FTC v. Randall L. Leshin

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUITU.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
SEPTEMBER 3, 2010
No. 09-11679 JOHN LEY
________________________ CLERK
D.C. Docket No. 06-61851-CV-UU
FEDERAL TRADE COMMISSION,
Plaintiff-Appellee,
versus
RANDALL L. LESHIN,
RANDALL L. LESHIN, P.A.,
d.b.a. Express Consolidation,
EXPRESS CONSOLIDATION, INC.,
CHARLES C. FERDON,
Defendants-Appellants,
CONSUMER CREDIT CONSOLIDATION, INC.,
MAUREEN A. GAVIOLA,
Defendants.
______________________
No. 09-12003
_______________________
D.C. Docket No. 06-61851-CV-UU
FEDERAL TRADE COMMISSION,
Plaintiff-Appellee,
versus
RANDALL L. LESHIN,
RANDALL L. LESHIN, P.A.,
also d.b.a. Express Consolidation,
EXPRESS CONSOLIDATION, INC.,
CHARLES C. FERDON,
Defendants-Appellants,
DEBT MANAGEMENT COUNSELING CENTER, INC.,
Appellant,
CONSUMER CREDIT CONSOLIDATION, INC.,
MAUREEN A. GAVIOLA,
Defendants.
______________________
Nos. 09-15972 & 10-10875
______________________
D.C. Docket Nos. 06-61851-CV-UU
0:06-cv-61851-UU
FEDERAL TRADE COMMISSION,
Plaintiff-Appellee,
versus
RANDALL L. LESHIN,
2
RANDALL L. LESHIN, P.A.,
also d.b.a. Express Consolidation,
EXPRESS CONSOLIDATION, INC.,
CHARLES C. FERDON,
Defendants-Appellants,
DEBT MANAGEMENT COUNSELING CENTER, INC.,
Appellant,
CONSUMER CREDIT CONSOLIDATION, INC., et al.,
Defendants.
________________________
Appeals from the United States District Court
for the Southern District of Florida
_________________________
(September 3, 2010)
Before PRYOR and FAY, Circuit Judges, and QUIST,* District Judge.
PRYOR, Circuit Judge:
This consolidated appeal presents the question whether the district court
abused its discretion when it held the defendants in contempt for violating a
stipulated injunction and when it ordered the defendants to disgorge all fees
collected in violation of the injunction. The district court entered the injunction
*
Honorable Gordon J. Quist, United States District Judge for the Western District of
Michigan, sitting by designation.
3
based on a complaint filed by the Federal Trade Commission against Randall
Leshin, Randall Leshin, P.A., Express Consolidation, Inc., and Charles Ferdon for
providing debt consolidation services in violation of the Federal Trade
Commission Act, 15 U.S.C. §§ 45(a), 53(b), 57b, and the Telemarketing and
Consumer Fraud and Abuse Prevention Act, id. §§ 6101–6108. After entry of the
injunction, the Commission moved for an order to show cause why the defendants
and the Debt Management Counseling Center, Inc., a nonparty acting in concert,
should not be held in contempt. After briefing and a two-day hearing, the district
court held the defendants and the Counseling Center in contempt of the injunction
and entered sanctions against them. We affirm.
I. BACKGROUND
We divide our discussion of the background of this appeal in three parts.
First, we address the complaint and the stipulated injunction. Second, we address
the clarification of the injunction by the district court. Third, we address the
contempt proceedings and order of disgorgement.
A. The Complaint and the Stipulated Injunction
As early as August 2003, Randall Leshin, an attorney from Florida,
controlled Randall L. Leshin, P.A., and Express Consolidation, Inc., and used these
entities to secure tens of thousands of contracts for debt consolidation. Leshin
4
serves as the president of Express and, until January 2009, Charles Ferdon served
as the vice president, secretary, and general manager of Express. Under the
contracts for debt consolidation or debt management Leshin, P.A., and Express
acted as intermediaries between consumers and their creditors for the purpose of
obtaining more favorable terms of payment.
On December 12, 2006, the Federal Trade Commission filed a complaint
against Randall Leshin; Randall L. Leshin, P.A.; Express Consolidation, Inc.; and
Charles Ferdon. The complaint alleged that the defendants were conducting
“unfair or deceptive acts or practices in or affecting commerce” and deceptive
telemarketing practices and other abusive telemarketing acts or practices in
violation of the Federal Trade Commission Act, id. §§ 45(a), 53(b), 57b, and the
Telemarketing and Consumer Fraud and Abuse Prevention Act, id. §§ 6101–6108.
In an amended complaint, the Commission requested injunctive relief, imposition
of a constructive trust on consumer fees, and the equitable remedies of
disgorgement of profits, restitution, and rescission of the illicit contracts for debt
consolidation.
The amended complaint also alleged that the defendants engaged
telemarketers to conduct illegal telemarketing campaigns, which sent over 6.4
million prerecorded solicitation messages to prospective customers nationwide.
