Federal Trade Commission v. IAB Marketing Associates, LP
Filing
325
ORDER denying 194 Motion asking the Court to direct the Texas Receiver to make payments to James C. Wood's and James J. Wood's 401(k) accounts. Signed by Judge Robert N. Scola, Jr. on 9/20/2013. (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 DENYING MOTION TO DIRECT RECEIVER TO
MAKE PAYMENTS TO 401(k) PLANS
Defendants James C. Woods (James) and James J. Wood (Joshua) ask the Court to order the
Receiver to pay off loans they took against their 401(k) retirement accounts. (DE 194.) James and
Joshua argue that if these loan balances are not paid off, then the receivership estate will have to pay
unnecessary taxes and penalties. Because the Court concludes that any taxes or penalties will not be
borne by the receivership estate and because paying off these loans with receivership funds would
relieve James and Joshua of their debts at the expense of the receivership estate, the Court DENIES
the Motion (DE 194).
James and Joshua each had a 401(k) retirement account with International Marketing
Agency (IMA), and they each took out a loan against their account. (DE 194 at 2.) James’s loan
was taken out in October 2011. (DE 204-3 at 2.) Joshua’s loan was taken out sometime before the
Court’s Temporary Restraining Order (TRO) in September 2012. (See DE 194; DE 204.) As of
December 2012, James’s loan balance was over $47,000; Joshua’s, over $37,000. (DE 194 at 2; DE
194-2; DE 194-3.)
James’s loan was to be repaid by withholding extra money from each paycheck and
applying that money to the loan balance. (Id.) The Receiver has determined these loan repayments
were withheld by IMA before the TRO,1 but not all of these repayments were applied to James’s
loan balance. (DE 204 at 3-4; DE 204-3 at 2-3.) This unapplied money, which totals around
$18,000 and is not sufficient to pay off James’s loan balance, was in an IAB bank account and has
since been transferred by the Receiver to the comingled receivership account in accordance with the
Preliminary Injunction. (DE 204 at 4; DE 914 at 2.) Because the loan balance corresponding to the
unapplied money raises discrete issues, the Court analyzes it separately.
Turning first to Joshua’s outstanding loan and the portion of James’s loan not corresponding
to the unapplied money, Joshua and James argue that if these loans are not paid off, then the
receivership estate will suffer taxes and penalties. (DE 194 at 2-3.) The receivership estate should
therefore pay off these loans to preserve its assets. (Id.) But the loan proceeds were received by
Joshua and James before the receivership estate even existed, and Joshua and James individually are
obligated to pay back the loans. They offer no authority for the proposition that the receivership
estate is liable for their individual obligations, and the Court sees no reason that this should be the
case. The Preliminary Injunction not only prohibits the Receiver from using receivership assets to
pay off their individual obligations, but also provides that the receiver is not liable for paying these
obligations. (DE 72 at 23-24.) Similarly, they offer no authority for the proposition that the
receivership estate is responsible for taxes related to their individual income, investments, or loans
taken against their 401(k) accounts. And the Receiver contends that neither the receivership estate
nor receivership assets are liable for paying such taxes. So if the Court were to order the Receiver
to use receivership assets to pay off their individual obligations and save them from facing penalties
and taxes they otherwise might incur, the Court would in effect be diminishing the receivership
estate to benefit them individually. That is the exact opposite of what the receivership estate is for.
The receivership estate’s chief function is to preserve assets so that injured consumers can be given
some relief in the likely event that the FTC prevails in the present case.
Turning next to the portion of James’s loan corresponding to the roughly $18,000 in
unapplied money withheld from his paychecks, James argues that the Receiver should apply this
money to his loan balance for an additional reason: failing to do so violates the Employee
Retirement Income Security Act (ERISA). Assuming without deciding that IMA’s failure to apply
the money withheld from James’s paychecks to the loan balance violates ERISA, IMA would be the
violating entity and thus IMA—not the receivership estate—would be liable. The Department of
1
As required by the TRO, none of the named Defendants received a paycheck once the TRO was
entered in September 2012. (DE 204 at 3 n.3.)
Labor concluded in an advisory opinion that “the employer’s failure to remit participant loan
repayments to a plan . . . would be a prohibited transaction under section 406 of ERISA.”
