In re Sanctuary Belize Litigation

          MEMORANDUM OPINION

          PETER J. MESSITTE UNITED STATES DISTRICT JUDGE

         The Federal Trade Commission ("FTC") has filed three motions to hold certain Defendants in contempt for violating this Court's Orders in FTC. v. Ameridebt, Inc. et al, 03-cv-3317-PJM ("AmeriDebt”). ECF Nos. 266, 267, 268. On July 25, 2019, the Court directed the Parties to brief the question of whether the contempt remedies the FTC seeks are essentially criminal in nature and whether the alleged contemnors have the right to a jury trial in connection therewith. ECF No. 529. The FTC has filed a submission on the issue. ECF No. 542. Defendant Peter Baker has responded in Opposition. ECF No. 558, Defendant Andris Pukke has responded in Opposition, ECF No. 560, and the FTC has filed a Consolidated Reply, ECF No. 572. For the following reasons, the Court holds that the remedies the FTC seeks are civil in nature and that the alleged contemnors do not have the right to a jury trial.

         I. Factual and Procedural History

         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. AmeriDebt, ECF No. 1. Instead of going to trial in that case, Pukke agreed to a Stipulated Final Judgment and Permanent Injunction (the "Final Order"). AmeriDebt, ECF No. 473. In addition to entering a $172 million judgment against Pukke and his companies^[1], the Final Order barred Pukke and "employees, or affiliates, and those persons in active concert or participation with [Pukke] who receive actual notice of this Order by personal service or otherwise" from ""making, or causing or assisting others to make, expressly or by implication, any false or misleading representation, including but not limited to misrepresenting... any aspect of the performance, efficacy, nature of central characteristics of the goods or services" while telemarketing that good or service. Id. The Final Order also barred these same individuals from violating the Telemarketing Sales Rule. Id.

         In 2018, in the present proceeding, the FTC filed three contempt motions for violations of Orders issued in AmeriDebt, including the Final Order. The first motion seeks to hold Pukke, Baker and John Usher in contempt for allegedly violating the Final Order in AmeriDebt by deceptively telemarketing Sanctuary Belize Lots to consumers ("Telemarketing Contempt"). ECF No. 266. The FTC asks for "full remedial relief equal to the total amount paid by lot purchasers in the present litigation as a result of the allegedly contumacious conduct which, if the contempt is proven, will be used to compensate purchasers of Sanctuary Belize lots. Id. While this amount is still undetermined, the FTC believes it will likely be greater than $144 million.^[2] Id.

         In the second motion, ECF No. 267, the FTC seeks to hold Pukke, Baker and Usher in contempt for failing to turn over a specific parcel of land in Belize (the "Sanctuary Parcel" or "Parcel") to the Receiver, as ordered by the Court multiple times in AmeriDebt. See e.g., AmeriDebt, ECF No. 571. According to the FTC, Pukke and Baker continued to maintain control over the Sanctuary Parcel even after the Court ordered Pukke and Baker to turn it over and even after the Court held Pukke and Baker in contempt for their failure to do so. ECF No. 267. In its Parcel Contempt motion, the FTC asks that the Parcel be turned over to the Receiver to allow the Receiver to either fully recover the Parcel itself or its value, to be used for the benefit of consumers, and that Pukke, Baker and Usher face coercive incarceration if they fail to do so within 10 days of the Court's ruling. Id. To be clear, the Court understands that, if contempt is found in this regard, the proceeds from the Sanctuary Parcel will be used to compensate consumers in the AmeriDebt proceeding, not the lot purchasers in the present case.

         In its third motion, ECF No. 268, the FTC seeks to hold Pukke in contempt for violating an Order in AmeriDebt prohibiting him from partially or fully repaying a loan to John Vipulis prior to fully satisfying the FTC's judgment against him, ECF No. 625. The FTC alleges that, in clear violation of the Order, Pukke repaid Vipulis over $3.25 million for the loan. See ECF No. 268. The FTC asks that Pukke be found in contempt and ordered to pay $3.25 million plus interest to the FTC "as a compensatory contempt remedy." Id. Again, the Court understands that if Pukke is found to be in contempt, any recovery from him will be used to compensate consumers in the AmeriDebt proceeding, not the lot purchasers in the present litigation.^[3] Notably, in March 2019, Vipulis settled with the FTC with respect to both the contempt motion, and the present case. ECF No. 352. Vipulis agreed to and apparently did turn over $4, 112, 000 to the Receiver, who in sequence would turn the funds over to the FTC. Id.

         After receiving these motions, the Court ordered supplemental briefing on the question of whether the remedies the FTC seeks are essentially criminal in nature, in which case the alleged contemnors would be entitled to a jury trial, or whether they are civil in nature, in which case they would not be. ECF No. 529.

         II. Legal Standard

         Under the Supreme Court's decision in Int'l Union, United Mine Workers of Am. v. Bagwell, a "contempt fine is considered civil and remedial if it either coerces a defendant into compliance with a court order or compensates the complainant for losses sustained." 512 U.S. 821, 821 (1994). See also Bradley v. Am. Household Inc., 378 F.3d 373, 378 (4th Cir. 2004) (holding that "civil contempt sanctions are intended to coerce the contemnor into compliance with court orders or to compensate the complainant for losses sustained") (internal citations and quotation marks omitted); see also Cromer v. Kraft Foods N. Am., Inc., 390 F.3d 812, 822 (4th Cir. 2004) (stating that "civil contempt sanctions can serve the purpose of compensating a complainant for losses sustained"). Civil contempt sanctions require nothing more than "notice and an opportunity to be heard." Bagwell, 512 U.S. at 827.^[4]

         In contrast, criminal contempt sanctions are "punitive" in nature, and are intended "to vindicate the authority of the court." Id. at 828. See also Bradley, 378 F.3d at 378 (stating criminal' sanctions are "intended to vindicate the authority of the court by punishing the contemnor and deterring future litigants' misconduct" (internal citations and quotation marks omitted)).

         However, "the stated purposes of a contempt sanction alone cannot be determinative" because "[most] contempt sanctions, like most criminal punishments, to some extent punish a prior offense as well as coerce an offender's future obedience." Bagwell, 512 U.S. at 828 (omitting internal citations and quotation marks). Therefore, "conclusions about the civil or criminal nature of a contempt sanction are properly drawn...from an examination of the character of the relief itself." Id., (omitting internal citations and quotation marks).

         Once a contempt is found to be civil in nature, remedies are "within the court's broad discretion" and may include ordering the contermnor to reimburse the complainant for losses sustained and for reasonable attorney's fees. In re General Motors Corp., 61 F.3d 256, 259 (4th Cir. 1995). Coercive incarceration is a "paradigmatic" civil sanction. Bagwell, 512 U.S. at 828. But a court must keep in mind that "[generally], a compensatory sanction may not exceed the actual loss to the complainant caused by the actions of respondent, lest the contempt fine become punitive in nature, which is not appropriate in a civil contempt proceeding." In re General Motors Corp., 61 F.3d at 259 (internal citations and quotation marks omitted).

         III. ...