P.C., San Antonio, Texas, for Defendant-Appellant John Taylor.

No appearance for Defendant/Cross-Appellee Rob DeBoer.

Burke W. Kappler (argued), Attorney; John F. Daly, Deputy General Counsel for Litigation; and David C. Shonka, Acting General Counsel, Federal Trade Commission, Washington, D.C.; Chris M. Couillou and Dama J. Brown, Federal Trade Commission, Atlanta, Georgia, for Plaintiff-Appellee/Cross-Appellant Federal Trade Commission.

M. Jeffrey Hanscom and Joseph Mariano, Direct Selling Association, Washington, D.C.; Deborah T. Ashford, Philip C. Larson, and Catherine E. Stetson, Hogan Lovells U.S. LLP, Washington, D.C., for Amicus Curiae Direct Selling Association.

Before: Harry Pregerson, Marsha S. Berzon, and Morgan Christen, Circuit Judges. Opinion by Judge Christen.

OPINION

Page 880

CHRISTEN, Circuit Judge:

BurnLounge, Inc. operated a multi-level marketing business that offered participants the ability to become " Independent Retailers" of music and other merchandise. Independent Retailers could earn points redeemable for music or merchandise, or they could pay an additional fee to become " Moguls" and earn cash rewards. The Federal Trade Commission filed suit against BurnLounge alleging violation of § 5(a) of the Federal Trade Commission Act (FTCA). Section 5(a) states: " unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful." 15 U.S.C. § 45(a)(1). The operation of a pyramid scheme constitutes an unfair or deceptive act or practice in or affecting commerce for the purposes of § 5(a). See In re Koscot Interplanetary, Inc., 86 F.T.C. 1106, 1178, 1181 (1975).

BurnLounge, Juan Alexander Arnold (CEO and creator of BurnLounge), and John Taylor (participant in the BurnLounge scheme) appeal the district court's order granting a permanent injunction against BurnLounge's continued operation based on the court's finding that BurnLounge was an illegal pyramid scheme. BurnLounge and Arnold also appeal the district court's denial of their motion to exclude the testimony of Dr. ...


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