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PLAINTIFF'S ORIGINAL PETITION, Page 1NO._____________THE STATE OF TEXAS§ IN THE DISTRICT COURTPlaintiff§§v.§§iMERGENT, INC.,§STORESONLINE INC. d/b/a§ BEXAR COUNTY, TEXASSTORESONLINE.COM§f/k/a GALAXY MALL§BRANDON LEWIS and§DONALD DANKS§Defendants§ _______ JUDICIAL DISTRICTPLAINTIFF'S ORIGINAL PETITIONTO THE HONORABLE JUDGE OF SAID COURT:Plaintiff the State of Texas, acting by and through Attorney General of Texas Greg Abbott, complains of iMERGENT, INC., d/b/a StoresOnLine.com,BRANDON LEWIS, and DONALD DANKS, Defendants, and for cause of action wouldrespectfully show as follows:I. JURISDICTION1.1. This action is governed under Discovery Control Plan level II pursuant to TRCPRule 190.3 and is brought by Attorney General Greg Abbott, through his Consumer ProtectionDivision, in the name of the State of Texas and in the public interest under the authoritygranted him by §17.47 of the Texas Deceptive Trade Practices-Consumer Protection Act, TEX.BUS. & COM. CODEANN. §17.41 et seq. (hereafter the "DTPA") upon the ground that
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PLAINTIFF'S ORIGINAL PETITION, Page 2Defendants have engaged in false, deceptive and misleading acts and practices in the course oftrade and commerce as defined in, and declared unlawful by, §§17.46(a) and (b) of the DTPA.1.2 This action is also brought under the authority granted the Attorney General by§41.302 of the Texas Business Opportunity Act, TEX. BUS. COMM. CODE §41.001 et seq.(hereafter the "TBOA") upon the ground that Defendants have committed prohibited acts whileengaged in the sale of business opportunities in Texas.II. DEFENDANTS2.1. Defendant iMERGENT, INC. is a Delaware corporation doing business in Texasas alleged specifically below and may be served with process by serving its registered agent,Frank C. Hayman at 754 East Technology, Ave., Orem, Utah 84097.2.1. Defendant STORESONLINE INC. d/b/a StoresOnLine.com is a wholly ownedsubsidiary of iMERGENT, INC., and is a Delaware corporation doing business in Texas asalleged specifically below; it may be served with process by serving its registered agent, FrankC. Hayman at 754 East Technology, Ave., Orem, Utah 84097.2.2. Defendant BRANDON LEWIS is the President of iMERGENT INC., is anindividual doing business in Texas as alleged specifically below and may be served withprocess at his place of business at 754 East Technology, Ave., Orem, Utah 84097.2.3. Defendant DONALD DANKS is the Chairman of the Board of iMERGENT INC.,is an individual doing business in Texas as alleged specifically below and may be served withprocess at his place of business at 754 East Technology, Ave., Orem, Utah 84097.
