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Contempt Judgment – FTC

By: Derek Hawkins//January 9, 2017//

Contempt Judgment – FTC

By: Derek Hawkins//January 9, 2017//

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7th Circuit Court of Appeals

Case Name: Federal Trade Commission v. Kevin Trudeau

Case No.: 15-3472

Officials: POSNER, EASTERBROOK, and SYKES, Circuit Judges.

Focus: Contempt Judgment – FTC

This decision marks the end of litigation about Kevin Trudeau’s frauds—or so we hope. Earlier decisions affirmed his criminal conviction and sentence and his adjudication in civil contempt after he refused to surrender the profits made from violating orders of the Federal Trade Commission. See United States v. Trudeau, 812 F.3d 578 (7th Cir. 2016); FTC v. Trudeau, 662 F.3d 947 (7th Cir. 2011). The contempt judgment is approximately $38 million, and Trudeau claims to be destitute. Believing that this is just another of his lies, the FTC demanded that firms it thought to be affiliated with Trudeau turn over business records. Website Solutions, one of these entities, hired Hogan Marren Babbo & Rose, Ltd., and Faruki Ireland & Cox, P.L.L. (collectively the Law Firms) to represent it in responding to the FTC’s demand. After considering some of the documents ultimately revealed, the district judge concluded that Website Solutions is under Trudeau’s control and that all of its assets are available to satisfy his obligations. The judge appointed a receiver to marshal the assets of Website Solutions and Trudeau’s other entities. The receiver collected a net of approximately $8 million, which the FTC wants to distribute to Trudeau’s defrauded customers. In October 2015 the district court approved the receiver’s plan; this order also rejected the Law Firms’ request for compensation from funds in the receiver’s custody. In November the judge authorized the receiver to send $4 million to the FTC; in December the judge approved the receiver’s compensation; in February 2016 the judge accepted the receiver’s final report and authorized the receiver to send all remaining funds to the FTC. That order closed the receivership estate. The Law Firms have appealed—but from the October 2015 order rather than any of the later orders. This led us to question whether the order is appealable, because as of October 2015 all $8 million remained in the receiver’s control. The Law Firms could have waited until the estate-closing order without jeopardizing their claim to reimbursement. At oral argument we directed the parties to file supplemental memoranda addressing appellate jurisdiction. After receiving these submissions, we conclude that the October 2015 order functioned as approval of the receiver’s proposed plan of distribution. If this were a bankruptcy proceeding rather than a receivership, the October 2015 order would have been labeled a plan of reorganization (or perhaps a plan of liquidation). And in bankruptcy the confirmation of such a plan is appealable as a “final decision” even though funds remain in the estate. See Bullard v. Blue Hills Bank, 135 S. Ct. 1686 (2015) (recognizing that an order confirming a plan of reorganization is appealable, while holding that an order declining to approve such a plan is not). So we conclude that the October 2015 order is “final” under 28 U.S.C. §1291 and move to the merits.

Affirmed

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.

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