FTC v. Netforce Seminars, et al

Filing 101

ORDER: IT IS ORDERED that the FTC's motions for an order to show cause (Docs. 78 , 91 ) are granted in part and denied in part. The Court will address the FTC's request for civil contempt sanctions in this action after it resolves the FTC's request for a permanent injunction in the Success By Health action. To the extent further sanctions-specific briefing is required, it will be solicited by separate order at an appropriate time [see attached Order for details]. Signed by Judge Dominic W Lanza on 7/6/20. (MAW)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Federal Trade Commission,
Plaintiff,

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Netforce Seminars, et al.,

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ORDER

v.

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No. CV-00-02260-PHX-DWL

Defendants.

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In 2000, the Federal Trade Commission (“FTC”) filed a complaint that charged Jay

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Noland with operating a multi-level marketing business called “Netforce Seminars” as an

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illegal pyramid scheme. (Doc. 1 [hereinafter, “the Netforce Seminars action”].) In 2002,

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the Netforce Seminars action resolved with the issuance of a permanent injunction. (Doc.

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66.) Among other things, the injunction “permanently restrained and enjoined” Noland

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from (1) “engaging, participating or assisting in any manner or capacity whatsoever . . . in

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any prohibited marketing scheme,” which included “a pyramid sales scheme,” and (2)

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“making . . . any false or misleading statement or misrepresentation of material fact” “in

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connection with . . . any multi-level marketing program.” (Id. at 2-4.) Although Noland

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was the only individual specified by name in the permanent injunction, it also applied to

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Noland’s “agents, servants, employees, and those persons in active concert or participation

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with [Noland] who receive actual notice of this Order by personal service or otherwise.”

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(Id. at 3-4.)

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Nearly two decades later, in 2020, the FTC filed a new complaint against Noland.

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(FTC v. Noland et al., CV-00-2260-PHX-DWL, Doc. 3 [hereinafter, “the Success By

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Health action”].) This complaint charges Noland and several of his business associates,

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including Scott Harris and Thomas Sacca, with operating a multi-level marketing business

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called “Success By Health” as an illegal pyramid scheme. (Id.) In February 2020,

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following an evidentiary hearing (id., Docs. 86, 105), the Court granted the FTC’s motion

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for a preliminary injunction (id., Doc. 106). Among other things, the Court concluded that

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the FTC had demonstrated a likelihood of success on its claim that Noland, Harris, and

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Sacca were operating Success By Health as an illegal pyramid scheme (id. at 10-20) and

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had also demonstrated a likelihood of success on its claim that Noland, Harris, and Sacca

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had made false statements in connection with their operation of Success By Health (id. at

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20-25).

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Accordingly, the FTC has now filed a pair of motions in the Netforce Seminars

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action in which it seeks to order Noland, Harris, and Sacca to show cause why they

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shouldn’t be held in contempt for violating the permanent injunction that was issued in that

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action. (Docs. 78, 91.) Noland argues in his response—which was filed before the issuance

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of the preliminary injunction in the Success By Health action—that he didn’t violate the

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Netforce Seminars injunction and can’t, in any event, be held in contempt for any violation

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in light of the injunction’s ambiguity and his good-faith reliance on the advice of counsel.

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(Doc. 82.) At a minimum, Noland argues that any contempt proceeding should “take place

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after the anticipated trial on the FTC’s request for a Permanent Injunction [in the ‘Success

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By Health’ action] so that the Court may benefit from a more complete record.” (Id. at

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12.) Meanwhile, Harris and Sacca argue in their response—which was filed after the

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issuance of the preliminary injunction in the Success By Health action—that the FTC’s

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motion is procedurally improper because it effectively amounts to an attempt to add new

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parties in a closed case. (Doc. 98.)1 According to Harris and Sacca, the FTC should instead

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be required to (1) file a new action requesting a contempt finding or (2) amend its complaint

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in the Success By Health action to include a claim requesting a contempt finding. (Id.)

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Noland has filed a joinder in Harris and Sacca’s response. (Doc. 99.)
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On the one hand, the Court disagrees with Harris and Sacca’s assertion that the FTC

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committed procedural error by filing a contempt-related motion in the action in which the

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underlying injunction was issued. “Civil contempt proceedings are considered to be a part

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of the action from which they stem.” D. Patrick, Inc. v. Ford Motor Co., 8 F.3d 455, 459

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(7th Cir. 1993) (internal quotations omitted). See also 4 Wright & Miller, Federal Practice

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& Procedure § 1017 (2020) (“Civil contempt proceedings are considered to be a part of the

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action that is the source of the order that is the subject of the noncompliance.”); FTC v.

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Kuykendall, 371 F.3d 745, 749-51 (10th Cir. 2004) (concluding that an action was properly

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classified as “one of civil contempt” where the defendants and the FTC stipulated in

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October 1996 to the issuance of a permanent injunction and, in January 2002, “the FTC

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filed a motion to show cause why the defendants should not be found in contempt”). Thus,

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the Court will not require the FTC to file a new action or amend its complaint in the Success

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By Health action.

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On the other hand, the Court agrees with Noland’s contention that it would be

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premature to hold a full-blown contempt hearing right now. To obtain contempt sanctions,

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the FTC must not only succeed on its allegations in the Success By Health action but prove

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those allegations by clear-and-convincing evidence.2 Noland, Harris, and Sacca have

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indicated in recent filings that they continue to dispute those allegations, believe the Court

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reached the wrong conclusion in its order granting a preliminary injunction, and believe

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they will ultimately prevail at the permanent-injunction stage. Given this backdrop, it

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makes sense—both as a matter of fairness to the defendants and as a matter of judicial

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efficiency—to resolve the issue of civil contempt (in the Netforce Seminars action) after

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the Court addresses the merits of the FTC’s request for a permanent injunction (in the

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Success By Health action).
Accordingly, IT IS ORDERED that the FTC’s motions for an order to show cause

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See, e.g., FTC v. Affordable Media, 179 F.3d 1228, 1239 (9th Cir. 1999) (“The
standard for finding a party in civil contempt is well settled: The moving party has the
burden of showing by clear and convincing evidence that the contemnors violated a specific
and definite order of the court. The burden then shifts to the contemnors to demonstrate
why they were unable to comply.”) (citation omitted).
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(Docs. 78, 91) are granted in part and denied in part. The Court will address the FTC’s

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request for civil contempt sanctions in this action after it resolves the FTC’s request for a

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permanent injunction in the Success By Health action. To the extent further sanctions-

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specific briefing is required, it will be solicited by separate order at an appropriate time.

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Dated this 6th day of July, 2020.

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