UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

Federal Trade Commission,

Plaintiff

v. Civil No. 05-cv-330-SM

Opinion No. 2008 DNH 181

Odysseus Marketing, Inc.,

and Walter W. Rines,

Defendants

O R D E R

The Federal Trade Commission seeks to have Walter Rines,

Online Turbo Merchant, Inc. (“OTM”), and Sanford Wallace, held in

civil contempt for violating a stipulated final order for

permanent injunction entered in this case on October 24, 2006. 

Although neither OTM nor Sanford Wallace was a party to this

suit, the government charges that they had notice of the

injunction and were “in active concert or participation with”

Rines in violating its terms. See Fed. R. Civ. P. 65(d)(2).

Background

Rines and Wallace were in the business of generating

Internet advertising revenue, by maintaining websites open to

Internet traffic at which advertisers could tout their products

and services to visitors. Rines says (by deposition admitted by

agreement) that his part of the business related to maintaining

servers for Wallace’s use, maintaining and managing affiliate

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websites, obtaining advertisers, and managing the accounts (Rines

and Wallace were paid a fee by advertisers based upon the number

of visits to the sites carrying their ads). Wallace, on the

other hand, was responsible for generating Internet traffic to

those sites — much like a hawker standing outside a bar inviting

passers-by to enter, albeit in a technologically more

sophisticated way.

Wallace did more, however, than just invite Internet surfers

to visit the pertinent websites. In a typical scheme, he created

thousands of MySpace accounts (MySpace is an Internet social

networking site) and used those accounts to send out multiple

thousands of messages to MySpace users that were deceptive. To a

recipient, the message would appear to be from a “friend” and it

encouraged the recipient to watch an interesting video,

ostensibly included with the message, using what looked like an

Internet video player. In fact, there was no video, and the

“video player” was merely a link to one of the websites managed

or maintained by Rines and Wallace. If the recipient clicked on

the “player,” and many did so, he or she did not see a video, but

rather was immediately redirected from the MySpace site (and its

servers) to a website operated by Rines — that is, a site other

than the one he or she chose to visit. Once at the new site, the

recipient would be invited to provide his or her MySpace login

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and password to access some service or product or information — a

practice commonly known as “phishing.” Other similar ploys were

used to redirect users to the websites maintained by Rines.

So, Wallace’s schemes, in simple terms, included downloading

content (the message, “video player,” and redirecting link) to a

user of a covered product (a computer), without the user’s

express prior consent; the downloaded content redirected the

user’s covered product to different websites, pages, and Internet

servers (from the MySpace site and servers to those maintained by

Rines) other than those the product’s user chose to visit; and

personally identifiable information from users was obtained — all

without their prior consent.

Discussion

Rines has interposed a defense, essentially contending that

while he and Wallace had a business relationship — an oral

contractual agreement — it was Wallace, not Rines, who was

contractually responsible for directing Internet traffic to

various websites managed or maintained by Rines.

Those websites, of course, generated revenue for Rines and

Wallace based upon the volume of Internet traffic received at

those sites. Rines says he was neither involved in, nor

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responsible for, directing Internet traffic to the sites, and did

not engage in that activity. He says his responsibility extended

only to maintaining the websites, arranging for advertising, and

accounting for business expenses and revenues.

Moreover, Rines says Wallace was duty bound under their

agreement to not only conduct his activities in strict compliance

with applicable law, but also in compliance with the terms of the

October 27 injunction. That is, Rines says Wallace, to the

extent his activity was prohibited by the terms of the

injunction, acted on his own, and was not “in active concert or

participation with” Rines. (Rines also implausibly suggests, in

passing, that Wallace’s activities did not literally run afoul of

the injunction’s terms.)

The Injunction

Wallace and Rines had actual prior knowledge of the

injunction and its specific terms. That is not disputed. The

government alleges that Wallace and Rines (and his now defunct

company, OTM) violated Sections II A., II B.1, II B.2, IV A, and

IX of the injunction, which provide:

II. IT IS FURTHER ORDERED that Defendants, whether

acting directly or through any person, corporation,

subsidiary, division, or other device, and their

offices, agents, directors, employees, salespersons,

independent contractors, affiliates, successors,

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assigns, and all other persons or entities in active

concert or participation with any of them who receive

actual notice of this Order by personal service or

otherwise, are hereby enjoined from, or assisting

others in:

A. Distributing, installing, or downloading, or

causing any user of a covered product to download

or install, any software program, code, script, or

any other content unless such user provides

express consent as defined in this order prior to

the distribution, installation, or downloading;

and

B. Distributing, installing, or downloading, or

causing any user of a covered product to download

or install, any software program, code, script, or

any other content that:

1. Redirects any covered product that is

converted to the Internet or World Wide Web

to different websites, web pages, FTP

servers, or other Internet servers than those

the product’s user chose to visit;

2. Modifies or replaces any search engine’s

or other application’s search results, search

features, or junction; . . . . 

