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Tax Protestor Cases Exhibit
("Damn, We Lost Again! And why is it that people who sell
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 STATE OF KANSAS, ex rel.,








The Court has requested supplemental briefing on issues related to the structure of Renaissance TTP, the products and services sold by Renaissance TTP and the remedies available to the Court. See Hearing Transcript of February 27, 2001, at 44: 21-25, 45: 1-8. Defendants address each of these issues in turn./

Issue One Is Renaissance TTP a legitimate network marketing company?

The Kansas Legislature has defined a pyramid promotional scheme as "any plan or operation by which a participant gives consideration for the opportunity to receive compensation which is derived primarily from any person's introduction of other persons into participation in the plan or operation rather than from the sale of goods, services or intangible property by the participant or other person introduced into the plan or operation." K.S.A. 21-3762(a) (emphasis added). A pyramid scheme exists under K.S.A. 50-626(b)(1)(E) where the sale of products and services are incidental, and participants earn compensation primarily through the recruitment of other participants unrelated to the sale of products and services. State ex rel Sanborn v. Koscot Interplanetary, Inc., 212 Kan. 668, 675-76, 512 P.2d 416 (1973). In Koscot the promotional material clearly indicated that participants could reap great profits without the sale of products based on the sale of positions in the company, 212 Kan. at 672. This is directly contrary to the evidence in the instant case by the Plaintiff's witnesses, Kennedy, Butler, and LaPietra, who all testified they expected to be compensated only for the sale of the TRS System and tax services and not for recruitment. Plaintiff's witness Christa Moussa testified that IMAs are compensated only upon the sales of the TRS System and tax services, and not from recruitment.

When considering whether an illegal pyramid scheme exists, the basis of compensation is given paramount consideration. For example, the Ninth Circuit has declared as the sine qua non of a pyramid scheme "the right to receive in return for recruiting other participants into the program rewards which are unrelated to sale of the product to ultimate users." Webster v. Omnitrition International, Inc., 79 F.3d 776, 781 (9th Cir. 1996). A legitimate network marketing company, on the other hand, ".includes a system of distributing products or services in which each participant earns income from sales of a product to his or her downline and also from sales to the public." Federal Trade Commission v. Five-Star Auto Club, Inc., 97 F.Supp.2d 502, 531 (S.D.N.Y. 2000).

Courts have articulated the reasons for this key distinction between legitimate network marketing companies and illegal pyramids. "As is apparent, . recruitment with rewards unrelated to product sales, is nothing more than an elaborate chain letter device in which individuals who pay a valuable consideration with the expectation of recouping it to some degree via recruitment are bound to be disappointed." In re Koscot Interplanetary, Inc., 86 F.T.C. 1106, 1180 (1975), cert. denied, 519 U.S. 865 (1976). Such schemes, as a matter of economic and mathematical certainty, are doomed to eventual failure; and no matter when the point of failure is reached, the number of latest recruits will grossly exceed the sum of all prior recruits. The futility of a recruitment scheme is that the greater number of recruits can earn no commissions because of market saturation. State ex rel. Sanborn v. Koscot Interplanetary, Inc., 212 Kan. at 675-676.

Decisions by the Federal Trade Commission in Koscot and Amway Corporation, Inc., 93 F.T.C. 618 (1979) are in accord with Kansas law. The "Amway criteria" are recognized elements which distinguish legitimate network marketing companies from illegal pyramids because they promote retail sales. See United States v. Gold Unlimited, Inc., 177 F.3d 472, 483 (6th Cir. 1999); State ex rel. Ieyoub v. Phipps, 634 So.3d 51, 53 (La.Ct.App. 1994); State ex rel Stratton v. Sinks, 741 P.2d 435, 440 (N.M.Ct.App. 1987); State ex rel. Miller v. American Professional Marketing, Inc., 382 N.W.2d 117 (Iowa 1986); Schrader v. State, 517 A.2d 1139, 1147 (Md.Ct.Spec.App. 1986).

In deciding Amway, the F.T.C. contrasted Amway with companies which had been found to be illegal based on recruitment compensation unrelated to sales of products and services. The Amway decision found the following factors significant in determining Amway was not a plan where participants purchase the right to earn profits by recruiting other participants, who themselves were interested in recruitment fees rather than the sale of products: (1) large sums were not charged to become a distributor, (2) performance bonuses were connected to product sales, (3) repurchase of excess inventory and (4) the sale of products to end-line consumers is mandated. See Amway, 93 F.T.C. at 698-701.

