Fed. Trade Comm'n v. Credit Bureau Ctr., LLC, Case No. 17 C 194

284 F.Supp.3d 907

FEDERAL TRADE COMMISSION, Plaintiff,

v.CREDIT BUREAU CENTER, LLC and Michael Brown, Defendants.

Case No. 17 C 194

United States District Court, N.D. Illinois, Eastern Division.

Signed January 14, 2018

Guy G. Ward, Samuel Aaron Abraham Levine, Federal Trade Commission, Chicago, IL, for Plaintiff.

Gregory Zini, Pro Hac Vice, Barclay Damon LLP, Buffalo, NY, Lawrence Charles Rubin, Taft Stettinius & Hollister LLP, Chicago, IL, Parker Roy MacKay, Pro Hac Vice, The Law Office of Parker R. MacKay, Kenmore, NY, Stephen Rudolph Cochell, Pro Hac Vice, Cochell Law Firm, P.C., Houston, TX, Jeremy Paul Kreger, Stahl Cowen Crowley Addis LLC, Chicago, IL, Richard Brian Newman, Pro Hac Vice, Hinch Newman LLP, New York, NY, Andrew B Gordon, Gordon Law Group, Northfield, IL, for Defendant.

ORDER ON DEFENDANTS' MOTION TO MODIFY PRELIMINARY INJUNCTION, PLAINTIFF'S MOTION TO STRIKE JURY DEMAND AND DEFENDANTS' PETITION FOR ATTORNEY'S FEES

MATTHEW F. KENNELLY, United States District Judge

The Federal Trade Commission (FTC) sued Credit Bureau Center, LLC (CBC), Michael Brown, Danny Pierce, and Andrew Lloyd, seeking a permanent injunction and equitable relief for alleged violations of the Federal Trade Commission Act, the Fair Credit Reporting Act (FCRA), and the Restore Online Shoppers' Confidence Act (ROSCA). Together with the filing of the suit, the FTC sought an ex parte temporary restraining order, including an asset freeze and appointment of a receiver. Another judge of this Court, acting as emergency judge in the undersigned judge's absence, granted the motion.

The FTC then moved for a preliminary injunction. Pierce and Lloyd agreed to entry of a preliminary injunction against them. In February 2017, the Court held an evidentiary hearing on the FTC's motion with regard to CBC and Brown and then issued a written decision granting a preliminary injunction. FTC v. Credit Bureau Center, LLC , 235 F.Supp.3d 1054 (N.D. Ill. 2017). The preliminary injunction, among other terms, prohibits the defendants from making certain types of misrepresentations and material omissions and from violating the ROSCA and certain regulations under the FCRA; continues the asset freeze; requires defendants to maintain certain records and report certain types of new business activity; and continues the appointment of a receiver with authority to take possession of and manage assets and documents in the defendants' control. See dkt. no. 59. In July 2017, the Court held Brown in contempt for violating certain provisions of the preliminary injunction order and imposed a compensatory sanction in the amount of $141,522. See dkt. no. 106.

Brown and CBC later retained new counsel. They have now moved to modify the preliminary injunction to eliminate the asset freeze, dismiss the receiver, and return all documents and property seized or turned over as a result of the TRO or the preliminary injunction. New counsel has also petitioned for $30,000 in attorney's fees from the frozen funds. Finally, the FTC has moved to strike a jury demand recently filed by Brown and CBC.

1. Motion to modify preliminary injunction

Brown and CBC argue that the preliminary injunction's asset freeze and receivership are improper because they are intended to hold assets for disgorgement and restitution, remedies that Brown and CBC contend are not properly authorized under the FTC Act. Specifically, they argue that the Supreme Court, in addressing purportedly parallel securities fraud statutes in Kokesh v. SEC , ––– U.S. ––––, 137 S.Ct. 1635, 198 L.Ed.2d 86 (2017), "found that disgorgement and restitution were penalties designed to deter potential violators and therefore not authorized under the securities statute." Defs.' Mot. to Modify Prelim. Inj. at 1.

This is a considerable overstatement of Kokesh. The Supreme Court held in that case that disgorgement under the securities laws "operates as a penalty" and thus is governed by the five-year statute of limitations in 28 U.S.C. § 2462 for any "action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture pecuniary or otherwise." Kokesh , 137 S.Ct. at 1645. That is all; the Court did not say anything about whether disgorgement and restitution were, as defendants claim, "authorized" under the securities statute. To the contrary, the Court specifically stated that "[n]othing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings." Id. at 1642 n.3.

Because there is no contrary Supreme Court authority, controlling Seventh Circuit law, which specifically authorizes disgorgement and restitution in FTC suits, still governs. See, e.g., FTC v. Febre , 128 F.3d 530, 534 (7th Cir. 1997) ; FTC v. Amy Travel Serv., Inc. , 875 F.2d 564, 571–72 (7th Cir. 1989). The Court sees nothing in the "principles" of Kokesh , Defs.' Mot. to Modify Prelim. Inj. at 1, undermining these decisions. And although defendants point to questioning during oral argument of Kokesh before the Supreme Court that suggests some justices may question whether the securities laws confer authority for disgorgement and restitution, it is rather reckless to contend that questions at oral argument render existing precedent infirm.

Defendants also argue that the seizure or required turnover of their documents and electronic records, as well as passwords, violates the Fourth Amendment; they ask the Court to require the FTC and the...