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State ex rel Stenehjem v. Simple.net

May 6, 2009

STATE OF NORTH DAKOTA EX REL. WAYNE STENEHJEM, ATTORNEY GENERAL, PETITIONER AND APPELLEE
v.
SIMPLE.NET, INC., F/K/A DIAL UP SERVICES, INC., D/B/A SIMPLE.NET, RESPONDENT AND APPELLANT



Appeal from the District Court of Burleigh County, South Central Judicial District, the Honorable Gail H. Hagerty, Judge.

The opinion of the court was delivered by: Maring, Justice.

AFFIRMED.

[¶1] Simple.net appeals from a district court order granting the State's motion to compel and from an order finding Simple.net in contempt and denying Simple.net's motion to dismiss or to stay the proceedings. We conclude the district court did not err in denying Simple.net's motion to dismiss the action and did not abuse its discretion in denying Simple.net's motion to stay the proceedings. We affirm the orders.

I.

[¶2] Simple.net, formerly known as Dial Up Services, Inc., engaged in a check solicitation marketing scheme to market their back-up mobile internet services. The marketing scheme involved mailing potential customers a check identified as a "discount incentive" for $3.25. Simple.net claimed depositing the check signified the recipient's acceptance of Simple.net's internet services, and the recipient would be billed $19.95 per month.

[¶3] The Federal Trade Commission ("FTC") began investigating Simple.net's marketing practices sometime before 2001. In 2001, the FTC brought an action under the Federal Trade Commission Act, 15 U.S.C. §§ 45(a) and 53(b), against Simple.net in the United States District Court for the District of Arizona. The FTC and Simple.net reached an agreement and a final judgment was entered based upon the parties' stipulation. The 2001 stipulated judgment and order required Simple.net to comply with certain regulations to continue the practice of sending solicitation checks. The judgment also stated, "this Court shall retain jurisdiction of this matter for the purpose of enabling the parties to apply to the Court at any time for such further orders and directives as may be necessary or appropriate for the interpretation or modification of this Order, for the enforcement of compliance therewith, or for the punishment of violations thereof."

[¶4] After the 2001 judgment, several states began investigating Simple.net for violations of state consumer protection laws. In 2006, the North Dakota Attorney General issued a civil investigative demand and began investigating Simple.net's check solicitation practice under N.D.C.C. ch. 51-15, which prohibits unlawful sales or advertising practices. Simple.net did not respond, and the State filed and served a motion to compel in February 2007, which started this action. On February 27, 2007, the district court entered an order granting the motion to compel, but Simple.net did not comply with the order.

[¶5] In February 2007, Simple.net filed an action in the United States District Court for the District of Arizona against the State of North Dakota and other states seeking a declaratory judgment and injunction barring the state defendants from investigating Simple.net's marketing practices. The federal district court dismissed Simple.net's complaint, concluding it lacked personal jurisdiction over the state defendants. Dial Up Servs., Inc. v. Oregon, No. 07-00423-PHX-EHC, 2007 WL 4200756 (D. Ariz. Nov. 27, 2007). Simple.net appealed the court's decision to the United States Court of Appeals for the Ninth Circuit.

[¶6] Simple.net continued to refuse to comply with the February 27, 2007, order granting the State's motion to compel. On December 4, 2007, the State moved for an order to show cause why Simple.net should not be held in contempt of court for the failure to comply with the order granting the motion to compel. An order to show cause was entered on December 7, 2007, and was later amended on December 12 and 19, 2007.

[¶7] On January 7, 2008, Simple.net removed the action to the United States District Court for the District of North Dakota. The State moved for remand and for sanctions. The federal district court granted the State's motion for remand and denied the motion for sanctions. North Dakota v. Simple.net, Inc., No. 1:08-cv-002, 2008 WL 619198 (D. N.D. Mar. 3, 2008).

[¶8] After the case was remanded to the state district court, a third amended order to show cause was entered. Simple.net moved to dismiss the order to show cause or alternatively to stay the proceedings until the Ninth Circuit Court of Appeals decides the appeal from Simple.net's action for declaratory and injunctive relief. After an April 16, 2008, hearing, the district court entered an order denying Simple.net's motion to dismiss and motion to stay, holding Simple.net was in contempt of court for disobeying the February 27, 2007, order granting the State's motion to compel, and awarding the State reasonable attorney fees.

II.

[¶9] Simple.net argues the district court erred in denying its motion to dismiss the action because the Arizona federal district court retained exclusive jurisdiction over the subject matter of the 2001 stipulated judgment, and therefore the State must bring any action in that court. Simple.net also contends the Supremacy Clause prevents the State from interfering with the 2001 stipulated judgment, and any state action to investigate Simple.net's marketing practices is pre-empted by the 2001 judgment.

[¶10] The 2001 judgment was based on a stipulation between the FTC and Simple.net, after the FTC filed a complaint under the Federal Trade Commission Act. The Arizona federal district court retained jurisdiction to interpret, modify, or enforce the 2001 stipulated judgment, and to punish for violations of the judgment. North Dakota was not a party in that action and the 2001 stipulated judgment did not address whether Simple.net's practices violate state law, including N.D.C.C. ch. 51-15. The 2001 stipulated judgment does not require all litigation brought by any party against Simple.net for violating consumer protection laws be brought only in the Arizona federal district court. The North Dakota Attorney General has the authority to investigate possible violations of North Dakota consumer protection laws. N.D.C.C. §§ 51-15-04 and 51-15-05. The district court has subject matter jurisdiction over cases brought under N.D.C.C. ch. 51-15, including jurisdiction to enforce compliance with the attorney general's investigation. See N.D.C.C. § 51-15-06. The attorney general is investigating whether Simple.net's check solicitation marketing ...


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