United States District Court, D. Maryland
MEMORANDUM OPINION IN SUPPORT OF PRELIMINARY
INJUNCTION
PETER
J. MESSITTE, UNITED STATES DISTRICT JUDGE
On
October 31, 2018, the Federal Trade Commission
('"FTC") filed a Complaint in this Court,
alleging that certain named Defendants were perpetrating a
large-scale land sales scam on its consumer base of largely
U.S. customers, seeking, as part of its requested relief, a
Preliminary Injunction. Defendants are a web of corporate
entities and individuals that, the FTC says, comprise,
direct, and control what the FTC collectively terms the
Sanctuary Belize Enterprise ("SBE"), located in
Belize. The entities comprising SBE include Global Property
Alliance. Inc. ("GPA"), Eco-Futures Development,
Eco-Futures Belize, Ltd. ("Eco-Futures (BZ)"),
Sittee River Wildlife Reserve ("SRWR"), Buy
International, Inc. ("Buy International"), Buy
Belize, LLC ("Buy Belize"), Foundation Development
Management, Inc. ("FDM"), Power Haus Marketing
("Power Haus"), Ecological Fox, LLC
("Ecological Fox"), Belize Real Estate Affiliates,
LLC ("BREA"), Southern Belize Realty, LLC
("SBR"), Exotic Investor, LLC ("EI"),
Foundation Partners ("FP"). BG Marketing, LLC
("BG Marketing"), Prodigy Management Group, LLC
("Prodigy"), Newport Land Group, LLC, and the
Sanctuary Belize Property Owners' Association
("SBPOA," aka "The Reserve Property
Owners' Association"). The FTC also sued Atlantic
International Bank, Ltd. ("AIBL"), located in
Belize, for allegedly assisting in the deceptive
telemarketing, sales, and development practices of
SBE.[1]
The
individual Defendants are Andris Pukke and Peter Baker, as
well as Luke Chadwick, John Usher, Brandi Greenfield, Rod
Kazazi, Frank Costanzo, and Michael Santos. The Complaint
also names Angela Chittenden. Deborah Connelly, John Vipulis,
[2] the
Estate of John Pukke, and Beach Bunny Holdings, LLC
("Beach Bunny Holdings"') as Relief Defendants.
On February 13, 2019. Greenfield, Kazazi, Costanzo, Santos,
Chittenden, Connelly, FP, BG Marketing, Ecological Fox, and
Beach Bunny Holdings stipulated to the entry of the
Preliminary Injunction.[3] ECF No. 195. Pukke and Baker have filed
written oppositions to the Motion for Preliminary Injunction.
No other individual Defendants have stipulated to the entry
of a Preliminary- Injunction, but none have filed oppositions
to the Motion. Chadwick, however, has moved to dismiss the
claims against him for lack of personal and subject matter
jurisdiction. ECF No. 475.[4]
From
March 11 to March 22, 2019, the Court held an evidentiary
hearing on the FTC's Motion. Based on the evidence, oral
argument presented at the end of that hearing, and the
Proposed Findings of Fact and Conclusions of Law submitted by
various parties post-hearing, the Court
GRANTS the FTC's Motion for Preliminary
Injunction as to all Defendants who have not at this time
settled their claims with the FTC.
I.
Factual and Procedural Background
A.
Alleged Concealment of the Belizean Parcel from the Receiver
in FTC v. AmeriDebt
The
case involves a large mass of land in Southern Belize,
roughly the size of Manhattan, where individual lots in a
planned residential and commercial community have been
marketed to thousands of consumers and sold to residents of
the United States.
Some
critical history precedes the current litigation.
In
2003, the FTC sued Pukke under Section 5 of the Federal Trade
Commission Act ("FTC Act"), 15 U.S.C. § 45(a),
in connection with what it alleged were fraudulent activities
related to two credit counseling companies he owned and/or
operated. Civ. No. PJM-03-3317, FTC v. Ameridebt, Inc. et
al ("AmeriDebt" since consolidated with the
present, case). The Court entered a preliminary injunction
against Pukke and other defendants in that case, FTC v.
Ameridebt. Inc., 373 F.Supp.2d 558 (D. Md. 2005),
following which Pukke agreed to a Stipulated Final Judgment
and Permanent Injunction. AmeriDebt, ECF Nos. 408,
411, 473. Pursuant to the Final Order of Judgment in
AmeriDebt, the Court appointed a Receiver, Robb
Evans & Associates, LLC, [5] to marshal and liquidate up to
$35, 000, 000 of Pukke's assets in order to provide the
FTC with funds to compensate Pukke"s victims.