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PLAINTIFF'S ORIGINAL PETITION, Page 32.4. Defendant iMERGENT, INC. does business under the assumed name ofStoresOnLine.com.III. VENUE3. Venue of this suit lies in BEXAR County, Texas for the following reasons:A) Under TEX. CIV. PRAC. & REM. CODE §15.001, venue is proper becauseall or part of the causes of action alleged herein accrued in BEXAR County, Texas.B) Under the DTPA §17.47(b), venue is proper because Defendants have donebusiness in BEXAR County, Texas as follows: Defendants have sold business opportunities,software, and services in Bexar County using deceptive representations.IV. PUBLIC INTEREST4. Because Plaintiff STATE OF TEXAS has reason to believe that Defendants haveengaged in, and will continue to engage in, the unlawful practices set forth below, PlaintiffSTATE OF TEXAS has reason to believe Defendants have caused and will cause immediate,irreparable injury, loss and damage to the State of Texas, and will also cause adverse effects tolegitimate business enterprises which lawfully conduct trade and commerce in this State.Therefore, the Consumer Protection Division of the office of the Attorney General of the Stateof Texas believes and is of the opinion that these proceedings are in the public interest.V. TRADE AND COMMERCE
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PLAINTIFF'S ORIGINAL PETITION, Page 45. Defendants have, at all times described below, engaged in conduct which constitutes"trade" and "commerce" as those terms are defined by §17.45(6) of the DTPA and haveengaged in conduct which constitutes the sale of business opportunities as those terms aredefined by §41.004 of the TBOA. Defendant iMergent, Inc. is not registered with theSecretary of State of Texas pursuant to TBOA §41.051.VI. ACTS OF AGENTS6. Whenever in this Petition it is alleged that Defendants did any act, it is meant that:A) Defendants performed or participated in the act, or B) Defendants’ officers, agents, or employees performed or participated in theact on behalf of and under the authority of the Defendants.VII. NOTICE BEFORE SUIT7. The Consumer Protection Division informed Defendants in general of the allegedunlawful conduct described below, at least seven days before filing suit, as may be required by§17.47(a) of the DTPA.VIII. NATURE OF DEFENDANTS' OPERATIONS8.1. iMergent, through its corporately owned subsidiary, StoresOnLine, Inc. d/b/aStoresOnLine, (hereafter SOL) formerly known as Galaxy Mall, Inc., sells software andservice packages for starting and conducting business on the Internet. These software andservice packages are sold with the representation that by using these software and services, the
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PLAINTIFF'S ORIGINAL PETITION, Page 5purchaser will be able to put up a storefront website on the Internet from which thepurchaser/business operator will be able to sell his or her particular services or products.Defendants BRANDON LEWIS and DONALD DANKS control and operate SOL, personallydirect the operation of SOL, and personally set out how SOL sells its storefront websites andservices to business opportunity purchasers. Incorporated in Delaware with headquarters inUtah, SOL holds seminars in hotels around the nation soliciting individuals interested instarting a business on the Internet.8.2. Because SOL sells, for an initial consideration of more than $500, services and software that will be used by the purchaser to begin a business in which SOL represents that the purchaserwill earn or is likely to earn a profit in excess of the initial consideration paid by the purchaserand that SOL will provide the location, in the form of a website, for the purpose of conductingthe business, SOL is selling business opportunities pursuant to TEX. BUS. & COMM. CODE§41.004. SOL is not registered as a seller of business opportunities with the Texas Secretaryof State.8.3. The initial seminars, used by SOL as lead generators, inform consumers of thevarious methods of doing business on the Internet; for example, they mention various areas ofplacement for business on the Internet, how to promote business on the Internet, and thealleged technical assistance SOL will provide with programed websites in order to make thebusinesses look as professional as possible. Besides selling websites, the seminars also selltraining sessions to be held approximately a week later which last about nine hours and whichgo into more detail about these methods and procedures allegedly to get their business runningat a high level and making money on the Internet. Prior to selling any of its business
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PLAINTIFF'S ORIGINAL PETITION, Page 6opportunities, SOL does not provide any of the disclosures required by law regardingownership, sales period, description of services, financial statements, training description,security description, delivery date, earnings representations, legal actions, bankruptcyinformation, and a sample copy of the contract. SOL represents that by purchasing and usingits software and services, the businesses started by the purchasers will bring income to thepurchasers which is many times greater than the amount being paid to SOL for its software andservices.8.4. At these seminars, SOL sells website packages which contain such materials as thestorefront websites, store building software, credit card processing licenses and coachingassistance. The packages vary in price depending on how much the consumer wants to investin the business opportunity. After the business operator has purchased an initial package andstarted operation, they are then approached by the company with offers of expert technicalassistance that will help their Internet business run at a higher level. The expert technicalassistance offered by the company is an extra cost to the business operator of $4,000 on up.8.5. Several complaints filed with the Office of Attorney General of Texas indicate that deceptive and misleading representations are being made to consumers at the seminars toinduce them to buy these services and products, leaving them believing that technicalassistance is part of the package they are purchasing, when in fact, this assistance is not beingprovided. Once they have bought these packages, they are basically left with worthlesssoftware which does not work and for which they are asked to pay still more money for moreassistance which is of little or no value.
