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Federal Trade Commission v. Systems

November 29, 2011

FEDERAL TRADE COMMISSION, PLAINTIFF,
v.
SYSTEMS, INC., ET AL., DEFENDANTS.



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

MEMORANDUM & ORDER

On May 3, 2011, I found Teledraft, Inc. to be in contempt of a prior order of this court, issued September 24, 2009, which had directed Teledraft to turn over $262,224.03 to a court-appointed Receiver ("the Turnover Order"). I then referred the matter to the Honorable M. Faith Angell for an evidentiary hearing on the appropriate amount of compensatory damages to be awarded to the Receiver for losses attributable to Teledraft's disobedience. After a hearing on July 7, 2011, Judge Angell ordered that Teledraft pay $56,181.55 to compensate the Receiver. Now pending before the court are objections from both Teledraft and the Receiver as to the amount of damages. For the reasons that follow, I will affirm the order in part and vacate it in part.

I. Background

The elements of this dispute are well known to the parties, and I summarize them only briefly for context. These contempt proceedings are an outgrowth of a civil action filed on May 13, 2008, by the Federal Trade Commission against several individuals and business entities alleged to have engaged in unlawful telemarketing.

On May 14, 2008, at the instance of the FTC, this court entered an ex parte temporary restraining order ("the XTRO") which in part enjoined any "ACH Network or other payment processor" from transferring or otherwise dissipating any assets held by or for the defendants. The order of May 14, 2008, also placed defendant NHS Systems, Inc. and its affiliates into receivership and appointed Wayne Geisser as Receiver. On June 10, 2008, this court entered a stipulated preliminary injunction ("the SPI"), which, in similar language, enjoined any "ACH Network or other payment processor" from transferring or otherwise dissipating assets held by or for the defendants.

Teledraft, while not one of the defendants named by the FTC in its May 13, 2008 complaint, is a payment processor of the sort contemplated in both the XTRO and the SPI. See FTC v. NHS Sys., Inc., 708 F. Supp. 2d 456, 459 (E.D. Pa. 2009). In July 2008, the Receiver became aware of certain funds held by Teledraft for the defendants, which the Receiver asserted to be property of the Receivership estate. Id. at 461--62. Teledraft refused to return the funds sought by the Receiver.

On September 8, 2008, the FTC moved this court for an order requiring Teledraft to turn over $264,224.03 to the Receiver. That figure consisted of $57,328.89 which Teledraft had on hand and $206,895.14 which-according to the FTC and the Receiver-Teledraft should have had on hand but which had been improperly deducted or otherwise dissipated by the payment processor. On September 24, 2009, as previously noted, this court ordered Teledraft to turn over $264,224.03 to the Receiver.

Teledraft filed a notice of appeal of the Turnover Order on October 5, 2009, and sought a stay of the order pending resolution of the appeal. By order dated December 10, 2009, I granted a thirty-day stay of the portion of the Turnover Order requiring Teledraft to pay over the disputed funds. Teledraft's appeal was subsequently dismissed by the Court of Appeals for want of jurisdiction. FTC v. NHS Sys., Inc., No. 09-3899 (3d Cir. Jan. 8, 2010). The dismissal order from the Court of Appeals noted that "[n]on-parties [such as Teledraft] usually must be held in contempt of district court discovery orders before they have a right to appeal." Id.

Apparently, standing in contempt was thought to be a worthwhile price to pay for securing appellate review. Teledraft continued to refuse to obey the Turnover Order, and on March 17, 2010, the FTC moved this court for an order to show cause why Teledraft should not be held in contempt. On March 31, 2010, Teledraft opposed the sanctions sought by the FTC and instead asked the court merely to enter a finding of contempt for purposes of manufacturing an appealable order.

On May 12, 2011, I held Teledraft in contempt of the Turnover Order and ordered it to pay the Receiver at least $57,328.89 within seven days; to pay the balance of the $264,224.03 within fourteen days; and to "pay compensatory sanctions to the Receiver-in an amount to be determined by the Honorable M. Faith Angell, United States Magistrate Judge-for any and all losses arising from Teledraft's disobedience," Contempt Order of May 12, 2011 ¶ 5 (Docket No. 154) (emphasis added). In an accompanying opinion, however, I declined to hold Teledraft in contempt of either the XTRO or the SPI-both of which applied to Teledraft notwithstanding that Teledraft was not a named defendant, and both of which Teledraft disobeyed. Memorandum Opinion of May 12, 2011, at 8 (Docket No. 153).

Teledraft filed a notice of appeal from the contempt order on May 19, 2011, and moved on the same day for a stay of the order. The contempt order was subsequently stayed nunc pro tunc from May 12, 2011 until the determination of compensatory damages by Judge Angell.

On July 7, 2011, following a hearing and written submissions, Judge Angell ordered Teledraft to pay compensatory sanctions to the Receiver of $56,181.55-a figure said to represent all of the Receiver's losses and counsel fees from "just prior to the filing of the contempt motion by the FTC (on September 8, 2008)*fn1 through the sanctions hearing before [Judge Angell] (July 6, 2011)." Judge Angell excluded, however, all of the Receiver's damages related to Teledraft's two appeals-calculated as time spent and fees incurred (1) between the filing of Teledraft's first notice of appeal on October 5, 2009 and dismissal of that appeal on January 8, 2010, and (2) after the filing of the second notice of appeal on May 19, 2011, except as necessary to prepare for the sanctions hearing. Judge Angell also excluded, without elaboration, some expense entries whose relationship with the "investigation, preparation and presentation of the contempt petition" she deemed to have been inadequately demonstrated.

Objections to Judge Angell's order were then filed in this court by the FTC, the Receiver, and Teledraft. The form of their objections was somewhat anomalous-a joint stipulation incorporating by reference their prior submissions to Judge Angell. By order dated August 18, 2011, I ruled that such generalized objections failed to comply with Federal Rule of Civil Procedure 72, and I extended the deadline to file particularized objections to Judge Angell's order for an additional fourteen days. I also extended the stay of the contempt order pending this court's resolution of such ...


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