And so it is with Renaissance TTP. On these points, the evidence is unequivocal. (1) Large sums are not charged by Renaissance TTP to become a distributor. The company charges $29.00 for the "Starter Kit" which is information, not a product for sale to end purchasers. (2) Performance bonuses are connected exclusively to product and service sales. All commissions are based on the movement of product. No witness testified they expected to be paid for referrals. In contrast, the Plaintiff's own witnesses, Kennedy, Butler, LaPietra and Moussa, all testified they anticipated selling the TRS System and tax services to the public and their downlines. While he did not need the deductions, Mr. LaPietra testified he joined Renaissance to offer the products and services to others who needed tax advice. Even Mr. Fitzpatrick testified that all the people indicated by Mr. LaPietra's diagram (Plaintiff's Exhibit 96) were selling the TRS System and monthly tax services. (3) There is no evidence of excessive inventory requirements. The TRS System is drop shipped from the company to IMAs eliminating any need for large inventories. The Renaissance TTP buy-back policy of 100 per cent refund within one month and 90 percent within one year also works against inventory requirements. (4) Sales of TRS Systems and tax services are required before compensation is earned. The testimony was clear that no IMA earns any compensation from his or her down line until his or her business center is qualified by the sale (in a given month) of one TRS System and at least $100 in monthly tax services to at least six non-IMA end-line customers. After qualification of the business center, an IMA may earn compensation from the sales of the TRS System and monthly tax services by persons in his or her down line./ An IMA cannot earn compensation from the sale of referral positions in Renaissance TTP.

The criteria identified by Dr. Charles King (Defendants' Exhibit 2) are simply expressions and expansions of the Amway standards. Dr. King testified Renaissance TTP met all criteria of legitimacy. He further testified that, in his opinion, the failure to meet any particular criterion does not mean a company is an illegal pyramid. Rather, the criteria must be viewed in totality as network marketing companies, as all companies, evolve over time. The salient question is whether the company is progressing toward full implementation of the criteria.

On the key issue, however, the evidence is clear from all witnesses: Renaissance TTP compensates based on sales of products and services; not from recruitment unrelated to the sales of products and services./

Issue Two Are the TRS System and tax services legitimate products and services which have intrinsic value?

The Plaintiff admits Renaissance TTP's product has intrinsic value. See Hearing Transcript of February 27, 2001, at 5: 4-7. No testimony was presented that the price for the TRS and tax services was excessive. Dr. King and Mr. Heatley testified the price of the product and services reflected their value./

The presence of intrinsically valuable products or services, however, is tied to the risk of market saturation and supports the absence rather than presence of an illegal pyramid. In Federal Trade Commission v. Five-Star Auto Club, Inc., 97 F.Supp.2d 502, 531 (S.D.N.Y. 2000), the court determined there is no certainty of collapse where the sale of goods or services produce adequate revenues to cover production costs, marketing expenses and the promised rewards for recruiting new participants. In the instant case, Christa Moussa and Dr. Charles King both testified the sales of products and services were sufficient to cover the overhead expenses of Renaissance TTP. There is no evidence to the contrary. The sale of products and services with intrinsic value supports the contention that compensation is based upon sales rather than recruitment unrelated to the sale of products and services.

Dr. King testified that legitimate network marketing companies market legitimate goods and services. The issues are: (1) is the product clearly defined, (2) does the product generate value to the consumer and (3) is there a guaranty of satisfaction? The Renaissance TTP product, the TRS System and tax services meet this criteria.

The TRS System is a primer for properly documenting and conducting a home based business with a profit motive. As both tax experts testified, the TRS is replete with citations and quotations to the Internal Revenue Code, Revenue Rulings and court cases. The evidence is that the TRS was developed by qualified persons. The Plaintiff's position that the information is not complete/ ignores defendants' understanding that the TRS is not meant as a substitute for the Code. To meet the Plaintiff's criteria, the entire Code should have been reproduced. Mr. Ramberg admitted that the footnote references in the TRS manual (Defendants' Exhibit 6) were substantially accurate. Direction is given in the TRS and accompanying tapes and materials that one should consult with a tax professional if there are questions. For example, on the first page of the TRS Manual which is a part of Defendants' Exhibit 6, the following appears: "Readers of this material must counsel with their own personal advisors in the areas discussed herein in order to ensure proper implementation of ideas outlined herein." The W-4 Exemption Increase Estimator (contained in Defendants' Exhibit 6) states it is for marketing purposes only. It further states: "Before making any change to your W-4, consult with one of thousands of tax professionals who are affiliated with the" Further, the Estimator states: ". . . any significant change in business profits or your family situation will necessitate a reevaluation of your W-4 status. You should review your W-4 quarterly." The Plaintiff also chooses to ignore the roles of the monthly tax services and the Affiliated Tax Professional Network in supporting the overall product sold by Renaissance TTP.