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1An autoresponder is a computer program which automatically responds to incoming e-mail messages with pre-recorded responses.PLAINTIFF'S ORIGINAL PETITION, Page 7IX. SPECIFIC FACTUAL ALLEGATIONS9.1 The consumer in OAG file number 164903 who is a resident of Bexar County, filed acomplaint stating that after attending a hotel seminar in San Antonio, Bexar County, Texas, heldby Galaxy Mall Inc., now SOL, he purchased three storefronts from SOL at a cost of $1,950 forall three; a one year merchant fee of $150; a net/merchant account for $990, and anautoresponder1for $300. This purchase was financed by a finance company called LeaseComm.This consumer stated that the software he received was faulty and could not be used. Hecontacted SOL’s customer service department during which time he waited long periods of timeon the telephone only to discover that the representatives could not answer his technicalquestions. He also complained that the company contacted him in order to offer one-to-onetechnical assistance, denominated as an “executive mentor”, as a way to correct his problem andto increase his success rate. The mentor, however, was to cost an extra $1,415; he declined topurchase the mentor program. He was lead to believe that the mentor program was part of thepackage he had purchased at the seminar and not an extra that would cost him more money. Heindicates that the company provided none of the services that they promised and that thecompany tried to extract additional money from him by soliciting the sale of technical assistancethat should have been provided from the start. He paid SOL a total of $5,075.28.9.2. The consumer in OAG file number 164228 filed a complaint stating that he purchased awebsite from SOL from which he intended to advertise and sell his books and CD’s. He statedthat once his website was operational, people began to complain to him that they could not
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PLAINTIFF'S ORIGINAL PETITION, Page 8purchase the items that they wanted from his online store. He indicates that the software couldnot process the sales orders he was receiving and lost many sales. He says that his website hadapproximately 6,430 visitors but only 10 sales. He contacted the company many times to try tocorrect the problem but the only responses he received was that nothing was wrong. He paidSOL a total of $3,649.00. 9.3. The consumer in OAG file number 138161 filed a complaint stating that she hadattended an SOL seminar during which she purchased website storefronts and other materials thatshe was told would help her in developing her online stores. She complains that she waspromised expert advice on programing and promoting her website. She states that she neverreceived the expert advice she was promised, that the items she received from SOL did not work,and that the software was faulty and provided no helpful information. She indicates that whenshe complained to the company, they offered her what was described as professional coachingassistance also known as “executive mentoring” which cost her an extra $4,113.00. She statesthat the coaching sessions were simply a few 20-30 minute phone conversations that allegedlyinformed her of where she could find solutions to her problems. This complainant paid SOL atotal of $10,036.90. 9.4 The consumer in OAG file number 137284 filed a complaint stating that he had attendedan SOL seminar in Austin, Texas during which he purchased a website, programs, and servicesto start his online business. After paying SOL, he did not receive any of the services that werepromised. He also states that he did not receive any of the expert advice that was promised andthat the software he was sold did not work. He called the company, received no help, but wastold that if he wanted extra help he would have to pay an extra charge that ranged from $3,000-
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PLAINTIFF'S ORIGINAL PETITION, Page 9$10,000. He complains that there were numerous extra charges for services that were to be partof the package he purchased at the seminar. He paid SOL a total of $3,874.48. 9.5. The consumer in OAG file number 143366 stated that she attended an SOL seminar inSan Antonio, Texas at which she purchased a website package. She states that the software shereceived did not work properly and when she tried to return it, the company indicated there wereno refunds after three days of purchase. She unsuccessfully contacted the company in order toget help with the software problems to no avail; she tried to return the materials, but the companywould not take them back, stating that they would not give any refunds. This complainant paidSOL a total of $4,299.00. 9.6. The consumer in OAG file number 144279 filed a complaint in indicating that sheattended a seminar at which SOL represented that they could get her started in an Internetbusiness by selling her all the software, help, and resources needed. She was told that thesoftware was user friendly and problem free. However the software she received from SOL wasfaulty and she had numerous problems installing and working with it. She indicates that she waslater contacted by another SOL representative who tried to sell her extra assistance in order to gether system running at a high level. She claims that SOL sells faulty software and does notprovide the services that it represents it will provide. This complainant paid SOL a total of$500.00 as a down payment.X. PROHIBITED ACTS IN VIOLATION OF THE TBOA
