Gloria M. Navarro, Chief Judge.
Pending before the Court is the Motion for Preliminary Injunction, (ECF No. 9), filed by Plaintiff Federal Trade Commission ("the FTC"). Defendants OMICS Group Inc. ("OMICS"), iMedPub LLC ("iMedPub"), Conference Series LLC ("Conference Series"), and Srinubabu Gedela ("Gedela") (collectively "Defendants") filed a response, (ECF No. 32), and the FTC filed a Reply, (ECF No. 34). Also pending before the Court is Defendants' Motion to Dismiss. (ECF No. 31). The FTC filed a response, (ECF No. 35), and Defendants filed a reply, (ECF No. 36). For the reasons discussed herein, the FTC's Motion for Preliminary Injunction is GRANTED and Defendants' Motion to Dismiss is DENIED.
The FTC brings this action pursuant to Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), alleging that Defendants engaged in unfair and deceptive practices with respect to the publication of online academic journals and organization of scientific conferences. (See Compl., ECF No. 1). Defendants claim to operate hundreds of online academic journals on a wide variety of topics, including medicine, chemistry, nursing, engineering, and genetics. (Mot. for Prelim. Inj. 2:1-12, ECF No. 9; see also Defs.' Mot. to Dismiss 4:21-28, ECF No. 31). According to the FTC, Defendants make numerous misrepresentations regarding the nature and reputation of their journals in order to attract consumers. Id. Furthermore, Defendants allegedly fail to disclose that they charge significant fees in exchange for their publication service. Id. Finally, Defendants allegedly make numerous misrepresentations in connection with the marketing of their scientific conferences. Id.
The FTC asserts that Defendants OMICS, iMedPub, and Conference Series (collectively "Corporate Defendants") have operated as a common enterprise in violating Section 5(a) and therefore are jointly and severally liable. (Compl. ¶ 10). The FTC further asserts that Gedela has "formulated, directed, controlled, had the authority to control, or participated in the acts and practices of the Corporate Defendants that constitute the common enterprise." (Id.). Based on these allegations, the FTC initiated the instant action and filed the Motion for Preliminary Injunction. (ECF Nos. 1, 9). Specifically, the FTC seeks a preliminary injunction that: (1) restrains Defendants from engaging in deceptive practices with respect to the marketing and sale of
Under Section 13(b) of the Federal Trade Commission Act ("FTC Act"), the Court may grant the FTC a preliminary injunction "[u]pon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest." 15 U.S.C. § 53(b). Section 13(b) of the FTC Act, therefore, "places a lighter burden on the Commission than that imposed on private litigants by the traditional equity standard." F.T.C. v. Warner Commc'n, Inc., 742 F.2d 1156, 1159 (9th Cir. 1984). Under this more lenient standard, the FTC need not show irreparable harm; instead, it must only demonstrate (1) that it is likely to succeed on the merits and (2) that the equities weigh in favor of an injunction. Id. at 1160; see also F.T.C. v. World Wide Factors, 882 F.2d 344, 346 (9th Cir. 1989).
A court's authority to grant injunctive relief under Section 13(b) includes "all the inherent equitable powers ... for the proper and complete exercise" of the court's equity jurisdiction. F.T.C. v. H.N. Singer, Inc., 668 F.2d 1107, 1112 (9th Cir. 1982) (citations omitted). One such power is the authority to freeze a defendant's assets. Id. at 1113; F.T.C. v. Evans Prods. Co., 775 F.2d 1084, 1088-89 (9th Cir. 1985). As the Ninth Circuit emphasized in H.N. Singer, an order freezing assets is a form of "ancillary relief" rather than a primary remedy. See 668 F.2d at 1112-13. "Courts have inherent equitable powers to grant ancillary relief, other than a preliminary injunction restraining future violations of the law, when there is no likelihood of recurrence." Evans Prods., 775 F.2d at 1088. "A party seeking an asset freeze must show a likelihood of dissipation of the claimed assets, or other inability to recover monetary damages, if relief is not granted." Johnson v. Couturier, 572 F.3d 1067, 1085 (9th Cir. 2009).
