F.T.C. v. Kuykendall
| Decision Date | 11 December 2002 |
| Docket Number | No. 02-6101.,No. 02-6102.,02-6101.,02-6102. |
| Citation | 312 F.3d 1329 |
| Parties | FEDERAL TRADE COMMISSION, Plaintiff-Appellee, v. H.G. KUYKENDALL, Sr., individually and as an officer of National Marketing Services, Inc., NPC corporation of the Midwest, Inc. and Magazine Club Billing Service, Inc.; C.H. Kuykendall; Diversified Marketing Service Corporation, 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 Billings Service, an Oklahoma corporation, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Gregory J. Kerwin, Gibson, Dunn & Crutcher LLP (Taggart Hansen, Denver, CO; Andrew W. Lester and Susan B. Loving, Lester, Loving & Davies, Edmond, OK, 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 Diversified Marketing Service Corp., National Marketing Service, Inc., NPC Corporation of the Midwest, Inc., Magazine Club Billing Service, Inc., and H.G. Kuykendall, Jr.
Michele Arington, Attorney, Federal Trade Commission (William E. Kovacic, General Counsel, John F. Daly, Deputy General Counsel, Gary L. Ivens and S. Brian Huseman, Of Counsel, with her on the brief), Washington, DC, for Plaintiff-Appellee.
Before TACHA, Chief Judge, ALDISERT* and McWILLIAMS, Circuit Judges.
Kuykendall family members and their corporations appeal from an order for contempt and require us to decide whether the district court engaged in sufficient findings of fact and provided adequate protections under the Due Process Clause in imposing a substantial financial award for consumer redress against them in favor of the Federal Trade Commission ("FTC" or "Commission"). Specifically, we must determine whether the proceedings culminating in a $39 million award for violation of a injunction met minimum requirements of the Clause. Appellants also challenge certain evidentiary rulings.
Appellants argue that: (a) the contempt order fails to include sufficient findings of fact and conclusions of law; (b) the court deprived Appellants rights assured by the Due Process Clause; (c) the court erred in relying on inadmissible preliminary injunction findings and hearsay declarations; and (d) the award of $39 million for consumer redress is contrary to undisputed record evidence.
In addition, H.G. Kuykendall, Sr. and C.H. Kuykendall (the "Senior Kuykendalls" or "Seniors") individually appeal from the district court's order denying their motion to be dismissed from the contempt proceedings on the premise that they played no role in the management of the Appellant corporations during the relevant period of alleged contempt.
The district court had jurisdiction pursuant to 28 U.S.C. § 1331. Appellants filed a timely notice of appeal. To the extent that the contempt order modified provisions of an injunction, we have jurisdiction under 28 U.S.C. §§ 1292(a)(1) and 1294. In addition, the district court certified its order pursuant to Rule 54(b), Federal Rules of Civil Procedure, finding no reason for delay of entry of the order.
In reviewing the court's determination of civil contempt, we must decide whether the court abused its discretion. "A district court has broad discretion in using its contempt power to require adherence to court orders." O'Connor v. Midwest Pipe Fabrications, Inc., 972 F.2d 1204, 1209 (10th Cir.1992) (citations omitted). "Abuse of discretion is established if the district court's adjudication of the contempt proceedings is based upon an error of law or a clearly erroneous finding of fact." Reliance Ins., Co. v. Mast Constr. Co., 84 F.3d 372, 375-376 (10th Cir.1996). Whether a district court denied due process to litigants "is a legal question subject to de novo review on appeal." Thomas, Head & Greisen Employees Trust v. Buster, 95 F.3d 1449, 1458 (9th Cir.1996).
United States v. Tome, 61 F.3d 1446, 1449 (10th Cir. 1995).
In 1996, the FTC filed a complaint against the individual and corporate Appellants for violations of § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, alleging various deceptive and misleading acts and practices in the telemarketing of magazine subscription packages. The Senior Kuykendalls and H.G. Kuykendall, Jr. were sued in their individual capacity as well as officers of the corporate Appellants. The corporate defendants were Diversified Marketing Service, Corp. ("DMS"), National Marketing Service, Inc., NPC Corporation of the Midwest, Inc., and Magazine Club Billing Service Inc. These businesses were owned and operated by the Kuykendall family as part of a common telemarketing enterprise to sell magazine subscription packages.
