DWORKEN & BERNSTEIN CO., L.P.A.

Patrick J. Perotti (OH #0005481)

James Timmerberg (OH #0067499)

60 South Park Place

Painesville, Ohio 44077

(440) 352-3391

JAVERBAUM WURGRAFT HICKS

KAHN WIKSTROM & SININS

Rubin Sinins (NJ #RS8325)

Gerald H. Baker 

505 Morris Ave.

Springfield, NJ 07081

(973) 379-4200

BONEZZI SWITZER MURPHY 

POLITO & HUPP CO LPA

Ronald A. Margolis, (OH #0031241)

1300 East 9th Street, Suite 1950

Cleveland, OH 44114

(216) 875-2068

CROWLEY & CROWLEY

Noel C. Crowley (NJ #NC3712)

20 N. Park Place, Suite 206

Morristown, New Jersey 07960

(973) 829-0550

Attorneys for Objector, Lisa Margolis

IN THE UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

SUSAN SABOL, et al.

Plaintiffs, 

vs.

HYDROXATONE, LLC and 

ATLANTIC COAST MEDIA

GROUP 

 Defendants.

CIVIL ACTION NO: 2:11-cv-04586-

KM-MAH

JUDGE KEVIN McNULTY

LISA MARGOLIS’ NOTICE OF 

INTENT TO OBJECT AND 

OBJECTION with Documents and 

Description of Exhibits and Testimony

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 1 of 38 PageID: 1403
 TABLE OF AUTHORITIES

Acosta v. Trans Union, LLC, 243 F.R.D. 377, 390 (C.D. Cal. 2007)....................14

Boyko v. Am. Int’l Group, Inc., 2012 U.S. Dist. LEXIS 59125, at *57

(D.N.J. Apr. 26, 2012) ............................................................................. 21

Briggs v. Hartford Financial Services Group, Inc., No. 07-CV-5190,

2009 U.S. Dist. LEXIS 66777 at *46 (E.D. Pa. July 31, 2009)..................6

Class Plaintifffs v. City of Seattle, 955 F.2d 1268, 1292-93 (9th Cir. 1992).........16

Federal Trade Commission v. Willms, Case No. 2:11-cv-828-MJP

(W.D. Wash. February 22, 2012)...................................................... passim

Fletcher v. Security Pacific National Bank, 23 Cal.3d 442 (1979) .......................23

Gammon v. GC Services Limited Partnership, 162 F.R.D. 313, 321

 (N.D. Ill. 1995).........................................................................................22

Girsh v. Jepson, 521 F.2d 153, 160 (3d Cir. 1975) ...........................................2, 13

In re American Family Enterprises, 256 B.R. 377, 424 n.3 (D.N.J. 2000) ...........20

In re CertainTeed Corp. Roofing Shingle Products Liability Litig.,

 269 F.R.D. 468, (E.D. Pa. 2010)..............................................................5

In re Janney Montgomery Scott LLC Financial Consultant Litig., 

2009 U.S. Dist. LEXIS 60790, at *30 (E.D. Pa. July 16, 2009 .................15

In re Lehman Bros. Securities and ERISA Litig., No. 09 MD 2017 (LAK), 

2012 U.S. Dist. LEXIS 90796, at *57 (S.D.N.Y. June 9, 2012).........17, 18

In re Lloyd’s American Trust Fund Litig., No. 96 Civ. 1262, 

2002 U.S. Dist. LEXIS 22663, at *33 (S.D.N.Y. Nov. 26, 2002).............16

In re Microsoft I-V Cases, 135 Cal. App. 4th 706, 729 (2006) .......................22, 23

In re Newbridge Networks Securities Litig., No. 94-1678-LFO,

1998 U.S. Dist. LEXIS 23238, at *8 (D.D.C. Oct. 23, 1998)....................14

In re Wafarin Sodium Antitrust Litig., 212 F.R.D. 231, 257 (D. Del. 2002).........13

i

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 2 of 38 PageID: 1404
Joe D’Egidio Landscaping, Inc. v. Apicella, 337 N.J. Super. 252

 (N.J. App. 2001)........................................................................................22

Karvaly v. eBay, Inc., 245 F.R.D. 71, 89 (E.D.N.Y. 2007) ...................................19

Lettenmaeir v. Lube Connection, Inc., 162 N.J. 134, 139 (1999)..........................21

Lane v. Facebook, 696 F.3d 811, 831 (9th Cir. 2012).............................................2

Lusby v. Gamestop Inc., No. C12-03783, 2013 U.S. Dist. LEXIS 41794 

(N.D. Cal. Mar. 24, 2013)..........................................................................27

Securities and Exchange Commission v. Teo, No. 2:04-cv-01815, 

2011 U.S. Dist. LEXIS 103413, at *14 (D.N.J. Sept. 11, 2011) ...............22

Sobel v. Hertz Corp., No. 3:06-CV-00545-LRH-RAM,

2011 U.S. Dist. LEXIS 68984, at *33 (D. Nev. June 27, 2011).................7

State v. Andrews, 73 Md. App. 80, 89 (1987)........................................................22

Synfuel Tecnologies, Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 653

(7th Cir. 2006).............................................................................................7

TBK Partners, Ltd. v. Western Union Corp., 675 F.2d 456, 461(2d Cir. 1982)....17

Wal-Mart Stores, Inc. v. Visa U.S.A, Inc.,396 F.3d 96, 107 (2d Cir. 2005) ..........17

16 CFR 251.1(a)(2)................................................................................................24

ii

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 3 of 38 PageID: 1405
TABLE OF CONTENTS

I. Introduction.......................................................................................1

A. BACKGROUND FACTS...................................................................4

II. The Released Claims Have a Potential Value of More than $300 Million............6

A. Released Party Thomas Shipley Used His Background in Marketing

to Implement a Deceptive Marketing Scheme that Generated Hundreds

of Millions of Dollars in Sales.................................................................7

B. Shipley Implemented His Scheme with the Help of His 

Accomplices......................................................................................10

C. The Bait-and-Switch Scheme Has Been Hugely Successful

in Defrauding Consumers.....................................................................11

III. The Proposed Settlement Is Not Within the Range of Reasonableness

in Light of the Best Possible Recovery....................................................13

IV. The Proponents of the Settlement Have Presented No Evidence

that the Defendants Would be Unable to Withstand a Greater Judgment........15

V. The Settlement Improperly Releases Claims that Are Not Based

on the Same Factual Predicate.............................................................17

VI. The Settlement Is Unfair to Consumers Who were Defrauded

by Shipley’s IVR Scheme Because It Gives Preferential Treatment

to Class Members Who Requested a Refund...........................................20

VII. The Settlement Is Inadequate Because It Fails to Address the

Essential Element of New Jersey’s Consumer Fraud Act, 

which Is to Deter Deceptive Conduct.....................................................21

III. The Prospective Relief Contained in the March 25, 2013 Amended

Settlement Agreement Blesses the Deceptive IVR Scheme.........................23

IX. Margolis Has Filed a Class-Action Lawsuit Naming Shipley, 

ACMG, Marketing Architects and Hydroxatone LLC as Defendants..............25

X. This Objection Is Filed by Class Member Lisa Margolis..............................26

XI. Conclusion......................................................................................26

iii

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 4 of 38 PageID: 1406
1

OBJECTOR LISA MAGOLIS’ NOTICE OF INTENT TO OBJECT AND OBJECTION

I. Introduction.

Sabol plaintiffs filed a putative class lawsuit against ACMG worth approximately $10 

million dollars. After limited discovery of one set of interrogatories and a request for production 

with no depositions, they propose to settle for approximately $1.75 million dollars cash payment1

or “free product while supplies last.” The settlement their counsel present to this court jointly 

with defense counsel, however, now tries to include and release $300 million dollars of other 

claims in the pending putative Margolis class against ACMG, Thomas Shipley, and Marketing 

Architects. They propose releasing additional $300 million Margolis IVR claims with no 

additional consideration from ACMG or its insurance carrier, and with no payment of any kind 

from Shipley, Marketing Architects or their insurance policies. 

