The recent AMG Supreme Court decision has created a headache for the FTC.
Following the decision, Success by Health now seek to dissolve the granted preliminary injunction.
SBH also wants the Receivership to return any funds obtained as fees paid by the company.
In a memorandum filed on April 29th, SBH argues
the receivership and seizures this court authorized were not justified. They were and are void ab initio.
As a result, the receiver must disgorge all of the money she and her consultants have taken out of Success By Health and return it to the company.
This court’s order appointing the receiver as counsel for the corporate defendants, likewise, is illegal.
The individual defendants are entitled to manage and control their entity pending what must be an administrative proceeding before the Federal Trade Commission to determine if anything illegal happened.
There is no Koscot test to be applied, either, because the Federal Trade Commission has not held an administrative proceeding to determine if what Success By Health has done is a violation of § 5(a) of the Act.
SBH’s position is that ‘the Federal Trade Commission should pay the receiver because she was appointed at its request.’
The FTC maintains SBH and owner Jay Noland ‘are still liable for millions of dollars out of which they defrauded consumers’.
AMG revoked this Court’s authority to order monetary relief pursuant to Section 13(b) of the FTC Act, while leaving in place the two other bases under which the FTC seeks a combined identical amount of monetary relief—Section 19 of the FTC Act, 15 U.S.C. §57b, and civil contempt.
In a nutshell, the FTC wants to substitute out Section 13(b) and replace it with Section 19 ‘and the Court’s civil contempt authority’.
If granted, this will maintain the status quo with respect to current proceedings.
Section 19 permits the Court to award equitable remedies such as “rescission” and “the refund of money.”
Courts, including the Ninth Circuit, have applied this rule to allow Section 19 asset freezes.
The FTC’s initial concern that Defendants are likely to destroy evidence proved correct-they did destroy documents they had concealed.
The FTC also urged the Court not to “return [the companies] (in any form) to Defendants who have used them to commit fraud.”
The Court agreed, noting “Noland’s track record, which included the likely violation of [the 2002 Noland Order],” as well as evidence Noland violated the Court’s TRO.
Those findings still apply. Therefore, there is no basis to modify the receivership, including the Receiver’s authority to select counsel.
Because the Preliminary Injunction properly relied at the time on the FTC’s likelihood of prevailing under Section 13(b), it is now necessary to find the FTC likely to prevail in the Contempt Matter and under Section 19.
We’re well into uncharted territory here so I’m following along with the rest of you.
What I want to clarify however is that the AMG decision has no bearing on whether Success by Health was a pyramid scheme or not.
The Court already found there is “ample evidence” and “compelling evidence that Defendants are operating a pyramid scheme and . . . have otherwise engaged in deceptive practices.
The AMG decision, with respect to the FTC’s MLM cases, pertains to violators of the FTC Act retaining control of their scams and ill-gotten gains throughout proceedings.
Given how easy it is to disappear money these days, this isn’t a win for consumers.
The public interest in preventing more consumers from falling victim to Defendants’scam far outweighs any possible interest Defendants may have in continuing these practices.
Looking forward, the court has given Success by Health until May 21st to ‘file a motion to dissolve or modify the Preliminary Injunction and receivership’.
Replies and responses are to be filed over the next thirteen days, after which the court will tackle the preliminary injunction standing.