Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—SDFla: Relief from Asset Freeze Denied in FTC Action Against Health Insurance Operation, (Jun 5, 2013)

By Tobias J. Gillett, J.D., LL.M.

The federal district court in Miami has denied a request by the defendants in an FTC action against a purported health insurance operation to unfreeze certain assets in order to pay their attorneys’ fees (FTC v. IAB Marketing Associates, LP, June 4, 2103, Scola, R.).

IAB Marketing Associates, LP and various other entities and individuals sold healthcare plans by getting consumers to join an association purporting to offer members major or traditional health insurance, or its equivalent. The FTC filed a complaint in the federal district court in Miami, asserting that the IAB entities and individuals had misrepresented that the products they offered were “major or traditional health insurance, or the equivalent of such insurance,” in violation of Section 5 of the FTC Act, and that they had committed various violations of the FTC’s Telemarketing Sales Rule.

On September 18, 2012, the court entered a temporary restraining order that included an asset freeze. Following a hearing, the court entered a preliminary injunction continuing the asset freeze and appointing a permanent receiver, concluding that the FTC had shown it was likely to succeed on the merits of its case. In the present motion, the defendants sought limited relief from the asset freeze to pay attorneys’ fees.

The court explained that a district court has the power to freeze assets under Section 13 of the FTC Act, and may unfreeze assets “when equity requires.” However, “[w]hen frozen assets are less than the amount needed to compensate consumers for their losses, a district court can properly refuse to unfreeze assets.”

Here, the defendants’ alleged ill-gotten gains were “not less than $125 million” in revenue, while “the largest value that could be ascribed to the frozen assets is approximately $2.812 million.” Therefore, it was “extremely unlikely that the frozen assets [would] be adequate to redress consumer injuries,” and equity favored preserving the assets rather than permitting the defendants to use the “likely ill-gotten” funds to pay attorneys’ fees.

The circumstances here differed from those under which the court previously unfroze $75,000 to pay attorneys’ fees through the preliminary injunction hearing, the court explained. The preliminary injunction hearing preceded the court’s decision that the FTC was likely to prevail on the merits of its action. An appeal of the injunction would be “directed to a different court, and does not change the district court’s finding of who is likely to prevail.” Moreover, the receiver “strenuously objected” to the defendants’ request to pay attorneys’ fees.

A decision to deny the motion to unfreeze assets also would not violate due process, the court noted. “The very fact that a district court has discretion to decide whether to unfreeze assets to pay attorney fees belies the notion that defendants in such cases have a due process right to use frozen funds to pay for counsel,” the court observed. Moreover, the denial would not be unfair to the defendants’ attorneys because they knew that the court’s temporary restraining order had frozen the assets prior to agreeing to represent the defendants, and therefore they “assumed the risk of not getting paid.”

The case is No. 12-61830-Civ-SCOLA.

Attorneys: Dotan Weinman for Federal Trade Commission. Jeffrey Bruce Crockett (Coffey Burlington, P.L.) for IAB Marketing Associates, LP. Brian Joseph Stack (Stack Fernandez Anderson & Harris, P.A.) for Avis Suzanne Wood.

Companies: IAB Marketing Associates, LP

Cases: ConsumerProtection FederalTradeCommissionNews