Federal Trade Commission v. IAB Marketing Associates, LP

Filing 319

ORDER granting 167 motion to liquidate a life-insurance policy owned by a trust and to reimburse a bank for consumer "chargebacks". Signed by Judge Robert N. Scola, Jr. on 9/19/2013. (rm00)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 12-61830-Civ-SCOLA
Federal Trade Commission,
Plaintiff,
vs.
IAB Marketing Associates, LP, et al.,
Defendants,
Avis S. Wood and Tressa K. Wood,
Relief Defendants.
__________________________________________/
ORDER AUTHORIZING THE RECEIVER TO SURRENDER A LIFE INSURANCE
POLICY IN A TRUST AND TO PAY CONSUMER “CHARGEBACKS”
The Texas Receiver, Charlene Koonce, asks the Court to authorize her to surrender the
life-insurance policy owned by the James C. Wood Irrevocable Life Insurance Trust No. 2 (the
Trust) and to pay North Dallas Bank and Trust (NDBT) for all consumer chargebacks that
NDBT has paid, up to a maximum of $6,500. (DE 167.) The IAB Defendants1 oppose the
Motion. For the reasons set forth below, the Court GRANTS the Motion (DE 167).
A.

Surrendering the life-insurance policy
In June 2005, James C. Wood (James) created the Trust with James J. Wood (Joshua) and

Michael J. Wood (Jacob) as the sole beneficiaries. (DE 133-2 at 18; DE 167-1 at 2.) The Trust
owns a life-insurance policy that insures the life of James. (DE 167-1 at 2-3.) James paid the
premiums on the life-insurance policy, and the IAB Corporate Defendants reimbursed him for
1

The IAB Defendants consist of the following Defendants: Independent Association of
Businesses; IAB Marking Associates, LP; International Marketing Agencies, LP; Healthcorp
International, Inc.; JW Marketing Designs, LLC; International Marketing Management, LLC;
Wood, LLC; James C. Wood; James J. Wood; and Michael J. Wood. Collectively, for purposes
of this Order, these Defendants are referred to as the IAB Defendants or the Defendants.
Defendants James C. Wood (James), James J. Wood (Joshua), and Michael J. Wood (Jacob) are
referred to as the Individual IAB Defendants. The remaining IAB Defendants are referred to as
the Corporate IAB Defendants.

these payments. (Id. at 3; DE 167 at 2.) Because the definition of Assets in the Preliminary
Injunction encompasses the proceeds of the Trust, the policy is a receivership asset.

The

surrender value of the policy as of November 28, 2012 was approximately $62,149, but if
quarterly premium payments are not made, the surrender value is used to pay the premiums. (DE
167 at 2; DE 167-1 at 3.) The Receiver wants to liquidate the policy and deposit the surrender
value into the receivership bank account in order to preserve receivership assets. (DE 167 at 2-3;
DE 177 at 3-4.)
The Court agrees that liquidating the policy will best preserve receivership assets. James
is not likely to die during the receivership. This in turn means that the life-insurance policy’s
proceeds are unlikely to inure to the receivership’s benefit. The principal value of the policy to
the receivership is the surrender value, and that value is not enhanced or protected by paying the
premiums. So paying the premiums from receivership assets would needlessly diminish the
receivership estate.
The Defendants argue that their pending appeal should prevent the Court from
authorizing the Receiver to surrender the policy (DE 170 at 2-3), but this argument is
unpersuasive. Rule 62(a) of the Federal Rules of Civil Procedure provides that an appeal does
not automatically stay “an interlocutory or final judgment in an action for an injunction or a
receivership.” Moreover, the Court recently rejected the Defendants’ request for a stay. (DE
317.) So there is no legal bar to the Receiver taking action to preserve the receivership estate.
The Defendants then retreat to SEC v. Kirkland, 2007 WL 724886 (M.D. Fla. February 28,
2007), which reasoned that “[w]hile the appeal of this Court’s orders is pending, disposition of
the receivership assets is not appropriate because a district court does not have the power to alter
the status of the case as it rests before the Court of Appeals.” (Brackets and internal quotation
marks omitted.) But this case is not controlling and is distinguishable. As the Receiver points
out, the court in Kirkland “directed the receiver to continue the mortgage and upkeep payments
on the real property she had requested permission to liquidate” because doing so would preserve
the property’s value during the appeal. (DE 177 at 2 (citing Kirkland, 2007 WL 724886 at *3).)
But paying the life-insurance policy’s premiums in the present case would, as discussed above,
not preserve any value for the receivership; it instead would diminish the receivership. So the
rationale of Kirkland does not apply. The Court therefore authorizes the Receiver to liquidate
the policy and deposit the surrender value into a receivership account.

B.

Paying NDBT for consumer chargebacks it paid
The Corporate IAB Defendants’ primary bank accounts were at NDBT. IAB charged

most members through automatic debits of credit cards or bank accounts. When a customer
cancelled a membership or disputed a charge, banking regulations required NDBT as the
originating financial institution to honor those chargebacks and return the requested funds to the
consumer’s credit-card company or deposit account. NDBT would then deduct this chargeback
amount from IAB’s accounts. (DE 167 at 3.) Once the Preliminary Injunction went into effect,
NDBT could no longer deduct the chargebacks from IAB’s accounts, but it was still required by
banking regulations to honor chargebacks and return the requested funds. The Receiver wants to
pay NDBT for these chargebacks because doing so would, in her view, be equitable.
The Court agrees. Although the Preliminary Injunction currently prohibits third-party
creditors from receiving receivership assets absent a court order, NDBT is unique: no other
creditor or Defendant has incurred direct liability through reimbursing consumers. Reimbursing
NDBT in turn for these payments that it has already made and that it was required to make is
equitable. The Court authorizes the Receiver to reimburse NDBT for all consumer chargebacks
that NDBT has paid, up to a maximum of $6,500.
CONCLUSION
For the reasons set forth above, the Court GRANTS the Receiver’s Motion (DE 167).
DONE and ORDERED in chambers, at Miami, Florida, on September 19, 2013.

__________________________________________
ROBERT N. SCOLA, JR.
UNITED STATES DISTRICT JUDGE