F.T.C. v. Kuykendall

• Decision Date: 10 June 2004
• Docket Number: No. 02-6101.,No. 02-6102.,02-6101.,02-6102.
• Citation: 371 F.3d 745
• Parties: FEDERAL TRADE COMMISSION, Plaintiff-Appellee, v. H.G. KUYKENDALL, Sr., individually and as an officer of National Marketing Service, Inc., NPC Corporation of the Midwest, Inc. and Magazine Club Billing Service, Inc.; C.H. Kuykendall; Diversified Marketing Service Corp., an Oklahoma corporation; National Marketing Service, Inc., an Oklahoma corporation; NPC Corporation of the Midwest, Inc., an Oklahoma corporation; H.G. Kuykendall, Jr.; Magazine Club Billing Service, Inc., an Oklahoma corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 745

371 F.3d 745

FEDERAL TRADE COMMISSION, Plaintiff-Appellee, v. H.G. KUYKENDALL, Sr., individually and as an officer of National Marketing Service, Inc., NPC Corporation of the Midwest, Inc. and Magazine Club Billing Service, Inc.; C.H. Kuykendall; Diversified Marketing Service Corp., an Oklahoma corporation; National Marketing Service, Inc., an Oklahoma corporation; NPC Corporation of the Midwest, Inc., an Oklahoma corporation; H.G. Kuykendall, Jr.; Magazine Club Billing Service, Inc., an Oklahoma corporation, Defendants-Appellants.

No. 02-6101.

No. 02-6102.

United States Court of Appeals, Tenth Circuit.

June 10, 2004.

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Gregory J. Kerwin, Gibson, Dunn & Crutcher, LLP (Taggart Hansen and Michael L. Denger, Gibson, Dunn & Crutcher, LLP, Washington, DC; Andrew W. Lester and Susan B. Loving, Lester, Loving & Davies, P.C., with him on the briefs), Denver, CO, for Defendants-Appellants H.G. Kuykendall, Sr. and C.H. Kuykendall.

Walter H. Sargent, Walter H. Sargent, a professional corporation (Stephen G. Solomon and George W. Velotta II, Derryberry, Quigley, Solomon & Naifeh, Oklahoma City, OK, with him on the briefs), Colorado Springs, CO, for Defendants-Appellants H.G. Kuykendall, Jr., Diversified Marketing Services Corp., National Marketing Service, Inc., NPC Corporation of the Midwest, Inc., and Magazine Club Billing Service, Inc.

John F. Daly, Deputy General Counsel for Litigation, Federal Trade Commission (William E. Kovacic, General Counsel, Michele Arington, Attorney, Gary L. Ivens and S. Brian Huseman, Of Counsel, with him on the briefs), Washington, DC, for Plaintiff-Appellee.

Before TACHA, Chief Judge, SEYMOUR, EBEL, KELLY, BRISCOE, LUCERO, MURPHY, HARTZ, O'BRIEN, McCONNELL, and TYMKOVICH, Circuit Judges.

TYMKOVICH, Circuit Judge.

On January 28, 2002, the Federal Trade Commission ("FTC" or "Commission") sought $51 million in sanctions and a contempt order against the defendant telemarketers, permanently banning them from the magazine sales business. The district court held an evidentiary hearing twenty-eight days later. After the hearing, the court found the defendants in contempt of a prior injunctive order and imposed $39 million in monetary sanctions against them jointly and severally.

On appeal, a panel of this court affirmed the district court's judgment except for its determination of the amount of monetary sanctions and remanded the case to the district court for a jury trial to determine the appropriate measure of sanctions. See Federal Trade Commission v. Kuykendall, 312 F.3d 1329 (10th Cir.2002) ("Panel Opinion"). We granted rehearing to consider whether the panel correctly interpreted Supreme Court and Tenth Circuit precedent in ordering a limited jury trial on remand, as well as to examine several corollary issues related to individual liability and the procedures required in contempt actions.¹

On rehearing, we agree with the panel and the district court that the underlying proceedings were correctly classified as civil contempt proceedings, but we hold that the panel erred in requiring that damages be proven on remand by clear and convincing evidence before a jury. We also conclude that the district court erred in finding certain individual defendants liable and in failing to adequately explain its determination of damages. We therefore vacate the Panel Opinion, reverse the judgment of the district court in part, and remand the case to the district court for additional proceedings in accord with this opinion.

I. BACKGROUND

This case arises out of a complaint the FTC filed in 1996. The complaint alleged that the defendants' telemarketing of magazine subscriptions involved persistent deceptive and misleading practices in violation of § 5 of the Federal Trade Commission Act ("FTC Act"). See 15 U.S.C. § 45 (2000). The FTC sued the owners of the business, H.G. Kuykendall, Sr. and C.H. Kuykendall (together, the "Senior Kuykendalls" or "Seniors") and H.G. Kuykendall, Jr., both as individuals and as officers of the corporate defendants — Diversified Marketing Service Corp. ("DMS"); National Marketing Service, Inc.; NPC Corporation of the Midwest, Inc.; and Magazine Club Billing Service, Inc.