Section 5 of the FTC Act prohibits "unfair or deceptive practices in or affecting commerce." 15 U.S.C. § 45. An act or practice is deceptive under Section 5 if it involves a material misrepresentation or omission that is likely to mislead consumers acting reasonably under the circumstances. FTC v. Stefanchik, 559 F.3d 924, 928 (9th Cir. 2009). A misrepresentation is material if it involves facts that a reasonable person would consider important in choosing a course of action. See FTC v. Cyberspace.com LLC, 453 F.3d 1196, 1201 (9th Cir. 2006). Express claims are presumed material, so consumers are not required to question their veracity to be deemed reasonable. See Pantron I, 33 F.3d 1088, 1095-96 (9th Cir. 1994). Furthermore, the FTC need not prove reliance by each consumer misled by Defendants. See FTC v. SlimAmerica, Inc., 77 F.Supp.2d 1263, 1275 (S.D. Fla. 1999); FTC v. Figgie Int'l, Inc., 994 F.2d 595, 605 (9th Cir. 1993).
In considering whether a claim is deceptive, the Court must consider the "net impression" created by the representation, even when the solicitation contains some truthful disclosures. See Cyberspace, 453 F.3d at 1200. The FTC need not prove that Defendants' misrepresentations were made with an intent to defraud or deceive or in bad faith. See, e.g., Removatron Int'l
"[T]he burdens at the preliminary injunction stage track the burdens at trial." Gonzales v. O Centro Espirita Beneficente Uniao do Vegetal, 546 U.S. 418, 429, 126 S.Ct. 1211, 163 L.Ed.2d 1017 (2006). Thus, the burden is on the FTC to demonstrate that it is likely to prevail on its claims that Defendants engaged in: (1) misrepresentations regarding journal publishing; (2) a deceptive failure to disclose publishing fees; and (3) misrepresentations regarding conferences. "Because irreparable injury must be presumed in a statutory enforcement action, the district court need only... find some chance of probable success on the merits." World Wide Factors, 882 F.2d at 347 (internal quotation marks omitted).
The Court finds that the FTC has satisfied its burden of demonstrating a likelihood of success on the merits of its claims, and considers each claim in turn.
The evidence produced by the FTC demonstrates that Defendants engaged in probable misrepresentations regarding journal publishing. On the OMICS website, for example, OMICS makes numerous representations indicating that it follows standard peer-review practices. (See PX12 Att. L at 657, 773, 748, Ex. 12 to Mot. for Prelim Inj., ECF No. 9-12).
This inadequacy is further demonstrated by statements from purported "editors," which indicate that they never received manuscripts to review or else even agreed to be listed as an editor. (See, e.g., PX03 ¶¶ 3-4; PX11 ¶ 7). In some instances, individuals listed as "editors" without permission requested removal from the website without success. (See, e.g., PX02 ¶ 4; PX08 ¶¶ 4-7; PX06 ¶ 11). In other instances, Defendants sent out email solicitations on behalf of academics without their permission. (See PX11 ¶ 7). With respect to the journals themselves, Defendants use names that are nearly identical to other respected journals, which has led to consumers mistakenly submitting articles to Defendants' journal. (See PX07 ¶ 3).
The FTC has also submitted evidence demonstrating that Defendants misrepresent
The evidence produced by the FTC indicates that Defendants deceptively fail to disclose publishing fees. Notably, the FTC has provided evidence that Defendants send out emails soliciting the submission of articles to their service but make no mention of associated fees. (See, e.g., PX04 Att. A at 6, PX09 Att. A at 4; PX10 Att. D at 16). Furthermore, the fee disclosures that are made on Defendants' websites are difficult to find. (See PX12 Att. L at 632). Moreover, as the email solicitations invite consumers to submit articles directly through email, a consumer may end up submitting an article without even viewing the website. (See PX04 Att. A at 6). The FTC has also submitted evidence indicating that industry practice when charging publication fees is to clearly disclose the fees before authors submit their articles. (See PX13 ¶¶ 4, 6). A consumer could therefore reasonably and mistakenly assume that there is no charge for publishing in Defendants' journals. (See, e.g., PX04 ¶ 5). Furthermore, when consumers contest Defendants' publication fees and ask their articles to be withdrawn, Defendants have ignored those requests and continued demanding payment. (See, e.g., PX04 ¶¶ 6-8; PX06 ¶¶ 6, 8; PX07 ¶¶ 5, 8). In some instances, Defendants only removed the articles after the threat of legal action. (See, e.g., PX07 ¶¶ 9-10). The FTC asserts that these practices not only cause financial harm to consumers, but also prevent consumers from resubmitting articles to more reputable journals. (See Mot. for Prelim. Inj. 12:23-27). The Court therefore finds that the evidence in the record is sufficient to support a preliminary conclusion that Defendants deceptively fail to disclose publishing fees.