5
These messages announced that Express Consolidation, a certified nonprofit
organization, was offering to reduce dramatically the credit card payments of
consumers. As alleged, these actions violated the Telemarketing Sales Rule, 16
C.F.R. § 310, and other restrictions on automated telemarketing by not allowing
any consumer who answered the phone to connect to a live sales representative,
delivering messages to thousands of people on the National “Do Not Call”
Registry, and placing repeated calls to consumers who specifically requested not to
be called by Express or telemarketers working on its behalf. The complaint alleged
that the defendants mischaracterized the status of Express as a nonprofit entity,
when in truth, Leshin or Leshin, P.A., a for-profit entity, received all fees from the
contracts. In addition, the complaint alleged that the defendants misrepresented
critical terms of the contracts for debt consolidation by making false claims about
the program fees, the effects on interest rates and credit reports, and the total
savings that would result from the program. The advertisements and contracts
falsely represented that the defendants were qualified to offer services in every
state and that any fees were adjusted to conform to state requirements, when in
truth no fees were adjusted to comply with state limitations and the defendants
were not qualified to offer services in a number of states.
In early 2007, after the Commission filed its complaint, Leshin and Ferdon
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incorporated Debt Management Counseling Center, Inc., and directed the
employees of Express to secure contracts for debt consolidation in the name of the
Counseling Center. The Counseling Center is wholly owned by RLL Holding
Company, of which Leshin is the sole shareholder and director. Ferdon served as
the president of the Counseling Center. The Counseling Center has only two
directors, Matt Wiley and Michael Bradford, both of whom are employees of
Express. The Counseling Center has no employees, and Leshin controls and
supervises the actions of its directors and officers. The Counseling Center was
never named as a defendant in the complaint filed by the Commission.
In March 2008, the defendants agreed to settle the charges against them, and
the parties stipulated to an injunction, which the district court entered on May 5,
2008. Although the Counseling Center was not a named defendant in the original
complaint, many provisions of the injunction apply to the Counseling Center, and
Leshin acknowledged on behalf of the shareholders of the Counseling Center that
they had received a copy of the injunction. The injunction enjoined the named
defendants and their representatives, which the injunction defined as “successors,
assigns, officers, agents, servants, employees and those persons in active concert or
participation with Defendants who receive actual notice of this Order by personal
service or otherwise.” The injunction enjoined the defendants and their
7
representatives from making certain false representations regarding their services
for debt consolidation or engaging in deceptive or abusive telemarketing practices;
charging fees, or executing contracts with fees, that “are prohibited by or exceed
applicable restrictions under state law” in the state in which the consumer resides;
failing to comply with all requirements of state law, including “licensing,
registration, reporting, audit, insurance, [and] escrow account” requirements in the
state in which defendants offer services for debt consolidation; and “[o]ffering,
entering into, or accepting the transfer of, a contract for debt consolidation services
with a person when Defendants are not, at the time of the offer, transfer or
execution of the contract, in compliance with legal requirements imposed by the
state in which the person resides.”
The injunction also appointed a temporary monitor “for the purpose of
monitoring certain payments and accounts, [and] providing notice to existing
customers.” The injunction required the monitor to notify “existing clients” of the
defendants and inform them of their rights. “Existing clients” are defined as
persons who signed a contract for debt consolidation with the defendants,
“including contracts under the name ‘Debt Management Counseling Center,’ . . . or
Debt Management Counseling Center, Inc.”; have not notified the defendants that
they are canceling their contracts; and have made payments under the contracts to
8
Leshin, Leshin, P.A., or the Counseling Center during the 60 days before entry of
the injunction.
The injunction divided the monitor’s task of notifying existing clients
between those states where Express was legally qualified to provide services for
debt management and those where it was not. The injunction defined when
Express is “qualified to provide debt management services” in a state. If a state did
not issue licenses for entities that offer or provide services for debt consolidation,
the injunction required the defendants, within 30 days of the date of the injunction,
to have “fulfilled any requirements imposed by state law to provide such services,
including any registration, reporting, audit, insurance, escrow account or trust
account requirements.” If a state issued licenses for such entities, the injunction
required the defendants, within 60 days of the date of the injunction, to have either
a valid license from the state authority or a pending application for a valid license,
in which “the state has unambiguously stated in writing that it will permit Express .
. . to offer debt consolidation services to residents of that state who are currently
being serviced by Express . . . for debt consolidation services based on the pending
application.”
Clients in states where Express was not legally qualified to provide services
were to receive notice that they could cancel their contracts immediately or
9
contract with the provider identified by the Commission. If the existing clients in
these states failed to inform the monitor of their preferences within 120 days of the
injunction, their contracts would be transferred to the provider identified by the
Commission. Clients in states where Express was legally qualified to provide
services, but whose contracts were signed with Leshin or Leshin, P.A., were to
receive notice that they could cancel their contracts immediately, contract with the
provider identified by the Commission, or transfer their contracts to Express. If the
existing clients in these states failed to inform the monitor of their preference
within 120 days of the injunction, their contracts would be transferred to Express.