AmeriDebt, ECF No. 473 at 13.
At the
time of the AmeriDebt action, Pukke and Baker, along
with several other associates and family members, owned
interests in two Belizean entities: Dolphin Development, LLC
("Dolphin") and Sittee River Wildlife Reserve
("SRWR"). PX 358; PX 359; PX 361. Through Puck Key
Investments L-8, LLC ("Puck Key 8"), an entity he
wholly owned, Pukke held a 60% interest in Dolphin (Baker,
his mother, and his stepfather held the remaining 40%). PX
358. While serving as an SRWR director, Pukke loaned it $1.5
million to buy 11, 755 acres in southern Belize and loaned
Dolphin $1.5 million to buy 350 adjacent acres. PX 356 ¶
11. In May 2005, SRWR also bought a five-acre island, now
known as "Sanctuary Caye." PX 378; PX 192 ¶ 3,
Att. 24 at 11 (copy of the minutes of the 2016 Annual General
Meeting of SRWR, signed by "Peter Baker,
Chairman"). These land acquisitions collectively formed
the parcel of land (the "Belizean Parcel") on which
Pukke, Baker, and the other Defendants in the present case
have collaborated to develop and market the community at
issue today-Sanctuary Belize (also known as Sanctuary Bay
Estates or the Reserve). In 2005, throughout the United
States, Dolphin commenced telemarketing lots on the Belizean
Parcel as part of the Sanctuary Belize residential and
commercial development plan, and in August 2005 Dolphin sold
its first lot in the development. PX 363 (lot sale contract
for Dolphin, dated August 1, 2005).
After
the Final Order of Judgment in the AmeriDebt case
was entered, Pukke apparently retained control of the
Reserve, but actively concealed his interest in the property
from the Receiver. Pukke was alleged to have misrepresented
to the Receiver both his ownership stake in and the fiscal
solvency of Dolphin. Pukke also transferred Dolphin's
development rights and a portion of the Belizean Parcel to
two entities controlled by Baker in an apparent effort to
make SRWR appear to be without assets. PX 361; PX 371; PX
372; PX 373; PX 374; PX 375; PX 376; PX 377: PX 379; PX 380.
When the Receiver became aware of this legerdemain, it moved
to have both Pukke and Baker held in contempt of court for,
among other things, refusing to turn over the land and for
taking steps to remove it from the Receiver's control.
On
March 30, 2007, following an evidentiary hearing held in
February and March of 2007. the Court found Pukke and Baker
in civil contempt for their refusal to turn over receivership
assets and ordered them to immediately turn over control of
the Belizean Parcel to the Receiver. AmeriDebt, ECF
No. 571. To facilitate the Receiver's ability to control
the Belizean Parcel, the Court issued a second order
unwinding the alleged sales of Pukke's interests in
Dolphin (i.e., his interests in Sanctuary Belize) and
ordering these assets re-vested in Dolphin (which the
Receiver controlled). AmeriDebt, ECF No. 572.
Pukke
and Baker, however, failed to comply with the Court's
Orders, i.e., to purge their contempt. Accordingly, on April
30, 2007, the Receiver moved to have both men incarcerated in
order to coerce their compliance with the Court's Orders
directing the turnover of their interests in the Belizean
Parcel and related documents.[6] AmeriDebt, ECF Nos. 596,
597. On May 4, 2007, the Court again found Pukke and Baker in
Contempt, remanded them to custody of the U.S. Marshal and
had them incarcerated. AmeriDebt. ECF No. 604. Baker
and Pukke were eventually released from custody after serving
approximately two weeks and one month in custody,
respectively. Their release was conditioned on cooperating in
the turn-over of Pukke"s assets to the Receiver,
including the Belizean Parcel AmeriDebt, ECF Nos.
614, 622, which, in part at least, they did do.
Approximately
one year later, on March 27. 2008, realizing that it would be
exceedingly difficult and costly to enforce its rights to
control the Belizean Parcel, the Receiver undertook to cash
out its claims to ownership over it. AmeriDebt, ECF
No. 682. In consequence, an agreement was reached whereby the
Receiver would sell the land to SRWR for $2 million.
Id. No party objected to the sale, and on April 15,
2008 the Court approved it without comment.
AmeriDebt, ECF Nos. 684, 686.