The proposed Sabol Settlement Agreement releases the participants in a deceptive 

marketing scheme that generated over $300 million dollars in illegal income. The settlement 

should be denied final approval as not being fair nor reasonable because: 1) it releases claims 

with a potential value in excess of $300 million, yet creates a common fund with a value of only 

$3 million; 2) the proponents of the settlement have submitted no evidence that the defendants 

are unable to withstand a greater judgment, or that it is reasonable to fully release Shipley and 

Marketing Architects when they are paying nothing in exchange for their release; 3) when they 

agreed to the settlement, Class Counsel admit they were unaware of an additional $13 million 

dollar insurance coverage, and have obtained no payment from those policies; 4) the release is 

 

1

The total cash payment is $3 million. Amended Settlement Agreement, Doc 77-1, § 4.1(a)(i). 

One-third ($1 million) is for attorney fees for Sabol counsel, Id. at § 7.1. Approximately 

$250,000 is for the cost of class notice and administration, leaving $1.75 million for actual 

claims payments. The totals for claims payments may be more or less, but Sabol’s counsel and 

defense counsel refuse to provide that actual information to the undersigned. 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 5 of 38 PageID: 1407
2

overbroad because it releases claims based on a separate factual predicate, and which are 

currently pending against the released parties in Margolis v. Atlantic Coast Media Group, No. 

2:11-cv-04355 (D.N.J.), without providing any further compensation for those claims; 5) the 

settlement improperly gives preferential treatment to a small group of class members by making 

a cash award only to the Sabol “refund” class members and no cash payment to the Margolis 

“IVR” class members; 6) the settlement fails one of the essential purposes of the Consumer 

Fraud Act under which the claims were brought—it does not deter the deceptive conduct. 

The settlement permits the released parties to continue a marketing scheme involving 

deceptive practices that were specifically prohibited by the Stipulated Final Judgment and Order 

in Federal Trade Commission v. Willms, Case No. 2:11-cv-828-MJP (W.D. Wash. February 22, 

2012), Doc 106.2

Heightened scrutiny is applied to pre-certification settlement proposals, because 

“[c]ollusion is far more likely before certification, and exponentially higher if the class is 

expanded as part of the settlement.” Lane v. Facebook, 696 F.3d 811, 831 (9th Cir. 2012). A 

showing of reasonableness for all proposed terms and released parties is required. The showing 

may not be made by argument of counsel alone, because even settlement approval has evidential 

requirements. Girsh v. Jepson, 521 F.2d 153, 160 (3d Cir. 1975). Objector provides this Court 

with expert affidavits on these issues, while Proponents’ moving papers offer no such evidence. 

The proposed Sabol settlement cannot survive heightened scrutiny. First, the Proponents 

ask this court to settle a separate set of claims for fraud and breach of contract worth $300 

million arising from the defendants’ practice of using a deceptive script for their computerized 

interactive-voice-response ordering system (“IVR”). Specifically, the computer collects payment 

 

2

Exhibit 24.

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 6 of 38 PageID: 1408
3

information based on an offer of $7.95 for product, but that offer is a sham and does not exist. 

Expert Susan Kleimann has reviewed the Sabol defendants’ IVR script and confirmed this.3

Kleimann is the expert used by the FTC to show that a “free/risk free” offer program was 

deceptive in FTC v. Willms, Case No. 2:11-cv-828-MJP (W.D. Wash.). That suit, identical to 

this matter, involved a deceptive scheme using “risk-free” offers to lure consumers into payment 

of more than shipping and handling and auto-shipment programs.4

Second, the Proponents have failed to establish that ACMG is unable to withstand a 

greater judgment with respect to the $300 million in claims they are attempting to include. Class 

Counsel stated that if confirmatory discovery did not bear out ACMG’s claim of poor financial 

condition, “there will be no settlement.”5 But the only financial analysis (Ex. 2) before the court 

on this issue is from Robert Greenwald, a certified public accountant, certified fraud examiner, 

and an accredited business appraiser. He has testified as an expert in more than 200 cases. He 

states, without contradiction by Proponents, that the financial data produced by the Sabol 

defendants is “inadequate to accept a claim of insolvency.”6 Greenwald has identified multiple 

categories of additional documents that would have to be provided (which the defense had 

refused to provide to Objectors or Class Counsel) in order to make such a claim.7

Third, Class Counsel carelessly overlooked an additional $13 million in insurance 

coverage available to satisfy the class members’ claims. John O’Brien JD, CLU, CPCU, serves 

on the boards of five insurance companies and has served as an expert and consultant on the 

regulation and compliance of commercial lines as to policy language, policy services, and 

 

3 Declaration of Susan Kleimannn, attached as Ex. 3. 

4 Declaration of Susan Kleimann, page 8. 

5 August 17, 2012 e-mail from Andrew Friedman to Patrick Perotti, Ex. 20. 

6 Robert Greenwald declaration, attached as Ex. 2. 

7 Robert Greenwald declaration.

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 7 of 38 PageID: 1409
4

claims. He confirmed that three insurance policies, which Class Counsel admits not knowing-of 

when he settled the case, provide coverage to Shipley and Marketing Architects for the released 

claims. See, Exhibit 1. 

A. BACKGROUND FACTS.

Certain facts are not disputed, and they make approval improper. The $3 million dollar 

fund and full release extinguishes more than $300 million dollars of claims. No evidence is 

offered that further payment from the Releasees, including ALL their insurance, is unavailable. 

The only evidence before the court is from Objectors and it identifies additional, unused 

insurance coverage in excess of $5 million additional dollars which applies to the claims, which 

Counsel for the class admitted he did not know existed when he negotiated the settlement. 

The evidence demonstrates that the release added Thomas Shipley and Marketing 

Architects without obtaining any payment from them. The evidence demonstrates Shipley and 

Marketing Architects have more than $5 million dollars in insurance coverage for the released 

claims, which was left on the table in what can be viewed as haste by Class Counsel to cut a 

quick deal paying a $1 million dollar attorney fee. 

Next, Class Counsel acceded to Defendants’ demand to add Thomas Shipley and 

Marketing Architects to the full release, but required no payment from them and offers this court 

NO evidence of inability of Shipley and Marketing Architects to contribute to the Settlement. 

Shipley and Marketing Architects are highly solvent and no permitted reason exists to fully 

release them from $300 million dollars in claims without paying a dime. 

The evidence from the expert forensic financial analyst demonstrates that the incomplete 

‘financials’ provided by defense counsel to “prove” ACMG and Hydroxatone inability to 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 8 of 38 PageID: 1410
5

contribute anything do not do so. Class Counsel never had any expert in corporate finance 

examine the materials to verify the claim of inability to pay. The only financial analysis 

provided to the court, which is uncontested, demonstrates that the sparse items from defense 

counsel do not show that ACMG and Hydroxatone are unable to pay toward this settlement. 

The objectors have no burden to disprove the fairness and reasonableness of the 

settlement. Rather, the Proponents have the burden of proving that the settlement is fair and 

reasonable. In re CertainTeed Corp. Roofing Shingle Products Liability Litig., 269 F.R.D. 468, 

(E.D. Pa. 2010) (the “burden of establishing fairness, reasonableness, and adequacy lies on the 

proponents of the settlement”).

The Proponents offer nothing to address these issues. Statements of counsel in briefs and 

at hearing do not meet the burden which requires affidavits and evidence of a competent nature. 

Reviewing the history of this litigation provides a very clear understanding why this 

Settlement went totally awry. 

The Sabol lawsuit addressed a pool of discrete claimants and claims (the refund claims). 

The value of the refund claimants comprises approximately $10 million dollars. The Margolis 

lawsuit addressed a different group of claimants and claims, the IVR claims. The IVR claims 

have a total value in excess of $300 million dollars. 

Counsel for Margolis and Sabol agree that the Sabol and Margolis suits are based on 

different factual predicates: “the claims asserting in the [Sabol] case were different from the 

Margolis claims.” Sabol’s Memorandum Opposing Consolidation of Margolis and Sabol 

Lawsuits, Doc. 63, PageID 517 (Exhibit 29). 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 9 of 38 PageID: 1411
6

It is also not disputed that counsel for Sabol did not sue Marketing Architects or Thomas 

Shipley and they are not parties in the Sabol litigation. 

Class Counsel negotiated a settlement of $3 million dollars against ACMG. That amount 

reasonably covers the refund claims.

The Settlement ultimately presented to the court, however, was not limited to the Sabol 

refund claims and claimants. It purports to cover all customers for claims based on any factual 

predicate, and it includes not just ACMG but also Shipley and Marketing Architects. 