Under the injunction, if a client elected to cancel a contract, the defendants were
required to cease collection from that client within three days.
The injunction also ordered Leshin, Leshin, P.A., and Express to pay $40
million and Ferdon to pay $380,000 for restitution to consumers. These funds
were to be deposited in a specified trust account under the control of the court-
appointed monitor and used primarily to pay the creditors of existing clients, with
the remaining balance to be paid to a fund administered by the Commission to be
used for monetary redress to consumers and for administration of that fund.
Soon after the entry of the injunction, the Counseling Center transferred its
contracts to Express. As of May 15, 2008, Express had accepted the transfer of all
10
the contracts of the Counseling Center, including contracts from states in which
Express was not in compliance with state law.
B. Clarification of the Injunction
On June 30, 2008, after entry of the injunction, the defendants filed an
emergency motion under Federal Rule of Civil Procedure 60(b) requesting an
extension of time to comply with the injunction, additional time to obtain licenses
or come into compliance with state law in twelve states, and permission to continue
to provide services for debt consolidation in those states. The defendants alleged
that the Commission intentionally interfered with their efforts to comply with the
injunction by issuing a misleading press release about their culpability and sending
a dossier to various “state[s] where Defendants sought approval to do business.”
The Commission and the defendants also disagreed about the states in which
Express was legally qualified to provide services. The monitor filed motions for
the district court to clarify in which states the defendants were in compliance so the
monitor could determine which notice he needed to send.
The district court conducted an evidentiary hearing to resolve all of these
issues and determined that Express was qualified to operate in four of the contested
states, and was not qualified in 21 states. The district court denied the Rule 60(b)
motion for additional time to comply with the injunction or to obtain licenses
11
because the defendants could have anticipated the regulatory timeframe and there
was no equitable basis for modifying or extending the deadlines to which the
parties had stipulated previously. The district court directed the monitor to send
out the required notices by July 25, 2008, and the monitor complied.
After the district court entered its order, the defendants, with the assistance
of the Counseling Center, sent out their own notices to clients in eight of the states
in which the district court had ruled Express was not legally authorized to conduct
debt consolidation. The notices encouraged clients to “cancel” their original
contracts and immediately sign new contracts with the Counseling Center or one of
the other defendants. The notices promised the clients that this process would
allow clients to continue their debt management plans and that Express would
service these contracts.
After the district court clarified that Express was not qualified to conduct
business in certain states, Express transferred back to the Counseling Center those
contracts it had previously accepted where, at the time of acceptance, Express was
not qualified to conduct business. Express had accepted the transfer of 721
contracts with Florida residents, 701 contracts with Georgia residents, 600
contracts with Ohio residents, 287 contracts with Tennessee residents, and 169
contracts with Kentucky residents. Florida, Georgia, Ohio, Tennessee, and
12
Kentucky were among the 21 states in which the district court ruled Express was
not qualified to conduct business.
C. Contempt Proceedings and the Final Order of Disgorgement
On January 28, 2009, the Commission moved the district court to direct the
defendants and the Counseling Center to show cause why they should not be held
in civil contempt. The Commission alleged that the contempt defendants
continued to solicit and execute contracts for debt consolidation with customers in
states where the district court had ruled they were not authorized to conduct
business, and continued to collect payments from customers in the same states
despite specific provisions enjoining them from doing so. The district court
entered an order to show cause and ordered the contempt defendants to respond by
February 9, 2009. The district court held an evidentiary hearing and the parties
filed briefs and proposed findings of fact and conclusions of law on the matter. On
March 27, 2009, the district court issued its findings of fact and conclusions of law
and held the defendants and the Counseling Center in contempt.
The district court found that the Commission had proved by clear and
convincing evidence that the defendants, and the Counseling Center acting in
concert, had violated the injunction in three ways. First, the district court found
that the contempt defendants continued to collect from existing clients who
13
cancelled their contracts in response to notices sent by the monitor. Second,
Express had accepted transfers of contracts from the Counseling Center for persons
who resided in states where Express, at the time of the transfer, was not in
compliance with state law. Third, the defendants and the Counseling Center
offered and executed contracts in states where the defendants were not in
compliance with state law when they offered or executed the contracts.
As part of the remedy, the district court held that the injunction should be
modified to effectuate its purpose following its violation. The contempt order
detailed the proposed modifications, but did not modify the injunction. The district
court later entered a separate order that modified the injunction.
The contempt order also ordered that the contempt defendants “effect
complete compensation to those aggrieved by the contempt” and “disgorge all
amounts collected from consumers” who “are parties to the . . . post-order
consumer contracts” the district court found to be unlawful. The district court
concluded that it was “unable to compute the exact amounts to be disgorged from
the exhibits” and directed the monitor “to determine the amount to be disgorged.”
Over seven months, from May 2009 through January 2010, the monitor
submitted a series of reports updating his calculation of the fees to be disgorged
based on information he continuously gathered from the defendants. The contempt
14
defendants objected to some of the calculations in these reports, and the district
court accepted a few of these objections and directed the monitor to adjust his
calculations accordingly.