Notwithstanding
the foregoing, the FTC alleges in the present litigation that
it was Baker who raised the funds to purchase the Belizean
Parcel from the Receiver, and that Pukke, through Baker,
retained effective control of the development and marketing
operations for Sanctuary Belize, which, after the
Receiver's involvement terminated, allegedly continued to
operate under the name Defendant Eco-Futures Belize, Ltd. PX
192 ¶ 3. Att. 24 at 12 (2016 SRWR General Annual Meeting
minutes, detailing the 2008 purchase of the Belizean Parcel
for $2 million from the AmeriDebt Receiver); PX 395
(emails between Baker and Greenfield discussing sales tours
of the Reserve scheduled for February 2009, also forwarded to
Pukke in 2011); Baker Dep. Tr., 2/19/19, 123:17-124:1 (Baker
testifying that Pukke's ownership and involvement was
reinstated "[a]s soon as we were ready to go to, call
it, start marketing and sales").
In
short, the FTC contends that at all relevant times Pukke
effectively controlled the Belizean Parcel-the land on which
Sanctuary Belize has been developed-as well as the associated
marketing and sales operations, all the while concealing the
fact of his affiliation with the enterprise from the
AmeriDebt Receiver. The nexus between FTC v.
AmeriDebt and the Belizean Parcel purportedly gave rise
to a multitude of violations the FTC says characterize the
present litigation.
B.
Marketing and Development of Sanctuary Belize
Through
his control over the SBE entities, says the FTC, Pukke
participated in and directed the fraudulent behavior of other
individual Defendants in their capacities as principals of
various SBE enterprises. The core of the FTC's
allegations is that Defendants perpetrated an unlawfully
deceptive telemarketing scheme through which they attempted
to convince, and in many instances did convince, American
consumers to buy lots at Sanctuary Belize. Those purchases
were allegedly accomplished by making promises to consumers
that Pukke, the SBE entities, and other Defendants knew to be
false and contrary to the experiences of other lot
purchasers. Beyond that, revenue from lot sales at Sanctuary
Belize is alleged to have been redirected by several
Defendants to their own personal use and for projects
unrelated to the development of Sanctuary Belize.
The FTC
identifies six "core claims" Defendants purportedly
made to customers, knowing they were false and misleading:
(1) that SBE's "no debt" business model made
Sanctuary Belize a less risky investment than one in which
the developer would have to make payments to mortgage lenders
and creditors; (2) that in part because of the "no
debt" model, every dollar the developer collected from
lot sales would be reinvested in the development; (3) that
this funding stream meant the developer would finish the
development quickly, i.e., within two to five years; (4) that
the finished development would boast luxury amenities
including, among other things, a hotel, an American-caliber
hospital, and a nearby airport; (5) that those amenities
meant that the lots would appreciate in value from 200% to
300% within two to three years; and (6) that consumers would
realize this rapid appreciation without difficulty because
there would be a robust market for resale of the lots.
Since
2005, SBE has sold over 1, 000 lots at the Belizean Parcel,
including some that have been sold more than once. PX 816 at
20-23. SBE's marketing team has employed extreme
advertising techniques across the United States, including
promotions on such television channels as Fox News and
Bloomberg. PX 205 ¶ 13; PI Hrg Tr., 3/11/19 Afternoon,
82:8-16. SBE has also maintained websites to which consumers
could and did navigate, which urged potential customers to
submit contact information to SBE in order to learn more. PI
Hrg Tr. 3/11/19 Morning. 48-49; PI Hrg Tr. 3/19/19 Afternoon,
59:9-12: PX 399.
The
marketing process operated more or less as follows:
California-based
telemarketers would call consumers who responded to SBE's
initial various marketing efforts. PI HrgTr., 3/11/19
Afternoon, 82:17-24; PI Hrg Tr., 3/19/19 Afternoon 59:17-21.
Pukke. in particular, but other SBE principals as well,
coached sales employees to "create a sense of
urgency" and a "fear of loss" on the part of
prospective purchasers, techniques that the telemarketers
then used in their calls with consumers. PX 207 ¶ 5 and
Att. 3 at 1; PI Hrg Tr., 3/19/19 Afternoon, 60:22-61:10; PX
196 ¶ 10. After capturing the interest of prospective
consumers, typically by touting as enticements the promises
reflected in the Core Claims, SBE telemarketers encouraged
consumers to participate in a webinar during which a
higher-level sales agent would speak with them over the
telephone, often transmitting slick development photos and
graphics to the consumers' computers. PX 307; PX 308; PX
309; PX 310; PX 200 ¶¶ 8:5-6, 17:13; PX 186 ¶
8; PX 205 ¶ 14: PX 336; PX 337; PX 186 ¶ 9:3
(attaching webinar). The presenters during the webinars
varied, but at different points both Costanzo and Chadwick
were definitely participants. PX 814 ¶ 8 PX 186 ¶
9:3; PX 184. Att. 43 at 186 (notes on webinar taken by lot
purchaser).
