Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—N.D. Ill.: Court declines to reimprison deceptive marketer Kevin Trudeau for contempt, (Sep 17, 2024)

By E. Darius Sturmer, J.D.

Ruling in long-running FTC lawsuit tackles numerous issues surrounding Trudeau’s repayment of $37.6 million judgment for violation of consent order and orders parties to submit position papers regarding the amount still due.

The federal district court in Chicago has issued a ruling deciding myriad issues of dispute that have piled up in a decades-long litigation between the Federal Trade Commission and serial fraudster Kevin Trudeau over claims he made in infomercials promoting a weight loss book in 2007, which allegedly ran afoul of a 2004 consent order resolving other allegations of deceptive practices and false advertising. Since the imposition of a $37.6 million judgment against Trudeau for the loss consumers suffered from his deceptive weight loss infomercial, the FTC has struggled to collect the judgment and Trudeau has spent nearly a decade in federal prison for criminal contempt. Upon his release in 2022, proceedings in the civil contempt action resumed, the court finding in June 2023 that Trudeau remains in contempt of the judgment order and ordering him to, among other things, submit bimonthly verified statements that detail all monies he received, all expenses and disbursements he or his fan club made, and the status of all his present and prospective business relationships. In its latest ruling, the court overruled the FTC’s request for coercive incarceration, denied the FTC’s motion to impose a monitorship, denied without prejudice Trudeau’s motion to lift his international travel restriction, denied without prejudice Trudeau’s motion to eliminate the $2 million infomercial performance bond requirement, and denied without prejudice his motion to allow his businesses to pay legal and accounting expenses (FTC v. Trudeau, No. 1:03-cv-03904 (N.D. Ill. Sept. 13, 2024)).

Further background. The FTC brought the instant lawsuit against Trudeau and some of his companies in 2003, in connection with Trudeau’s health claims about Coral Calcium Supreme, a dietary supplement purportedly made from Japanese marine coral. It was not the Commission’s first suit against Trudeau. The FTC had previously sued Trudeau for deceptive practices and false advertising in connection with a variety of products he promoted through informercials, including a memory enhancement program and other products that purportedly could aid in weight loss, reverse hair loss, or cure substance abuse addictions and numerous other medical conditions, even cancer.

In its 2003 complaint regarding Coral Calcium Supreme, the Commission asserted that Trudeau had claimed the product provided the same amount of bioavailable calcium as two gallons of milk, could be absorbed into the body faster than ordinary calcium, and could cure cancer, heart disease, high blood pressure, lupus, and other illnesses. The FTC alleged that these disease claims for Coral Calcium Supreme were false and unsubstantiated. The Commission also alleged in a separate action that Trudeau had violated a 1998 FTC order by making the Coral Calcium Supreme claims and pain-relief claims for Biotape, an adhesive strip, in another commercial.

In September 2004, Trudeau entered into a stipulated preliminary injunction that prohibited him from continuing to make the challenged claims for Coral Calcium Supreme and Biotape. The court found Trudeau in contempt of court for violating this preliminary injunction when he disseminated a direct mail piece and an infomercial making the prohibited coral calcium claims. The court ordered Trudeau to cease all marketing for coral calcium products.

The 2004 settlement permanently bans Trudeau and the other defendants from appearing in, producing, or disseminating infomercials that advertise any product, service, or program and, regardless of the advertising medium used to make the claim, from making representations that any product, program, or service can cure, treat, or prevent any disease or provide health benefits. Trudeau also agreed to pay $2 million to settle the charges.

Of the $37.6 million dollar civil contempt judgment imposed against Trudeau in November 2008, arising from his claims in infomercials promoting The Weight Loss Cure “They” Don’t Want You To Know About, the FTC claimed to have collected only “a little over $15 million” by 2015. It contends that Trudeau has hidden assets and is impeding collection of the judgment. In June 2023, the court found that Trudeau had paid another $2.6 million toward the judgment that year, mostly from donations by the Kevin Trudeau Fan Club. The court’s June order, along two others that followed, imposed numerous payment and other requirements upon Trudeau, including approval of business relationships. The parties have since submitted filings amounting to nearly two dozen contested matters, including objections by the FTC to various aspects of Trudeau’s bimonthly reports.

Findings. Remarking that it does not find the current state of affairs to be satisfactory but that “it’s not clear there are any real solutions” to the problems plaguing collection of the judgment, the court nevertheless assessed each of the parties’ disputes, beginning with the periodic financial reports. Regarding these, the court found first that an open issue exists regarding unregulated retention of funds by Trudeau’s company, Trudeau Consulting Training and Coaching (TCTC). It therefore imposed a bar on spending or dissipation of assets by TCTC pending entry of an order governing such retention and spending. An open issue also exists regarding how much Trudeau’s businesses should be able to retain and hold for business expenses, the court said, so it directed the parties to engage in good faith discussion to attempt to agree on a proposal and to jointly submit a report to the court with their proposal(s). The court also ordered Trudeau to make a supplemental disclosure regarding all receipts and disbursements by his legal defense fund, and it demanded that he do so in each bimonthly report going forward. Further, both parties were directed to confer in good faith and make a proposal for greater documentation and itemization of the Trudeau entities’ business expenses. The court added that the FTC must, going forward, communicate any objections or disputes to a bimonthly report to Trudeau’s counsel no later than seven days before the due date for the FTC’s response to the report.