This approach expanded the value of claims being released from less than $10 million 

dollars, to over $300 million dollars, without adding anything to the settlement pool. The 

proposal grants releases to persons and entities not sued in this case, without requiring anything 

from them, despite them being able to contribute substantially in exchange for the release they 

are obtaining. The proposal makes no attempt to determine insurance coverage available to pay 

the class members millions of dollars additional. The proposal tilts payments so the Sabol 

customers receive cash, while the IVR customers are not permitted to receive any cash. The 

proposal achieves no deterrence since ACMG, Shipley and Marketing Architects disgorge none 

of the millions they obtained through the challenged conduct. The proposal allows them to 

continue “unfair or deceptive acts or practices in or affecting commerce” that are prohibited by 

the Federal Trade Commission under 15 U.S.C. § 45(a)(1).

II. The Released Claims Have a Potential Value of More than $300 Million. 

A necessary element for approval of a pre-certification settlement proposal is evidence of 

the value of the claims being released. Briggs v. Hartford Financial Services Group, Inc., No. 

07-CV-5190, 2009 U.S. Dist. LEXIS 66777 at *46 (E.D. Pa. July 31, 2009) (to “evaluate the 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 10 of 38 PageID: 1412
7

settlement against the best possible recovery, it is essential to grasp how many valid claimants 

may reasonably be predicted to exist, and the probable value of their claims”); Synfuel 

Tecnologies, Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 653 (7th Cir. 2006) (“the court 

should ... ‘insist[] that the parties present evidence that would enable []possible outcomes to be 

estimated,’ so that the court can at least come up with a ‘ballpark valuation’”). 

In their memorandum in support of their motion for final approval, the Sabol plaintiffs 

do not address, at all, the potential value of the claims that would be released by the settlement. 

Absent that information, approval should not be granted. Sobel v. Hertz Corp., No. 3:06-CV00545-LRH-RAM, 2011 U.S. Dist. LEXIS 68984, at *33 (D. Nev. June 27, 2011) (the failure to 

provide evidence of the “value of the claims to be surrendered” is “alone grounds for denying 

final approval, as the court is simply unable to fulfill its duty to the settlement class”). It seems 

clear why Proponents omitted any discussion of this in their moving papers. Discovery in the 

Margolis matter (not taken in Sabol) demonstrated that the value of those claims exceed $300 

million. 

A. Released Party Thomas Shipley Used His Background in Marketing to Implement a 

Deceptive Marketing Scheme that Generated Hundreds of Millions of Dollars in Sales. 

In 2005, Thomas Shipley came up with a business plan based on his background in 

marketing.8 His plan was to trick consumers into disclosing their credit or debit card information, 

without first disclosing the cost of the product for which they were billed. The hook was an ad 

 

8

From 1995 to 1999, Shipley devoted his time to Operations Management Group a firm that 

provided marketing consulting services. Shipley depo 18:1-15 (Ex.21). From 1998 through 2002, 

he operated Executive Shop, LLC, a multi-channel catalog business that sold briefcases, desk 

sets, and pens. Shipley depo 26:13-27:8. In 2002, he returned to running Operations 

Management Group full time, and continued to do so through 2005. Shipley depo 27:11-15. In 

2005, he started the Atlantic Coast Media Group with Andrew Surwilo. Shipley depo 35:1-4. 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 11 of 38 PageID: 1413
8

for a phony, never available “risk-free” offer.

9 When a consumer called in response to that ad, he 

was placed into an automated system (an interactive-voice-response or “IVR”).10 The system did 

not permit the consumer to ask questions, and there was no option to speak to a live operator. 

Instead, the consumer had to respond to prompts from a computer. 

Discovery in Margolis revealed that consumers were calling the number uniformly in 

response to ads which offered defendant’s product free of charge for only shipping and handling. 

But that is not what the IVR gave them. It charged them a minimum of $69.95. The IVR 

repeated the fraud from the original TV/radio ad. After repeating that the customer would 

receive the product for only $7.95 shipping and handling, that is all you pay, 11 (which was a lie) 

the computer asked the consumer to accept the deal by giving his credit/debit card information.12

At the time that the consumer provided his credit card number, the $7.95 shipping and 

processing charge was the only price information provided to him.13 AFTER taking the credit 

card number, the system routed the customer through extended other offers, requirements, terms 

and conditions, with the customer ending up with at least a $69.95 charge on their credit card for 

a product falsely represented as costing only $7.95, that is all you pay.

This exact practice was enjoined as a violation of federal law in FTC v. Willms, Case No. 

2:11-cv-00828-MJP (W.D. Wash. February 22, 2012). The Willms court ordered that the 

 

9

Siegel depo 206:8-207:7 (court reporter’s transcription of a Hydroxatone radio ad offering a 

free trial, and the chance to try Hydroxatone risk free). 

10 Shipley depo 65:9-12 (the IVR is “an automated way to take a customer order”); ACMG000000076-83 (Ex. 23); Siegel depo 63:7-11 (“It’s a computer that provides audio information 

on a recorded basis. So it records people’s voices, and then you can respond to the computer 

through the phone pad or through speech to have a back and forth dialogue with the computer.”)

11 ACMG-0077, ¶ 9: “To receive your risk-free trial of Hydrolyze, AND claim your free 

mystery gift, all we ask you to take care of today is the small shipping and processing fee of 

7.95.” (Ex.23)

12 ACMG-0078, ¶ 10: “Great! We will not select one of our payment options to cover the small 

shipping and processing charge.” 

13 ACMG-00000076-83 (Ex. 23).

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 12 of 38 PageID: 1414
9

defendant was “permanently restrained and enjoined” from “[f]ailing to clearly and 

conspicuously disclose ... before consumers are asked to ... reveal billing or bank account 

information ... [t]he total cost to purchase, receive, or use any product or service that is the 

subject of the sales offer[.]”14

The same way in the instant case, the $7.95 offer didn’t exist. Once the IVR had obtained 

the consumer’s payment information, the consumer was presented with a litany of terms and 

conditions, some of which involved multiple payments totaling in excess of $100.15 None of 

them involved receiving a product for the cost of shipping and processing. The consumer was 

then sent multiple containers of product with expensive billings every month, or sent product not 

ordered. The most typical scam was to send the consumer16 product with $139.90 (two 

payments of $69.95) taken from their credit card (the number which defendants obtained though 

their fraud).17 The $139.90 “deal” was plainly not the same as the original $7.95 offer that 

enticed the consumer to provide his credit card number. Nor was that $139.90 package ever 

mentioned in the original ad, or by the IVR computer before the consumer provided his payment 

information. 

In discovery the defense admitted that they could not identify a single customer who 

received a container of product for $7.95 shipping and handling.18 Rather, this discovery 

revealed that over $300 million dollars was collected from consumers by charges to their credit 

cards which were fraudulent and prohibited by law. 

 

14FTC v. Willms, Case No. 2:11-cv-00828-MJP, Doc 106 (W.D. Wash. Feb. 22, 2012) (attached 

as Ex. 24). 

15 ACMG-0078, ¶ 11: offering two jars of Hydrolyze for two payments of $69.95 (or $139.90), 

with recurring charges of $139.90 every two months for an indefinite period of time. 

16 ACMG-0081, ¶ 18.

17 ACMG 0081, ¶ 18: If the consumer declined to cancel his order

18 Shipley depo 165:13-166:1. 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 13 of 38 PageID: 1415
10

B. Shipley Implemented His Scheme with the Help of His Accomplices.

In 2005, Shipley joined with Andrew Surwilo to set up Atlantic Coast Media Group 

(“ACMG”).19 According to Shipley, the purpose of the company was to “market [health and 

beauty] products through a multi-channel approach which means TV, radio, direct mail, print 

advertising and home shopping channel[.]”20 Shipley is the co-CEO of ACMG and responsible 

for all of its marketing.21

To work jointly on this marketing and collecting the credit card information, Atlantic 

Coast Media Group contracted with Marketing Architects, to jointly operate the IVR system, as 

well as produce the television and radio commercials.22 “Marketing Architects, Inc.” appears on 

every page of every IVR script. By preparing scripts for and operating the IVR system, 

Marketing Architects directly participated in a critical role in the implementation of Shipley’s 

fraudulent scheme. C. The IVR Scheme Is Deceptive. 