The
purpose of the webinars was to persuade customers to travel
to Belize and tour the Reserve in person. The consumer would
pay his or her own airfare to and from Belize, but for $999,
the consumer would receive an all-inclusive tour, including
lodging at a resort nearby the Reserve, free food, meals,
drinks, and internal transportation. PX 184 ¶ 11; PX 186
¶ 21: PX 191 ¶ 13; PX 193f 13: PX 194
¶¶ 5, 6, 61; PX 195 ¶¶ 11.46;PX 196
¶ 17; PX 198 ¶ 8: PX 200 ¶r12-13,
47; PI Hrg Tr., 3/11/19 Afternoon, 86:3-18; PI Hrg Tr.,
3/11/19 Morning, 54-55; PX 182 ¶ 9; PX 202 «; 7;
PX 183 ¶ 9; PI Hrg Tr., 3/11/19 Morning, 55; PI Hrg Tr.,
3/11/19 Afternoon, 86:12-87:1; PI Hrg Tr., 3/19/19 Afternoon,
62:5-10. Before going to Belize to tour the Reserve,
consumers were encouraged to sign "non-binding lot
reservation agreements." PX 410; PX 205r14;
PX 605: PX 821; PI Hrg Tr., 3/11/19 Afternoon, 87:12-23.
Pursuant to those agreements, again before departing, some
consumers paid between $2, 000 and $10, 000 to SBE to obtain
the right of first refusal on particular lots. PX 410; PX 181
¶ 8:3 (attaching lot reservation agreement); PX 205
¶ 18, Att. 17 (same); PX 186 ¶ 21; PX 198 ¶ 8;
5-6; PI Hrg Tr., 3/11/19 Afternoon, 87:12-88:7; PI Hrg Tr.,
3/19/19 Afternoon, 61:11-16 (in at least one case a consumer
made a $20, 000 down payment on a lot and signed a memorandum
of sale before visiting the property or meeting with a
telemarketer face to face). Their deposits were either
credited toward the purchase price of the reserved lot or the
purchase of another lot, but would be refunded if the
consumer decided not to complete the sale. PX 200 ¶ 13;
PX 198 ¶ 25; PX 202 ¶ 7; PX 188 ¶ 8; PX 205
¶ 18, Att. 17. Finally, some consumers, albeit a
relative few, agreed to purchase lots outright either before
going on the tour or without ever going on the tour. PX 254
¶ 14 (authenticating PX 258, attachment 4 to the Batal
Declaration, a sales script from 2012); PX 258 at 11 (SBE
marketing script, stating "You have 4 choices:...
Purchase a home site sight unseen (23% of our owners have
done this)."); PX 819-828 (emails, lot purchase
agreements, and SBE spreadsheets showing that some consumers
purchased prior to a tour).
Tours
in Belize typically gathered five to ten couples, who as a
group toured the Reserve, visited lots, and attended sales
presentations. During the sales presentations and tours, SBE
employees would reiterate promises incorporating one or more
of the six Core Claims. PX 312; PX 198 ¶ 12, Atts. 9-10;
PX 191 ¶ 16-26; PX 182 ¶ 15-24. PI Hrg Tr.. 3/19/19
Afternoon, 69:4-70:1. Presenters in Belize would vary, but at
various times definitely included Usher, Chadwick, and
Costanzo. PX 194 ¶¶ 7, 11, 14; PX 195 ¶¶
7-10; PX 196 ¶ 22; PI Hrg Tr., 3/19/19 Afternoon,
67:5-18; PI Hrg Tr., 3/11/19 Morning, 57-58 (testifying that
Chadwick gave property tour and reiterated that the
development was debt free). Sometimes sales presentations in
Belize would include presentations by local service-providers
such as Coldwell Banker Southern Belize (the local office of
Defendant Southern Belize Realty), who assured consumers, by
advertising their own services, that the Belizean community
was ready, willing, and able to satisfy consumer needs. PX
752 ¶¶ 9-10; PI Hrg Tr., 3/11/19 Afternoon,
89:14-22; PI Hrg Tr., 3/11/19 Afternoon, 102:25-103:6; PI Hrg
Tr., 3/19/19 Afternoon, 69:20-70:23. Consumers were not
always able to visit the specific lots on which they had
placed a deposit, often because of terrain issues such as
overgrown jungle on uncleared lots or the flooding of unpaved
roads. PX 202 ¶ 34; PX 199 ¶ 5; PX 195 ¶ 7.