The Plaintiff wholly failed in its burden to show even one instance in which Renaissance TTP failed to provide tax services or attend a tax audit when requested. The evidence presented by Jesse Cota was that the Renaissance Tax Team appeared when requested for one hundred audits. Forty-one of the audits resulted in no adjustment or a refund. The remainder resulted in some adjustment, but no evidence was presented which suggested the adjustment was the result of bad advice or services given by Renaissance. Mr. Cota further testified that Renaissance audit representation is available for two years prior to an individual signing up for tax services with Renaissance, if, at the time the individual receives an audit notice, he or she is paying for audit representation services.

Plaintiff's witness, Mr. Ramburg, opined that Renaissance TTP's business is unlawful because it is simply "marketing tax avoidance" and therefore is a sham transaction. Mr. Ramburg is wrong, based on the law and the evidence in this case. Mr. Ramburg's opinion/ seeks to blur the well recognized legal distinction between tax evasion and tax avoidance. See Helvering v. Gregory, 69 F.2d 809, 810 (2d Cir. 1934), aff'd 293 U.S. 465 (1935) ("[A] transaction, otherwise within an exception of the tax law, does not lose its immunity, because it is actuated by a desire to avoid, or, if one choose, to evade, taxation . Any one may so arrange his affairs that his taxes shall be as low as possible ."). To evade a tax means to escape paying a tax by a means other than lawful avoidance. Eighth Circuit Model Jury Instructions, 6.26.7201 (2000); Distinctive Theaters of Columbus v. Looker, 165 F.Supp. 410, 411 (S.D.Ohio 1958); United States v. Bishop, 412 U.S. 346, 360 n. 8 (1973). Even Mr. Ramburg had to admit that he practices tax avoidance in his profession and that tax avoidance is generally viewed as legitimate. As explained by Mr. Heatly, a sham transaction would be one in which there is no profit motive but exists simply to create a loss. If a company is in business to make money, it will have income, not simply develop losses. In his professional opinion, the TRS System and tax services are not shams. Renaissance has a good profit motive.

Mr. Heatley and Dr. King both testified Renaissance TTP is a legitimate business with a legitimate product. The sale of the TRS and tax services is useful for persons with existing home based businesses as well as those who desire to establish a home based business. The TRS Manual and accompanying materials make it clear that in order to qualify for deductions available to those persons running a home based business, such persons must operate the business with the intent to make a profit and handle the deductions in the manner required by law. See, e.g. Defendants' Exhibit 6, Manual, p. A.4-5. Mrs. Kennedy testified that the TRS had value to her and her husband. Mr. Butler testified he saw the Renaissance TTP business as an opportunity to make a profit, and that the product had value. Mr. LaPietra testified that while he did not need the tax benefits (because he was already receiving them on his CPA's advice), he saw value in developing a business which helped others get good tax service. Mr. LaPietra stated that he saw the business opportunity to help other people who were not receiving the tax service they needed, make commissions on the sale of the TRS and tax services and receive help from Renaissance TTP. Providing citizens with the information needed to properly run a home based business, properly account for expenses and advising them about legal tax advantages and deductions is not tax evasion; but rather, a legitimate business.

Issue Three If the Court finds isolated misrepresentations in materials presented by Renaissance TTP, what is the appropriate remedy?

An injunction is not the appropriate remedy to obtain relief from past acts. State v. Eastin, 179 Kan. 555, 556, 297 P.2d 170 (1956). "To obtain injunctive relief from prospective injury, it must be established that a reasonable probability of such injury exists and an action at law will not afford an adequate remedy." Kansas Gas & Electric v. Eye, 246 Kan. 419, 429, 789 P.2d 1161 (1990) (emphasis added). Here Plaintiff has admitted that if the purchaser of a Tax Relief System received bad tax advice, he or she would have a claim for damages and a claim under the refund policy against Renaissance TTP. See Hearing Transcript of February 27, 2001 at 18:1-4. This admission alone eliminates the viability of injunctive relief in the present case concerning alleged tax advice misrepresentations. Plaintiff has presented no evidence that even a single participant in Renaissance TTP received bad tax advice, acted on that advice and was in any way damaged by such advice.