The IVR system used by defendant is deceptive. Plaintiff and the customers in the 

Margolis litigation have a strong ability to prevail on those claims. See, Willms, Case No. 2:11-

cv-00828-MJP (E.D. Wash. Feb. 22, 2012), Doc 106, page 10 (enjoining Willms from 

misrepresenting that “a product or service is offered on a “free,’ ‘trial,’ or ‘bonus’ basis, or 

words of similar import, denoting or implying the absence of any obligation on the part of the 

 

19 Shipley depo 35:2-4. 

20 Shipley depo 112:8-17. 

21 Shipley depo 92:19-21; 131:14-15 (the “different departments that report to me are IT, finance 

and accounting and marketing”); Siegel depo 71:3-5 (Shipley was running the marketing 

department at Atlantic Coast Media Group). 

22 Shipley depo 63:19-64:25 (Marketing Architects does “TV creative promotionals and radio 

creative promotionals”); Siegel depo 236:2-237:3 (“Marketing Architects handled, you know, all 

of the IVR calls”). 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 14 of 38 PageID: 1416
11

recipient to pay anything other than a nominal fee”). Marketing expert Susan Kleimann, an 

expert retained by the federal government on the identical issues, has reviewed the IVR script 

and likewise found it to be deceptive: it fails “to offer any consumer the initial deal, using all of 

the techniques above to elide the consumer into a position of taking more than the original offer. 

The net impression of this script is intent to mislead consumers so that they do not know the deal 

and are caught by tricks and traps.”23 She noted that the Hydrolyze IVR script uses consumer 

appeals and language techniques that are intended to draw consumers’ attention to the 

advantages of the transaction while simultaneously overwhelming them with the ‘bits’ or details 

of the actual deal, resulting in little or no retention of the terms and conditions of the agreement. 

She easily concludes that “that the IVR script intends to mislead.” (Empahsis added.)24

C. The Bait-and-Switch Scheme Has Been Hugely Successful in Defrauding Consumers.

Using bait-and-switch tactics to sell ACMG’s products through Marketing Architect’s 

IVR system, Shipley and his accomplices have generated hundreds of millions of dollars in 

income during the class period as reflected in the following chart: 

Year Total Net Sales25 Percentage of 

sales by IVR

Value of IVR sales (net 

sales multiplied by 

percentage of sales by 

IVR)26

2007 $35,515,902 11% $3,906,749.22

 

23 Declaration of Susan Kleimann, p. 22, ¶ 46 (Ex.3). 

24 Id. at p. 20, ¶ 41. 

25The information in this chart is based on data contained in Ex. 25, which consists of a July 31, 

2012 e-mail from ACMG’s counsel and attachments. 

26 The value of IVR sales was calculated based on the information provided by ACMG in the 

July 31, 2012 e-mail. Counsel for ACMG has refused to provide further and more detailed 

information or financials.

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 15 of 38 PageID: 1417
12

2008 $56,386,967 14.71% $8,294,522.84

2009 $104,689,221 48.73% $51,015,057.40

2010 $170,544,596 66.93% $114,145,498.00

2011 $203,494,330. 50.82% $103,415,819.00

2012, January through 

May

$40,644,402 ? ?

2012, June through 

December

? ? ?

2013 ? ? ?

The data provided by ACMG was woefully incomplete since they refused to provide 

other key financial information. But the information which the undersigned was able to obtain, 

as set forth above, shows at minimum the IVR income during the relevant time period exceeded 

$300 million (using a very conservative assumption that there were approximately $25 million of 

IVR income in 2012 and 2013). All of this income was generated using the same deceptive 

practice of collecting payment information based on a non-existent ‘offer of product in exchange 

for a small shipping and processing fee.’ In 2010, the bait-and-switch IVR was responsible for 

almost 70% of ACMG’s income. This deceptive practice of using a fictitious $7.95 offer to get 

payment information from consumers was not the result of a rogue employee breaking the rules; 

it was ACMG’s way of doing business. 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 16 of 38 PageID: 1418
13

III. The Proposed Settlement Is Not Within the Range of Reasonableness in Light of the 

Best Possible Recovery.

In the Third Circuit, the fairness, reasonableness, and adequacy of a class-action 

settlement are determined by the nine-factor test set forth in Girsh v. Jepson, 521 F.2d 153 (3d 

Cir. 1975). The eighth and ninth Girsh factors consider the reasonableness of the settlement in 

light of the best possible recovery and the risks the parties would face at trial. In re Wafarin 

Sodium Antitrust Litig., 212 F.R.D. 231, 257 (D. Del. 2002). In cases seeking monetary relief, 

the present value of total damages must be compared with the amount of the proposed 

settlement, after being discounted for the risk of not prevailing. Id. 

Oddly, neither Class Counsel nor defense counsel as Proponents of this Settlement have 

provided anything to this court on the present value of the total damages. Objector respectfully 

submits this was not oversight. 

Regardless, the information is provided to the court now. See above table. Here, the best 

possible recovery would be approximately $300 million based on the value of the IVR claims. 

This figure is uncontested, with the Sabol plaintiffs and defense counsel declining to provide any 

other estimate of the best possible recovery in their memorandum in support of final approval. 

In comparison, the total cash value of the proposed settlement is less than $3 million, since that 

pool is also committed to payment of costs and attorney fees (which are ‘agreed’ between Class 

Counsel and defendant to be $1 million dollars). Even factoring in the offered “while supplies 

last” product dollar for dollar (which courts do not do, as discussed below), the value is $7 

million. That means Class Counsel has discounted the best possible recovery of $300 million 

dollars by at least 98.5%. 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 17 of 38 PageID: 1419
14

While courts have “not identified a precise numerical range within which a settlement 

must fall in order to be deemed reasonable”, a settlement that “secures roughly six to twelve 

percent of a potential trial recovery ... seems to be within the targeted range of reasonableness.” 

(Emphasis sic.) In re Newbridge Networks Securities Litig., No. 94-1678-LFO,1998 U.S. Dist. 

LEXIS 23238, at *8 (D.D.C. Oct. 23, 1998). The instant settlement here of $1.75 million cash 

payment or “while supplies last” product for a claim worth $300 million does not fall within the 

“targeted range.” 

The product part of the offer is odd. It is only available “while supplies last.”27 Also 

Defendants are PAID (from the money in the settlement pool supposedly available for cash 

payments) $7.95 in shipping and processing for every ‘free’ jar sent. That sounds awfully like 

the conduct for which this suit was filed in the first place.28 “[C]ourts widely recognize that 

‘compensation in kind is worth less that cash of the same nominal value.’” Acosta v. Trans 

Union, LLC, 243 F.R.D. 377, 390 (C.D. Cal. 2007). Class members will have little use for 

additional product from the defendants; the defendants products have little value in the 

secondary market; and, the cost to the defendants of providing the product is negligible, 

particularly with shipping and processing costs be charged to the common fund. Acosta, 243 

F.R.D. at 390. 

 

27 Doc 77-1, Amended Settlement Agreement, Page ID 817, §5.4(b). 

28 Doc 77-1, Amended Settlement Agreement, Page ID 819, § 5.5(h).

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 18 of 38 PageID: 1420
15

IV. The Proponents of the Settlement Have Presented No Evidence that the Defendants 

Would be Unable to Withstand a Greater Judgment. 

Another key factor in obtaining settlement approval is for the proponents to establish that 

the released parties cannot withstand a larger payment. Again, Class Counsel and defense 

counsel offer nothing probative on this issue. Class counsel accepted at face value the paper 

claim of ‘poor financial condition’ without offering any analysis from a financial consultant or 

accountant on the defense numbers. 

The Sabol plaintiffs admit that proof of the defendants’ inability to withstand judgment 

“weighs heavily in favor of approval of the settlement.”29 Where is that evidence? The Sabol 

plaintiffs say that “various financial statements” were produced “as part of confirmatory 

discovery[.]”30 But they do not explain how those documents establish that the defendants are 

unable to withstand a greater judgment. In the absence of any evidence of an inability to 

withstand a greater judgment, this purported factor cannot weigh in favor of the proposed 

settlement. In re Janney Montgomery Scott LLC Financial Consultant Litig., No. 06-3202, 2009 

U.S. Dist. LEXIS 60790, at *30 (E.D. Pa. July 16, 2009) (“[g]iven the lack of evidence presented 

to the Court regarding Defendant’s ability to pay, the Court concludes that this factor is 

neutral”). 