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PLAINTIFF'S ORIGINAL PETITION, Page 1010. Defendants, as alleged above and detailed below, have in the course of selling businessopportunities, committed prohibited acts declared unlawful in §§41.051, 41.1151, and 41.301of the TBOA. Such acts include:A. Misrepresenting the services which will be provided with the sale of the software andwebsite in order to induce the sale of the services, thereby making representations andemploying a device, scheme, or artifice to deceive purchasers while engaged in the sale ofbusiness opportunities, as alleged more specifically in paragraphs 8.1 through 9.6 above, inviolation of §41.301(1) of the TBOA.B. Failing to register a business opportunity with the Texas Secretary of State prior to theadvertisement, offer for sale, or sale of a business opportunity, as alleged more specifically inparagraph 8.2 above, in violation of §41.051 of the TBOA.C. Failing to provide the purchaser of a business opportunity the “Disclosures Required ByTexas Law” at least 10 business days prior to the receipt by the seller of any consideration forthe business opportunity, as alleged more specifically in paragraph 8.3 above, in violation of§41.151 et seq. of the TBOA.D. Failing to provide the purchaser of a business opportunity a full and detailed descriptionof the acts or services the seller will undertake to perform for the purchaser, as alleged morespecifically in paragraphs 8.1 through 9.6 above, in violation of §41.201(2) of the TBOA.E. Making the representations set out in §41.004(a)(1) of the TBOA regarding incomeduring the course of selling business opportunities without having obtained or established a$25,000.00 surety bond, irrevocable letter of credit or trust account, as alleged morespecifically in paragraphs 8.1 through 9.6 above, in violation of §41.101 of the TBOA.
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PLAINTIFF'S ORIGINAL PETITION, Page 11XI. FALSE, MISLEADING OR DECEPTIVE ACTS11.Defendants, as alleged above and detailed below, have in the course of trade andcommerce engaged in false, misleading and deceptive acts and practices declared unlawful in§§17.46(a) and (b) of the DTPA. Such acts include:A) representing that training, counseling, and technical support will be provided with thesale of the website and software and thereafter requiring additional purchase money to providetraining, counseling, and technical support, thereby representing that goods or services havesponsorship, approval, characteristics, ingredients, uses, benefits or quantities which they donot have or that a person has a sponsorship, approval, status, affiliation, or connection whichhe does not have, as alleged more specifically in paragraphs 9.1 through 9.6 above, in violationof §17.46(b)(5) of the DTPA;B) representing that the software sold will be problem free and will be useful in operating abusiness and accepting purchase orders for the business and thereafter selling faulty softwarewhich is useless to the purchaser, thereby representing that goods or services are of a particularstandard, quality or grade, or that goods are of a particular style or model, if they are ofanother, as alleged more specifically in paragraphs 9.1 through 9.6 above, in violation of§17.46(b)(7) of the DTPA;C) advertising and representing that technical support and counseling will be provided withthe website and software packages and then failing to provide it without requiring additionalpayments, thereby advertising goods or services with intent not to sell them as advertised, as
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PLAINTIFF'S ORIGINAL PETITION, Page 12alleged more specifically in paragraphs 9.1 through 9.6 above, in violation of §17.46(b)(9) ofthe DTPA;D) representing that the agreement to purchase the software and website packages includesan agreement to provide training, counseling, and technical support, thereby representing thatan agreement confers or involves rights, remedies or obligations which it does not have orinvolve or which are prohibited by law, as alleged more specifically in paragraphs 9.1 through9.6 above, in violation of §17.46(b)(12) of the DTPA; E) deceptively engaging in a sales and marketing scheme designed to extract more moneyfor services promised but not provided with the initial software and service packages, asalleged more specifically in paragraphs 8.1 through 9.6 above, in violation of §17.46(a) of theDTPA.XII. INJURY TO CONSUMERS12. Defendants have, by means of these unlawful acts and practices, obtained money orother property from identifiable persons to whom such money or property should be restoredor who, in the alternative, are entitled to an award of damages.XIII. PRAYER13. Because Defendants have engaged in the unlawful acts and practices describedabove, Defendants have violated and will continue to violate the law as alleged in this Petition.Unless restrained by this Honorable Court, Defendants will continue to violate the laws of theSTATE OFTEXASand cause immediate, irreparable injury, loss and damage to the STATE OFTEXASand to the general public.