Department
of
Labor
Advisory
Opinion
2002-02A
(May
17,
2002)
(available
at
http://www.dol.gov/ebsa/regs/aos/ao2002-02a.html) (emphasis added). It is undisputed that IMA’s
failure to apply these payments to the loan balance occurred before the TRO because James stopped
receiving paychecks once the TRO was entered. (DE 204 at 3 n.3.) And it is also undisputed that
the Receiver terminated the 401(k) plan as part of her decision to wind up the IAB Defendants’
business because the business could not be operated profitably or legally. If the Receiver had
continued operating the 401(k) plan and refused to transfer loan repayments that were made under
her watch, then perhaps she could be said to have violated ERISA. But that is not what occurred. If
ERISA was violated, IMA was the entity that violated it because the violation occurred before the
Receiver was appointed and before the receivership estate existed. So the receivership estate is not
liable for any resulting ERISA violation.
Transferring the roughly $18,000 in unapplied money from the receivership bank account to
James’s 401(k) account would not benefit the receivership estate. The Court acknowledges that
both the receivership bank account where the $18,000 in unapplied money currently resides and
James’s 401(k) account are part of the receivership estate. But money in the receivership bank
account is more liquid than money in James’s 401(k) account. So transferring this money when the
receivership estate has no legal obligation to do so decreases the receivership estate’s liquidity for
naught.
Moreover, even if the Court is wrong in concluding that the receivership estate has not
violated ERISA or that it is not liable for IMA’s violations of ERISA, the liquid, unapplied money
should still not be transferred to the illiquid 401(k) account. ERISA specifically provides that
“[n]othing in this subchapter shall be construed to alter, amend, modify, invalidate, impair, or
supersede any law of the United States . . . or any rule or regulation issued under any such law.” 29
U.S.C. § 1144(d). Numerous courts have held that § 1144(d) means that ERISA is subordinated to
various provisions of the bankruptcy code. Pension Benefit Guaranty Corporation v. Reorganized
CF & I Fabricators of Utah, Inc., 179 B.R. 704, (N.D. Utah 1994) (holding that the bankruptcy
code’s provision authorizing the bankruptcy court to value claims regarding unfunded pension
benefits trumps ERISA’s provision authorizing the Pension Benefit Guaranty Corporation (PBGC)
to value such claims because the bankruptcy court is statutorily required to consider principles that
PBGC does not have to consider; so, applying ERISA would conflict with the bankruptcy code,
which is forbidden by § 1144(d)); in re Pulaski Highway Express, Inc., 41 B.R. 305, 309-10 (Bankr.
M.D. Tenn. 1984) (holding that pension payments which qualified as preferences were recoverable
by the debtor in possession under 11 U.S.C. § 547 notwithstanding an ERISA provision to the
contrary, 29 U.S.C. § 1103, because § 1144(d) subordinates ERISA to other federal law). The
bankruptcy court in Pulaski reasoned that the Ҥ 1144(d) could be no clearer: nothing in ERISA
should be interpreted to impact other federal law.” Pulaski, 41 B.R. at 309 (emphasis in original).
Although the Court’s Preliminary Injunction is not itself a federal law, rule, or regulation, the
Court’s power to issue the Injunction grows out of 15 U.S.C. § 53(b), a federal law. 15 U.S.C.
§ 53(b); FTC v. Bishop, 425 F. App’x 796, 797 (11th Cir. 2011) (“Section 13(b) of the Federal
Trade Commission Act . . . allows courts to grant injunctions against defendants in an action
brought by the Federal Trade Commission . . . .”). Interpreting an ERISA provision as requiring a
court to enter an order contrary to the injunction that it fashioned under 15 U.S.C. § 53(b) would
thus impair § 53(b), thereby running afoul of § 1144(d). See 29 U.S.C. § 1144(d) (“Nothing in this
subchapter shall be construed to . . . impair . . . any law of the United States . . . or any rule or
regulation issued under any such law.” (Emphasis added.)). This is especially true when the order
supposedly required by ERISA would harm the receivership estate, as it would in this case by
making the estate less liquid. That’s because one of the main purposes advanced by a court’s power
to enjoin conduct under 15 U.S.C. § 53(b) is to “provide a remedy, specifically in the form of
injunctive relief, for consumers harmed by unfair or deceptive acts or practices in or affecting
commerce.” McGregor v. Chierico, 206 F.3d 1378, 1387 (11th Cir. 2000). Consumers are not
served by making the receivership estate less liquid.
For the reasons set forth above, the Court DENIES the Motion (DE 194). The Receiver is
not obligated to use receivership assets to pay off the individual obligations of Joshua and James.
They are certainly more than able to do nonenjoined work to pay their own debts themselves.
DONE and ORDERED in chambers, at Miami, Florida, on September 20, 2013.
__________________________________________
ROBERT N. SCOLA, JR.
UNITED STATES DISTRICT JUDGE
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