The evidence produced by the FTC demonstrates that Defendants engaged in probable misrepresentations regarding their conferences. Notably, the FTC has provided evidence indicating that Defendants advertise the attendance and participation of prominent academics and researchers without their permission or actual affiliation. (See PX05 ¶¶ 3,5; PX12 Att. U at 1045). In numerous instances, individuals have requested unsuccessfully to have their names removed from Defendants' conference advertising materials. (See, e.g., PX03 ¶¶ 6-12). Often, Defendants do not remove an individuals' name until the threat of legal action. (See, e.g., PX05 ¶ 7). Had consumers known of Defendants' misrepresentations, they may not have agreed to participate in or be affiliated with Defendants' conferences. The Court therefore finds that the evidence in the record is sufficient to support a preliminary conclusion that
"[E]ntities constitute a common enterprise when they exhibit either vertical or horizontal commonality — qualities that may be demonstrated by a showing of strongly interdependent economic interests or the pooling of assets and revenues." F.T.C. v. Network Servs. Depot, Inc., 617 F.3d 1127, 1142-43 (9th Cir. 2010). In deciding whether a common enterprise exists, courts may consider such factors as whether the companies were under common ownership and control; whether they pooled resources and staff; whether they shared phone numbers, employees, and email systems; and whether they jointly participated in a "common venture" in which they benefited from a shared business scheme or referred customers to one another. Id. at 1143. Where the same individuals transact business through a "maze of interrelated companies," the whole enterprise may be held liable as a joint enterprise. FTC v. John Beck Amazing Profits, LLC, 865 F.Supp.2d 1052, 1082 (C.D. Cal. 2012).
In support of its claim that the Corporate Defendants engaged in a common enterprise, the FTC points out that "the various business entities share common ownership and management and operate from the same principal place of business in India. (Mot. for Prelim. Inj. 12:4-6). Furthermore, the FTC provided evidence showing that the websites belonging to the three corporations use similar language, often link to one another, and advertise some of the same journals. (Id. 2:2-3:17). With respect to common ownership, the FTC has demonstrated that Defendant Gedela is the authorized signatory on the financial accounts of the Corporate Defendants, as well as the registrant for each of their websites. (Id.). The FTC has also provided evidence that each company is a beneficiary of and participant in the same shared business scheme.
In opposition, Defendants point out perceived gaps in the FTC's evidence and incorrectly assume that the FTC needs to demonstrate each one of the above factors to show a common enterprise. For example, Defendants note that "the FTC [has not] provided evidence which proves the type of address the principal place of business is." (Defs.' Resp 11:11-16, ECF No. 32). Defendants theorize, without citing to any evidence, that as internet companies "it is highly likely that the address is simply a common registered agent similar to those based in the United States where companies have no actual relationship to each other...." (Id.). The Court does not find this theoretical argument sufficient to counter the evidence that Defendants share a principal place of business and have common ownership. Based on the record, the Court finds that the FTC is likely to succeed in proving that the Corporate Defendants engaged in a common enterprise.
Personal liability for violations of the FTC Act fall into two categories: liability for injunctive relief and liability for monetary relief. Individuals are liable for injunctive relief if they directly participate in the deceptive acts or have the authority to control them. F.T.C. v. Publ'g Clearing House, Inc., 104 F.3d 1168, 1170 (9th Cir. 1997); F.T.C. v. Stefanchik, 559 F.3d 924, 931 (9th Cir. 2009). To subject an individual to monetary liability, the FTC must show that the individual had knowledge of the misrepresentations, was recklessly indifferent to the truth or falsity of the misrepresentation, or was aware of a high probability of fraud and intentionally avoided the truth. Publ'g Clearing House,
The evidence produced by the FTC clearly demonstrates that Gedela's participation and control over the Corporate Defendants meets the liability standard at this stage. As detailed above, Gedela is the founder, principal, and owner of the Corporate Defendants. He has signatory authority over the corporations' financial accounts and is the billing contact for Defendants' websites. The OMICS website itself openly proclaims Gedela as the "CEO and Managing Director," and states that iMedPub LLC and Conference Series LLC are subsidiaries of OMICS International. (PX12 Att. L at 937; PX22 Att. C at 17). Furthermore, Gedela's own sworn declaration does not dispute his participation in the Corporate Defendants' business. (See ECF No. 33).