Just the opposite, Robert Greenwald, a respected forensic accountant used regularly by 

the Federal Court in business financial evaluation, solvency, and similar matters, has reviewed 

the materials.31 He confirms, in the attached declaration, that insufficient financial 

 

29 Doc 92, Memo in Support of Plaintiffs’ Motion for Final Approval, PageID 1107. 

30 Doc 92, Memo in Support of Plaintiffs’ Motion for Final Approval, PageID 1107. 

31 Greenwald Declaration, attached as Ex. 2. 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 19 of 38 PageID: 1421
16

documentation was produced in the Sabol litigation for anyone to conclude that the defendants 

would be unable to withstand a greater judgment.32

Along the same lines, the Proponents slipped Shipley and Marketing Architects into the 

release and appear to think they can sneak them past any of this analysis. That would be wrong. 

The Sabol plaintiffs completely omit any discussion in their moving papers of the ability of the 

released non-parties (Shipley and Marketing Architects) to contribute to the settlement. 

Courts “recognize that it is appropriate for a class action settlement to include a limited 

release of a non-party ..., where that non-party has contributed substantially to making the 

settlement possible.” (Emphasis added.) In re Lloyd’s American Trust Fund Litig., No. 96 Civ. 

1262, 2002 U.S. Dist. LEXIS 22663, at *33 (S.D.N.Y. Nov. 26, 2002). 

The release here is a FULL release, and they have contributed nothing. 

Approval of a release of non parties requires the court to separately consider the 

“fairness, adequacy, and reasonableness of the [released non-party’s] contribution.” Class 

Plaintifffs v. City of Seattle, 955 F.2d 1268, 1292-93 (9th Cir. 1992). Here, the released parties 

have contributed nothing to the settlement, in spite of the fact that they are financially solvent33

and have up to $13 million of additional insurance coverage. Put bluntly, the terms of the release 

which Proponents ask this court to approve, giving them a free ride, are clearly unfair, 

inadequate, and unreasonable. 

 

32 Id.

33

 The Proponents may complain that Objector has provided no hard financial information to 

prove that Shipley and Marketing Architects are financially solvent. First, Objector HAS 

provided a $5 million dollar insurance policy which is not being accessed. Second, Objector has 

specifically asked for financial information from Shipley and Marketing Architects but the 

defense has refused to provide it. Objector respectfully submits that the Proponents are the ones 

who added Shipley and Marketing Architects to the full release without requiring them to pay a 

dime, and it is Proponents who bear the burden under law to show those Releasees cannot afford 

to make any contribution. 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 20 of 38 PageID: 1422
17

V. The Settlement Improperly Releases Claims that Are Not Based on the Same 

Factual Predicate.

Class action settlements may release claims not presented directly in the action only 

when they are based “‘on the identical factual predicate as that underlying the claims in the 

settled class action.’” In re Lehman Bros. Securities and ERISA Litig., No. 09 MD 2017 (LAK), 

2012 U.S. Dist. LEXIS 90796, at *57 (S.D.N.Y. June 9, 2012); Wal-Mart Stores, Inc. v. Visa 

U.S.A, Inc.,396 F.3d 96, 107 (2d Cir. 2005). “[S]pecial care must be taken [by the court] to 

ensure that the release of a claim not asserted within a class action or not shared alike by all class 

members does not represent ‘an advantage to the class ... by the uncompensated sacrifice of 

claims of members[.]’” TBK Partners, Ltd. v. Western Union Corp., 675 F.2d 456, 461(2d Cir. 

1982). 

Here, the Sabol litigation and then settlement went from originally limited, to now 

extraordinarily broad, with the term released claims morphing from refund claims, then to refund 

and limited continuity claims, now to include “any and all actions ... that in any way challenge 

Defendants’ Risk Free Trials and/or Auto-Shipment Programs, billing practices ..., the 

representations and/or disclosures and/or Defendants’ adherence to the terms ... of such offers, 

and/or any claim related to the receipt of and/or payment for unordered products.”34The Second 

Amended Complaint did not assert such claims. It was limited for the Sabol class to person who 

“(1) returned the product ... but were denied a refund and/or were sent subsequent shipments of 

unordered products, and/or (2) requested to cancel their membership in the [Auto-Ship Program] 

but incurred additional charges for subsequent shipments of unordered products[.]”35

 

34 Doc 77-1, Amended Settlement Agreement, PageID 835, § 14.2.

35 Doc 65, Second Amended Complaint, PageID 463, ¶ 1. 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 21 of 38 PageID: 1423
18

The factual predicate of the Sabol claims was that the defendants didn’t honor their 

refund and cancellation policies. Even now, the Sabol plaintiffs continue to identify the common 

questions of fact in their case as: “whether Defendants consistently prevented Class Members 

from receiving refunds from the return of ‘risk-free’ products; [and] whether Defendants 

prevented the timely cancellation of auto-ship products[.]”36 They also note that “were this case 

to proceed, the primary issue would be whether Defendants were liable to the Class under the 

claims pled in the Complaint based on the allegations that they allegedly systematically refused 

Class Members’ requests for refunds and/or requests to cancel the auto-ship program.”37

The IVR claims asserted by Margolis, with a different factual predicate than the Sabol 

refund claims, are valued by Defendants’ own records at more than $300 million dollars for a 

reason. They require the proof of different facts, based not on any request for refunds or 

cancellations, but rather on IVR marketing which took credit card information and was illegal up 

front. Courts “will decline to uphold releases where the claim purportedly released required 

‘proof of further facts.’” In re Lehman Bros., 2012 U.S. Dist. LEXIS 90796 at *59, quoting TBK 

Partners, 675 F.2d at 462. Further facts that would have to be proved in the Margolis claim that 

are not necessary to prove the Sabol plaintiffs’ refund claim: 

 The plaintiff was placed into the IVR system (none of the named plaintiffs in 

Sabol have alleged that fact); 

 The IVR offers product in exchange for the cost of shipping and processing;

 The offer of product for the cost of shipping and processing was not actually 

available;

 

36 Doc 92, Memo in Support of Plaintiffs’ Motion for Final Approval, Page ID 1091. 

37 Doc 92, Memo in Support of Plaintiffs’ Motion for Final Approval, PageID 1094. 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 22 of 38 PageID: 1424
19

 The offer of product for the cost of shipping and processing was a bait-and-switch 

used to obtain the plaintiff’s payment information; 

 The IVR scripts are deceptive; 

 Marketing Architects operated the IVR system; and

 Thomas Shipley knew and approved of the deceptive IVR scripts.

The Second Amended Complaint in Sabol does not mention the IVR, Thomas Shipley, or 

Marketing Architects. It is predicated on the consumer requesting a refund, which is not an 

element of Margolis’ IVR claim. The outcome of the settlement proposal gives preferential 

treatment to Sabol class members, structuring a deal to put cash in the pockets of a small number 

of class members while providing no cash option for the majority of the released claimants is 

unlawful. 

To reiterate, the Settlement took Sabol claims which possibly could stand a $3 million 

dollar pool, and broadened them beyond recognition to matters never pled or prosecuted in 

Sabol, in order to obtain Defendants’ agreement to settle and pay cash to Sabol claimants only. 

Where, as here, “the class representatives seek to advance their own interests by sacrificing the 

rights of the majority of Class Members, who stand to gain nothing of substantial value from the 

proposed settlement, for the benefit of the small group of Eligible Class Members”, the concern 

arises that class representative would seek a better settlement themselves by throwing the claims 

of other class members to the wind. Karvaly v. eBay, Inc., 245 F.R.D. 71, 89 (E.D.N.Y. 2007).

In Karvaly, the district court denied preliminary approval of a class settlement because 

the class representative sought to “bargain away the rights of other Class Members to assert legal 

claims unreleased to the present action ... for the sake of the Eligible Class Members’ own 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 23 of 38 PageID: 1425
20

pecuniary interests.” Id. at 90. Rejecting the Sabol settlement is similarly appropriate here. The 

Sabol plaintiffs have asserted a narrow refund claim, but to get Defendant to settle that claim, 

they are attempting to release all possible claims against the defendants with respect to the sale 

of any of their beauty products, including Margolis’ claims, which rely on a different factual 

predicate.

VI. The Settlement Is Unfair to Consumers Who were Defrauded by Shipley’s IVR 

Scheme Because It Gives Preferential Treatment to Class Members Who Requested a 

Refund.

“It is axiomatic that all class members possessing similar claims be treated equally, and 

that preferential treatment ... is impermissible.” In re American Family Enterprises, 256 B.R. 

