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Federal Trade Commission v. NHS Systems

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA


December 10, 2009

FEDERAL TRADE COMMISSION, PLAINTIFF
v.
NHS SYSTEMS, INC., A PENNSYLVANIA CORPORATION, ALSO D/B/A NATIONAL HEALTHCARE SOLUTIONS AND NATIONAL HEALTH NET ONLINE, AND HARRY F. BELL, JR., INDIVIDUALLY AND AS AN OFFICER OR PRINCIPAL OF NHS SYSTEMS, INC., AND PHYSICIAN HEALTH SERVICE, LLC, A MISSOURI LIMITED LIABILITY COMPANY, ALSO D/B/A/ AMERICAN HEALTH BENEFITS ON LINE, AND DONNA NEWMAN, INDIVIDUALLY AND AS AN OFFICER OR PRINCIPAL OF PHYSICIAN HEALTH SERVICE, LLC, AND JOHN E. BARTHOLOMEW, INDIVIDUALLY, AND PLUS HEALTH SAVINGS, INC., A PENNSYLVANIA CORPORATION PHYSICIANS HEALTH SYSTEMS, INC., A DELAWARE CORPORATION, ALSO D/B/A AMERICAN HEALTH BENEFITS ON LINE HEALTH MANAGEMENT, LLC, A MISSOURI LIMITED LIABILITY COMPANY 6676529 CANADA, INC., A CANADIAN CORPORATION NICOLE BERTRAND, INDIVIDUALLY AND AS AN OFFICER OR PRINCIPAL OF 6676529 CANADA, INC. BARRY KIRSTEIN, INDIVIDUALLY "DANNIE BOIE" A PERSON WHOSE TRUE IDENTITY IS UNKNOWN, INDIVIDUALLY PHS ENTERPRISES, INC., A NEVADA CORPORATION FIRST STEP MANAGEMENT, INC., A ST. LUCIA COMPANY GOLD DOT, INC., A ST. LUCIA COMPANY LINKE JN PAUL, INDIVIDUALLY AND AS AN OFFICER OR PRINCIPAL OF FIRST STEP MANAGEMENT, INC. AND GOLD DOT, INC. TASHA JN PAUL, INDIVIDUALLY AND AS AN OFFICER OR PRINCIPAL OF GOLD DOT, INC. NEVADA BUSINESS SOLUTIONS, INC., A NEVADA CORPORATION INTERFACE MANAGEMENT, INC., A FLORIDA CORPORATION, ALSO D/B/A GALAXY MEMBER BENEFITS BEGINNING AGAIN, INC., A FLORIDA CORPORATION DEFENDANTS

The opinion of the court was delivered by: Pollak, J.

OPINION

In this litigation, the Federal Trade Commission ("FTC") has alleged that the named defendants have conducted a huge telemarketing scheme. On September 24, 2009, this court ordered non-party Teledraft -- a payment-processing company which processed funds on behalf of some of the defendants but which has not itself been named as a defendant in this matter -- to turn over $264,224.03 to Wayne D. Geiser, the Receiver appointed on May 14, 2008 to oversee the corporate defendants. See Docket No. 109. In reaching the conclusion that Teledraft must turn over the funds at issue, the opinion accompanying the September 24 order rejected Teledraft's argument that it was entitled, prior to turning over any funds to the Receiver, to retain a portion of those funds under the doctrines of set-off and recoupment. See FTC v. NHS Sys., Inc. No. 08-2215, 2009 WL 3072475, at *9-*11 (E.D. Pa. Sept. 24, 2009). However, the September 24 opinion and order did allow Teledraft to pursue a contract claim against the Receiver. Specifically, the opinion and order lifted the stay of litigation previously in place in order to allow Teledraft to pursue a contract action against the Receiver in the District of Arizona, see Docket No. 109, for "the funds to which Teledraft alleges it is contractually entitled," NHS Sys., 2009 WL 3072475, at *11-*12.

On October 5, Teledraft filed a notice of appeal seeking relief "from the Order entered on September 24, 2009, directing it to pay $264,224.03 to the Receiver" (docket no. 110), and Teledraft now moves (docket no. 111) for a stay of the turnover order pending its appeal. The FTC opposes Teledraft's motion (docket no. 116).

