United States District Court, D. Maryland
J. MESSITTE UNITED STATES DISTRICT JUDGE
Federal Trade Commission ("FTC") has filed a Motion
to Avoid a Reduction in Consumer Restitution Based on the
Alleged Value of Fraudulent Transactions, ECF No. 610,
seeking clarity, should it prevail at trial, regarding the
manner in which the Court will calculate equitable monetary
relief, including restitution, and also a determination as to
which party bears the burden of proving that amount at trial.
Defendant Chadwick has responded in Opposition, ECF No. 620,
as did Pro Se Defendants Baker,  Pukke, ECF No. 630, and
Santos, ECF No. 624. The FTC has filed a Consolidated Reply,
ECF No. 623. For the following reasons, the Court holds that.
if the FTC prevails on the matter of liability, it will be
entitled to a restitution judgment equal to the amount
consumers paid for real estate lots at Sanctuary Belize,
notwithstanding the purported present value, if any, of the
lots purchased. It will be the FTC's burden to prove, by
a preponderance of the evidence, the amounts paid for the
core of the FTC's allegations is that Defendants
perpetrated an unlawfully deceptive scheme in violation of
the Federal Trade Commission Act ("FTC Act")
pursuant to 15 U.S.C. § 45(a) and the Telemarketing
Sales Rule ("TSR") pursuant to 16 C.F.R. Part 310,
through which Defendants purportedly attempted to convince,
and in many instances did convince, U.S. consumers to
purchase lots in a planned residential and commercial
community in Belize, known as Sanctuary Belize. Indeed, since
2005. Defendants sold over one thousand lots, including some
lots that have been sold more than once. ECF No. 539, p. 7;
see also PX 816 at 20-23.
Court has already determined that the FTC has a fair and
tenable chance of establishing that Defendants were
perpetrating a large-scale land sales fraud, based on one or
more material misrepresentations. ECF No. 539-1. Accordingly,
pursuant to Section 13(b) of the FTC Act, 15 U.S.C. §
53(b), the Court has issued a Preliminary Injunction. ECF No.
Court has also held that, if the FTC prevails at trial, it
will be entitled to an equitable monetary judgment against
Defendants in the form of restitution, which in turn, the
agency proposes to use to compensate consumers. See ECF No.
573, p. 3 (citing FTC. v. Ross, 743 F.3d 886, 890
(4th Cir. 2014)). Nonetheless, in responding to the FTC's
motion, Chadwick asks the Court to re-address this prior
determination and, in effect, to reconsider the remedies
available under the FTC Act in this Circuit. He argues that
the restitution sought by the FTC is in fact a legal remedy
(as opposed to an equitable remedy) and therefore not
permitted under 15 U.S.C. § 53(b). See ECF No. 620, pp.
2-4. The Court addressed this issue when ruling on
Chadwick's Motion to Dismiss. See ECF No. 573, p. 3.
Chadwick now, however, adds a wrinkle to his previous
argument. Relying on Great-West Life & Annuity Ins.
Co. v. Knudson, 534 U.S. 204 (2002), he argues that in
order for the relief to be equitable, it must be traced to
the particular funds within the defendant's control
rather than from the defendant's assets generally. See
ECF No. 620, pp. 2-4. The Court disagrees.
makes clear that Great-West is not applicable to cases
brought pursuant to the FTC Act, where the Court is empowered
under Porter v. Warner Holding Co., 328 U.S. 395
(1946) to grant relief even if that relief is typically
similar to that conferred by a court of law. See FTC v.
Ross, 743 F.3d 886 (4th Cir. 2014) ("the
Supreme Court has long held that Congress' invocation of
the federal district court's equitable jurisdiction
brings with it the full 'power to decide all relevant
matters in dispute and to award complete relief even though
the decree includes that which might be conferred by a court
of law."') (quoting Porter at 399); FTC v.
Commerce Planet, Inc., 815 F.3d 593, 601 (9th
Cir. 2016). Moreover, recent opinions in similar cases have
determined that there is no requirement that the funds be
traceable to the alleged wrongdoing. See, e.g., FTC v.
