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Federal Trade Comm'n v. Midway Industries Ltd. Liab. Co.

United States District Court, D. Maryland

November 14, 2018

FEDERAL TRADE COMM'N, Plaintiff
v.
MIDWAY INDUS. LTD. LIAB. CO. et ah, Defendants

          MEMORANDUM AND ORDER

          JAMES K. BREDAR CHIEF JUDGE.

         Pending before the Court is the Receiver's motion for approval of the proposed distribution plan for assets of the Receivership Estate, as modified and supplemented by the Receiver's filing of September 20, 2018. (ECF Nos. 328, 329.) Also before the Court is an objection by Donna Seuss Tarantino to the proposed distribution. (ECF No. 330.) The Court finds no merit in Ms. Tarantino's objection. However, the Court has questions as to whether to accept the proposed distribution otherwise as an appropriate, finely-tuned exercise of the Court's equitable power. The Court finds it necessary to hold an in-court hearing on these questions.

         Plaintiff, the Federal Trade Commission ("FTC"), sued a host of entities and several individuals for fraud in relation to a telemarketing scheme. A receivership was created for, inter alia, collection of assets to provide compensation to those who were victims of the scheme. (TRO, ECF No. 9; Prelim. Inj., ECF No. 74.) In both of the early injunctive orders, the Court directed the Receiver to "[p]revent the inequitable distribution of assets and determine, adjust, and protect the interests of consumers and creditors who have transacted business with the Receivership Defendants." (TRO 23; Prelim. Inj. 20.) The Court's final order and judgment in favor of the FTC and against the Entity Defendants continued the receivership and entered judgment in the amount of $58, 137, 415 in favor of the FTC as equitable monetary relief. (Final Order 6, ECF No. 229.) Further, the Final Order specified, "All money paid to the Commission pursuant to this Order may be deposited into a fund administered by the Commission or its designee to be used for equitable relief, including consumer redress and any attendant expenses for the administration of any redress fund." (Id. 7.)

         After disposing of various secured claims, the Receiver indicates the only remaining claimants are unsecured, whether they be consumers or creditors. (Supp. to Mot. Approval 1, ECF No. 329-4.) The Receiver indicates that its two guiding principles in the formulation of the distribution plan were the following:

• Those who participated in or in some way took money out of the scheme ought not to be treated on par with the consumer victims; and
• No. unsecured creditor's claim should be placed ahead of compensation to consumer victims, pro rata.

(Id. 8.) The Receiver proposes a distribution plan involving two classes of claimants:

First Priority Claimants:
Comptroller of the State of Maryland (to be determined) Consumer victims ($58, 287, 849) Konica Minolta ($1, 000)
Second Priority Claimants:
Former employees of any Received Entity (approximately $232, 000)
Del Vel Chem Co. ($63, 829)
Fedder & Garten P.A. pre-receivership invoices (to be determined)

(Id. 2.) Anticipating a total distribution of approximately $11 million, the Receiver proposes a distribution pro rata to the First Priority Claimants, with nothing going to the ...


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