Friday, November 11, 2022

contempt finding saves FTC's $120 million victory against real estate scammer even after AMG Capital

Federal Trade Commission v. Pukke, --- F.4th ----, 2022 WL 16568278, No. 20-2215, No. 21-1454, No. 21-1520, No. 21-1521, No. 21-1591, No. 21-1592 (4th Cir. Nov. 1, 2022)

Court’s intro:

Andris Pukke and other appellants sought to develop thousands of acres of land in Belize, which they marketed as a luxury resort called “Sanctuary Belize.” In their sales-pitch to U.S. consumers, many promises were made but not kept. In 2018, the FTC shut this down, calling Sanctuary Belize a “scam,” and alleging violations of the Federal Trade Commission Act and the Telemarketing Sales Rule for making misrepresentations to consumers. The FTC also brought contempt charges against Pukke stemming from past judgments against him. After an extensive bench trial, the district court found ample evidence of violative and contumacious conduct, ultimately ruling in the FTC’s favor. Pukke and others now appeal, raising a host of issues. None of their arguments have legal merit, nor can they overcome the evidence against them. We thus affirm in large part, the one exception being vacating the equitable monetary judgments in accordance with the Supreme Court’s decision in AMG Capital Management, LLC v. Federal Trade Commission, ––– U.S. ––––, 141 S. Ct. 1341 (2021) (holding that the FTC has no authority to seek monetary relief under Section 13(b) of the FTC Act).

After extensive hearings, the district court found that SBE had violated the FTC Act and TSR, and it held Pukke and others in contempt for violating a previous order. The defendants lied by claiming that the development had no debt; that the money collected would go back into developing the site; whether there would be amenities “comparable to those of a small American city” when it was completed; that it would be completed within two to five years; that there was a strong resale market for lots; and that Pukke wasn’t meaningfullly involved in Sanctuary Belize (he’d been convicted for obstruction of justice for lying to the FTC before, so SBE knew it would scare away purchasers if Pukke’s involvement were discovered).

These misrepresentations violated the FTC Act and the Telemarketing Sales Rule and permanently enjoined Pukke from engaging in any real estate ventures, from any involvement in telemarketing, and from making material misrepresentations in connection with the sale of any goods or services. The court permanently enjoined two other defendants from telemarketing and making material misrepresentations as well.

Under Section 13(b), the court entered an equitable monetary judgment of $120.2 million against defendants.  In addition, Pukke and the two others were in contempt of permanent injunctions entered in an earlier case: Pukke helped found a company called AmeriDebt, which turned out to be a credit counseling scam. The stipulated judgment required him to pay $172 million in restitution to the FTC, but all but $35 million was suspended on the condition that Pukke “cooperate fully” with the FTC. The judgment also permanently enjoined Pukke from making false representations in connection with the telemarketing of any good or service.  “Rather than cooperate, however, they conspired to hide their assets. As a result, in 2007, Pukke and Baker were held in contempt and incarcerated in order to coerce compliance with the court’s AmeriDebt orders.” But they didn’t turn over their holdings in the Belize land.

The court found Pukke and others in contempt of the AmeriDebt judgment when they committed telemarketing violations, and Pukke in contempt for repaying a loan made to him ostensibly to pay the FTC before fully satisfying his debt to the FTC.

The contempt order of $120.2 million “represent[ed] the total consumer loss their contumacious conduct caused,” and it “represent[ed] consumer loss caused by their violation of the Telemarketing Order [from AmeriDebt], which prohibited any false or misleading representation in connection with ‘telemarketing.’ ” That is, the district court found, “the harm” from the “contumacious conduct is indeed the same as the harm caused by the FTC Act violations, in the present case $120.2 million.”

In addition, Pukke did not fully cooperate with the FTC and now owed the full $172 million of the AmeriDebt judgment to the FTC rather than the suspended amount of $35 million. “Pukke must account for the difference between the $4.26 million that Pukke” diverted from Sanctuary Belize to repay the loan and the “$4.112 million [the lender] paid the FTC, approximately $148,000—the exact number to be determined after an accounting.”

There were also default judgments against one individual and several corporations, permanently enjoining them from involvement in real estate ventures, telemarketing, and misrepresentations in future sales and holding them liable for $120.2 million.

The Pukke and two key individual defendants and some of the defaulted corporations timely appealed.

To establish civil contempt, the FTC needed to prove by clear and convincing evidence “(1) the existence of a valid decree of which the alleged contemnor had actual or constructive knowledge; (2) that the decree was in the movant’s favor; (3) that the alleged contemnor by its conduct violated the terms of the decree, and had knowledge (at least constructive knowledge) of such violations; and (4) that the movant suffered harm as a result.”  There was “no hint of an abuse of discretion” in the district court’s findings that this standard was satisfied for the two contumacious courses of action at issue.