On January 28, 2010, the district court entered its final judgment of
disgorgement and consumer redress. The district court found that the total amount
of fees to be disgorged was $594,987.90. The final order of disgorgement
specifically stated that it was entered “to remedy contempt via disgorgement and
[was] not a money judgment.” The district court stated that the judgment
“provides monetary relief for civil contempt, is solely remedial in nature, and is not
a fine, penalty, punitive assessment, or forfeiture.” The district court also included
in the order of disgorgement that the Commission “may apply to the Court to
convert any unpaid balance of this civil contempt remedy to a money judgement.”
The defendants and the Counseling Center were ordered to disgorge this amount
within 30 days of January 27, 2010.
II. STANDARDS OF REVIEW
We review an order of civil contempt for an abuse of discretion. Riccard v.
Prudential Ins. Co., 307 F.3d 1277, 1296 (11th Cir. 2002). If the record evinces
“that a reasonable person could find a clear and convincing violation” of the
consent decree, “we must affirm the contempt ruling of the district court.” Howard
15
Johnson Co. v. Khimani, 892 F.2d 1512, 1516 (11th Cir. 1990). “[T]he rules we
use to interpret a consent decree are the same ones we use to interpret a
contract—since a consent decree is a form of contract.” Sierra Club v. Meiburg,
296 F.3d 1021, 1029 (11th Cir. 2002) (internal quotation marks omitted). “We
review de novo the threshold question of whether a contract is ambiguous.” Frulla
v. CRA Holdings, Inc., 543 F.3d 1247, 1252 (11th Cir. 2008). “A contract is
ambiguous where it is susceptible to two different interpretations, each one of
which is reasonably inferred from the terms of the contract.” Id. (internal
quotation marks omitted). “[W]e . . . construe any ambiguities or uncertainties in
such a court order in a light favorable to the person charged with contempt.” Ga.
Power Co. v. NLRB, 484 F.3d 1288, 1291 (11th Cir. 2007). We review the
interpretation of state law de novo. Salve Regina Coll. v. Russell, 499 U.S. 225,
231, 111 S. Ct. 1217, 1221 (1991).
We review the remedial relief granted as a contempt sanction for an abuse of
discretion. McGregor v. Chierico, 206 F.3d 1378, 1388 (11th Cir. 2000); United
States v. City of Miami, 195 F.3d 1292, 1298 (11th Cir. 1999). We review de
novo the classification of a contempt sanction as civil or criminal. In re E.I.
DuPont De Nemours & Co.-Benlate Litig., 99 F.3d 363, 367 (11th Cir. 1996).
“[W]e review findings of fact arising out of contempt proceedings under the clearly
16
erroneous standard.” Doe v. Bush, 261 F.3d 1037, 1047 (11th Cir. 2001).
III. DISCUSSION
Although the contempt defendants raise numerous arguments on appeal, we
elaborate on only five of the arguments of the contempt defendants. First, we
discuss whether the district court abused its discretion by holding the defendants in
contempt. Second, we address whether the district court abused its discretion by
holding the Counseling Center, a nonparty, in contempt, Leshin and Ferdon
individually liable, and the contempt defendants jointly and severally liable. Third,
we discuss whether it was within the discretion of the district court to order the
contempt defendants to disgorge all fees collected as a result of the contemptuous
acts and whether the district court committed any error in calculating the amount of
disgorgement. Fourth, we address whether the sanction to disgorge all fees was a
civil contempt sanction or a criminal contempt sanction that violated the contempt
defendants’ right to due process. Fifth, we address whether we have jurisdiction to
review an argument that the district court abused its discretion when it added a
provision in the final order of disgorgement that allows the Commission to convert
the unpaid balance of the disgorgement into a money judgment. We affirm the
district court and, unless otherwise stated, do so for the reasons stated in its well-
reasoned orders.
17
A. The District Court Did Not Abuse Its Discretion by Holding the Defendants in
Contempt.
The contempt defendants contend that the district court abused its
discretion by holding them in contempt of ambiguous provisions after they had
made a good faith effort to comply with the injunction. A finding of civil
contempt must be supported by clear and convincing evidence that “the allegedly
violated order was valid and lawful; . . . the order was clear and unambiguous; and
the . . . alleged violator had the ability to comply with the order.” Riccard, 307
F.3d at 1296. “Once this prima facie showing of a violation is made, the burden
then shifts to the alleged contemnor to produce evidence explaining his
noncompliance at a ‘show cause’ hearing.” Chairs v. Burgess, 143 F.3d 1432,
1436 (11th Cir. 1998) (internal quotation marks omitted). Neither party challenges
the validity of the injunction or the ability of the defendants to comply with the
injunction.
1. Offering or Executing New Contracts in States Where Express Was Not
Qualified to Conduct Business Violated the Injunction.
The contempt defendants argue that the district court erred when it found
that they were not in compliance with state law when they offered or executed
contracts in several states. They argue that they made a “good faith effort” to
comply with the injunction, that no consumers were “harmed or prejudiced by . . .