In March 1996, the FTC moved for a temporary restraining order, which the district court granted. After an evidentiary hearing, the court also granted the FTC's request for a preliminary injunction enjoining the defendants from certain specified practices and freezing the assets of the corporate defendants. The defendants appealed the injunction, but before that appeal was heard the parties entered into a settlement that was eventually incorporated into a "Stipulated Final Judgment and Order for Permanent Injunction," filed October 18, 1996 ("Permanent Injunction"). The Permanent Injunction included twenty-four paragraphs limiting the defendants' future business conduct. The defendants also paid the FTC $1.5 million for consumer redress.

The Senior Kuykendalls and H.G. Kuykendall, Jr., executed the Permanent Injunction both as individuals and as officers of the corporate defendants² and signed separate acknowledgments stating that they had read and understood the various provisions they were agreeing to follow, including the Telemarketing Sales Rule and the Permanent Injunction itself. App. at 1042-43, 1089-91. Among other things, the signatories to the Permanent Injunction agreed (1) to be enjoined from "misrepresenting, either orally or in writing, directly or by implication, any material fact"; (2) to ensure that any tape recorded conversations "reflect the entirety of the conversation" and include clear and understandable disclosures of all material terms of the order; and (3) to be enjoined from failing to cancel "all or any portion of" a subscription at the customer's request "where the defendants have reason to believe that any misrepresentation" had been made. App. at 1019-47. Each Kuykendall also agreed to notify the FTC in the event "of any change in his employment status within ten (10) days of such change." App. at 1038.

On January 14, 1997, as required by the Permanent Injunction, the defendants sent a compliance report to the FTC setting forth new drafts of subscription agreements and new policies that had been drafted to comply with the Permanent Injunction. See App. at 2045-2128. The FTC did not respond to the compliance report and until spring 2001 had no interaction with the defendants. In April 2001, responding to consumer complaints, the FTC sent defendants a letter expressing "concern[] that [the defendants] may be engaged in practices that violate the Permanent Injunction." App. at 1093-96. Later that month, FTC representatives conducted an on-site investigation of the defendants' activities and seized copies of corporate records and consumer complaints.

Approximately nine months later, on January 28, 2002, the FTC filed a motion to show cause why the defendants should not be found in contempt of the Permanent Injunction and requested that the district court award $51 million in contempt sanctions. All of the defendants moved to dismiss on due process grounds, and the Senior Kuykendalls additionally moved to dismiss, claiming a lack of personal liability. The district court denied these motions. The defendants also moved for additional time and discovery. The district court granted the defendants a short extension of time to file their briefs, but rejected the remainder of their motion, including their request to conduct further discovery.

Prior to trial, the parties exchanged evidence they intended to introduce at the hearing. The defendants deposed three employees of the FTC who had submitted declarations in support of the motion to show cause. The defendants also had access to ten declarations filed by the FTC that the FTC claimed were representative of the types of telemarketing practices engaged in by the defendants.

The evidentiary hearing began twenty-eight days after the FTC filed its show cause motion. On February 25 and 26, 2002, the FTC and the defendants both introduced evidence and put on live witnesses. The FTC's evidence included the testimony of two customers, an investigator from the Oklahoma Attorney General's office, the individual defendants themselves, and selected employees of the defendants. The defendants called four witnesses, including H.G. Kuykendall, Jr., provided their customer service records, and had the opportunity to cross-examine the FTC's witnesses.

On March 4, 2002, the district court entered an Order for Contempt and Modifying the Permanent Injunction. App. at 556-60. The court found the defendants had engaged in "many instances" of conduct violating five specific paragraphs of the Permanent Injunction. It found the consumer injury caused by this conduct was "at least $39,000,000" and held each of the defendants jointly and severally liable for consumer redress in that amount. This appeal followed.

II.

CLASSIFICATION OF CONTEMPT PROCEEDINGS

A.

The panel held in Part II of its opinion that this case is one of civil contempt under International Union, United Mine Workers of America v. Bagwell, 512 U.S. 821, 114 S.Ct. 2552, 129 L.Ed.2d 642 (1994). We agree. However, while the panel correctly stated that "having decided that the contempt proceeding was civil in nature does not end our inquiry," see Panel Opinion, 312 F.3d at 1337, we do not agree with the panel's conclusions about Bagwell and its application to this case. In contrast to the panel's decision, we hold that in a contempt action for compensatory civil sanctions, a jury trial is not required and damages need only be proven by a preponderance of the evidence.

In its opinion, the panel held this case required a departure from the traditional dichotomy between civil contempts and criminal contempts: "With a nod to Gertrude Stein, there are civil contempts and there are civil contempts." Id. at 1338. This was based...