Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—D. Nev.: ‘Revenge porn’ website operator's motion to vacate default judgment denied, (May 30, 2023)

By Kenneth H. Ryesky, M.B.A., J.D.

The website had exacted millions of dollars in take-down fees from thousands of victims whose compromising photographs had been posted on the website by former lovers.

A federal district court in Nevada has denied a motion to vacate a default judgment against a principal individual of a corporation that operated a "revenge porn" website. The corporation and one of its principal individuals had already stipulated to a settlement with the FTC, while the second principal individual had evaded service and ignored complaints from the website's registrar. The 2018 default judgment had awarded monetary relief against the individual, but in 2021, the Supreme Court found that such monetary relief was not authorized by the FTC Act. The individual's appeals to the Ninth Circuit had been denied, and the individual's January 2023 renewed motion to vacate the default judgment was denied as untimely, and also on other grounds. The court also granted the FTC's request to file supplementary authority in light of a very recent relevant Ninth Circuit decision (FTC v. EMP Media, Inc., May 25, 2023, Gordon, A.).

Background. In January 2018, the FTC and the Nevada Attorney General filed a complaint against EMP Media, Inc. (EMP) and two individuals who operated it. The complaint alleged that EMP operated myex.com, a so-called "revenge porn" website on the Internet, through which individuals could post embarrassing photographs of other individuals (typically former spouses or significant others). EMP would then charge hundreds of dollars in fees as a condition for the pictures' removals from the website.

Contemporaneous with the FTC complaint was a proposed stipulated settlement with one of the individual defendants (Infante), on his own behalf and on behalf of EMP. The settlement broadly enjoined Infante from future activities of the sort used in the operation of myex.com website, and also included monetary relief under FTC Act § 13(b).

In June 2018, a default judgment was entered against the other individual defendant, Shad Applegate, a/k/a Shad Cottelli (Cotelli). Cottelli had served EMP in various officer capacities, including President. Cotelli had initially registered the myex.com website, and had transferred its registration following notification by the initial registrar of complaints. Cotelli's personal e-mail had been used in connection with the Internet domain registration, and the court had granted the leave to the FTC to serve Cottelli via that e-mail. The default judgment against Cotelli included an award of more than $2 million in equitable monetary relief under FTC Act § 13(b).

Cotelli's March 2020 motion to set aside the default judgment against him was denied, and the district court's denial was affirmed on appeal by the Ninth Circuit on March 30, 2021. Three weeks later, the Supreme Court held that FTC Act § 13(b) did not authorize the FTC to obtain monetary rewards (AMG Capital Management, LLC v. FTC, ___ U.S. ____, 141 S. Ct. 1341 (2021)). On May 13, 2021, Cotelli petitioned the Ninth Circuit for a panel rehearing in light of the Supreme Court's AMG holding, which was denied. Cotelli subsequently petitioned the Ninth Circuit for a hearing en banc; this petition was denied as untimely beyond the 45 day deadline.

In January 2023, Cotelli again moved in the district court to set aside the default judgment against him. On May 11, 2023, after Cotelli's motion was briefed by the parties, the Ninth Circuit decided a FTC Act § 13(b) monetary relief case (FTC v. Hewitt) in a telemarketing scheme, upholding the district court's award of monetary relief despite the Supreme Court's AMG decision.

Motion to set aside-timeliness. The court found that Cotelli's motion to set aside the default judgement against him was untimely made. Cotelli's motion here was filed more than a year and a half after he had raised the same argument in his petitions to the Ninth Circuit, and was not "within a reasonable time" after he knew of the AMG decision [Fed. R. Civ. P. 60(c)(1)]; Cotelli had proffered no explanation as to the reasons for his delay.

Supreme Court rulings-retroactivity. The court found that the court's default judgment against Cotelli was not undergoing direct review when the AMG case was decided by the Supreme Court. Such an interpretive Supreme Court decision applies to all cases that remain open on direct review at the time of the Supreme Court's decision. Here, Cotelli had not appealed the 2018 default judgment against him (and there was strong evidence that he had actual knowledge of the judgment and of the initial FTC complaint), and the time for his appeal of that judgment had long expired.

Motion to set aside-validity. The court denied Cotelli's motion to set aside the default judgment against him as void under Fed. R. Civ. P. 60(b)(4). Cotelli's nonappearance in the proceeding that resulted in the default judgment was of his own making in his disregard of the attempts to serve him. There were no jurisdictional errors or denial of due process demonstrated.

Motion to set aside-other reasons. The court denied Cotelli's motion to set aside the default judgment against him under Fed. R. Civ. P. 60(b)(6) "catchall provision." There were no "extraordinary circumstances" to grant relief. The change in the law occasioned by a Supreme Court decision, without more, is not such an extraordinary circumstance. Cotelli's multiple instances where he was not diligent in his appeals weighed against Rule 60(b)(6) relief, as did the monetary and emotional harm to the more than 5,000 victims from whom EMP had extorted money, and who were subjected in some cases to loss of employment and/or harassment. Setting aside the motion would also prejudice the FTC, which, in reliance of the finality of the default judgment, had destroyed the graphic evidence in order to ensure that the victims would be protected.

The case is No. 2:18-cv-00035-APG-NJK.

Attorneys: Allison M. Lefrak for the FTC.

Companies: EMP Media, Inc.

Cases: ConsumerProtection FederalTradeCommissionNews NevadaNews