18
[their] technical, if at all, noncompliance,” and that their substantial compliance
made the contempt order unwarranted. We disagree.
The Supreme Court has made clear that the absence of willfulness is not a
defense to a charge of civil contempt. McComb v. Jacksonville Paper Co., 336
U.S. 187, 191, 69 S. Ct. 497, 499 (1949). The decisions of our Court and our
predecessor court have held that substantial, diligent, or good faith efforts are not
enough; the only issue is compliance. Combs v. Ryan’s Coal Co., 785 F.2d 970,
984 (11th Cir. 1986); see also Newman v. Alabama, 683 F.2d 1312, 1318 n.16
(11th Cir. 1982); Jim Walter Res., Inc. v. Int’l Union, United Mine Workers of
Am., 609 F.2d 165, 168 (5th Cir. 1980) (“[I]n civil contempt proceedings the
question is not one of intent but whether the alleged contemnors have complied
with the court’s order.” (alteration in original) (internal quotation marks omitted)).
We do not focus “on the subjective beliefs or intent of the alleged contemners in
complying with the order, but whether in fact their conduct complied with the
order at issue.” Ga. Power Co., 484 F.3d at 1291 (internal quotation marks
omitted).
The district court did not clearly err when it found that the defendants failed
to comply with the laws of Florida, Georgia, Ohio, and Tennessee. The laws of
these states require that providers of debt consolidation services maintain insurance
19
coverage for employee dishonesty, forgery, and computer fraud. Fla. Stat.
§ 817.804(1)(b); Ga. Code Ann. § 18-5-3.1(a)(2); Ohio Rev. Code Ann.
§ 4710.02(E); Tenn. Code Ann. § 47-18-104(b)(39)(A)(vii). The defendants had
an insurance policy from Travelers with an endorsement that excluded coverage
for losses of money, securities, and property of others caused by employee theft,
computer fraud, or any fraudulent transfer of funds. The policy also excluded
coverage for employee theft of client property. Coverage for employee theft,
which is a form of employee dishonesty, was required in Florida, Georgia, Ohio,
and Tennessee.
The defendants conceded before the district court that “[i]n real life . . .
there’s an issue” with the policy, and classified its noncompliance as “excusable
neglect.” We are not concerned with excusable neglect but with whether the
contempt defendants complied with the injunction. They did not. Because the
defendants and their representatives were required to be in compliance with state
law when they offered or executed contracts, the district court did not abuse its
discretion in finding the defendants, and the Counseling Center, in contempt for
offering or executing post-order contracts in Florida, Georgia, Ohio, and
Tennessee.
The district court also did not abuse its discretion by holding the defendants
20
and the Counseling Center in contempt for entering into contracts in Kentucky,
Nevada, Texas, and California. The defendants conceded that Express failed to
comply with the registration requirements in Kentucky for debt adjusters, which
include those who service contracts for debt consolidation. Ky. Rev. Stat. Ann.
§§ 380.010(2); 380.040(5). Despite this failure, Express entered into 37 new
contracts in Kentucky and continued to service the 126 new contracts entered into
by the Counseling Center. Regarding Nevada, the record also proved Express
failed to procure either the required license for debt adjusters, Nev. Rev. Stat.
§ 676.110, or a credit services organization certificate, id. §§ 598.721, 598.741. In
Texas, the law requires all providers of debt consolidation services to be
accredited, see 7 Tex. Admin. Code § 88.304(a), yet the contempt defendants
offered or executed post-order contracts before August 8, 2008, the day they
received accreditation. Additionally, the record supports the finding by the district
court that the defendants were not in compliance with California law. Leshin and
Leshin, P.A., were not exempt from California prorater laws, Cal. Fin. Code
§§ 12200, 12002.1, 12100(c), and violated the injunction when Express solicited
California consumers to execute contracts with Leshin, despite having received a
“Desist and Refrain Order” from the Department of Corporations of California on
July 15, 2008. Because the defendants were not in compliance with the laws of
21
Kentucky, Nevada, Texas, and California at the time defendants offered or
executed the post-order contracts in these states, the district court did not abuse its
discretion in holding them in contempt.
2. Soliciting Existing Clients Violated the Injunction.
The contempt defendants do not dispute that they continued to collect from
971 “existing clients” who had elected to cancel their contracts after receiving
notice from the monitor. The heart of the contempt defendants’ argument is that,
when existing clients received notice and chose to cancel their contracts, the
existing clients became former clients and the defendants were permitted under the
injunction to enter new contracts and collect on the new contracts. This argument
fails.
The injunction is unambiguous, and the contempt defendants’
interpretation—that existing clients became former clients when they cancelled
their contracts—would render paragraph A of section X of the injunction
meaningless. This paragraph states that if the monitor receives a cancellation
notice from an existing client, the defendants “shall discontinue all collections
from that client.” We read the term “existing clients,” as defined by the injunction,
to mean those clients with executory contracts when the injunction was executed.
The defendants were required to cease collections from any existing client who
22
received the monitor’s notice and elected to cancel his contract.