377, 424 n.3 (D.N.J. 2000). Here, the Sabol refund class, called Group One Claimants, who were 

victims and spent more than $200 are entitled to recover $100 in cash. But Group Two Claimants 

who were victims and spent the same amount of money are not entitled to any cash recovery. 

How is that fair? 

Neither the settlement agreement nor the motion for final approval explains why 

consumers who were victims and suffered damages should receive different recoveries. The 

settlement class it purports to include all persons who “were charged for Hydroxatone-branded 

products.”38 And the settlement purports to release “any and all actions, causes of action, claims 

demands [etc.] of any nature and description whatsoever[.]”39 If that’s the case, why is there a 

Group One refund class that is receiving cash payments, while everyone else is lumped into 

Group Two and receive no cash and instead might receive some product if supplies last? 

 

38 Doc 77-1, Settlement Agreement, PageID 811, § 3.1.

39 Doc 77-1, Settlement Agreement, PageID 833, § 14.2. 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 24 of 38 PageID: 1426
21

Not only is this contrary to Rule 23, it resulted in a defective notice to the class members 

in Group Two. Those persons are entitled to cash the same as the others, but were told that they 

could not receive any cash if they submitted a claim. Claims submission rates in cases like this 

one are notoriously low to begin with where the customer must deal with a long claim form 

rather than simply receiving a check. The submission rate for product is not even a fraction of 

that, since product is just not worth the effort. A dramatically higher submission rate would have 

occurred for Group Two members if they were properly provided a cash payment. Your Objector 

was prepared to provide expert submission on this point, but was prevented from doing so by 

Class Counsel and Defendants’ counsel instructing the Settlement Administrator not to provide 

the records on the Settlement and Claims processing, when that information was needed by the 

Class Notice expert to provide an affidavit on these matters. 

VII. The Settlement Is Inadequate Because It Fails to Address the Essential Element of 

New Jersey’s Consumer Fraud Act, which Is to Deter Deceptive Conduct.

A proposal for class settlement is also examined for whether it promotes or hinders the 

objective of the underlying claims asserted. This proposal accomplishes none of those goals, and 

rather frustrates them, since: Defendants are not disgorging a penny from the hundreds of 

millions they collected using a system like the one enjoined by the FTC in Willms; and 

Defendants are permitted by the Settlement Agreement proposed here to continue the conduct 

which was challenged and barred by the FTC in Willms.

The Sabol plaintiffs have asserted a claim under the New Jersey Consumer Fraud Act. 

Doc 65, Second Am. Comp., ¶¶ 44-56. The purpose of the Consumer Fraud Act is to “deter 

fraudulent practices by merchants in the marketplace.” Boyko v. Am. Int’l Group, Inc., 2012 U.S. 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 25 of 38 PageID: 1427
22

Dist. LEXIS 59125, at *57 (D.N.J. Apr. 26, 2012); Lettenmaeir v. Lube Connection, Inc., 162 

N.J. 134, 139 (1999) (the Act was designed to serve both “deterrent and protective purposes”); 

Joe D’Egidio Landscaping, Inc. v. Apicella, 337 N.J. Super. 252 (N.J. App. 2001) (the Act “is 

remedial legislation and should be liberally construed to accomplish its dual objectives of 

deterrence and protection”). 

In cases like the present one, the use of a Rule 23 Class action is intended to deter illegal 

conduct: “Class actions were designed ‘not only to compensate victimized members of groups 

who are similarly situated ... but also to deter violations of the law .... Disgorgement of illegal 

gains from wrongdoers ... would fulfill the deterrence objectives of class actions.’” Gammon v. 

GC Services Limited Partership, 162 F.R.D. 313, 321 (N.D. Ill. 1995), quoting H. NEWBERG, 

Class Actions § 4.36; In re Microsoft I-V Cases, 135 Cal. App. 4th 706, 729 (2006) (establishing 

a minimum liability of $733 million for a class action settlement showed “significant usefulness 

in effectuating the deterrent and disgorgement purposes of the cause of action”).

Courts have routinely recognized that to achieve deterrence there must be some 

disgorgement of ill-gotten gains. Securities and Exchange Commission v. Teo, No. 2:04-cv01815, 2011 U.S. Dist. LEXIS 103413, at *14 (D.N.J. Sept. 11, 2011) (the “purpose of the 

equitable remedy of disgorgement is ‘to deprive a wrongdoer of his unjust enrichment and to 

deter others”). In a deceptive trade practices case, a Maryland court observed that “‘[to] permit 

the [retention of] even a portion of the illicit profits would impair the full impact of the deterrent 

force that is essential if adequate enforcement [of the law] is to be achieved.’” State v. Andrews, 

73 Md. App. 80, 89 (1987). 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 26 of 38 PageID: 1428
23

In Fletcher v. Security Pacific National Bank, 23 Cal.3d 442 (1979), which involved a 

consumer class action claim against a bank, the Supreme Court of California explained that 

“inasmuch as ‘[protection]of unwary consumers from being duped by unscrupulous sellers is an 

exigency of the utmost priority in contemporary society’ ..., we must effectuate the full deterrent 

force of the unfair trade statute.” Id. at 451. The Fletcher court noted that to “‘permit the 

[retention of even] a portion of the illicit profits, would impair the full deterrent force that is 

essential if adequate enforcement [of the law] is to be achieved.’” Id., quoting Securities & 

Exchange Com’n v. Golconda Mining Co., 327 F. Supp. 257, 259-60 (S.D.N.Y. 1971). 

Here, the entire settlement fund is being paid by insurance. Defendants are not 

disgorging a penny. It is expected Defendants will argue they need not disgorge since this is a 

“settlement” and they “admit no liability.” That reasoning is false.

In In re Microsoft I-V Cases, 135 Cal. App. 4th at 728, the settlement agreement included 

a provision of “nonadmission” stating that Microsoft did not admit the truth of any of the 

allegations, and that the settlement did not reflect any wrongdoing. The appellate court 

nevertheless found that approval of the proposed settlement was proper for it served an implied 

deterrent or disgorgement purpose. Id. 

VIII. The Prospective Relief Contained in the March 25, 2013 Amended Settlement 

Agreement Blesses the Deceptive IVR Scheme. 

The amended settlement agreement filed on March 25, 2013, includes the following 

prospective orders which Proponents ask this court to approve: 

(1) “Defendants will not use the word ‘free’ by itself for offers where the customer is 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 27 of 38 PageID: 1429
24

required to return the product[.]” (Emphasis added.)40 This would not even slightly impair the 

IVR scheme. 

The defendants could continue to use the terms “risk-free” or “free-trial,” which are 

equally deceptive. As the FTC has explained the representative language used in “free” offers 

includes: “2-for-1Sale”, “50% off with purchase of Two”, “1[cent sign]Sale”, etc. 16 CFR 

251.1(a)(2), the FTC’s “Guide Concerning the Use of the Word ‘Free’ and Similar 

Representations.” Simply put, the IVR scripts used by Shipley and his accomplices would be no 

less deceptive if they collected payment information on the basis of an offer of product in 

exchange for 2 cents plus shipping and processing. 

(2) “Defendants will disclose the terms of their Risk Free Trial and Auto-Shipment 

Program(s) in a Clear and Conspicuous manner before getting the customer’s final acceptance to 

the offer.” (Emphasis added.)

The court should reject this attempt since it permits the fraudulent aspect of the IVR 

scheme to continue.

The defendants currently collect payment information based on a fictitious offer of 

product in exchange for a small shipping and processing fee. After collecting payment 

information, they disclose the terms and conditions of numerous offers, and refuse to honor the 

initial deal of product in exchange for shipping and processing. That is the practice the FTC 

prosecuted as unlawful and which was ordered ceased in Willms. The quoted language in the 

proposed settlement to this court permits Defendants to continue that same deceptive practice.

As mentioned, the deceptive practice of collecting payment information before disclosing 

the material terms of the offer was recently enjoined by the Willms court at the behest of the 

 

40 Doc 77-1, Amended Settlement, PageID 814, § 4.1(c)(ii)(2).

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 28 of 38 PageID: 1430
25

FTC.41 The wording in the Settlement sneaks past this by describing ‘final acceptance’ but that is 

not the standard. A company may not collect the credit card information if any material term is 

not disclosed until afterwards. 

The settlement agreement wording is proper if it requires that all terms and conditions of 

any offer are FULLY disclosed BEFORE the IVR collects any payment information. The 

settlement does not require that. 

