Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: Contempt proceedings in FTC action are the subject of Supreme Court petition, (Sep 9, 2013)

By Jeffrey May, J.D.

The U.S. Supreme Court has been asked to review a decision of the U.S. Court of Appeals in Atlanta upholding entry of a money judgment of $502,316 in a contempt action against a debt consolidation company’s executives for violating a 2008 FTC consent decree. In their petition for certiorari, filed on August 30, the executives argue that there is a need for the Supreme Court’s guidance on the proper procedures in contempt proceedings, especially where, as here, there was a “total lack of due process” (Leshin v. FTC, Dkt. 13-294).

“Contempt proceedings should not be allowed to evolve into the government’s or the courts’ new, favorite ‘go-to’ tool to shortcut Due Process and deprive persons of jury trials and other rights, in order to punish technical violations of lengthy, complex orders, without giving defendants the fair chance to prove their compliance, or at least good faith and mitigation of damages,” the petitioners urge.

The petition arises out of a 2006 FTC enforcement action that was resolved in 2008 with a 76-page consent decree. Not long after the consent decree was entered, the FTC filed an order to show cause why the petitioners should not be held in contempt for violations of the consent decree.

In 2009, there was a finding of contempt. As a compensatory civil contempt remedy, the district court ordered disgorgement of $594,987.90, which was equal to the gross receipts of the business during the relevant timeframe. As part of its disgorgement order, the district court said that, “After disgorgement and any attendant contempt enforcement are complete, the FTC may apply to the Court to convert any unpaid balance of this civil contempt remedy to a money judgment.” The appellate court affirmed the disgorgement order under an abuse of discretion standard (618 F.3d 1221, 2010-2 Trade Cases ¶77,158). The appellate court did not address the provision allowing the FTC to move to convert the compensatory contempt sanction to a money judgment if it was not paid in full. Faced with a threat of jail time, the petitioners paid $92,671, but the original disgorgement order, less the $92,671, remained in effect. Later, the district court converted the compensatory sanction to a money judgment with the future possibility that it could be serially converted back to a contempt order if the judgment was not satisfied. In June 2013, the appellate court upheld the lower court’s order (2013-1 Trade Cases ¶78,405). This petition followed.

The petitioners ask the Court, specifically: (1) whether a court may proceed with an indirect civil contempt trial without issuing a sufficient show cause order, and is a failure to give adequate notice and opportunity to prepare a denial of a meaningful opportunity to be heard; (2) whether the procedures used for contempt proceedings involving lengthy, complex and confusing consent decrees should be reassessed, where inadvertant technical violations are unavoidable; (3) whether a trial court may convert a contempt sanction to a money judgment with the implication of serial reconversion to contempt if not paid and whether converting a contempt sanction to a money judgment without a jury trial is a denial of the Seventh Amendment right to jury trial; and (4) whether, for any of the foregoing grounds, the courts below violated due process and departed from the accepted course of judicial proceedings, or sanctioned such a departure, as to warrant certiorari.

Attorneys: Richard Glenn Elie for Randall L. Leshin. Donald B. Verrilli, Jr., Solicitor General, for FTC.

News: ConsumerProtection FederalTradeCommissionNews