The record supports the finding that the contempt defendants repeatedly
contacted clients even after the district court found Express to be unqualified to do
business in those states. A telephone script, approved by Leshin, instructed
telemarketers to solicit existing clients by stating, “Cancel your current contract by
selecting option 2 on the notice, and then authorize [the Counseling Center] to
continue your [contract].” The script promised the clients that “[e]verything will
stay the same and . . . that Express Consolidation will continue to service your
[contract] without any disruption.” The contempt defendants admitted to sending
these notices after the district court clarified those states in which Express was not
qualified to do business. They admitted to having had the idea during the hearing
for clarification, but they chose not to seek approval by the district court. The
contempt defendants continued to collect from 971 existing clients that had
responded to the monitor’s notice and elected to cancel their contracts. Because
the 971 existing clients from whom the contempt defendants continued to collect
had notified the monitor that they were electing to cancel their contracts, the
contempt defendants, and the Counseling Center acting in concert with them,
violated paragraph A of section X by soliciting new contracts and collecting on
these contracts.
23
3. Accepting Transfer of Contracts from the Counseling Center When Express
Was Not in Compliance with State Law Violated the Injunction.
The contempt defendants argue that the district court abused its discretion by
holding Express, and the Counseling Center acting in concert with Express, in
contempt for accepting the transfer of contracts from the Counseling Center when
Express had not yet complied with state law. They argue that the requirement of
the Counseling Center to transfer contracts to Express “was completely separate
from all other requirements.” They argue that the injunction “did not prohibit
[Express]” from accepting the contracts of the Counseling Center. Alternatively,
the contempt defendants argue that any error in accepting these transfers was cured
when Express transferred back to the Counseling Center those contracts from states
in which Express was not in compliance with state law.
The district court did not abuse its discretion by holding the defendants in
contempt for accepting the transfer of contracts from the Counseling Center.
Although section XII of the injunction required the Counseling Center to “transfer
the contracts of [its] existing clients . . . to Express,” section VI of the injunction
unambiguously enjoined Express from accepting the transfer of contracts when it
was not, at the time of the transfer, in compliance with state law. When we read
the injunction as a whole, which we are required to do, nothing in it exempted
Express from section VI. Stated differently, the Counseling Center may have been
24
required to transfer its contracts, but Express was specifically enjoined from
accepting those contracts from states in which it was not in compliance with state
law. Moreover, the contempt defendants’ interpretation is unreasonable and
divorces section XII from all other provisions of the injunction, including section
VI, which unambiguously barred Express from accepting the transfer of these
contracts. See Frulla, 543 F.3d at 1252 (“If the interpretation urged by one party is
unreasonable in light of the contract’s plain language, the contract is not
ambiguous . . . .”). All parties, including the Counseling Center, were aware that at
the time of the transfer Express was required to be in compliance with state law.
Express and the Counseling Center through its officers at the time of the
transfers—Leshin and Ferdon as officers of Express, Leshin as the sole shareholder
of the Counseling Center, and Ferdon as an officer of the Counseling
Center—proceeded at their peril. See McComb, 336 U.S. at 192, 69 S. Ct. at 500.
We reject the contempt defendants’ argument that transferring the contracts
back to the Counseling Center cured any violation of the injunction. The
injunction required that Express be in compliance when it accepted the transfer of
these contracts. The contempt defendants provide no authority to support that the
retransfer of these contracts, after the violation had occurred, cured the violation.
The record establishes that Express, even after it transferred the contracts back to
25
the Counseling Center, continued to service those contracts despite its
noncompliance with state law. Accordingly, the district court did not abuse its
discretion by holding the defendants, and the Counseling Center acting in concert,
in contempt for accepting the transfer of these contracts.
B. The District Court Did Not Err by Holding the Counseling Center in Contempt,
by Holding Leshin and Ferdon Individually Liable, or by Holding the Contempt
Defendants Jointly and Severally Liable.
The contempt defendants argue that the district court erred by holding the
Counseling Center, as a nonparty to the injunction, in contempt. They also argue
that the district court erred by holding Leshin and Ferdon individually liable and by
holding all contempt defendants jointly and severally liable for disgorgement. We
address each of these arguments in turn.
An order binds those “who receive actual notice of it,” including the parties,
“the parties’ officers, agents, servants, employees, and attorneys,” as well as “other
persons who are in active concert or participation with [them.]” Fed. R. Civ. P.
65(d)(2). The injunction not only binds the parties “but also those identified with
them in interest, in ‘privity’ with them, represented by them[,] or subject to their
control. . . . [The] defendants may not nullify [the injunction] by carrying out
prohibited acts through aiders and abettors, although they were not parties to the
original proceeding.” Regal Knitwear Co. v. NLRB, 324 U.S. 9, 14, 65 S. Ct. 478,
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481 (1945). Many provisions in the injunction, including those provisions for
which the district court held the defendants and the Counseling Center in contempt,
enjoin the named defendants and their representatives, “those persons in active
concert or participation with Defendants who receive actual notice of [the
injunction].”