The released parties can continue a program which cheats the public, and now feel they 

have federal court approval for their acts. 

IX. Margolis Has Filed a Class-Action Lawsuit Naming Shipley, ACMG, Marketing 

Architects and Hydroxatone LLC as Defendants

Objector Lisa Margolis filed a class action complaint naming ACMG and Hydroxatone 

LLC as defendants on July 27, 2011. She filed her First Amended Complaint on December 19, 

2012.42 Shipley, ACMG, Marketing Architects, and Hydroxatone are all named as defendants in 

the First Amended Complaint. Her claims are focused on the Margolis defendants’ unlawful 

conduct in connection with the IVR script. First, Margolis alleges that ACMG and Hydroxatone 

breached their contract with her by failing to honor the offer of product in exchange for the cost 

of shipping and processing, which is the offer that caused her to provide her credit card 

information.43 Second, she asserts a fraud claim against all of the defendants with respect to their 

 

41 FTC v. Willms, Case No. 2-11-cv-828-MJP (W.D. Wash. Feb. 22, 2012), Doc 106, page 10 

(attached as Ex. 24). 

42 Margolis v. Atlantic Coast Media Group LLC, 2:11-cv-04355-SRC-CLW (D. N.J.), First 

Amended Complaint (Ex. 28). 

43 Margolis FAC ¶¶ 63-71.

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 29 of 38 PageID: 1431
26

practice of collecting credit card information based on an offer of product in exchange for the 

cost of shipping and processing, when that offer was not actually available.44

Margolis’ efforts to amend her complaint to add Shipley and Marketing Architects as 

defendants were vigorously opposed by counsel for ACMG, but the amendment was permitted 

by the district court. If the proposed Sabol settlement is approved, including the extraordinarily 

overbroad release, Margolis’ claims against all of the defendants named in her amended 

complaint would be dismissed, in spite of the strong evidence of the defendants’ fraud and 

damages that total more than $300 million dollars. 

X. This Objection Is Filed by Class Member Lisa Margolis.

This objection is filed by Lisa Margolis, 483 Longspur, Highland Heights, Ohio 44143, 

telephone 440-446-0489. 

She called to accept the trial offer in approximately December 2010. 

Her checking account was debited a total of approximately $289.63 by the defendants. 

The dates of the debits were as follows: December 6, 2010, January 4, 2011, January 10, 2011, 

February 7, 2011, February 9, 2011, and March 11, 2011. 

Ms. Margolis intends to appear at the Final Approval Hearing through counsel, and her 

counsel intends to speak and examine witnesses at the Final Approval Hearing. 

Ms. Margolis has not objected to any class settlement in the last three years. 

Ms. Margolis’ sworn statement verifying that she has not received a refund for her 

product charges and shipping and processing charges is attached as Exhibit 9. 

 

44 Margolis FAC ¶¶ 72-85.

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 30 of 38 PageID: 1432
27

XI. Conclusion. 

The proposed settlement is unfair, unreasonable, and inadequate. The defendants’ entire 

business plan is premised on perpetrating a consumer fraud. Their deceptive business practices, 

which are at the heart of all of their marketing efforts, have generated hundreds of millions of 

dollars in income. In the face of this massive fraud, the Sabol plaintiffs asserted a very narrow 

claim for violations of a refund policy. To settle that claim on a basis that provides preferential 

treatment to the refund class and would allow the defendants and their accomplices to retain 

every penny of their illicit gains, the Sabol plaintiffs have sacrificed the claims of other class 

members that are based on an entirely different factual predicate. 

The Northern District of California recently rejected a similar tactics in Lusby v. 

Gamestop Inc., No. C12-03783, 2013 U.S. Dist. LEXIS 41794 (N.D. Cal. Mar. 24, 2013). There, 

plaintiff filed a limited wage and hour claim for reimbursement for unpaid security inspections 

that only lasted seconds or minutes. Id. at *40. 

However, in settling the case, the defense insisted (as here) that the settlement be 

broadened to add a release of other claims not originally brought. 

The court refused to allow this since, as here, it would include matters not encompassed 

by the amount of the limited fund created: “it seems that [class members] should release wage 

and hour claims that arise from the time spent undergoing these checks—not every conceivable 

wage and hour claim.” Id. at *41. 

The conduct which the court rejected is an echo of the conduct by Class Counsel and 

Defendant here: the “parties apparently agreed to a settlement based on an extremely narrow 

theory of liability. After that Class Counsel filed a complaint asserting not the narrow theory of 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 31 of 38 PageID: 1433
28

liability ..., but one that asserted the full range of [claims] available under state law. Defendants 

appear to have purchased a broad release[.]” (Emphasis added.) Lusby v. Gamestop Inc., No. 

C12-03783, 2013 U.S. Dist. LEXIS 41794, at *41-42 (N.D. Cal. Mar. 24, 2013).

The court explained that approach will not be permitted. Like the present matter, the 

court noted that the Proponents—as it related to the BROADENED terms and release—“did not 

submit any information that would enable the Court to determine that the settlement falls within 

the range of possible approval, including establishing the maximum recovery Plaintiff could 

have obtained if the action were concluded on the merits in his favor...”. 

Most relevant to the present case, the court rejected settlement approval where the group 

which started small and was funded small, but then was expanded to include vast other claims 

and persons without any more money for those additional claims. The court found that the 

Proponents offered nothing to justify “why such a wide range of claims ... have been released 

with a payment that corresponds to such a small fraction of the multitudinous allegations in the 

complaint.” Id. at *42. 

A release of the Sabol refund claims for $3 million dollars would pass muster. The 

attempt to use that same fund to now release over $300 million dollars of IVR claims does not. 

The settlement should be approved for releasing the refund claims in Sabol against ACMG and 

Hydroxatone. It should be rejected from releasing the IVR claims from Margolis and from any 

release of any claim against Marketing Architects or Thomas Shipley. 

For all of the foregoing reasons, Objector Lisa Margolis submits that the motion for final 

approval of Sabol settlement be denied. 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 32 of 38 PageID: 1434
29

DESCRIPTION OF THE EVIDENCE THAT OBJECTOR LISA MARGOLIS MAY OFFER 

AT THE FINAL APPROVAL HEARING

Lisa Margolis may offer the following evidence at the Final Approval (Final Fairness) Hearing:

Live Testimony

 The testimony of Thomas Shipley regarding the Sabol defendants IVR sales, financial 

assets, and insurance coverage. 

 The testimony of insurance expert John J. O’Brien regarding the matters covered in his 

declaration, which is attached to Margolis’ Notice of Intent to Object as Ex. 1, including 

but not limited to the insurance coverage available to the Sabol defendants as well as 

Thomas Shipley and Marketing Architects for all claims that would be released by the 

Sabol settlement agreement. 

 The testimony of forensic accountant Robert Greenwald regarding the matters covered in 

his declaration, which is attached to Margolis’ Notice of Intent to Object as Ex. 2, 

including but not limited to the ability of the Sabol defendants to withstand a greater 

judgment. 

 The testimony of Andrew Friedman regarding the information he requested and reviewed 

in the Sabol litigation as to (a) the claims asserted by Margolis in her First Amended 

Complaint, including Margolis’ IVR claims; (b) the insurance coverage available to the 

Sabol defendants, Thomas Shipley, and Marketing Architects for all claims that would be 

released by the proposed settlement agreement; and (c) any financial evaluation of the 

Sabol defendants with respect to their ability to withstand a greater judgment, including 

any information that he received from a forensic accountant or individual similarly 

qualified to assess the collectability of the Sabol defendants. 

Expert Declarations

EXHIBIT 1  The declaration, with exhibits, of insurance expert John J. 

O’Brien.

EXHIBIT 2  The declaration, with exhibits, of forensic account Robert 

Greenwald, which is attached to Margolis’ which discusses the 

ability of the Sabol defendants to withstand a greater judgment. 

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 33 of 38 PageID: 1435
30

EXHIBIT 3  The declaration, with exhibits, of marketing expert Susan 

Kleimann, which discusses both the deceptive nature of the IVR 

that was used by the Sabol defendants to collect payment 

information from consumers who responded to offers of a riskfree trial or similar offers. 

EXHIBIT 4  The declaration, with exhibits, of class action expert Paul 

Flowers regarding the fairness and reasonableness of the 

proposed Sabol settlement. 