World Patent Mktg, Inc., No. 17-cv-20848, 2017 WL
3508639, at *17 (S.D. Fla. Aug. 16, 2017) ("The court
may freeze Defendants' assets even if the frozen assets
are not traceable to Defendants' fraudulent
activity."); FTC v. Williams, Scott & Assocs.
ZZC, No. 14-cv-1599, 2015 WL 7351993, *1 (N.D.Ga. Sept.
22, 2015) O'[T]he Court agrees with the FTC that, in this
type of action, the frozen assets need not be traceable to
the fraudulent activity underlying a lawsuit.").
Motion to Avoid a Reduction in Consumer Restitution Based on
the Alleged Value of Fraudulent Transactions
Measurement of Restitution
asks the Court to hold that the measure of equitable monetary
relief is the amount consumers paid for lots, less any
refunds already made to the consumers. ECF No. 610, p. 3.
Under this proposed calculation, there would be no
"credit" given to a consumer for the present value
of the lot. In contrast, Defendants ask the Court to consider
the present value of each lot, which, they argue, should then
be applied as offsets to the amounts paid for the lots.
Court agrees with the FTC. The alleged violations of the FTC
Act occurred at the time of the allegedly deceptive sales. In
other words, "[t]he fraud [was] in the selling, not the
value of the thing sold." McGregor v. Chierico,
206 F.3d 1378, 1389 (11th Cir. 2000) (quoting FTC v.
Figgie Int'l, Inc., 994 F.2d 595, 606 (9th Cir.
1993)). As such, the present value of the product is
irrelevant. Figgie, 994 F.2d at 606 (discussing why a
hypothetical dishonest jeweler who sells rhinestones as
diamonds is not entitled to an offset for the value of the
is informative. There, the Eleventh Circuit held that even if
fraudulently sold printer toner was useful and valuable, the
appropriate measure of damages would be the gross sales price
of the toner, thereby providing consumers the equivalent of a
full refund for the purchased toner. 206 F.3d 1378, 1389 (11th
Cir. 2000); see also FTC v. Kuykendall, 371 F.3d
745, 766 (10thCir. 2004) ("We... conclude
that the district court need not offset the value of any
product the defrauded consumers received."). McGregors,
holding was adopted by this Court on a prior occasion.
See FTC v. Amerideht, Inc., 373 F.Supp.2d 558, FN 6
(D. Md. 2005); see also FTC v. Ross, 897 F.Supp.2d
369, 388 (D. Md. 2012), affd, 743 F.3d 886 (4th
Cir. 2014), cert, denied, 135 S.Ct. 92 (2004) ("the
amount of consumer redress is the amount paid by consumers
for the Defendants' products minus any refunds");
FTC v. Loma Intern. Business Group Inc., No.
11-cv-1483, 2013 WL 2455986 at *7 (D. Md. 2013) ("[t]he
correct measure of unjust gains under [the FTC Act] Section
13(b) is the 'net revenue (gross receipts minus refunds),
rather than the amount of profit (net revenue minus
expenses'") (quoting FTC v. Washington Data
Resources, Inc., 704 F.3d 1323, 1326-1327 (11* Cir.
"allowing a damages determination based on gross
receipts in a case arising directly under the FTC Act
furthers the FTC's ability to carry out its statutory
purpose." FTC v. Ross, 897 F.Supp.2d 369, 388
(D. Md. 2012) (quoting FTC v. Kuykendall, 371 F.3d
745, 765-66 (10th Cir. 2004)). The Court believes it would
make little sense and, indeed, would be manifestly unfair for
an allegedly defrauded consumer to be subject to the whims of
the real estate market with respect to property he was
inappropriately induced to buy. It would be equally unjust
for a defendant to be able to escape liability for a fraud if
real estate values have fortuitously fluctuated upward in
value by the time of trial.
short, the amount of restitution that would be due from
Defendants if found liable is properly equal to the sales
price of lots less any refunds already made to consumers.
Those amounts will not ...