Moreover, a request for injunctive relief is barred by the mootness doctrine if there is no reasonable probability of future injury. The mootness doctrine prevents the maintenance of suit when there is no reasonable expectation that the wrong will be repeated. Anderson v. Farmland Industries, Inc., 70 F. Supp.2d 1218, 1233-34 (D.Kan. 1999), citing Gwaltney of Smithfield, Ltd. v. Chesapeake Bay Foundation, Inc., 484 U.S. 49, 66 (1987). "The mootness doctrine 'protects defendants from the maintenance of suit . based solely on violations unconnected to any present or future wrongdoing, while it also protects plaintiffs from defendants who seek to evade sanction by predictable "protestations of repentance and reform".'" Anderson v. Farmland Industries, Inc., at 1234. If the defendant can demonstrate that the alleged violations have ceased, and there is no reasonable expectation that the violations will recur, then a request for injunctive relief is rendered moot. Id. (Correction of isolated environmental violations after the filing of the plaintiff's lawsuit rendered the plaintiff's request for injunctive relief moot). The present case is even more conducive to application of the mootness doctrine because all but one of the purported misrepresentations were removed from the promotional materials/ before - not after - the Plaintiff filed this lawsuit./ See Ort v. Allied Industries, 166 Kan. 487, 491-92, 203 P.2d 234 (1949) (denying injunctive relief to a movant who admitted that the defendants committed no offending conduct between the commencement of his lawsuit and trial).

The mootness doctrine has been applied under Kansas law when the offending party corrects the conduct sought to be enjoined. See Gibbons v. Brotherhood of Railway, Airline & Steamship Clerks, 227 Kan. 557, 608 P.2d 1320 (1980) (dismissing appeal as moot where labor dispute settled and picketing ended). Similarly, the mootness doctrine has applied under Kansas law when the offending party completes the act sought to be enjoined. See Pringle v. City of Wichita, 22 Kan.App.2d 297, 304, 917 P.2d 1351 (1996) (dismissing appeal as moot where municipality closed street median before appeal was complete); Connell v. Reno Construction Company, Inc., 192 Kan. 368, 370, 388 P.2d 830 (1964) (dismissing appeal as moot where state highway commission completed road construction before appeal was complete). Even the simple passage of time, without any further action by the party sought to be enjoined, may render a request for injunctive relief moot. Mills v. McCarty, 206 Kan. 93, 96-97, 476 P.2d 691 (1970). When there is nothing to enjoin, a request for injunctive relief is moot. Dean v. State, 250 Kan. 417, 427, 826 P.2d 1372 (1992).

However, even if the Court rules that a reasonable probability of irreparable future injury existed, the Court should enjoin only those statements found to be materially false when taken in their full context. In response to the Court's question on February 27, 2001, a single comment would not LEFT entering an injunction putting Renaissance out of business. See Hearing Transcript of February 27, 2001 at 13:16-18.

"A matter is material if it is one to which a reasonable man would attach importance in determining his choice of action in the transaction in question." Griffith v. Byers Construction Co., 212 Kan. 65, 73, 510 P.2d 198 (1973). Under Kansas law, "the court must carefully examine the context of the circumstances" by which the allegedly false statement is made. Bank IV Salina, N.A. v. Aetna Casualty & Surety Co., 810 F.Supp. 1196, 1208 (D. Kan. 1992). Otherwise, the court cannot distinguish between a misrepresentation of material fact and an expression of opinion. Id. at 1207-08. "In determining whether a misrepresentation is likely to mislead consumers acting reasonably under the circumstances, the Court must consider the misrepresentations at issue by viewing them as a whole without emphasizing isolated words or phrases apart from their context." See Five Star Auto Club, 97 F.Supp.2d at 528. Additionally, the statement must relate to a past or present fact, "as opposed to mere opinions or puffing or promised actions in the future," to constitute a fraudulent misrepresentation. Timi v. Prescott State Bank, 220 Kan. 337, 389, 553 P.2d 315 (1976). See also Sheldon v. Vermonty, 31 F.Supp.2d 1287, 1292 (D. Kan. 1998) (noting that statements of "corporate optimism" regarding profit predictions may not be actionable in the context of securities fraud); Baldwin v. Priem's Pride Motel, Inc., 224 Kan. 432, 436, 580 P.2d 1326 (1978) (holding that sales puffing by a home builder did not violate the KCPA).