From
the beginning of the sales process, SBE represented to
consumers that if they purchased a lot, they would
"own" that lot. PX 205 ¶ 16 (Declaration of
SBE sales employee: "We said that once a customer
purchased a lot, they would own it. We also called everyone
who purchased 'owners.'"); PX 203 ¶ 13
(Declaration of SBE sales employee: SBE told prospective
consumers "they would own their lot"). As such,
after returning to the United States from the tours where
they purchased lots, the new "owners'* began to
receive invoices for monthly payments on the lots (payable to
SBE) as well as from a homeowner's association (HOA) for
dues in the amount of $100 per month per lot. PX 183 ¶
39, Att. 21; PX 181c 40, Att. 10; PX 186 ¶
34, Att. 26; PX 184 ¶ 48, Att. 42; PX 202 ¶ 39,
Att. 32; PI Hrg Tr., 3/11/19 Morning, 77-78 (lot purchaser
testifying about invoices for homeowners' association
fees). Purchasers were advised that these payments were
subject to a 12.5% Belizean General Sales Tax
("GST"). PX 409; PX 456; PX 457; PX 458; PX 459; PX
460; PI Hrg Tr., 3/11/19 Afternoon. 103:18-104:8, PX 881; PX
882; PI Hrg Tr., 3/11/19 Morning, 68-69 (lot purchaser
testifying that he made monthly payments of approximately $3,
000 to Eco-Futures in California). SBE explained to
purchasers that the GST was charged on all sales of goods and
services, which meant that, dating from the purchase of their
lot to the final construction of their home, the tax would be
applicable. PX 196 ¶ 38 and Atts. 41, 42; PX 456; PX
458; PX 459; PX 460; see also PX 457 (representing
in marketing materials that GST is "charged on [the sale
of] goods and services"); PX 459 (stating, in a
"Sanctuary Bulletin" marketing email, that GST
'is a consumer tax (12.5%), applied to most goods and
services). Customers made these payments to SBE in California
and to the HOA's address in Texas, respectively.
The
development of Sanctuary Belize, however, began to lag behind
the timeline SBE had projected, and as it did, a number of
purchasers attempted to mitigate their losses by seeking to
sell back their lots to SBE or by suing it. Some owners
simply stopped making payments on their lots, as a result of
which SBE threatened them with "foreclosure, '"
meaning it would simply take the lots back unless the
consumer resumed making monthly payments. That apparently is
precisely what some owners intended to happen. PX 462; PX
463; PX 464; PX 186 ¶ 72, Att. 89, ¶ 74, Att. 92,
¶ 75; PX 789 ¶¶ 10-11. Occasionally SBE was
willing to buy back a lot from a consumer, but almost always
it did so at a loss to the purchaser, never at a profit, and
never via a lump sum payment, only through payments made over
time. PX 814 ¶ 47; PX 816 at 14; see also PX
466 and PX 519 (various buyback and termination agreements).
Typically. SBE would undertake to re-market the bought-back
lots to new consumers. PX 471; PX 636; PX 637; PX 638;
cf. PX 816 ¶ 14.
In
2016, a group of 200 dissatisfied consumers known as the
Independent Owners of Sanctuary Belize ("IOSB")
sued SBE in Belize.[7] PX 202 ¶ 46-54, Atts. 17, 31. Since
then, dissatisfied owners have filed at least seven actions
in California state courts, in general alleging that various
SBE entities defrauded them into purchasing lots, luring them
on the basis of one or more of the Core Claims. Since
SBE's Lot Sale Agreements contain forum selection clauses
that require litigation, if any, to take place in Belize,
some California courts have dismissed the consumer actions
without prejudice at the pleading stage based on those
clauses.[8] Other cases in California courts
apparently settled before the SBE entities could file motions
to dismiss based on the choice of forum
clauses.[9] As of this writing, motions to dismiss in
California courts based on the choice of forum clauses are
pending in two remaining actions.[10]
II.