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PLAINTIFF'S ORIGINAL PETITION, Page 1314. WHEREFORE, Plaintiff prays that Defendants be cited according to law to appearand answer herein; that after due notice and hearing a TEMPORARY INJUNCTION beissued; and upon final hearing a PERMANENT INJUNCTION be issued, restraining andenjoining Defendants, their officers, agents, servants, employees and attorneys and any otherperson in active concert or participation with Defendants from engaging in the following actsor practices:A) misrepresenting that coaches and/or mentors will be provided after the seminars toassist purchasers in setting up their business without payment of additional funds; B) failing to provide the purchaser of a business opportunity a full and detaileddescription of the acts or services that SOL will undertake to perform for the purchaser;C) failing to provide the purchaser of a website, software, or store front package a fulland detailed description of the acts or services that SOL will undertake to perform for thepurchaser;D) misrepresenting any of the details of starting up Internet businesses;E) causing confusion as to the degree of support, coaching, and assistance to beprovided to the purchaser by SOL after the sale to the purchaser of the services or software;F) failing to register the business opportunity offered by SOL with the Texas Secretaryof State prior to the advertisement, offer for sale, or sale of any storefront website offered bySOL;G) failing to provide the purchaser of a storefront website the “Disclosures Required ByTexas Law” at least 10 business days prior to the receipt by SOL of any consideration for thebusiness opportunity sold by SOL;
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PLAINTIFF'S ORIGINAL PETITION, Page 14H) failing to provide the purchaser of a storefront website a written contract for the saleof the business opportunity;I) selling storefront websites without having obtained or established a $25,000.00surety bond, irrevocable letter of credit or trust account;J) misrepresenting the amount of income to be made from the storefront websites soldby SOL; andK) selling faulty, non-working, defective, or otherwise inoperable software.15.In addition, Plaintiff STATE OF TEXAS respectfully prays that this Court will:A) Adjudge against each Defendant civil penalties in favor of Plaintiff STATEOF TEXAS in the amount of $20,000 per violation of the DTPA.B) Order Defendants, jointly and severally, to restore all money or otherproperty taken from identifiable persons by means of unlawful acts or practices, or in thealternative award judgment for damages to compensate for such losses.C) Order Defendants, jointly and severally, to pay Plaintiff STATE OF TEXASattorney fees and costs of court pursuant to the TEX. GOVT. CODE, §402.006(c).D) Order Defendants, jointly and severally, to pay pre-judgment interest on allawards of restitution, damages or civil penalties, as provided by law.E) Grant all other relief to which Plaintiff STATE OF TEXAS may show itselfentitled.Respectfully submitted,GREG ABBOTTAttorney General of Texas
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PLAINTIFF'S ORIGINAL PETITION, Page 15BARRY R. MCBEEFirst Assistant Attorney GeneralEDWARD D. BURBACHDeputy Attorney General for LitigationPAUL CARMONAAssistant Attorney GeneralChief, Consumer Protection Division___________________________RAUL NORIEGAAssistant Attorney GeneralConsumer Protection Division115 E. Travis, Suite 925San Antonio, Texas 78205Tel. (210) 225-4191Fax (210) 225-1075State Bar No. 15078400 |