Defendants cite to a number of cases denying individual liability based on an individual's limited involvement in a company. (Defs.' Resp 13:24-15:19); see, e.g. FTC v. Swish Mktg., 2010 WL 653486, at *5 (N.D. Cal. Feb. 22, 2010) (finding that defendant's "status as CEO, standing alone" was insufficient to support individual liability). The Court does not find Defendants' cited authority persuasive. Notably, these cases involve individuals with far less involvement than the evidence provides in this case. Based on the record, the Court finds the evidence sufficient to support a preliminary conclusion that Gedela is liable for injunctive and monetary relief.
In balancing the equities, public equities receive far greater weight than private equities. Affordable Media, 179 F.3d at 1236. Public equities include economic benefits and competitive advantages for consumers, and effective relief for the FTC. See Warner Commc'n, 742 F.2d at 1165. "[W]hen a district court balances the hardships of the public interest against a private interest, the public interest should receive greater weight." World Wide Factors, 882 F.2d at 347. If the FTC demonstrates a likelihood of success on the merits, "a countershowing of private equities alone does not justify denial of a preliminary injunction." Warner Commc'n, 742 F.2d at 1165.
The Court finds that the public equities are substantial and outweigh the private equities in this case. As discussed above, the FTC has sufficiently demonstrated that Defendants likely engaged in unlawful and deceptive representations regarding their publishing, fee scheme, and conferences. As a result, the evidence clearly demonstrates that the public equities — protection of consumers from Defendants' deceptive practices and effective enforcement of the law — weigh heavily in favor of granting injunctive relief. Absent such an injunction, the Court finds it likely that Defendants will continue to engage in deceptive practices.
In contrast, the Court does not find the private equities in this case compelling. As a general rule, compliance with the law is not an unreasonable burden. See World Wide Factors, 882 F.2d at 347 ("[T]here is no oppressive hardship to defendants in requiring them to comply with the FTC Act [and] refrain from fraudulent misrepresentation...."). Here, an injunction is necessary to prevent potential harmful and illegal behavior and will not prohibitively impact any of Defendants' legitimate business activities. Defendants argue in their opposition that "the practical effect of a preliminary injunction in the eyes of the
Defendants seek dismissal of the Complaint pursuant to Fed. R. Civ. P. 12(b)(6). (Mot. to Dismiss, ECF No. 31). Rule 12(b)(6) of the Federal Rules of Civil Procedure mandates that a court dismiss a cause of action that fails to state a claim upon which relief can be granted. See North Star Int'l v. Ariz. Corp. Comm'n, 720 F.2d 578, 581 (9th Cir. 1983). When considering a motion to dismiss under Rule 12(b)(6) for failure to state a claim, dismissal is appropriate only when the complaint does not give the defendant fair notice of a legally cognizable claim and the grounds on which it rests. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In considering whether the complaint is sufficient to state a claim, the Court will take all material allegations as true and construe them in the light most favorable to the plaintiff. See NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). To satisfy Rule 9(b) the plaintiff must include "the who, what, when, where, and how" of the fraud. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003).
Defendants argue that the Complaint fails to adequately allege that Defendants engaged in unfair or deceptive practices. (Defs.' Mot. to Dismiss 5:8-14). Moreover, Defendants argue that the undisputed facts demonstrate that Defendants, in fact, have not engaged in unfair or deceptive practices. (Id. 5:15-22). For the reasons already stated in this Order, Defendants' argument concerning the sufficiency of the evidence against them fails. The issue then turns on whether the Complaint sufficiently states a claim.