Personal Jurisdiction over Luke Chadwick
Except
for the Motion to Dismiss filed by Luke Chadwick, the motions
to dismiss of all other parties have been
denied.[11] Only Chadwick's Motion to Dismiss,
partially on the basis of lack of personal jurisdiction,
remains. ECF No. 475. Chadwick and the FTC have jointly
requested a hearing on his Motion, but the Court decides the
personal jurisdiction issue now on the papers without a
hearing.[12]
Personal
jurisdiction over a defendant may be general or specific.
General personal jurisdiction can be exercised when a
defendant has "continuous and systematic general
business contacts" with a forum state. See
Helicopteros Nacionales de Colombia, S.A. v. Hall, 466
U.S. 408, 416 (1984). In that event, the defendant's
contacts must be "so constant and pervasive as to render
it essentially at home in the forum state." Daimler
AG v. Bauman, 571 U.S. 117. 122 (2014) (citations
omitted). The place of incorporation and the location of a
corporation's principal place of business are
paradigmatic examples of contacts sufficient to support
general personal jurisdiction in a given forum. Id.
at 137 (citations omitted).
Specific
jurisdiction may be exercised over a defendant where
"the suit arises out of or relates to the
defendant's contacts with the forum." Id.
at 127 (citations omitted). The present case is clearly one
of specific personal jurisdiction inasmuch as it arises out
of a specific transaction that the various Defendants,
Chadwick included, had with the relevant forum, namely, the
United States at large.
Ordinarily,
in determining whether a federal court may exercise specific
personal jurisdiction over a defendant, the court considers
"(1) the extent to which the defendant has purposefully
availed [himself or] itself of the privilege of conducting
activities in the state; (2) whether the [plaintiffs] claims
arise out of those activities directed at the state; and (3)
whether the exercise of personal jurisdiction would be
constitutionally 'reasonable."' Careftrst of
Maryland, Inc. v. Carefirst Pregnancy Centers. Inc., 334
F.3d 390, 397 (4th Cir. 2003).
However,
if a statute authorizes nationwide service of process, so
long as the assertion of jurisdiction over a defendant is
compatible with due process, service of process sufficient to
establish personal jurisdiction over the defendant. See
ESAB Grp., Inc. v. Centricut, Inc., 1 26 F.3d 617, 626
(4th Cir. 1997). Accordingly, a statute providing for
nationwide service expands a district court's
jurisdiction to the entire country, altering the traditional
minimum contacts test that focuses on a defendant's
contacts with a particular state and becomes "a national
contacts test." See United States v. Batato,
833 F.3d 413, 423 n.3 (4th Cir. 2016) (citation and internal
quotation marks omitted). Because the FTC has statutory
authority to effect service of process nationwide,
see 15 U.S.C. § 53(a), the minimum contacts
inquiry focuses on a defendant's contacts with the United
States as a whole, rather than a specific state, such as
Maryland.
Chadwick
argues that he has not had nor does he presently have
sufficient minimum contacts with Maryland, which he claims is
the forum state in this case. ECF No. 475-1 at 9-10. However,
Chadwick's contacts with the United States as a whole-not
with a particular state- determine whether the Court may
exercise personal jurisdiction over him. As explained
earlier, a statute providing for nationwide service, such as
the FTC Act, converts the minimum contacts test from one
focused on a particular forum state to one focused on a
defendant's contacts with the entire country. See
Batato, 833 F.3d at 423 n.3; ESAB Grp., 126
F.3d at 626. The Court finds that Chadwick had ample minimum
contacts with the United States throughout the existence of
the Sanctuary Belize Enterprise. He was physically present
and active in real estate sales and brokerage in California
and Nevada beginning in 2002 and 2005. respectively. ECF No.
475-1 at 4. From 2009 to 2014, he also worked for SBE as the
sales manager and as a "Principal," and, until
2015. he maintained an office at the same address in Irvine,
California as numerous other SBE Defendants. Id. at
6-7. Chadwick's personal residence is also located in
California. Id. at I..[13]
Chadwick
contends that requiring him to appear in Maryland would be
overly burdensome, even while acknowledging his residence in
California. The Court is not persuaded.
In
determining whether it is constitutionally reasonable for a
district court to exercise personal jurisdiction over a
defendant, courts weigh factors such as
(1) the burden on the defendant of litigating in the forum;
(2) the interest of the forum state in adjudicating the
dispute; (3) the plaintiffs interest in obtaining convenient
and effective relief; (4) the shared interest of the states
in obtaining efficient resolution of disputes; and (5) the
interests of the states in furthering substantive social
policies.