The Court correctly noted on February 27, 2001 that "perhaps there hasn't been adequate showing that any particular customer or taxpayer has truly been damaged." See Hearing Transcript of February 27, 2001 at 15:20-24. The absence of injury to a customer or taxpayer is persuasive evidence that the purported misrepresentations at issue are not material.

The commercial speech doctrine presents a separate but related issue. Even if the Court ruled that a reasonable probability of irreparable future injury existed, the Court may enjoin only those statements that fall outside the protection of the First Amendment of the United States Constitution./

Plaintiff has alleged the minimum tax deduction guarantee made by Renaissance TTP is deceptive and misleading. See Petition 38 (a) and 57 (c). Plaintiff's allegations bear no resemblance to the actual guaranty contained in the TRS clamshell, Defendant's Exhibit 6. See Manual p. 10.67 and back cover. Plaintiff's allegations that the guarantee is persons "'automatically receive a guaranteed minimum $5,000 in new tax deductions resulting from the new business" Petition 38 (a); or "Participants can legally save $5,000 in taxes the first year 'guaranteed'" are misstatements of the guarantee.

To be clear, the guarantee is as follows:

We guarantee that following our business plan and guidelines of the TRS Manual will provide you with a minimum of $5,000 in federal income tax deductions for the first twelve (12) months you operate your home business according to our business plan. If it does not, we will refund the entire cost of your TRS, including your monthly fees for participation in the PTA program for the first twelve (12) months. (Defendants' Exhibit 6, Manual p. 10.67).

Plaintiff's expert, Mr. Ramburg, agreed that he would not be surprised that a person operating a home based business would generate at least $5,000 in tax deductions from selling the TRS. He testified that if one were operating a legitimate home based business with a profit motive, it would not be unreasonable for a person to use an automobile for 14,000 to 15,000 miles per year. Defendants' expert, Mr. Heatley testified he can easily see how an IMA would reach $5,000 in deductions running a home based business selling the TRS. He stated that if one were actively "working the business," the projection of a $5,000 tax deduction is reasonable. He would expect significant car use. In his opinion the most significant deductions are car, meals, travel and entertainment such as golf. The IMA's use of the home would not be a major source of deductions.

Interestingly, Plaintiff failed to produce any evidence that even one person who sought a refund under the guarantee did not receive it. While Mr. LaPietra testified he did not need the tax advice presented by the TRS because he already received such advice from his own CPA, he believed the TRS to be a good product which he wanted to sell to persons who did not have access to professional tax advice as he did. Likewise, Mr. Butler and Mrs. Kennedy testified they believed the TRS to be a good product which they had looked forward to selling to others. The Renaissance TTP guarantee is not misleading or deceptive.

Injunctive relief is not available to the Plaintiff because there is no reasonable probability of irreparable future injury. Even if Plaintiff's allegations regarding the alleged misrepresentations were true, the evidence clearly demonstrates that Defendants voluntarily removed any alleged misrepresentation but one sought to be enjoined, before the Plaintiff even filed its lawsuit, rendering the Plaintiff's request for injunctive relief moot. Even if the Court believed that irreparable future injury was reasonably probable, and such injury could not be compensated by money damages, the Court may enjoin only those statements that are (1) materially false when taken in their full context, and (2) outside the protection of the Commercial Speech doctrine.

Respectfully submitted,



James L. Eisenbrandt KS # 06839

Lynn S. McCreary KS # 16658

7500 College Boulevard

Suite 1100

Overland Park, Kansas 66210-4035

913-338-7700 (telephone)

913-338-7777 (facsimile)


Jerold E. Berger KS # 01730

525 S.W. Topeka Boulevard

Topeka, Kansas 66603

785-232-2727 (telephone)

785-232-5656 (facsimile)





James R. Hobbs MO # 29732

Marilyn B. Keller KS # 15444

1300 Mercantile Tower

1101 Walnut

Kansas City, Missouri 64106

816-221-0080 (telephone)

816-221-3280 (facsimile)




I hereby certify that a copy of the above and foregoing was served this 16th day of March 2001 via hand delivery to:

Rex Beasley, Esq.

Assistant Plaintiff

Office of the Attorney General

120 SW 10th Street, 2nd Floor

Topeka, Kansas 66612-1597


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