The district court did not abuse its discretion by holding that the Counseling
Center acted in concert and was bound by the injunction. The Counseling Center
received actual notice of the injunction. The district court found that the
Counseling Center is wholly owned by Leshin, P.A., it had no employees, Ferdon
served as the president, the only two directors were also employees of Express, and
Leshin controls and supervises the actions of the directors and officers of the
Counseling Center. The record supports the finding that the Counseling Center
acted in active concert or participation with the defendants when it solicited
existing clients to cancel and sign new contracts in violation of the injunction.
Leshin also directed the Counseling Center, which in turn aided and abetted the
defendants, to continue to collect from 971 existing clients who had cancelled their
contracts. The Counseling Center also aided and abetted the defendants in
procuring post-order contracts when they were not in compliance with state laws,
and executed post-order contracts in the name of the Counseling Center, which
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Express serviced despite its noncompliance. The district court did not abuse its
discretion in holding the Counseling Center in contempt of the injunction as an
active participant in the contemptuous conduct of the defendants.
The district court also did not abuse its discretion when it held Leshin and
Ferdon individually liable for contempt and in contempt as officers of Express,
Leshin, P.A., and the Counseling Center. The Supreme Court long ago held that
individuals responsible for the affairs of a corporation can be individually held in
contempt for disobeying a known injunctive order.
A command to the corporation is in effect a command to those who
are officially responsible for the conduct of its affairs. If they,
apprised of the writ directed to the corporation, prevent compliance or
fail to take appropriate action within their power for the performance
of the corporate duty, they, no less than the corporation itself, are
guilty of disobedience and may be punished for contempt.
United States v. Fleischman, 339 U.S. 349, 357–58, 70 S. Ct. 739, 743–44 (1950)
(emphasis omitted) (internal quotation marks omitted); see also Northside Realty
Assocs., Inc. v. United States, 605 F.2d 1348, 1353 & n.9 (5th Cir. 1979)
(explaining that “contumacious conduct on the part of . . . leaders . . . fully
support[s] the Court’s finding[] of contempt on the part of the corporation and the
individual defendants,” “[t]he acts of the . . . officers, done within the scope of
their employment and for the benefit of their employer, are attributable to the
corporate defendant,” and “the acts of [the individuals] go not only to corporate
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liability but to their personal liability as well” (citation omitted)). The undisputed
evidence established that Leshin wrote the script used to solicit existing clients in
violation of the injunction. Both Leshin and Ferdon, as officers of the defendant
companies, participated in executing post-order contracts that violated the
injunction.
Moreover, the district court did not abuse its discretion by holding the
individual defendants jointly and severally liable for the disgorgement order.
“Where . . . parties join together to evade a judgment, they become jointly and
severally liable for the amount of damages resulting from the contumacious
conduct.” NLRB v. Laborers’ Int’l Union of N. Am., 882 F.2d 949, 955 (5th Cir.
1989); see also FTC v. Gem Merch. Corp., 87 F.3d 466, 470 (11th Cir. 1996);
Connolly v. J.T. Ventures, 851 F.2d 930, 934–35 (7th Cir. 1988). The record
supports the finding that the contempt defendants together evaded the injunction.
C. The District Court Did Not Abuse Its Discretion by Ordering Disgorgement as
the Sanction for Contempt or in Calculating the Amount to Be Disgorged.
The contempt defendants allege that, because no consumers were injured by
their activity, the order of disgorgement should have been limited to its profits, not
its gross receipts. The contempt defendants argue that there was “no causal
relationship between disgorged fees and any wrongdoing” because their
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noncompliance was “purely technical.” The contempt defendants argue that the
district court erred because it did not find that they had engaged in fraud. The
contempt defendants also contend that the final amount of disgorgement reflects
erroneous calculations. We address each of these arguments in turn and reject
them all.
1. Ordering Disgorgement of All Fees Collected in Violation of the Injunction Was
Within the Discretion of the District Court.
The district court did not abuse its discretion in ordering disgorgement of
gross receipts instead of profits. We have upheld a contempt sanction that required
disgorgement of gross receipts, even though the consumer received some value
from the product or service. See McGregor, 206 F.3d at 1388. Our sister circuits
also have upheld disgorgement of gross receipts. See FTC v. Kuykendall, 371
F.3d 745, 766–67 (10th Cir. 2004) (en banc); see also FTC v. Febre, 128 F.3d 530,
536 (7th Cir. 1997) (losses under the Federal Trade Commission Act); FTC v.
Figgie Int’l, Inc., 994 F.2d 595, 605–06 (9th Cir. 1993) (same). Despite the
contempt defendants’ contention that no consumers were injured by their
contumacious activity, consumers entered into contracts based on the
misrepresentation that the defendants had the legal authority to conduct business.
As a part of these contracts, consumers paid fees that they would not otherwise
have paid. The district court was not required to find that the defendants had
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committed fraud before ordering disgorgement. We afford the district court wide
discretion in fashioning an equitable remedy in civil contempt, which includes
ordering disgorgement, McGregor, 206 F.3d at 1385 n.5, and the district court did
not abuse its discretion by requiring the contempt defendants to disgorge all fees
collected on contracts procured in violation of the injunction.