Documents Currently in Margolis’ Possession

All documents referenced in and attached to Margolis’ Notice of Intent to Object, and the 

declarations identified above, including: 

EXHIBIT 5  Chartis Insurance Policy D & O policy for ACMG, ACMG2-

00056034-56126.

EXHIBIT 6  Darwin National Assurance Company D & O policy for ACMG, 

ACMG2-00055972-56033.

EXHIBIT 7  Beazley Media policy for Marketing Architects, ACMG2-

00055907-55971.

EXHIBIT 8  Great American Think Risk Liability Policy for ACMG, 

ACMG2-00055903-55953.

EXHIBIT 9  Affidavit of Lisa Margolis.

EXHIBIT 10  ACMG financial data contained in the Bates range ACMGFS00000001-45.

EXHIBIT 11  Hydroxatone Advertisement ACMG-00005023.

EXHIBIT 12  Hydroxatone Advertisement ACMG-00005025.

EXHIBIT 13  Hydroxatone Advertisement ACMG-00005031.

EXHIBIT 14  Correspondence between Margolis’ counsel and counsel for 

Sabol defendants regarding discovery conducted in Sabol.

EXHIBIT 15  Correspondence between Margolis’ counsel and counsel for 

Sabol plaintiffs regarding discovery conduct in Sabol.

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 34 of 38 PageID: 1436
31

EXHIBIT 16  Sabol Plaintiffs’ First Set of Requests for Production of 

Documents to Defendants Hydroxatone, LLC and Atlantic Coast 

Media Group, dated November 30, 2011.

EXHIBIT 17  Sabol Defendants’ Responses to Plaintiffs’ First Set of Requests 

for Production of Documents, dated May 15, 2012.

EXHIBIT 18  Sabol Plaintiffs’ First Set of Interrogatories to Defendants 

Hydroxatone, LLC and Atlantic Coast Media Group, dated 

November 30, 2011.

EXHIBIT 19  Sabol Defendants’ Response to Plaintiffs’ First Set of 

Interrogatories, dated May 15, 2012.

EXHIBIT 20  August 17, 2012 e-mail from Andrew Friedman to Patrick 

Perotti re “defendants’ poor financial condition”.

EXHIBIT 21  The June 11, 2012 deposition of Thomas Shipley in the matter of 

Margolis v. Atlantic Coast Media Group, LLC, 2:11-cv-04355 

(D.N.J).

EXHIBIT 22  The June 12, 2012 deposition of Andrew Siegel in the matter of 

Margolis v. Atlantic Coast Media Group, LLC, 2:11-cv-04355 

(D.N.J).

EXHIBIT 23  ACMG 00000076-83, IVR number 841-IVR-143, with a starting 

date of September 12, 2011.

EXHIBIT 24  Stipulated Final Judgment and Order for Permanent Injunction, 

Federal Trade Commission v. Willms, 2:11-cv-00828-MJP 

(W.D. Wash.), Doc 106, filed February 22, 2012, prohibiting the 

defendant from engaging in the same conduct as alleged in the 

Margolis complaint.

EXHIBIT 25  July 31, 2012 e-mail and attachment from defense counsel 

setting forth ACMG’s net sales and percentage of sales by IVR.

EXHIBIT 26  Sabol v. Hydroxatone, 2:11-cv-04586-KM-MAH, Doc 77-1, 

Amended Class Action Settlement Agreement.

EXHIBIT 27  Sabol v. Hydroxatone, 2:11-cv-04586-KM-MAH, Doc 65, 

Second Amended Complaint.

EXHIBIT 28  Margolis v. Atlantic Coast Media Group LLC, 2:110-cv-04355-

SRC-CLW (D.N.J.), Doc 59, First Amended Complaint.

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 35 of 38 PageID: 1437
32

EXHIBIT 29  Margolis v. Atlantic Coast Media Group LLC, 2:110-cv-04355-

SRC-CLW (D.N.J.), Doc 63, Memorandum in Opposition to 

Lisa Margolis’ Motions to Consolidate, to Appoint Patrick 

Perotti as Lead Counsel in the Consolidated Action, and for an

Immediate Hearing on the Tentative Settlement of Margolis’ 

Claims Negotiated by the parties in Gray v. Hydroxatone, LLC

EXHIBIT 30  Sabol v. Hydroxatone, 2:11-cv-04586-KM-MAH, Doc 92, 

Memorandum in Support of Plaintiffs’ Motion for Final 

Approval of the Proposed Settlement

Categories of Documents Requested from Proponents of the Sabol Settlement, but Not 

Provided to Magolis

Margolis is unable to provide a detailed description of the following items and 

documents, because they have not been produced to her. Nevertheless, they are all relevant to the 

fairness and reasonableness of the settlement, and if produced to her, may be offered into 

evidence at the Fairness Hearing. 

 The Confidential Settlement Letter submitted by Sabol defendants as part of their 

mediation efforts. This letter is relevant to the issues of the value of the claims asserted 

by Sabol and the ability of the defendants to withstand a greater judgment. 

 Documents reflecting Thomas Shipley’s compensation. Shipley is a defendant in the 

Margolis litigation, and the claims against him would be released as part of the Sabol 

settlement. His ability or inability to contribute to the Sabol settlement is relevant fairness 

and reasonableness of the settlement. 

 Marketing Architects’ financial statements. Marketing Architects is a defendant in the 

Margolis litigation, and the claims against it would be released as part of the Sabol 

settlement. Its ability or inability to contribute to the Sabol settlement is relevant fairness 

and reasonableness of the settlement. 

 Documents relating to Atlantic Coast Media Group’s financial condition, including: 

receivables as of October 31, 2012; accounts receivable against for 2009-2011; 2010 

prepaid expenses; direct operating expenses for 2009-2011; G&A 2009-2011; COGS 

2009-2011; and information provided to lenders in connection with loans and credit lines 

extended to ACMG. These documents are relevant to ACMG’s ability to withstand a 

greater judgment

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 36 of 38 PageID: 1438
33

 Sabol discovery not yet provided to Margolis. 

 Correspondence between the released parties and their insurers with respect to coverage 

for the claims asserted in either the Sabol or Margolis litigation. These documents are 

relevant to the fairness and reasonableness of the settlement in terms of the released 

parties ability to contribute to the settlement. 

 Correspondence between the attorneys representing the plaintiffs and defendants in the 

Sabol litigation. These documents are relevant to determining the value of the Sabol 

claims; the value of the claims being released that were not asserted by the Sabol 

plaintiffs; the original terms of the settlement immediately after mediation, and how the 

settlement has evolved since mediation to incorporate additional claims, if at all; what 

efforts were made to determine if all of the released parties could or should contribute to 

the settlement; and, the parties views of the strengths and weaknesses of the Sabol claims. 

All of these issues are relevant to the fairness and reasonableness of the settlement. 

 Data from the claims administrator regarding the number of claims made by each group 

of claimants. This information is relevant to determining the class’s response to the 

settlement. 

 Respectfully submitted,

DWORKEN & BERNSTEIN CO., L.P.A.

Patrick J. Perotti (OH #0005481)

James Timmerberg (OH #0067499)

60 South Park Place

Painesville, Ohio 44077

(440) 352-3391

RONALD A. MARGOLIS (OH #0031241)

Bonezzi Switzer Murphy Polito & Hupp Co LPA

1300 East 9th Street, Suite 1950

Cleveland, OH 44114

(216) 875-2068

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 37 of 38 PageID: 1439
34

CROWLEY & CROWLEY

Noel C. Crowley (NJ #NC3712)

20 N. Park Place, Suite 206

Morristown, New Jersey 07960

(973) 829-0550

JAVERBAUM WURGRAFT HICKS

KAHN WIKSTROM & SININS

Rubin Sinins (NJ #RS8325)

Gerald H. Baker 

505 Morris Ave.

Springfield, NJ 07081

(973) 379-4200

By: /s/ Rubin Sinins

Attorneys for Objector, Lisa Margolis

Dated: June 16, 2013

CERTIFICATE OF SERVICE

I hereby certify that this document, filed through the ECF system, will be sent 

electronically to the registered participants as identified on the Notice of Electronic Filing (NEF), 

and paper copies will be sent to those indicated as non-registered participants today (June 16,

2013).

By: /s/ Rubin Sinins

One of the Attorneys for Objector, Lisa 

Margolis

Case 2:11-cv-04586-KM-MAH Document 104 Filed 06/16/13 Page 38 of 38 PageID: 1440