Federal Trade Commission v. Ivy Capital, Inc. et al

Filing 201

ORDER Granting in part and Denying in part 170 Motion to Strike. Denying 171 Motion for an order granting receiver's recommendation. Signed by Judge James C. Mahan on 6/20/2011. (Copies have been distributed pursuant to the NEF - SLR)

1
2
3
4
UNITED STATES DISTRICT COURT
5
DISTRICT OF NEVADA
6
7

FEDERAL TRADE COMMISSION,

8

2:11-CV-283 JCM (GWF)

Plaintiff,

9

v.

10

IVY CAPITAL, INC., et al.,

11
Defendants.

12
13

ORDER

14

Presently before the court is plaintiff Federal Trade Commission’s (“FTC”) motion to strike

15

affirmative defenses numbers eight and ten defendants Zelig’s, Zyzac’s and Curva’s first amended

16

answer to the complaint. (Doc. #170). The defendants have responded (doc. #180), and the FTC has

17

replied (doc. #191).

18

Also before the court is the receiver Robb Evans’ motion for order granting the receiver’s

19

recommendation that receivership defendant The Shipper, LLC, d.b.a. Wholesalematch.com be

20

permitted to resume limited business operations. (Doc. #171). The FTC has responded (doc. #188),

21

the defendants Fortune Learning, LLC, James Hanchett, Steven Sonnenberg, and The Shipper, LLC,

22

have replied (d0c. #192). The receiver has also filed a reply. (Doc. #194).

23
24

I.

Motion to Strike Affirmative Defenses

25
26

Federal Rule of Civil Procedure 12(f) allows the court to “strike from a pleading an

27

insufficient defense or any redundant, immaterial, impertinent or scandalous matter.” The function

28
James C. Mahan
U.S. District Judge

1

of a motion to strike pursuant to Rule 12(f) is avoidance of “the expenditure of time and money that

2

must arise from litigating spurious issues by dispensing with those issues prior to trial[.]” Fantasy,

3

Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1994), rev’d on other grounds, 510 U.S. 517 (1994)

4

(internal quotations omitted).

5

Plaintiffs urge the court to apply Rule 12(f) to strike two affirmative defenses found in the

6

Zelig/Zyzac defendants’ amended answer. The FTC alleges that the defenses are invalid as a matter

7

of law and are unfounded. Whereas their presence in the case will purportedly confuse the issues

8

before the court, complicate and delay the proceedings, and unnecessarily raise the costs of discovery

9

and trial, the FTC requests the two defenses be stricken. Alternatively, the FTC argues that the

10

claims have not been sufficiently pled under Rule 8 because they are conclusory and unsupported

11

by the asserted facts. See FDIC v. Modular Homes, Inc., 859 F. Supp. 117, 121 (D.N.J. 1994)

12

(finding an affirmative defense insufficiently pled where it includes nothing more than “bare bones

13

conclusory allegations”).

14
15

A.

Eighth Defense - First Amendment

16
17

The eighth affirmative defense alleges that the answering defendants’ conduct was

18

“privileged under the First Amendment to the United States Constitution.” (Doc. #151 at 10). The

19

FTC argues that this is not actually an affirmative defense, because assuming the allegations in the

20

complaint are true, it would not be viable. See U.S. v. Schiff, 379 F.3d 621, 629–30 (9th Cir. 2004)

21

(holding that false or misleading commercial speech is not constitutionally protected). A proper

22

affirmative defense would be viable even if all the allegations in the complaint were taken as true.

23

See FTC v. Stefanchik, 2004 WL 5495267, at *2 (W.D. Wash. Nov. 12, 2004) (striking purported

24

First Amendment defense because it would fail as a matter of law should all the facts alleged in the

25

complaint be found true).

26

The defendants argue in response that the defense should not be stricken because there may

27

be some set of facts that support the claim that the defendants’ conduct was protected by the First

28
James C. Mahan
U.S. District Judge

-2-

1

Amendment. See, e.g., FTC v. Bronson Partners, LLC, 2006 WL 197357, at *2 (D. Conn. 2006)

2

(denying a motion to strike such a defense because there may be some set of facts to support it).

3

Additionally, defendants note that the First Amendment places limits on the remedies available to

4

the FTC for violations of the FTC Act. See Beneficial Corp. v FTC, 542 F.2d 611, 619 (3d Cir. 1976)

5

(holding that the remedy for commercial speech violations of the law can go only go so far as to

6

accomplish the remedial objective of preventing the violation). Thus, the First Amendment may be

7

relevant as it relates to the relief sought.

