F.T.C. v. Commonwealth Marketing Group, Inc.
| Citation | 72 F.Supp.2d 530 |
| Decision Date | 07 May 1999 |
| Docket Number | No. Civ.A. 98-918.,Civ.A. 98-918. |
| Parties | FEDERAL TRADE COMMISSION, Plaintiff, v. COMMONWEALTH MARKETING GROUP, INC., Great Escape Vacations & Tours, Inc., Frederick F. Ziegler, III, and Robert E. Kane, Defendant-Counterclaim Plaintiffs, v. Federal Trade Commission, United States of America, Jodie Berstein, Brenda W. Doubrava, Larissa L. Bungo, Michael Milgrom, John Does 1-20, Jane Does 1-20, as persons who are presently unknown, and, as federal officers, participated in the violations alleged in the Counterclaim, Counterclaim Defendants. |
| Court | U.S. District Court — Western District of Pennsylvania |
Albert W. Schollaert, United States Attorney's Office, Pittsburgh, PA, Brenda W. Doubrava, Larissa L. Bungo, Michael Milgrom, Federal Trade Commission, Cleveland, OH, for Plaintiff.
Ronald L. Hicks, Joseph E. Linehan, Meyer, Unkovic & Scott, Pittsburgh, PA, William F. Manifesto, Ellen M. Viakley, Manifesto & Donahoe, Cleveland, OH, J. Alan Johnson, Thomas W. Corbett, Jr., Thorp, Reed & Armstrong, Donald J. Balsey, Jr., Pittsburgh, PA, for Defendants.
In this civil action, plaintiff, the Federal Trade Commission, alleges that defendants, Commonwealth Marketing Group, Inc., Great Escape Vacations & Tours, Inc., Frederick F. Zeigler, III and Robert E. Kane, violated the Federal Trade Commission Act (the FTC Act), 15 U.S.C. § 41 et seq., and the Telemarketing Sales Rule, 16 C.F.R. Part 310, in connection with the telemarketing of vacations. Defendants filed a counterclaim against counterclaim defendants, the Federal Trade Commission, the United States of America, Jodie Berstein,1 Brenda W. Doubrava, Larissa L. Bungo, Michael Milgrom, John Does 1 through 20 and Jane Does 1 through 20, seeking compensatory damages and declaratory and injunctive relief premised upon alleged violations of defendants' Fourth and Fifth Amendment rights as defined in the United States Constitution and their property and due process rights as defined in Article I, Section 1 of the Pennsylvania Constitution and upon alleged tortious conduct in the nature of abuse of process, malicious prosecution and conversion.2 Presently, before the court is the motion of counterclaim defendants to dismiss defendants' counterclaim and plaintiff's motion to strike jury demand and certain defenses contained in defendants' amended answer. After consideration, and for the reasons set forth below, the court will grant the motion to dismiss in part. The court will also grant the motion to strike defendants' demand for a jury trial insofar as defendants have demanded a jury trial of the claims set forth in plaintiff's complaint and will grant the motion to strike certain defenses in part.
In summary, defendants' counterclaim alleges the following facts:
The Federal Trade Commission (FTC) is a statutorily-created agency of the United States of America (United States) whose authority is defined in the FTC Act. Jodie Bernstein is the director of the FTC's Bureau of Consumer Protection. Brenda W. Doubrava, Larissa L. Bungo and Michael Milgrom are employees of the FTC and the FTC's attorneys of record in this case.3 John Does 1 through 20 and Jane Does 1 through 20 are employees or agents of the FTC or some other agency or branch of the United States.
On May 26, 1998, at the direction of Bernstein, the FTC, through its attorneys, filed the complaint in the present case. Also on May 26, 1998, the FTC filed an ex parte motion for a temporary restraining order (TRO), requesting an asset freeze, appointment of receiver, expedited discovery and an order to show cause why a preliminary injunction should not issue.4
The motion stated that the FTC's ex parte request was made pursuant to Section 13(b) of the FTC Act, 15 U.S.C. § 53(b). FTC's brief in support of its motion stated that the TRO was "essential to maintain the status quo." In support of the motion, Doubrava submitted an affidavit that affirmed that she, along with Bungo and Milgrom, had reviewed and copied a substantial portion of defendants' documents and records that federal authorities were holding in the United States Courthouse in Pittsburgh, Pennsylvania. In a second affidavit, Doubrava affirmed that the FTC had not given defendants notice of the filing of either the complaint or the motion because, in the FTC's experience, the FTC's position is more strategically sound when notice is not given to telemarketing companies and other businesses who are accused of committing consumer fraud. None of the materials submitted to the court alleged that defendants had concealed or destroyed documents or assets when faced with civil or criminal proceedings. Similarly, the materials did not indicate that the counterclaim defendants' true intention was to shut down defendants' business operations and not to maintain the status quo.