Consulting Eng'rs Corp. v. Geometric Ltd., 561
F.3d 273, 278 (4th Cir. 2009).
While
litigating in a district other than in the one in which he
resides would undoubtedly burden Chadwick to some extent, the
Court finds that, insofar as this may be inconvenient, it is
not sufficiently burdensome to defeat personal jurisdiction.
Cf. In re Chase & Sanborn Corp.. 835 F.2d 1341,
1346 (11th Cir. 1988) (stating that "[m]odern means of
communication and transportation have lessened the burden of
defending a lawsuit in a distant forum1'). Further, the
Court has already denied an attempt by Pukke to transfer this
case to California on similar grounds that litigating there
would be more convenient and less burdensome on the SBE
Defendants. ECF No. 261.
The
other reasonableness factors strongly favor the Court's
exercise of personal jurisdiction over Chadwick without
violating his right to due process. The District of Maryland
has a strong interest in adjudicating the case, given that it
traces back to the concealment of the Belizean Parcel from
the Receiver in the AmeriDebt litigation that was
tried here. Although Chadwick was not personally involved in
the AmeriDebt proceeding, he knew that Pukke and
Baker had been defendants in that case and were subject to a
receivership involving assets in Belize, see ECF No.
475-1 at 5. As such, he could reasonably have foreseen that
working with them on Sanctuary Belize sales in California
might lead to further proceedings in the District of
Maryland.
Additionally,
the FTC-which represents the public-has a strong interest in
obtaining convenient and effective relief in the District of
Maryland, since it initiated the case in this Court following
the alleged concealment by Pukke of property from the
AmeriDebt Receiver. Since courts in both Maryland
and California have similar interests in resolving disputes
efficiently and furthering social policies, neither of those
factors definitively weigh against the reasonableness of
exercising personal jurisdiction over Chadwick in the
District of Maryland.
In sum,
because Chadwick has had sufficient minimum contacts with the
United States, and the FTC has nationwide power of service of
process, it would not violate his due process rights for the
Court do exercise personal jurisdiction over him.
III.
Analysis
A.
Legal Standards for Preliminary Injunction
Before
granting a preliminary injunction under Section 13(b) of the
FTC Act, 15 U.S.C. § 53(b), a court must (1) consider
the likelihood that the FTC will succeed on the merits of the
case, and (2) weigh the appropriate equities.
AmeriDebt, 373 F.Supp.2d at 563 (citing FTC v.
Food Town Stores, Inc., 539 F.2d 1339. 1343 (4th Cir.
1976)). The FTC does not need to demonstrate the likelihood
of irreparable harm in order to obtain a preliminary
injunction. Because its Motion is brought pursuant to a
statute that authorizes injunctive relief, irreparable harm
is presumed. See F.T.C. v. Consumer Defense, LLC,
926 F.3d 1208, 1212-13 (9th Cir. 2019) (citing F. T.C v.
World Wide Factors, Ltd., 882 F.2d 344, 346-47 (9th Cir.
1989)).
At the
preliminary injunction stage, the FTC demonstrates the
likelihood of success on the merits if it '"shows
preliminarily, by affidavits or other proof, that it has a
fair and tenable chance of ultimate success on the
merits."' AmeriDebt, 373 F.Supp.2d at 563
(quoting F. T.C v. Beatrice Foods Co., 587 F.2d
1225, 1229 (D.C. Cir. 1978)).
In
balancing the public and private equities associated with
deciding to impose a preliminary injunction, the public
interest is given greater weight. See Id. at 564
(citing F.T.C. v. World Travel Vacation Brokers,
Inc., 861 F.2d 1020, 1030 (7th Cir. 1988)). Indeed, the
Fourth Circuit has suggested that any potential private
injuries that may be caused by granting a motion for
preliminary injunction "are not proper considerations
for granting or withholding injunctive relief under Section
13(b)." See Id. (citing Food Town
Stores, 539 F.2d at 1346).
B.
Legal Standards for Liability on FTC's Claims against
Defendants
i.
Liability for Violations of FTC Act
Section
5 of the FTC Act bars "unfair or deceptive acts or
practices in or affecting commerce.'* 15 U.S.C. §
45(a). An individual may be found liable under Section 5 if
it or he
(1) participated directly in the deceptive practices
or had authority to control those practices, and (2)
had or should have had knowledge of the deceptive practices.
The second prong of the analysis may be established by
showing that the individual had actual knowledge of the
deceptive conduct, was recklessly indifferent to its
deceptiveness, or had an awareness of a high probability of
deceptiveness and intentionally avoided learning the truth.