The FTC alleged that the individual and corporate Appellants misrepresented the price and duration of subscription packages, misrepresented consumers' ability to cancel subscription packages, failed to cancel packages when requested, misrepresented the need for and use of consumers' credit card and bank account information, engaged in unauthorized billing of consumers' credit card and bank accounts, threatened to harm consumers' credit ratings and wrongfully reported consumer arrears to credit reporting agencies resulting in damage to consumers' credit standing.
The FTC moved the court for a temporary restraining order ("TRO") and an order to show cause why a preliminary injunction should not issue. The court granted the FTC's request for a TRO and conducted a hearing for the preliminary injunction in which the Commission offered evidence of consumer complaints to third parties such as the Better Business Bureau and state attorneys general. The FTC also presented evidence of consumer complaints made directly to Appellants. On July 2, 1996, the district court issued a preliminary injunction that enjoined all Appellants from specified business practices, froze the assets of the corporate Appellants and H.G. Kuykendall Jr. and appointed a temporary receiver for the corporate Appellants pending conclusion of a trial on the merits.
All Appellants appealed the preliminary injunction but prior to trial the parties negotiated and agreed to a settlement. The terms of the parties' settlement were incorporated into a "STIPULATED FINAL JUDGMENT AND ORDER FOR PERMANENT INJUNCTION" ("Permanent Injunction") filed October 18, 1996. App. at 1019. The Permanent Injunction outlined 24 separate paragraphs governing Appellants' future conduct including the specific enjoining of Appellants from: (a) misrepresenting of the cost or duration of any magazine subscription — the purpose for which Appellants will use a consumer's credit card or bank account information; (b) misrepresenting a consumer's ability to cancel subscriptions or that a consumer's credit rating will be damaged by failing to pay for a magazine subscription package; (c) failing to comply with applicable state laws governing subscription cancellation; (d) submitting information concerning a consumer's failure to pay for a subscription when the consumer exercised a right to cancel or the Appellants do not possess documentary evidence of an obligation to pay; (e) submitting charges or any negotiable instrument to a consumer's credit card or bank account unless Appellants have first obtained both the consumer's express agreement to purchase and the authorization to bill charges; (f) failing to comply with the Telemarketing Sales Rule, 16 C.F.R. Part 310; (g) utilizing independent sales organizations unless such organizations adhere to detailed procedures outlined in Permanent Injunction; (h) processing any subscription order unless Appellants' tape recording of the conversation with the consumer (referred to as a "verification tape" and is meant to verify that a consumer is agreeing to purchase a magazine subscription) includes clear, complete and understandable disclosures of all material terms of the magazine subscription order; and (i) failing to cancel, at the consumer's request, all or any portion of a magazine subscription package purchased after the date of the Permanent Injunction when Appellants have reason to believe that any prohibited misrepresentation had been made.
Additionally, the Permanent Injunction required Appellants to create and maintain written records of consumer complaints for a period of five years, permit representatives of the FTC access to corporate offices and allow the FTC to monitor compliance. The Appellants were ordered to notify the FTC of any change in the employment status of the individual Appellants or the structure of the corporate Appellants that might affect these compliance obligations. The Appellants were also ordered to pay the Commission $1.5 million for consumer redress and subsequently file, within 90 days, a report with the Commission setting forth the manner in which they had complied with the Permanent Injunction.
The Senior Kuykendalls and H.G. Kuykendall Jr. signed the Permanent Injunction individually and as officers of the Appellant corporations. They also signed separate "Acknowledgment" statements indicating that they had read and understood the Telemarketing Sales Rule, the Compliance Guidelines of the Telemarketing Sales Rule and the Permanent Injunction, and that they agreed to comply with the applicable provisions of these documents for all of DMS' business practices.
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