8

Whereas the court agrees that the First Amendment argument may be relevant to the

9

disposition of the case, and whereas the court sees no harm in allowing the defense to remain in the

10

answer, the motion to strike is denied as to the eighth affirmative defense.

11
12

B.

Tenth Defense - Statute of Limitations

13
14

A defendant may not assert a statute of limitations defense against the United States

15

government unless the statute in question contains an express limitations period. U.S. v. Dos

16

Cabezas Corp., 995 F.2d 1486, 1489 (9th Cir. 1993). As the FTC notes, Section 13(b) of the Federal

17

Trade Commission Act specifies no statute of limitations period; rather, the express language of that

18

section dictates that the FTC may bring suit whenever it has reason to believe that a violation has

19

occurred. 15 U.S.C. § 53(b).

20

Additionally, the three-year limitations period for claims under Section 19 of the Federal

21

Trade Commission Act does not limit the relief sough here, where the FTC has alleged claims under

22

both Sections 13(b) and 19. See 15. U.S.C. § 57b(e) (“Nothing in this section shall be construed to

23

affect any authority of the Commission under any other provision of law.”); U.S. v. Building

24

Inspector of Am., Inc., 894 F. Supp. 507, 514 (D. Mass. 1995) (holding that nothing in Section 19

25

limits other civil actions by the government against violators of the FTC Act).

26

Accordingly, the court grants the FTC’s motion to strike the tenth affirmative defense,

27

because the defendants have failed to cite any authority indicating that any statute of limitations

28
James C. Mahan
U.S. District Judge

-3-

1

period applies or that any applicable date has passed.

2
3

II.

Motion to Grant Receiver’s Recommendation

4
5

The Receiver, Robb Evans & Associates LLC, brings this motion for an order allowing

6

receivership defendant The Shipper, LLC d.b.a. Wholesalematch.com to resume limited business

7

operations. The receiver has outlined the history and business operations of this company, noting that

8

Wholesalematch has presented data indicating that approximately two-thirds of its customers in 2011

9

were non-Ivy Capital consumers. The receiver contends that resumption of business in this context

10

is reasonable and beneficial, as any income generated through this process may be available to any

11

judgment obtained by the plaintiff to ultimately benefit consumers.

12

Accordingly, the receiver proposed that Wholesalematch be permitted to “resume operations

13

utilizing funds from one or more third party investors, none of whom are defendants in the subject

14

action or are directly or indirectly related to or affiliated with any defendants in the subject action.”

15

(Doc. #171 at 3:11–14). The receiver also recommends seven safeguards:

16
17

(1)

Wholesalematch has advised the [r]eceiver that it has established a separate CRM

18

[consumer relationship management database] for its non-Ivy Capital consumers on

19

a server other than the server previously used by Ivy Capital. Wholesalematch will

20

provide the [r]eceiver with the non-Ivy Capital CRM database in order that the

21

[r]eceiver can confirm that Wholesalematch’s non-Ivy Capital consumers have been

22

segregated from the Ivy Capital consumers.

23
24

(2)

Wholesalematch must demonstrate to the [r]eceiver that the Ivy Capital CRM

25

database has been deleted in its entirety except for retaining the names, mailing

26

addresses, and e-mail addresses of the Ivy Capital consumers. Wholesalematch

27

further must demonstrate to the [r]eceiver that it has created a program which will

28
James C. Mahan
U.S. District Judge

-4-

1

automatically scrub new Wholesalematch consumers against the Ivy Capital list of

2

consumers and which will automatically reject any consumer who is on the Ivy

3

Capital consumer list. This prevents any services, billings, or contacts by

4

Wholesalematch to Ivy Capital consumers.

5
6

(3)

Wholesalematch must provide to the [r]eceiver, on a monthly basis, a DVD of its

7

then-current CRM database in order that the [r]eceiver can monitor compliance and

8

be assured that no Ivy Capital consumers are being serviced, billed or contacted by

9

Wholesalematch.

10
11

(4)

The [r]eceiver is permitted to make unscheduled, unannounced inspections of the

12

business operations of Wholesalematch, wherever those operations are conducted,

13

during normal business hours, for the purpose of assuring that Wholesalematch is

14

complying with these restrictions against the servicing, billing or contacting of Ivy

15

Capital consumers.