F.T.C. v. Ross, 743 F.3d 886, 892 (4th Cir. 2014).
As to
the second prong, "the degree of participation in
business affairs is probative of knowledge." F.T.C.
v. Innovative Mktg., Inc., 654 F.Supp.2d 378, 387 (D.
Md. 2009) (quoting F.T.C. v. Amy Travel Serv., Inc.,
875 F.2d 564, 574 (7th Cir. 1989)) (internal quotation marks
omitted).
ii.
Liability for Violations of Telemarketing Sales Rule
In
addition to claiming that all the SBE Defendants violated the
FTC Act, the agency also alleges that they violated the
Telemarketing Sales Rule ("TSR"), which prohibits
deceptive telemarketing acts or practices. 16 C.F.R. §
310.3. Among other prohibitions, the TSR forbids sellers and
telemarketers from misrepresenting, directly or by
implication, "[a]ny material aspect of the performance,
efficacy, nature, or central characteristics of goods or
services that are the subject of a sales offer," or
"'[a]ny material aspect of an investment opportunity
including, but not limited to, risk, liquidity, earnings
potential, or profitability." Id. at
§§ 310.3(a)(2)(iii), (vi).
The TSR
also provides that any person, defined as "any
individual, group, or unincorporated association, limited or
general partnership, corporation, or other business
entity," 16 C.F.R. § 3lO.2(y), who "provide[s]
substantial assistance or support to any seller or
telemarketer when that person knows or consciously avoids
knowing that the seller or telemarketer is engaged in any act
or practice that violates §§ 310.3(a), (c) or (d),
or § 310.4" of the TSR has committed a
"deceptive telemarketing act or practice" and
violated the Rule itself or himself. 16 C.F.R. §
310.3(b). The standard for individual liability under the TSR
is the same as the standard for individual liability under
the FTC Act. See 15 U.S.C. § 57a(d)(3); see
also., F.T.C. v. WV Universal Mgmt., LLC, 877 F.3d 1234.
1240 (11th Cir. 2017) (holding that "by violating the
TSR, [the defendant] violated the FTC Act and is subject to
its penalties.").
iii.
Liability as a Common Enterprise
The FTC
has alleged that all Defendants, save for AIBL, operated as a
common enterprise under the umbrella of "Sanctuary
Belize Enterprise" ("SBE"). "[W]here
corporate entities operate together as a common enterprise,
each may be held liable for the deceptive acts and practices
of the others." FTC v. Grant Connect, LLC, 763
F.3d 1094. 1105 (9th Cir. 2014); see also Rowe v.
Brooks, 329 F.2d 35, 39-40 (4th Cir. 1964) (noting that
joint ventures operate like a partnership, wherein partners
have joint and several liability for losses incurred in
furtherance of common enterprise). To determine whether a
group of defendants operated as a common enterprise, courts
"look to a variety of factors, including: common
control, the sharing of office space and officers, whether
business is transacted through a maze of interrelated
companies, the commingling of corporate funds and failure to
maintain separation of companies, unified advertising, and
evidence which reveals that no real distinction existed
between the Corporate Defendants." CFTC v. Noble
Wealth Data Info. Servs. Inc., 90 F.Supp.2d
676; 691 (D. Md. 2000) (quoting FTC v.
Wolf, No. 94-5119. 1996 WL 812940. *7 (S.D. Fla. Jan.
31, 1996) (citations omitted). FTC Act liability for members
of a common enterprise is joint and several. See, e.g.,
FTC v. Pointbreak Media, LLC, No. 18-61017-CIV, 2019 WL
1650101, *6 (S.D. Fla. Apr. 4. 2019).
iv.
Liability for Monetary Relief under the FTC Act
Once
the FTC establishes an enterprise's liability for
misrepresentations to consumers pursuant to Section 5 of the
FTC Act, the enterprise is liable for restitution if the FTC
shows consumer reliance. "[C]onsumer reliance on express
misrepresentations'" is "presumptively
reasonable." F.T.C v. Five-Star Auto Club, 97
F.Supp.2d 502, 528 (S.D.N.Y.2000). Reliance is presumed if
"(1) the business entity made material
misrepresentations likely to deceive consumers. (2) those
misrepresentations were widely disseminated, and (3)
consumers purchased the entity's products." FTC
v. Loma Int'l Bus. Grp. Inc., No. 11-cv-1483, 2013
WL 2455986, at *7 (D. Md. June 5, 2013). As to all the
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