Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—D. Colo.: Alleged scammers’ inability to pay “doesn’t compute”, (Dec 30, 2014)

By Greg Hammond, J.D.

Two alleged scammers, who supposedly bilked over $330 million from 900,000 consumers, were unable to lower their “maximum ability to pay amount” of over $1.7 million in a stipulated order settling an FTC action to a mere $8,997. In partially denying the individuals’ motion to reduce the maximum ability to pay amount, the federal district court in Denver determined that the FTC’s reduced number was not objectively unreasonable (FTC v. Dalbey, December 29, 2014, Jackson, R.).

Background. According to the Commission’s complaint, Russell T. Dalbey and Catherine L. Dalbey advertised a wealth-building program called “Winning in the Cash Flow Business.” Consumers paid between $40 and $160 on the initial program and were encouraged to spend hundreds or thousands more on additional products or services such as multi-day seminars, coaching sessions, and promissory note holder lead lists. The infomercials allegedly made deceptive claims that consumers would experience quick and easy success underscored by allegedly atypical, and sometimes false, testimonials from consumers who claimed to have made a great deal of money. Very few consumers, however, actually made the amount of money allegedly promised.

The Dalbeys reached an amended stipulated order for final judgment and permanent injunction in July 2013. According to the order, judgment was entered in favor of the FTC and Colorado in the amount of over $330 million as equitable monetary relief. The judgment would be suspended, however, upon the Dalbeys paying the “maximum ability to pay amount” of just over $1.7 million. The Dalbeys moved to reduce the maximum ability to pay amount, claiming that they were able to pay only $8,997.

Objectively reasonable. The court concluded that the FTC’s reduced maximum ability to pay amount of $858,665 plus half of any tax refund was objectively reasonable. In response to the government’s claims that the Dalbeys have not acted in good faith, have hidden assets, and have been untruthful regarding their ability to pay, the court noted, “One wonders what the government expected from people who conducted a multi-year fraud that apparently extracted more than $300 million from some 900,000 individuals.”

In agreeing with the FTC, the court determined: (1) it is reasonable to infer that Russell Dalbey could likely obtain additional funds from his mother’s Gold Money account, which had a balance of $648,886; (2) the funds in the Dalbeys’ bank accounts at the end of June 2014 was $45,255; (3) the Dalbeys’ estimate their art, jewelry, URL’s, bikes, and computers to be worth $81,443; and (4) the amount the government initially listed as assets in the Dalbeys’ Successful Living Foundation account was $83,080.80. Additionally, the court considered the “enormous sums of money” the Dalbeys collected from the alleged fraud; their historical spending habits; their efforts to protect their assets through off-shore trusts, and gifts to family and friends; the government’s findings; the Dalbeys’ “preposterous representation of their inability to pay virtually anything”; and the Dalbeys’ “overall lack of credibility.” The motion for review was therefore partially granted with respect to the government’s lowered maximum ability to pay amount, but was otherwise denied.

The case number is 11-cv-1396-RBJ-KLM.

Attorneys: Alysa S. Bernstein, Federal Trade Commission. Jay Beebe Simonson, Colorado Attorney General's Office, for State of Colorado. Edward Francis Glynn, Jr. (Manatt, Phelps & Phillips, LLP) for Russell T. Dalbey. Dennis William King (Dennis W. King, PC) for DEI, LLLP, Dalbey Education Institute, LLC, and IPME, LLLP.

Companies: Federal Trade Commission; DEI, LLLP; Dalbey Education Institute, LLC; IPME, LLLP

Cases: ConsumerProtection FederalTradeCommissionNews ColoradoNews