Teledraft argues that it is entitled to a stay upon the posting of a supersedeas bond pursuant to Federal Rule of Civil Procedure ("Rule") 62(d). In the alternative, Teledraft contends that the provisions of Rule 62(c) allowing for a stay of injunctive relief pending appeal govern its motion, and that it is entitled to such a stay under the four-factor test applicable to stays of district court orders pending appeal that was enunciated by the Third Circuit in Republic of the Philippines v. Westinghouse Electric Corp., 949 F.2d 653, 658 (3d Cir. 1991). I will address these arguments in turn.

I.

Rule 62(d) provides that "[i]f an appeal is taken, the appellant may obtain a stay by supersedeas bond, except in an action described in Rule 62(a)(1) or (2). The bond may be given upon or after filing the notice of appeal or after obtaining the order allowing the appeal. The stay takes effect when the court approves the bond." The rule "entitles a party appealing a money judgment to an automatic stay upon posting a supersedeas bond." Hebert v. Exxon Corp., 953 F.2d 936, 938 (5th Cir. 1992). Teledraft is correct that, as the Fifth Circuit noted in Hebert, "[t]he applicability of Rule 62(d) turns not on [the difference between declaratory and money judgments], but on whether the judgment involved is monetary or non-monetary." Id. Nevertheless, Rule 62(d) is not authority on the basis of which this court may grant Teledraft's motion, because the September 24 order is not a judgment within the meaning of the Federal Rules of Civil Procedure.

Rule 62 "does not govern stays in proceedings other than to enforce a judgment." Wright, Miller, & Kane, 11 Federal Practice & Procedure § 2902, at 491 (2d ed. 1995). "'Judgment' as used in [the Federal Rules of Civil Procedure] includes a decree and any order from which an appeal lies." Fed. R. Civ. P. 54(a). "[N]o right to a stay arises under Rule 62(d)... from an attempt to appeal... a non-appealable order." Morgan v. Kerrigan, 401 F. Supp. 270, 271 (D. Mass. 1975); accord Law v. NCAA, 134 F.3d 1025, 1030 (10th Cir. 1998) ("When there is no appeal of right there is no duty on the district court to grant a stay upon the filing of a supersedeas bond."); R.D. Goldberg Theatre Corp. v. Tri-States Theatre Corp., 119 F. Supp. 521, 522 (D. Neb. 1944) ("[T]he right to supersede presumes the right to appeal, as distinguished from the possession of a meritorious appeal. And where no right to appeal exists there is no right to supersede."); cf. Iowa Beef Processors, Inc. v. Bagley, 601 F.2d 949, 955 (8th Cir. 1979) (holding that Rule 62(a) does not apply where "no appeal lies from the district court's order").

The Third Circuit has ruled that an "order requiring the delivery of certain deposits to [a] receiver is neither final nor within any category of appealable orders." United States v. Chelsea Towers, 404 F.2d 329, 330 (3d Cir. 1968).*fn1 This determination is in accord with the holdings of three other circuits. See, e.g., FTC v. Overseas Unlimited Agency, Inc., 873 F.2d 1233, 1235 (9th Cir. 1989) (holding that a turnover order is not (1) a final order under 28 U.S.C. § 1291;*fn2 (2) an injunction under 28 U.S.C. § 1292(a)(1);*fn3 or (3) within the bounds of 28 U.S.C. § 1292(a)(2)*fn4 ); United States v. Beasley, 558 F.2d 1200, 1201 (5th Cir. 1977); Waylyn Corp. v. Casalduc, 219 F.2d 888 (1st Cir. 1955). Therefore, Teledraft's notice of appeal from "the Order entered on September 24, 2009, directing it to pay $264,224.03 to the Receiver," Docket No. 110, seeks to appeal a non-appealable order. As a direct consequence, Teledraft is not entitled to a stay pursuant to

Rule 62(d).*fn5

II.

In Section I of this opinion, Teledraft's contention that Rule 62(d) entitles it, upon the posting of a supersedeas bond, to a stay of this court's September 24 order has been found without merit. In the alternative, Teledraft grounds its motion for a stay on Rule 62(c). This section of the opinion addresses this alternative contention.

