F.T.C. v. Neiswonger

• Decision Date: 09 September 2009
• Docket Number: No. 08-3077.,08-3077.
• Citation: 580 F.3d 769
• Parties: FEDERAL TRADE COMMISSION, Plaintiff/Appellee, United States of America, Intervenor Plaintiff, v. Richard C. NEISWONGER, individually and as an officer of each corporate defendant doing business as Marketing Systems, Defendant/Appellant, SKGroup Inc.; Shapiro, Kossmeyer & Flom, PC, doing business as SKPC; Carl F. Kossmeyer, individually and as an officer of SKGroup, Inc.—Shapiro, Kossmeyer & Flom, PC; Medical Recovery Service, Inc.; Nancy Freeman, individually and as an officer of Medical Recovery Service, Inc.; Marc Freeman, individually and as an officer of Medical Recovery Service, Inc., Defendants, William S. Reed, Defendant/Appellant, Asset Protection Group, Inc., Defendant, Robb Evans & Associates, LLC, Receiver.
• Court: U.S. Court of Appeals — Eighth Circuit

580 F.3d 769

FEDERAL TRADE COMMISSION, Plaintiff/Appellee, United States of America, Intervenor Plaintiff, v. Richard C. NEISWONGER, individually and as an officer of each corporate defendant doing business as Marketing Systems, Defendant/Appellant, SKGroup Inc.; Shapiro, Kossmeyer & Flom, PC, doing business as SKPC; Carl F. Kossmeyer, individually and as an officer of SKGroup, Inc.—Shapiro, Kossmeyer & Flom, PC; Medical Recovery Service, Inc.; Nancy Freeman, individually and as an officer of Medical Recovery Service, Inc.; Marc Freeman, individually and as an officer of Medical Recovery Service, Inc., Defendants, William S. Reed, Defendant/Appellant, Asset Protection Group, Inc., Defendant,

Robb Evans & Associates, LLC, Receiver.

No. 08-3077.

United States Court of Appeals, Eighth Circuit.

Submitted: April 16, 2009.

Filed: September 9, 2009.

Robert T. McAllister, Denver, CO, for appellant.

Michele Arington, Joshua S. Millard, Melinda Claybaugh, John F. Daly, William Blumenthal, Washington, D.C., for appellee.

Before RILEY, BENTON, and SHEPHERD, Circuit Judges.

RILEY, Circuit Judge.

Richard Neiswonger (Neiswonger) appeals the district court's¹ entry of a civil contempt order against Neiswonger for Neiswonger's violations of a prior permanent injunction, enjoining him from using deceptive and misleading sales practices. Neiswonger claims the district court erred in denying Neiswonger's motion for a separate hearing on the issues of damages and disgorgement of profits and also raises sufficiency of the evidence and other issues. For the reasons stated in this opinion, we affirm.

I. BACKGROUND

In November 1996, the FTC brought an action against Neiswonger and others, seeking to enjoin Neiswonger from using deceptive and misleading practices in the sale of business opportunity programs. In 1997, the parties stipulated to the entry of a permanent injunction, enjoining Neiswonger and his co-defendants from making misrepresentations and omissions of material fact in the advertising, marketing and sale of business opportunity programs. Neiswonger paid $425,000 in redress to the FTC.

In a separate criminal proceeding, Neiswonger pled guilty to wire fraud and money laundering in connection with the sale of the business opportunity programs and was sentenced to 18 months imprisonment. Later, a civil forfeiture action was initiated against Neiswonger after it was determined Neiswonger failed to disclose, during plea negotiations, approximately $1.3 million in proceeds from the deceptive business opportunity scheme. Neiswonger settled for a $750,000 forfeiture to the government.

Neiswonger and William Reed (Reed)² became business partners and formed a company called Asset Protection Group, Inc. (APG), which began operation after Neiswonger was released from prison. In exchange for paying a $9,800 "performance deposit," APG offered consumers the opportunity to become certified "asset protection consultants" (APG consultants). The function of an APG consultant was to market and sell APG's services to clients seeking to protect their assets. APG's asset protection services included (1) the creation of Nevada corporations, and (2) the formation of "offshore corporation[s] from the Commonwealth of the Bahamas, with a corporate brokerage account in the Cayman Islands."

APG consultants were told their "performance deposits" would be "100 percent REFUNDED ... at a rate of a $100 bonus per Nevada Corporation and a $250 bonus per Bahamas Corporation" the consultant placed. In addition, APG's marketing literature claimed APG consultants could expect to make "very substantial profits" and would have "6-figure income potential, from, less than full-time schedule." The literature explained APG consultants earned an average of $1,700 to $6,400 per client, and offered to arrange appointments for APG consultants "with new, good prospective clients." APG placed advertisements in The Wall Street Journal and USA Today, and paid for advertisements during the radio shows of Larry King, Rush Limbaugh, Bill O'Reilly, and Charles Osgood.

