Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—NDIll: Law Firms and Company Must Comply with FTC Subpoenas Seeking Financial Information About Infomercial Producer, (Mar 7, 2013)

By Tobias J. Gillett, J.D., LLM.

Two law firms and a company must comply with FTC subpoenas demanding financial information regarding a producer of infomercials the FTC is seeking to hold in contempt of court for failing to pay monetary sanctions imposed for violating a previous court order, the federal district court in Chicago has ruled (FTC v. Trudeau, March 6, 2013, Gettleman, R.).

Kevin Trudeau is a producer of infomercials advertising various health and dietary supplement products, and an author of books discussing weight loss and various alleged “cures.” His activities attracted the attention of the FTC, which carried out enforcement actions against him. In 2004, Trudeau agreed to a consent order settling a prior finding of contempt that required him to pay monetary sanctions and refrain from promoting products through infomercials, except for publications.

In 2007, however, the court found him in contempt of the 2004 consent order’s ban on misrepresenting the content of publications in those infomercials (FTC v. Trudeau, 2007-2 Trade Cases ¶75,949). The court issued a remedy requiring Trudeau to disgorge $5,173,000 and banning him “from producing, broadcasting or participating in the production or publication of any infomercials for products, specifically including books and publications and informational publications, in which he has any interest for a period of three years,” and later issued a supplemental order increasing the monetary sanctions to $37.6 million.

The Seventh Circuit upheld the contempt finding in 2009, but remanded for the district court to explain the $37.6 million sanction (FTC v. Trudeau, 579 F.3d 754, 2009-2 Trade Cases ¶76,718). In 2010, the district court issued an opinion explaining and reaffirming its sanctions (FTC v. Trudeau, 708 F. Supp.2d 711, 2010-1 Trade Cases ¶76,992), and the sanctions were upheld on appeal (FTC v. Trudeau, 662 F.3d 947, 2011-2 Trade Cases ¶77,700).

In the present action, the FTC is proceeding to have Trudeau held in contempt of the 2010 order for failing to pay any money toward the sanctions. In a previous order, the court found the FTC had satisfied its initial burden of showing that Trudeau had violated the order, and the burden had shifted to Trudeau to produce evidence demonstrating “categorically and in detail” why he was unable to comply.

Trudeau offered a sworn financial statement, but the FTC challenged the authenticity of the statement, providing evidence that Trudeau was living far beyond the standard of living that the statement reflected. The FTC also issued subpoenas from the court to Trudeau’s law firm, Winston & Strawn (“Winston”); to an expert on protecting assets from creditors, the Law Offices of Mark Lane (“Lane”); and to Website Solutions U.S.A. Inc. The present motion sought to compel those parties to comply with the subpoenas.

The court initially noted that the subpoenas sought documents relating to compensation for services, payment received and its sources, and the balances of any accounts maintained on Trudeau’s behalf, but did not seek information related to Trudeau’s motive for seeking legal representation, or the substance or specific nature of any legal services provided.

The court rejected the subpoenaed parties’ argument that the subpoenas were invalid because the FTC had failed to comply with Federal Rule of Civil Procedure 69(a), which provides that “a money judgment is enforced by a writ of execution, unless the court directs otherwise.” The parties had not raised the argument in their responses or objections, and hence the argument was waived. Even if it had not been waived, the court had “direct[ed] otherwise” by authorizing the FTC to monitor compliance with the 2004 sanction order, which was incorporated in the 2010 order, using the federal discovery rules.

Moreover, the court observed that Rule 69(a)(2) permitted a judgment creditor to “obtain discovery from any person . . . as provided in these rules or by the procedure of the state where the court is located.” This language allowed the creditor to choose between the federal discovery rules and the practice of the state. The court cited case precedent establishing that the FTC did not have to serve Trudeau with a citation to discover assets before it could conduct discovery.

The court also rejected Winston and Lane’s contention that complying with the FTC’s subpoenas would cause them to violate Illinois Rule of Professional Responsibility 1.6(a), which provides that a lawyer “shall not reveal information relating to the representation of a client,” unless various conditions apply. The court observed that Rule 1.6(b)(6) permitted an attorney to disclose information “to comply with other law or a court order.” A subpoena issued by the court under Federal Rule of Civil Procedure 45 constituted such a “court order.”

The court found other objections raised by the law firms to be “boilerplate,” lacking “any merit.” The subpoenas were “limited in nature,” not overbroad. Compliance would not be unduly burdensome, and would not require disclosure of confidential information. Even if they did, neither law firm had identified any privileged information in a privilege log as required by Rule 45. Although taking discovery of an opposing counsel might not ordinarily be appropriate, the present circumstances, including “Trudeau’s efforts to avoid paying the sanction and his apparent ability to retain prestigious counsel and live a life of luxury,” rendered it appropriate in the instant case.

The case is No. 03 C 3904.

Attorneys: David A. O'Toole for Federal Trade Commission. Kimball Richard Anderson (Winston & Strawn LLP) for Kevin Trudeau.

Cases: ConsumerProtection FederalTradeCommissionNews IllinoisNews