Rule 62(c) provides that "[w]hile an appeal is pending from an interlocutory order or final judgment that grants, dissolves, or denies an injunction, the court may suspend, modify, restore, or grant an injunction on terms for bond or other terms that secure the opposing party's rights." Teledraft is not eligible to receive a stay pursuant to Rule 62(c), however, because the September 24 order is not injunctive in nature.

In the context of considering whether or not a turnover order is subject to appeal under the provisions of 28 U.S.C. § 1292(a)(1), which grants courts of appeals appellate jurisdiction over "[i]nterlocutory orders of the district courts... granting, continuing, modifying, refusing or dissolving injunctions," the Ninth Circuit has held that "[a]n order requiring a party to pay money to a receiver made pursuant to a previously unappealed order appointing the receiver 'does not constitute an injunction within the meaning of 28 U.S.C. § 1292(a)(1).'" Plata v. Schwarzenegger, 560 F.3d 976, 982 (9th Cir. 2009) (quoting Overseas Unlimited, 874 F.2d at 1235) (internal quotation marks omitted); accord, e.g., Trustees of Pension, Welfare, & Vacation Fringe Benefit Funds of IBEW Local 701 v. Pyramid Elec., 223 F.3d 459, 465 (7th Cir. 2000) (holding that a turnover order is not "injunctive in nature" unless the "order... effectively decides the merits, and has an irreparable effect on the merits"). Although the ruling of the Ninth Circuit in Plata was announced in a determination of the scope of that court's appellate jurisdiction, there appears to be no reason to reach a different result in construing the scope of Rule 62(c), which applies to "interlocutory order[s] or final judgment[s] that grant[], dissolve[], or den[y] an injunction." The only respect in which Rule 62(c) substantively departs from the language of Section 1292(a)(1) is that the former deals not only with "interlocutory order[s]" respecting injunctions but also with "final judgment[s]" respecting injunctions. However, as explained above, the September 24 order is not a judgment, let alone a final judgment. Therefore, the September 24 order does not grant, dissolve, or deny an injunction within the meaning of Rule 62(c), and, accordingly, Rule 62(c) is of no help to Teledraft.

III.

Although I have held, in Sections I and II of this opinion, that neither Rule 62(d) nor Rule 62(c) provides a basis upon which Teledraft may receive a stay pending appeal, my declination to grant a stay under Rule 62(d) rests upon the conclusion that the September 24 order is not an appealable judgment. If that conclusion is incorrect, this court might well be obligated to issue a stay upon the posting of a supersedeas bond by Teledraft. Needless to say, defining the scope of the appellate jurisdiction of the Third Circuit is a task more appropriately performed by that court than by this court. And, since Teledraft is undertaking to appeal this court's September 24 order, it seems to me sensible that this court undertake to facilitate, rather than impede, the Third Circuit's determination whether the turnover order is appealable. Accordingly, a temporary stay of the portion of the September 24 order requiring Teledraft to turn over $264,224.03 to the Receiver is appropriate to provide Teledraft the opportunity to move the Third Circuit for a stay pending that court's determination of whether it has jurisdiction to review the challenged turnover order. See, e.g., Cohen v. United States, No. 03-cv-3234, 2004 WL 792373, at *3 (E.D. Pa. Apr. 9, 2004) (holding that the aggrieved parties "ha[d] not shown that a stay pending appeal is warranted," but granting a temporary stay "so that they [could] seek a stay from the Court of Appeals"). I am, however, aware that the Receiver has already waited over sixteen months for a resolution of its turnover request, and the delay has very likely been a not-insignificant obstacle to the Receiver's expeditious fulfillment of his responsibilities. Therefore the temporary stay will be a brief one. The temporary stay will, unless extended or renewed by the Court of Appeals, expire thirty (30) days after entry of the order accompanying this opinion.*fn6

CONCLUSION

It is the ruling of this court that the September 24 turnover order is not an appealable judgment or injunctive in nature, and hence that Teledraft is not entitled to a stay pending appeal. But in order to allow Teledraft to seek from the Court of Appeals a determination of (1) whether -- contrary to this court's ruling -- the turnover order is appealable, and (2) if the turnover order is appealable, whether Teledraft is entitled to a stay pending a decision by the Court of Appeals on the merits of that appeal, this court will stay the turnover order for thirty days. An appropriate order accompanies this opinion.


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