As a preliminary matter, the Court notes that Defendants' Motion incorrectly focuses only on the paragraphs explicitly detailing the respective claims. In doing so, Defendants effectively ignore the preceding forty-two paragraphs of allegations concerning the Defendants and accepted industry practice. See Arthur J. Gallagher & Co. v. Lang, No. C 14-0909 CW, 2014 WL 4354670, at *3 (N.D. Cal. Sept. 2, 2014) (quoting Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009) ("[T]he complaint should be read as a whole, not parsed piece by piece to determine whether each allegation, in isolation, is plausible.").
Nonetheless, Defendants argue that the FTC fails to meet the pleading standard under both Rule 8 and Rule 9(b),
Here, given the nature of the allegations, the Court finds that the relaxed Moore standard applies. The allegations in the Complaint span across multiple years and involve a substantial number of allegedly wronged consumers. Moreover, the facts concerning Gedela's specific actions in the scheme were reasonably unattainable at the initial pleading stage. With respect to the Corporate Defendants, the Complaint meets the 9(b) standard by establishing that all allegations apply to each Defendant as part of an alleged joint scheme. Notably, the Complaint sufficiently alleges the same "common enterprise" theory as discussed above. (See Compl. ¶¶ 6-10). Under the common enterprise theory, Defendants' contention that the Complaint fails for not particularizing allegations to each Corporate Defendant is misplaced, as each are liable for the scheme as a whole. See John Beck, 865 F.Supp.2d at 1082.
Accordingly, and upon review, the Court finds that the Complaint provides Defendants sufficient detail to prepare an adequate answer to the allegations and complies with the pleading requirements. Moore, 885 F.2d at 540. Furthermore, the allegations in the Complaint clearly establish the requisite elements for the FTC's claims under Section 5(a). Based on the foregoing, the Court denies Defendants' Motion to Dismiss and grants the FTC's Motion for Preliminary Injunction. The Court shall issue a preliminary injunction consistent with the definitions set forth below.
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Federal law provides that any person may be imprisoned for not more than five years, fined, or both, if such person:
(1) "in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully falsifies, conceals or covers up by any trick, scheme, or devise a material fact; makes any materially false, fictitious or fraudulent statement or representation; or makes or uses any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry" (18 U.S.C. § 1001);
(2) "in any ... statement under penalty of perjury as permitted under section 1746 of title 28, United States Code, willfully subscribes as true any material matter which he does not believe to be true" (18 U.S.C. § 1621); or
(3) "in any (... statement under penalty of perjury as permitted under section 1746 of title 28, United States Code) in any proceeding before or ancillary to any court or grand jury of the United States knowingly makes any false material declaration or makes or uses any other information ... knowing the same to contain any false material declaration" (18 U.S.C. § 1623).
For a felony conviction under the provisions cited above, federal law provides that the fine may be not more than the greater of (i) $250,000 for an individual or $500,000 for a corporation, or (ii) if the felony results in pecuniary gain to any person or pecuniary loss to any person other than the defendant, the greater of twice the gross gain or twice the gross loss. 18 U.S.C. § 3571.
1. Complete all items. Enter "None" or "N/A" ("Not Applicable") where appropriate. If you cannot fully answer a question, explain why.
2. The font size within each field will adjust automatically as you type to accommodate longer responses.
3. In completing this financial statement, "the corporation" refers not only to this corporation but also to each of its predecessors that are not named defendants in this action.
4. When an Item asks for information about assets or liabilities "held by the corporation," include ALL such assets and liabilities, located within the United States or elsewhere, held by the corporation or held by others for the benefit of the corporation.
5. Attach continuation pages as needed. On the financial statement, state next to the Item number that the Item is being continued. On the continuation page(s), identify the Item number being continued.
6. Type or print legibly.
7. An officer of the corporation must sign and date the completed financial statement on the last page and initial each page in the space provided in the lower right corner.
Federal law provides that any person may be imprisoned for not more than five years, fined, or both, if such person:
For a felony conviction under the provisions cited above, federal law provides that the fine may be not more than the greater of (i) $250,000 for an individual or $500,000 for a corporation, or (ii) if the felony results in pecuniary gain to any person or pecuniary loss to any person other than the defendant, the greater of twice the gross gain or twice the gross loss. 18 U.S.C. § 3571.
