FTC v. National Business Consultants, Inc., Civ. A. No. 89-1740.

• Decision Date: 08 November 1991
• Docket Number: Civ. A. No. 89-1740.
• Citation: 781 F. Supp. 1136
• Parties: FEDERAL TRADE COMMISSION v. NATIONAL BUSINESS CONSULTANTS, INC., et al.
• Court: U.S. District Court — Eastern District of Louisiana

781 F. Supp. 1136

FEDERAL TRADE COMMISSION v. NATIONAL BUSINESS CONSULTANTS, INC., et al.

Civ. A. No. 89-1740.

United States District Court, E.D. Louisiana.

November 8, 1991.

COPYRIGHT MATERIAL OMITTED

Janice Charter, F.T.C., Denver, Colo. for F.T.C.

Robert Namer, pro se.

James F. Quaid, Jr., Nat. Business Consultants, Metairie, La., for Nat. Business Consultants.

Susan Marie Chehardy, Gennusa, Brandt & McDonald, Metairie, La., for First Nat. Bank of Jefferson and Chehardy, Sherman, Ellis & Breslin.

Kenneth William Kirchem, New Orleans, La., for Robin Acrey, Hugh Garner, Rachel Hendricks, Pamela Ledet, Dale Logan, Laura Morgan, David Starr, Edwin Webster and Kenneth Kirchem.

Alvin Andrew LeBlanc, Jr., DeMartini, LeBlanc, Kenner, La., for First Nat. Bank of Jefferson Parish.

Fred J. Cassibry, Jan T. van Loon, Brook, Morial, Cassibry, Fraiche & Pizza, New Orleans, La., for Brook, Morial, Cassibry, Fraiche & Pizza.

A. Michael Dufilho, Taylor, Porter, Baton Rouge, La., for Deposit Guar. Nat. Bank.

Eneid A. Francis, U.S. Atty's Office, New Orleans, La., for U.S.

Rudy J. Cerone, New Orleans, La., for Rudy J. Cerone.

OPINION

CHARLES SCHWARTZ, Jr., District Judge.

This matter is presently before the Court solely on the issue of relief/damages to be awarded for consumer redress. The issue, set for evidentiary hearing on October 23, 1991, was taken under submission without oral argument.

PRELIMINARY STATEMENT

The captioned matter was previously in another section of the court.¹ On July 28, 1989, after a bench trial, the issue of liability was decided and oral reasons were given that the defendant Robert Namer was conducting a franchise operation in National Business Consultants, Inc. ("NBC") also named a defendant herein. The law of the case is further that Namer violated the Federal Trade Commission's ("FTC") Trade Regulation Rule entitled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures," 16 C.F.R. § 436 ("the Franchise Rule"), by misrepresentations and omissions.² Written finding of facts and conclusions of law on the issue of liability were entered in the record on March 20, 1990.³ The defendants then appealed to the Fifth Circuit.⁴ After resolving a dispute over the docketing fee,⁵ the appellate court denied the defendants' petition for writ of prohibition and/or writ of mandamus.⁶ Said written findings are the law of the case and are incorporated herein and are so adopted.

FACTUAL BACKGROUND

While allotted to Section "K" of this court, the record reflects the following with respect to the issue of relief/damages:

(1) An order of reference to the Magistrate Judge for a trial on damages.⁷

(2) A motion by the FTC (and memorandum in support) for the award of consumer redress based on evidence in the record,⁸ to which the defendants' filed an opposition.⁹

(3) Pursuant to leave of court, the FTC supplemented its motion for consumer redress, delineating an itemization of "performance deposits" paid to NBC and refunds, if any, paid to "associate consultants" and "sales consultants" from April 20, 1986 through October 1989 compiled from the line item entries that are contained in NBC's ledgers which suggests $3,019,377 as the amount of consumer redress to be awarded.¹⁰

(4) The Magistrate Judge established a procedure by which the defendants could controvert and the FTC could support the quantum of damages the FTC found to be due.¹¹ The Magistrate Judge's Minute Entry Order stated:

After considering plaintiff's opposed motion for award of consumer redress on the basis of record evidence, and argument of plaintiff and defendants, IT IS ORDERED that:

(1) Plaintiff shall file within 10 days its objections to defendants' claims that "seventy associate consultants" have submitted sworn statements attesting to their support and/or approval of defendants' conduct towards them;

(2) Defendants shall submit within 30 days its response to plaintiff's objections;

(3) Defendants may submit within 30 days additional affidavits provided each affidavit specifies affiant, affiant's address and phone number, relationship to defendants, time period of relationship, whether affiant seeks monetary redress from defendant, and whether affiant received or was promised anything of value for providing the affidavit along with details if value was received or promised;

(4) Plaintiff may submit its objection to new affidavits thusly submitted by defendants — objections will be due within 20 days after receipt of the new affidavits;

(5) Supplemental memoranda, including suggested findings and recommendation, on the issue of consumer redress may be submitted by both parties on or about June 25, 1990.

