Federal Trade Commission v. Inc21.com Corporation et al

Filing 110

ORDER REGARDING ASSETS FROZEN UNDER THE PRELIMINARY INJUNCTION. Signed by Judge Alsup on May 10, 2010. (whalc1, COURT STAFF) (Filed on 5/10/2010)

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United States District Court

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For the Northern District of California

FEDERAL TRADE COMMISSION, Plaintiff, v. INC21.COM CORPORATION, et al., Defendants. /

No. C 10-00022 WHA

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ORDER REGARDING ASSETS FROZEN UNDER THE PRELIMINARY INJUNCTION

The undersigned has reviewed defendants' motion seeking access to their business and personal bank accounts, which were frozen under the preliminary injunction as amended on April 13, 2010 (Dkt. Nos. 97, 110). Defendants also seek clarification as to whether the amended preliminary injunction was intended to freeze both their business and personal assets. Addressing the latter issue first, defendants are reminded that the freezing of their assets was ordered in direct response to their argument that they should not be required to issue refunds to customers at the preliminary injunction stage (see Dkt. Nos. 82, 97). The undersigned agreed, and the preliminary injunction was amended so that refunds would no longer required (at least, not at this stage). That said, to ensure that disputed assets in the possession of defendants were not squandered or funneled away to the detriment of defrauded customers who might be entitled to refunds following a trial on the merits, the undersigned froze the assets of all defendants pending the resolution of this litigation. This freeze included both individual defendants and

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corporate defendants. In other words, contrary to defendants' argument, the injunction was intended to freeze both personal and business assets. This was entirely proper under wellestablished Ninth Circuit authority. See FSLIC v. Ferm, 909 F.2d 372, 374 (9th Cir. 1990) (citing numerous decision). With that clarification provided, the remaining issue is whether defendants have provided adequate documentation to warrant a release of frozen funds for business and personal expenses. This issue will be addressed -- in addition to Greenberg Traurig's pending motion to withdraw as counsel for defendants -- at the hearing scheduled at 2:00 P.M. ON MAY 13. Counsel, however, should be aware that the undersigned will not, under any circumstances, allow legal fees to be paid using disputed funds. Additionally, to the extent the undersigned authorizes payments to cover personal/family expenses, reasonable business expenses, and property-related payments (e.g., mortgage payments and property taxes), such payments will only be authorized as direct payments to creditors (by electronic transfer, cashier's check, or other direct means).* With that in mind, defendants shall bring to the hearing all necessary information pertaining to their creditors so that payments authorized (if any) can be sent from their bank accounts directly to them. Defendants shall also bring any and all bills, receipts, lease agreements, bank account statements (showing the bank account numbers in question), and any other supporting documentation to the hearing to substantiate their requests.

United States District Court

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For the Northern District of California

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IT IS SO ORDERED.

Dated: May 10, 2010.

WILLIAM ALSUP UNITED STATES DISTRICT JUDGE

* While the FTC appears to support the use of frozen funds to prevent waste of defendant John Lin's encumbered assets (specifically, the approximately $37,000 in overdue mortgage payments and property taxes), defendant John Lin's personal bank accounts do not have sufficient funds to cover this payment. If the undersigned authorized such a payment, defendants would need to specify (1) what funds would be used to cover this payment and (2) the specific names of the creditors (and corresponding payment amounts) where these payments would be directed. 2