Coercive incarceration. Considering next the FTC’s request for the resumption of coercive incarceration of Trudeau, the court found no basis in the record to believe that it would accomplish anything with respect to compliance with the contempt judgment, so it declined the request. Not only would such incarceration be unlikely to lead to any further assets being surfaced or faster payment of the judgment, but it would have a significant downside, in that “to the extent Trudeau is able to generate any income to pay for consumer redress, incarcerating him would bring that to a screeching halt.” The better solution to Trudeau’s efforts to avoid paying consumer redress, stated the court, was to revise the current scheme to prevent, minimize, or penalize inappropriate distributions and payments, regulate what may be retained, and require distributions by the Trudeau-controlled entities to pay down the judgment.

Imposition of monitorship. The court decided that appointment of a monitor would unreasonably drain further the funds available for payment on the judgment, with no reasonably equivalent corresponding benefit. It therefore denied the FTC’s motion without prejudice to renewed consideration if circumstances change materially.

Approval of business relationships. The court also approved of one of Trudeau’s proposed business activities, including a contract with Groove Digital LLC and its sister companies to market and sell their online marketing software, but it refused to consider his promotion of a “money processes” seminar and it denied his request to purchase the website naturalcures.com. Noting that it was ill-equipped to evaluate proposed business relationships in advance, the court agreed with the FTC that the court-preapproval requirement does not appear to serve any useful purpose and ought to be eliminated. However, the court refused to eliminate it without first considering and initiating preventative measures, instead directing the parties to confer and attempt to reach agreement regarding disposition of revenues received by Trudeau entities, as well as any that may be established in the future.

Infomercial bond requirement. The court refused Trudeau’s request to reduce or eliminate a requirement found in a 2010 order that Trudeau post a $2 million performance bond as security against future consumer harm from any infomercials he may disseminate. The court noted that the infomercial bond is, and should be, an expense of Trudeau and his businesses, but he has accumulated significant funds in his business entities and has not made the case that he is financially incapable of putting up the bond. Moreover, the court took offense to Trudeau’s threat to retire and thus generate no more money for consumer redress, quipping that if Trudeau “decides, figuratively speaking, to sit in the corner and hold his breath until he turns blue,” he risks being held in contempt.

International travel prohibition. The court also denied Trudeau’s motion to lift an order entered in 2013 that prohibits him from travelling internationally. The FTC maintains that the order, imposed following Trudeau’s attempt to flee to his luxury home in Switzerland, remains a viable and appropriate exercise of the court’s equitable power to preserve its ability to compel repayment from Trudeau. In the court’s view, however, the bigger problem with Trudeau’s motion is that did not identify any specific lost or prospective business opportunity, and thus “basically came across as a request to approve an overseas vacation.” The court expressed openness to entertaining “specific, and fully supported, requests for international travel for specific, and real, opportunities” in the future, but stressed that its bar would be high, saying it would expect the request to include detailed descriptions of the proposed activities, the relevant itineraries, the full budget, and much more.

Accounting and expert expenses. Observing that the June 2023 order permits Trudeau to raise funds for a “legal defense fund” separate from his fan club, the court addressed the parties’ dispute over whether the phrase “legal fees and costs” in that order allows Trudeau to pay accounting and expert fees. It concluded that the order allows this, but only “if (and only if) the accountant is retained by counsel and the particular fees charged are directly related to the present lawsuit.” This would include, for example, preparation of the court-ordered bimonthly financial reports, but it would not authorize use of the fund for the regular accounting expenses of Trudeau’s businesses or for making proposals to approve business opportunities. The court also denied a separate motion filed by Trudeau to allow his businesses to pay their outside legal and accounting litigation-related expenses, explaining that the request was “not properly supported or anywhere close to it.”

Fair Debt Collection Practices Act. The court overruled Trudeau’s contention that the Fair Debt Collection Practices Act (FDCPA) caps at 25 percent the amount he may be ordered to pay on the judgment from his earnings, reminding Trudeau it had ruled orally that the cap is inoperative with regard to the $37.6 million civil contempt judgment. The court explained that the collection for a contempt sanction is within the specific exception set out in section 3008(c)(8)(C) of the FDCPA. Besides, it noted, Trudeau had specifically agreed to pay an amount that exceeded the cap—an offer the court expressly took him up on.

Other issues. Finally, the court directed the parties to confer in good faith on the various topics outlined in its opinion and to submit a joint status report on October 14, the same date that they are to submit position papers regarding what amount remains due and owing on the contempt judgment.

The Case is No. 1:03-cv-03904.

Judge: Kennelly, M.

Attorneys: Crystal Dawn Ostrum for the FTC. Giel Stein (Clark Hill PLC) for Kevin Trudeau. David L. Schiavone (Sonnenschein, Nath & Rosenthal, LLP) for Robert Barefoot.

Cases: ConsumerProtection FederalTradeCommissionNews IllinoisNews