16
17

(5)

If at any time the [r]eceiver, in its sole and absolute opinion, determines that

18

Wholesalematch is in violation of these guidelines, it may instruct Wholesalematch

19

to immediately terminate its operations and Wholesalematch must do so until or

20

unless Wholesalematch obtains a Court order permitting the resumption of

21

operations.

22
23

(6)

After the inception of the receivership, the [r]eceiver took steps to disable web sites

24

related to Ivy Capital and Wholesalematch, as well as the web sites of consumers

25

solicited by the [r]eceivership [d]efendants. This involved disabling web sites with

26

the web sites’ registrars, e.g. godaddy.com, as well as disabling web sites with the

27

colocation facilities that hosted the web sites, e.g Fibernet. In order to permit

28
James C. Mahan
U.S. District Judge

-5-

1

Wholesalematch to resume its business operations, Wholesalematch will provide the

2

[r]eceiver with the names of all of its non-Ivy Capital consumers that have web sites,

3

together with the registrar for each web site domain name and the colocation facility

4

hosting each web site, in order that the Receiver can verify that only non-Ivy Capital

5

consumer web sites are restored. Additionally, Wholesalematch’s domain name may

6

be reacquired from godaddy.com, thereby allowing Wholesalematch to restore its

7

own web site.

8
9

(7)

Finally, in order to prevent the receivership estate from incurring any administrative

10

expense liability in connection with the limited resumption of operations by

11

Wholesalematch, all pre-receivership contracts in the name of Wholesalematch,

12

whether with registrars, colocation facilities or any other vendors, to the extent such

13

contracts are reestablished or restored, shall be reestablished or restored under a new

14

account number. Further, the order granting this motion shall expressly provide that

15

no expense incurred or to be incurred by Wholesalematch during the pendency of the

16

receivership estate shall be deemed to be an administrative expense or otherwise

17

create any liability for the [r]eceiver or the receivership estate whatsoever.

18
19

(Doc. #171 at 3:19–5:14).1

20

However, the FTC has responded to the receiver’s motion and opposes the resumption of

21

business by Wholesalematch. Specifically, the FTC argues that the motion is “premature and

22

speculative given that the receiver’s recommendation hinges on funds from one or more third party

23

investors, yet defendants have failed to identify a single eligible investor.” (Doc. #188 at 2:2–5)

24

(internal quotations omitted). Thus, the receiver has failed to show that Wholesalematch can and will

25
26
27
28
James C. Mahan
U.S. District Judge

1

The conditions have been quoted from the receiver’s recommendation (doc. #171). The
court admonishes the parties to capitalize only proper nouns, in accordance with the ordinary rules
of grammar. Designations such as “receiver” and “defendant” that are not the name of a person, place
or thing shall not be capitalized in orders issued by this court.
-6-

1

be operated legally and profitably as required by the preliminary injunction.

2

The court agrees with the FTC. The motion is premature and will remain so until (1) the

3

defendants have identified eligible investors; (2) the receiver has vetted the proposed investors to

4

ensure that they meet the prerequisites set forth in the motion and are otherwise suitable; and (3) the

5

court and the FTC have had a similar opportunity to evaluate the investors.

6

Additionally, the receiver’s recommendation does not comply with Section XII.L of the

7

preliminary injunction, which requires the suspension of all business operations unless they can be

8

continued legally and profitably. (Doc. #91 at 20). The court agrees with the FTC in concluding that

9

none of the limitations proposed by the receiver restrict Wholesalematch’s sales practices, nor do

10

they establish a monitoring system to ensure compliance with federal laws. Specifically, the

11

recommendation proposes no checks to ensure that Wholesalematch abandons the use of its

12

misleading scripts or complies with the Do Not Call Registry rules.

13

Finally, Section XII.L of the preliminary injunction requires the receiver to suspend business

14

operations if such operations cannot be continued profitably. The court agrees with the FTC that the

15

receiver has focused exclusively on the purported absence of cost to the receivership estate, rather

16

than focusing on its potential profitability. Thus, the court is inclined to deny the receiver’s request

17

at this time.

18

Accordingly,

19

IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that plaintiff’s motion to strike

20

(doc. #170) be, and the same hereby is, GRANTED in part and DENIED in part as per the analysis

21

set forth in the body of this order;

22
23
24

IT IS FURTHER ORDERED that the receiver’s motion for an order granting receiver’s
recommendation (doc. #171) be, and the same hereby is, DENIED.
DATED May 25, 2011.
June 20, 2011.

25
26
UNITED STATES DISTRICT JUDGE
27
28
James C. Mahan
U.S. District Judge

-7-