IV. [same preamble as II]

A. Obtaining any personally identifiable

information of any person unless that person

provides express consent as defined in this Order

prior to taking and use of the information.

IX.

A. Defendant Rines, whether directly, or in

concert with other, or through any business,

entity, corporation, subsidiary, division, or

other device, in which he has a direct or indirect

ownership interest or controlling interest, or for

which he holds a managerial post or serves as an

officer, director, consultant, or employee is

hereby permanently enjoined and restrained from

participating [in], or assisting others, in any

manner whatsoever, in the downloading or

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installation of any software program, code,

script, or other content that:

1. Causes the display of any advertisement;

2. Modifies any web browser or operating

system software; or

3. Collects any personal, identifiable

information, unless he first obtains a

surety bond in the principal sum of Five

Hundred Thousand Dollars ($500,000) [or

posts equivalent cash or letter of

credit in escrow].

(emphasis supplied)

The parties to this suit (the government and Rines) appeared

at a hearing on the motion and presented evidence, testimony, and

proffers. Based upon the developed record, the court finds that

Wallace engaged in conduct that plainly ran afoul of Sections II

A, II B.1, and IV A. But a question remains with regard to the

extent to which he may be held in civil contempt for that

activity.

Active Concert or Participation

The government faces two related difficulties in this case. 

First, there is a problem of proof; second, a problem wellexplained by Judge Hand in 1930:

We agree that a person who knowingly assists a

defendant in violating an injunction subjects himself

to civil as well as criminal proceedings for contempt. 

This is well settled law. On the other hand no court

can make a decree which will bind any one but a party;

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a court of equity is as much so limited as a court of

law; it cannot lawfully enjoin the world at large, no

matter how broadly it words its decree.

* * *

Thus, the only occasion when a person not a party maybe

punished, is when he has helped to bring about, not

merely what the decree has forbidden, because it may

have gone too far, but what it has power to forbid, an

act of a party. This means that the respondent must

either abet the defendant, or must be legally

identified with him.

* * *

Thus, if the defendant is not involved in the contempt,

the employee cannot be; the decree has not been

disobeyed, so far as it is valid. We may assume for

argument that it is not necessary for the defendant

expressly to authorize the act; that it is enough if

the employee acts within the scope of his authority. 

But that does not affect the principle; rather it

illustrates it, since the authority of an agent need

never be express.

Alemite Mfg. Corporation v. Staff, 42 F.2d 832, 832-33 (2d Cir.

1930) (citations omitted); see also United Pharmacal Corp. v.

United States, 306 F.2d 515 (1st Cir. 1962).

Section II

Here, the government has established that Wallace acted in a

manner that brought about that which the decree has forbidden. 

But it has not adequately established that Wallace brought about

that which the decree has the power to forbid — an act of a party

(Rines). The government loosely charges Wallace with being in

“active concert or participation with” Rines, but argues not so

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much that Wallace abetted Rines but, rather, that Rines abetted

Wallace, or that Rines directed Wallace, or that Rines and

Wallace were in it together, or, perhaps, that Rines knew that

Wallace was engaged in conduct which violated the injunction’s

terms, but either ignored or willfully turned a blind eye to it. 

While it is undeniable that Rines benefitted from Wallace’s

activity (the advertising fees were shared between them), the

record, as developed, contains insufficient evidence to establish

that Rines abetted, directed, controlled, or even encouraged the

particular schemes Wallace employed to steer Internet traffic to

the websites maintained by Rines. At least, there is

insufficient evidence to establish Rines’ involvement in that

activity by clear and convincing evidence, as is required. 

Courts have understood the phrase in “active concert or

participation with” as requiring that a person either be “legally

identified with” the party targeted by the injunction or “aid and

abet” a targeted party to violate the injunction. NBA

Properties, Inc. v. Gold, 895 F.2d 30, 33 (1st Cir. 1990).

The record, as developed, is insufficient to establish that

Wallace was “legally identified” with Rines. What little that

can be found on the point is contrary. Rines formed and owned

OTM. In his deposition Rines says that he and OTM contracted

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with Wallace to perform a steering function. Wallace handled

traffic generation, not Rines. Rines made servers available for

Wallace’s use, and provided other support, but there is little

evidence to establish that Rines held any power of direction or

control over Wallace’s activities. See, e.g., Project B.A.S.I.C.

v. Kemp, et al., 947 F.2d 11, 20 (1st Cir. 1991). As it stands,

the record discloses a contractual relationship between Rines

(OTM) and Wallace, not an employment relationship.