Pukke argued that AMG Capital made the $172 million AmeriDebt judgment unlawful. But the AmeriDebt judgment was made final nearly twenty years ago, and “appeal from a postjudgment order does not revive a lost opportunity to appeal the judgment.” The court was not about to allow him to “defy injunctions with impunity over the span of nearly two decades.” Anyway, he agreed to “waive all rights to seek judicial review or otherwise challenge or contest the validity of [the] Order” when he consented to the AmeriDebt final judgment, trading certainty for the ability to challenge it in the future.

It was ok to impose the $120.2 million judgment against them as part of a telemarketing contempt order because the contempt motions were consolidated with the Sanctuary Belize case, giving the district court “a precise idea of the harm to consumers caused by the violations of the telemarketing injunction.”

Direct liability under the FTC Act and the Telemarketing Sales Rule was also present. The TSR prohibits deceptive acts or practices that “misrepresent[ ], directly or by implication ... [a]ny material aspect of the performance, efficacy, nature, or central characteristics of goods or services that are the subject of a sales offer.” The TSR also makes it a violation to “provide substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in” a deceptive act or practice.  

While AMG Capital held that Section 5 of the FTCA does not authorize the FTC to seek, or a court to award, “equitable monetary relief such as restitution or disgorgement,” vacating that judgment was no help to Pukke, because he already had an overlapping $120.2 million judgment against him for contempt of the telemarketing injunction, so the FTC didn’t need to defend the award under Section 5/the TSR. Plus, the judgment entered under Section 13(b) included permanent injunctions and appointed a receiver. Those were ok, because “AMG did not impair courts’ ability to enter injunctive relief under Section 13(b).” Perhaps because of this overlap/the FTC’s reliance on the contempt award, the court did not explain that AMG Capital also did not address how penalties would be calculated for violating a Rule.

The default judgments were also fine.

Pukke argued that the TSR didn’t apply to selling real estate in Sanctuary Belize because the TSR only prohibits misrepresentations in the sale of “goods or services.” “It is generally true that the sale of real estate, of itself, does not constitute a good or service. But here Sanctuary Belize’s sales pitch inextricably linked the lots to many promised services and amenities when salespersons marketed the real estate as part of a luxury resort. That is, the services and amenities to be provided were fundamental to the telemarketing scheme.” They included promises of “paved roads, fresh drinking water, wastewater management, electrical service, a stable canal system, and security,” along with a hospital, medical center, “world class” marina, casino, golf course, and an airport, “which all certainly count as promises of goods or services intertwined with the sale of real estate.” “When the sale of real estate is so closely tied to promises of goods and services, the TSR is properly implicated, and the district court did not err in its analysis.”

Pukke argued that AMG Capital required nullification of the district court’s appointment of a receiver and everything the receiver has done. Not so. “The appointment of a receiver has long been considered an ancillary power that a court can deploy to effectuate its injunctive relief,” which, again, remains available under §13(b).

Appellants also argued that the contempt judgments and the permanent injunctions against them were time-barred by the statute of limitations contained in 28 U.S.C. § 2462, which requires that a “proceeding for the enforcement of any civil fine, penalty, or forfeiture” be “commenced within five years from the date when the claim first accrued.” But neither a contempt judgment nor a permanent injunction is a “penalty” as described in Section 2462, and even if it were a penalty, the statute of limitations hadn’t run. A contempt sanction is not a penalty because it does not redress a violation not of public laws; it redresses violation of a court order. Also, “a penalty punishes past acts whereas an injunction prohibits future conduct.” Separately, the district court found that Pukke’s contumacious and violative conduct ran from the early 2000s up through 2018 when the FTC brought suit, meaning there was no time bar.

Pukke further argued that laches should apply because the contempt sanction was entered 15 years after the claimed violation. But laches is about equity and there was nothing inequitable here. “Pukke’s violations did not start and end 15 years ago; Pukke’s violations have occurred continuously for nearly two decades. Moreover, any alleged delay was caused at least in part by Pukke’s efforts to conceal his Sanctuary Belize malfeasance through misrepresentations and aliases.”

The injunctions also were not unduly broad. “Here, the district court found extensive misrepresentations regarding telemarketing and the sale of real estate intertwined with the promotion of goods and services. Thus, the various permanent injunctions—including the prohibition of SBE individuals and entities from engaging in further misrepresentations—are appropriately tailored to prevent similar scams in the future. Appellants ‘must remember that those caught violating the [FTC] Act must expect some fencing in.’”

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