On May 26, 1998, the court granted FTC's ex parte motion. Before serving the TRO on defendants on May 27, 1998, counterclaim defendants met with Carl P. Izzo, Jr., the court-appointed receiver, and certain unknown agents from the Pennsylvania Attorney General's Office and the FTC's Bureau of Consumer Protection. The purpose of the meeting was to discuss the course of conduct through which the counterclaim defendants would use the TRO to shut down defendants' business operations and seize their assets, accounts, money, contracts and other property.
On May 27, 1998, counterclaim defendants arrived on defendants' business premises and, with the assistance of the United States Marshal's Office and receiver Izzo, shut down defendants' business operations, interrogated and sent home defendants' employees, changed the locks on the premises and seized defendants' customer lists, account ledgers, books, correspondence, manuals, contracts, records, electronic data, materials and other property.
Starting on May 27, 1998, counterclaim defendants took control of defendants' assets, properties, contracts, monies and accounts, including accounts and monies held jointly between the individual defendants and their spouses as tenants by the entireties as well as accounts and monies held by non-party companies and individuals. Also, by way of press releases, telephone calls and notices posted on the FTC's Internet web site, counterclaim defendants issued defamatory statements pertaining to defendants' businesses for the purpose of shutting down defendants' business operations.
On June 4, 1998, the court dissolved the TRO.
A motion to dismiss for lack of subject matter jurisdiction tests the power of a court to hear the particular type of claim asserted by a plaintiff. On a counterclaim defendant's Fed.R.Civ.P. 12(b)(1) motion to dismiss, the counterclaim plaintiff has the burden of showing jurisdiction exists. See Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3rd cir.1991). In deciding a motion to dismiss for lack of subject matter jurisdiction, the court may consider the pleadings and evidence outside the pleadings. Mortensen v. First Federal Sav. & Loan Ass'n, 549 F.2d 884, 891 (3rd Cir.1977). Also, the court may "weigh the evidence and satisfy itself as to its power to hear the case." Mortensen, 549 F.2d at 891.
A motion to dismiss for failure to state a claim tests the sufficiency of a counterclaim. See Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir.1993). In deciding a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the court accepts as true the facts pleaded in the complaint, or counter-claim, and any reasonable inferences derived from those facts. Unger v. Nat'l Residents Matching Program, 928 F.2d 1392, 1400 (3d Cir.1991). Additionally, the court is to construe the counterclaim in the light most favorable to the counterclaim plaintiff. Colburn v. Upper Darby Twp., 838 F.2d 663, 665 (3d Cir.1988), cert. denied, 489 U.S. 1065, 109 S.Ct. 1338, 103 L.Ed.2d 808 (1989). However, the court is not required to accept as true legal conclusions or unwarranted factual inferences. Resolution Trust Corp. v. Farmer, 823 F.Supp. 302, 305 (E.D.Pa.1993) (citation omitted). Keeping these standards in mind, the court turns to the arguments raised in counterclaim defendants' motion to dismiss.
Whether the FTC lacks authority to seek an ex parte TRO under Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), is the primary issue underlying the claims asserted in the counter-claim, and, consequently, the court begins its analysis with consideration thereof.
Section 13(b) of the FTC Act reads in pertinent part:
(b) Temporary restraining orders; preliminary injunctions
Whenever the Commission has reason to believe —
(1) that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission, and
(2) that the enjoining thereof pending the issuance of a complaint by the Commission and until such complaint is dismissed by the Commission or set aside by the court on review, or until the order of the Commission made thereon has become final, would be in the interest of the public —
the Commission by any of its attorneys designated by it for such purpose may bring suit in a district court of the United States to enjoin any such act or practice. Upon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest, and after notice to the defendant, a temporary restraining order or a preliminary injunction may be granted without bond: Provided, however, That if a complaint is not filed within such period (not exceeding 20 days) as may be specified by the court after issuance of the temporary restraining order or preliminary injunction, the order or injunction shall be dissolved by the court and be of no further force and effect: Provided further, That in proper cases the Commission may seek, and after proper proof, the court may issue, a permanent injunction.5
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