Similarly, there is scant evidence tending to establish that

Wallace abetted Rines’ violation of the injunction. Rines

himself says he told Wallace that, as part of the arrangement

between them, Wallace was obliged to conduct his activity in a

manner consistent with the law and, specifically, the injunction. 

For his part, Wallace (in his proffered deposition) does not

suggest that Rines played any role in his traffic-generating

activities and, indeed, professes the view, however, implausibly,

that his own activities were not violative of the injunction’s

provisions.

Now, to be sure, Rines’ defense — “I told Wallace to comply

with the injunction” — calls to mind Captain Louis Renault’s

memorable line in Casablanca (“I’m shocked, shocked to find that

gambling is going on here!”). The government’s instinct is on

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solid footing — there is good reason to speculate, if not “know”,

that Wallace and Rines were engaged in a joint venture; that this

nefarious scheme was little different from the last one they

perpetrated together; that each knew full well what was being

done to generate revenue-producing traffic to the affiliated

websites; and that they both knew that the activities violated

the injunction. But, as is sometimes the case, what one

suspects, assumes, and “knows” to be the case has simply not been

proven to the requisite standard. That is the case here. I

decline to infer, based upon the mere relationship and the

activity itself, that, clearly and convincingly, Rines was in

active concert or participation with Wallace with respect to the

particular redirecting schemes perpetrated. A different result

would likely obtain on a lower, preponderance standard of proof,

or if some, more persuasive, evidence of knowledge, action, etc.,

had been produced.

Section IV

Once Internet users were redirected to the websites

maintained by Rines, they were generally exposed to a “phishing”

operation — that is, they were asked to provide log in and

password information related to their MySpace account, which

Rines collected and Wallace then used to send even more messages,

posing as the duped user (i.e., using the MySpace accounts of the

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persons who provided the personally identifiable information). 

Needless to say, express consent was not obtained from the

redirected users before the information was “taken and use[d].” 

Plainly, that activity was in violation of Section IV’s clear

terms, and Wallace was in active concert or participation with

Rines with regard to that activity. Rines cannot plausibly

suggest that he was ignorant of the activity occurring on the

websites he maintained (where the phishing occurred), and Wallace

can hardly be heard to suggest that he was unaware of the

phishing operation that generated information (i.e., the user

names and login passwords) he then put to use in continuing and

expanding the redirection operation.

Section IX

Rines was, specifically and in clear terms, prohibited from

“participating, or assisting others, in any manner whatsoever in

the downloading or installation of any software program, code,

script, or other content that: 1. Causes the display of any

advertisement; . . . [or] 3. Collects any personally identifiable

information unless he first obtains a surety bond in the

principal sum of Five Hundred Thousand Dollars ($500,000).” The

record discloses that Rines never posted the required bond.

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Through his business entity (OTM) and personally, Rines

downloaded content, code, and software programs that caused the

display of advertisement on the websites he maintained (the very

point of the business operation was to generate advertising

revenue by exposing redirected Internet users and others to the

advertising displayed on the affiliate sites). Rines and Wallace

realized over $500,000 in revenue from the operation. In so

doing, however, Rines violated the express prohibitions set forth

in Section IX of the permanent injunction by engaging in that

conduct without posting the required bond.

Conclusion

For the reasons given, the court finds the evidence

insufficient to establish clearly and convincingly that Wallace

was in active concert with or aided or abetted Rines in violating

the terms of Sections II A (Rines was not shown to have abetted

Wallace in downloading content related to redirection); II B.1;

or II B.2. (Wallace’s scheme did not modify or replace a user’s

search engine’s features, functions, or search results) of the

permanent injunction. However, Wallace was in active concert

with Rines, and aided and abetted Rines in his violation of the

terms of Section IV A. Additionally, Rines violated Section IX

of the permanent injunction. Wallace, Rines, and OTM are

adjudged to be in civil contempt. As provided in a

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contemporaneous order, Wallace, Rines and OTM shall pay, jointly

and severally, for the harm caused by their contemptuous conduct,

$555,840.04, representing disgorgement of the revenue obtained as

a direct result of their violations. However, to the extent they

or any of them disgorge part or all of that amount in the context

of any other civil suit, enforcement action, or proceeding, they

will be proportionately relieved of that obligation. Plaintiff’s

motion for contempt (document no. 27) is granted in part and

denied in part.

SO ORDERED.

____________________________

Steven J. McAuliffe

Chief Judge

September 30, 2008

cc: Joshua S. Millard, Esq.

Frank M. Gorman, Esq.

Peter V. Doyle, Esq.

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