Thereafter, the Magistrate will issue findings and recommendation to the District Judge on the noted issue.

(5) The defendants appealed the procedure established by the Magistrate Judge to the District Judge¹², and the FTC responded.¹³ On August 8, 1990, after hearing oral arguments, the motion was denied.¹⁴

(6) In accordance with the procedure established by the Magistrate Judge:

(a) The FTC filed objections to the defendants' claims;¹⁵

(b) The defendants responded to the FTC's objections;¹⁶ and

(c) The FTC submitted its supplemental memorandum.¹⁷

(7) The Magistrate Judge ordered, in accordance with established procedure in this court, the parties to submit, no later than April 26, 1991, their witness lists and lists of exhibits to be offered at an evidentiary hearing on the issue of relief/damages to be awarded and a separate summary of suggested facts, pertinent law and appropriate relief to be awarded.¹⁸ Subsequently, the parties were granted an extension of twenty days (until May 16, 1991) to accomplish this.

(8) The defendants filed their witness list¹⁹ and the FTC filed both its witness list and a separate summary of suggested facts, pertinent law and appropriate relief to be awarded.²⁰

On July 23, 1991, as hereinabove noted, this case was reassigned to this section of court,²¹ which on October 1, 1991 withdrew the reference to the Magistrate Judge with respect to the issue of damages and set the matter for evidentiary hearing on Wednesday, October 23, 1991.²² By order of this Court dated October 17, 1991, the defendants' witness list was stricken from the record for failure to comply with the standing order of all sections of this Court that witness lists set forth the nature of the testimony to be given by each witness.²³

Furthermore, contrary to the Court's order, the defendants failed to file a separate summary of suggested facts, pertinent law and appropriate relief to be awarded. Neither party has supplemented the record further than as set out in (8) above with respect to the matters set out in (7) above. Upon a review of the entire record the Court determined that a further evidentiary hearing was unnecessary to decide the issue of damages.²⁴ Thereafter, because both of the defendants ignored and failed to comply with the Court's orders regarding the submission herein of accountings, it ordered the defenses of the defendants as to the issue of relief/damages to be awarded for consumer redress stricken and has proceeded to decide this issue based solely on the evidence in the record as of October 31, 1991.²⁵

To the extent any of the findings of fact constitute conclusions of law, they are adopted as such. To the extent any of the conclusions of law constitute findings of fact, they are so adopted.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Where, as here, a permanent injunction under sections 13(b) and 19(b) of the Federal Trade Commission Act, 15 U.S.C. §§ 53(b) and 57b(b) ("the FTC Act"), has been issued, consumer redress is appropriate. Section 19(b) of the FTC Act provides that the court:

shall have jurisdiction to grant such relief as the court finds necessary to redress injury to consumers or other persons, partnerships, and corporations resulting from the rule violation.... Such relief may include, but shall not be limited to, rescission or reformation of contracts, the refund of money or return of property, the payment of damages....

The Court, having previously found that the defendants violated the FTC's Franchise Rule, now turns to redress due the injured franchisees which is the appropriate remedy under Section 19(b). Federal Trade Commission v. Southwest Sunsites, Inc., 665 F.2d 711, 720 (5th Cir.), cert. denied, 456 U.S. 973, 102 S.Ct. 2236, 72 L.Ed.2d 846 (1982).

The Court has also previously found that the defendants have violated FTC Act Section 5, through both material affirmative misrepresentations and omissions. "Conduct which violates Section 5 of the FTC Act ... is a proper case for consumer redress under Section 13(b)." Federal Trade Commission v. Kitco of Nevada, Inc., 612 F.Supp. 1282, 1291 (D.Minn.1985); See Federal Trade Commission v. Security Rare Coin & Bullion Corp., 931 F.2d 1312, 1314-16 (8th Cir.1991).

On July 28, 1989, this Court determined that because of the defendants' violations of the Franchise Rule and Section 5 of the FTC Act that a permanent injunction should issue in this case pursuant to Section 13(b) of the FTC Act. Accordingly, the Court is thus empowered to exercise the full breadth of its equitable authority, to impose such relief as is necessary to remedy the violations found, including restitution. Southwest Sunsites, 665 F.2d at 718; Federal Trade Commission v. H.N. Singer, Inc., 668 F.2d 1107, 1113 (9th Cir. 1982). This Court finds that the appropriate remedy herein is that the defendants pay redress to the victims of their deceptive practices.

With respect to determining damages the FTC does not need to prove individual reliance on defendants' material representations and omissions; rather, the proper standard to establish reliance in an FTC action, as here, is based on a pattern or practice of deceptive behavior. Security Rare Coin & Bullion Corp., 931 F.2d at 1316; Federal Trade Commission v. Amy...