In July 2006, the FTC filed a motion requesting the district court to order Neiswonger, Reed, and APG (collectively, defendants) "to show cause why they should not be held in contempt" for violations of the 1997 permanent injunction. The FTC sought injunctive and compensatory relief and disgorgement of profits obtained from the deceptive business practices. The FTC claimed "APG consultants have suffered considerable losses or have not seen earnings even close to those touted," and "it is extraordinarily unlikely that consumers will earn a substantial or `six-figure' income as APG consultants." Thus, the FTC claimed the defendants were "making false and misleading income claims" in violation of the permanent injunction. The FTC also claimed the defendants were in violation of the permanent injunction for failure to disclose material facts, including (1) the fact APG was using paid references to promote its program without disclosing this fact to consumers, and (2) Neiswonger's prior civil forfeiture for deceptive practices and his criminal convictions. Finally, the FTC alleged Neiswonger violated the permanent injunction "by failing to report his affiliation with APG to the FTC, and by failing to provide the FTC with proof of a current $100,000 performance bond before promoting the APG program over the past two years."

The FTC also filed a motion for a temporary restraining order and other ancillary equitable relief, which the district court granted, enjoining the defendants from further violations of the permanent injunction, freezing the defendants' individual and corporate assets, and appointing a temporary receiver to assume control of APG. The district court also ordered the defendants to appear before the court to show cause why it should not enter a preliminary injunction pending the outcome of the FTC's motion seeking to hold the defendants in civil contempt.

The district court convened a two-day hearing on October 25, 2006. The FTC presented testimony from five witnesses: an FTC investigator, three consumers who had become APG consultants and incurred losses, and a representative of the receiver. The FTC also presented deposition testimony and declarations of various other consumers. Only Neiswonger testified for the defendants. The receiver prepared a report, which was admitted into evidence. According to the report, of the 1,930 individuals who became APG consultants only 121 (6.3%) sold enough corporations to earn back their initial $9,800 payment. Approximately 94% of the 1,930 consultants either did not sell a single corporation or did not sell enough corporations to earn back their $9,800 payment. APG's records indicated the defendants' gross sales from the APG consultant program were approximately $19.8 million.

The FTC moved to admit a document into evidence that purported to calculate the income Neiswonger had received from his involvement in APG. Defendants objected to the admission of the document, contending it was a self-serving document that was generated at the request of the FTC, was missing information, and contained unauthenticated information. Defendants also claimed the document was inadmissible as a summary exhibit because the document and the underlying data were not made available to defendants. The FTC claimed the underlying information came from the data maintained by and accessible to the defendants, and the FTC had attempted to email the document the previous week, but there had been a computer problem on the defendants' end of the transmission. The district court suggested, in light of defendants' objections, that the hearing may need to be postponed to give the defendants adequate time to review the contested document and the underlying data. Defendants withdrew their objection, stating they did not wish to postpone the hearing, and the district court received the document subject to the defendants' other objections. The representative of the receiver estimated Neiswonger's income from sales of the APG program was $3,089,000, and Reed's income was approximately $4,900,000. The defendants declined to cross-examine the representative of the receiver.

On April 23, 2007, the district court entered an order, finding Neiswonger in contempt for several violations of the 1997 permanent injunction. The district court also found Reed and APG in contempt for acting in concert and participating with Neiswonger in violations of the permanent injunction. The district court modified the permanent injunction, banning Neiswonger "from marketing and selling business opportunity programs in the future." The court determined it was appropriate to wait to levy a compensatory sanction until the receiver submitted a final computation of Neiswonger's and Reed's proceeds.

In March 2008, the receiver submitted the final computation of Neiswonger's proceeds. The receiver determined Neiswonger had obtained $3,213,719.13 in connection with the APG program. On April 11, 2008, Neiswonger moved to exclude the report and requested an evidentiary hearing. The district court denied Neiswonger's motion, finding the receiver "filed an exhaustive report" at the direction of the district court, the defendants "had a full and complete opportunity to challenge the evidence and testimony presented at the prior contempt hearing but chose not to do so," and "[i]t would be nothing less than an unnecessary delay to hold a new hearing on the disgorgement amount" because there was "no genuine dispute of material fact regarding the final accounting of the disgorgement amount." The district court entered an amended civil contempt order on July 30, 2008, using the receiver's final computation as the compensatory sanction. Neiswonger appeals.

II. DISCUSSION

A. Standard of Review

"[W]e review a district court's imposition of a civil contempt order and assessment of monetary sanctions for abuse of...