2. The District Court Did Not Err When It Calculated the Final Amount of
Disgorgement.
The contempt defendants contend that the monitor’s calculations contained
several errors, but the contempt defendants often fail to provide specific arguments
or citations to the record for these contentions. To the extent that the contempt
defendants have not waived their objections to the monitor’s calculations, see
Flanigan’s Enters., Inc. of Ga. v. Fulton Cnty., Ga., 242 F.3d 976, 987 n.16 (11th
Cir. 2001), their remaining arguments fail.
We reject the contempt defendants’ argument that the district court abused
its discretion by including fees collected by the Counseling Center in the order to
disgorge all fees collected from existing clients. The district court found that the
Counseling Center solicited existing clients on behalf of Express, Leshin, or Leshin
P.A., after the clients had elected to cancel their contracts. The district court did
not abuse its discretion by including those fees the Counseling Center collected or
solicited at the direction of Leshin and in violation of the injunction.
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We also reject the argument of the contempt defendants that the district
court abused its discretion by including all fees collected by Express on account of
the transfer of 600 Ohio contracts from the Counseling Center. The contempt
defendants have failed to explain why requiring disgorgement of all fees collected
by Express on those 600 contracts, even after Express transferred the contracts
back to the Counseling Center, was erroneous. Express was not in compliance
with Ohio “debt adjusting” law, which required Express, even as the service agent,
to maintain adequate insurance coverage. Ohio Rev. Code Ann. § 4710.02(E).
The district court found that Express continued to engage in debt adjusting services
with regard to those 600 contracts transferred back to the Counseling Center
despite that the injunction required Express to comply with all requirements under
state law. The contempt defendants have not challenged this factual finding. The
district court did not abuse its discretion by including those fees collected while
Express was not in compliance with state law.
We also reject the argument that the district court abused its discretion by
including fees that were held in trust or by including fees collected for non-
sufficient funds or expediting. Although the contempt defendants contend that
they did not retain the fees held in trust as revenue, they fail to point to any
evidence in the record that these funds were paid out of trust to creditors. The
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contempt defendants argue that the administrative fees are not charged as part of
the monthly costs for services. This argument parallels the contempt defendants’
argument that disgorgement of gross receipts is not compensatory. As we
discussed above, this argument fails. See McGregor, 206 F.3d at 1388.
Ordering disgorgement of all fees collected serves to restore the consumer
who would not otherwise have paid the fees or contracted for these services if the
consumer had known the contempt defendants were not in compliance with state
law. But for the contempt defendants’ violation of the injunction, they would not
have collected fees from the consumers, including those fees held in trust and
collected for non-sufficient funds and expedite fees. The district court did not
abuse its discretion.
The contempt defendants’ remaining arguments challenging the final order
of disgorgement are unsupported by legal or record citations and fail to establish an
abuse of discretion. We will not grant relief where a litigant “fail[s] to elaborate or
provide any citation of authority in support of the . . . allegation.” Flanigan’s
Enters., Inc. of Ga., 242 F.3d at 987 n.16.
D. The District Court Issued Civil Contempt Sanctions and Did Not Violate the
Contempt Defendants’ Right to Due Process.
The contempt defendants argue that the district court imposed punitive or
criminal contempt sanctions, which violated their constitutional right to due
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process, and the contempt defendants argue that the district court violated their
right to due process when it modified the injunction and then held them in
contempt for violating these modified terms. We reject these arguments and
conclude that the contempt sanctions entered by the district court are valid civil
sanctions for violations of the original terms of the injunction.
It is well settled that “[a] contempt fine . . . is considered civil and remedial
if it either ‘coerce[s] the defendant into compliance with the court’s order, [or] . . .
compensate[s] the complainant for losses sustained.’” Int’l Union, United Mine
Workers of Am. v. Bagwell, 512 U.S. 821, 829, 114 S. Ct. 2552, 2558 (1994)
(some alterations in original) (quoting United States v. United Mine Workers of
Am., 330 U.S. 258, 303–04, 67 S. Ct. 677, 701 (1947)). A contemnor need only be
afforded the opportunity to purge his sanction of a fine, in the civil context, where
a fine is not compensatory. Id. In the civil contempt context the discretion the
district court has to impose noncoercive sanctions “is particularly broad and only
limited by the requirement that they be compensatory.” Howard Johnson, 892 F.2d
at 1521.
The order to disgorge all fees collected in violation of the injunction is a
civil sanction for contempt. The sanction to disgorge all fees collected from post-
order contracts and from continuing to collect from existing clients is remedial in
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nature. The order of disgorgement attempts to restore the status quo before the
contempt defendants, in violation of the injunction, represented to consumers that
they could lawfully enter into contracts in certain states. Moreover, the contempt
sanctions are civil in nature because the sanctions were imposed to compensate
consumers for the losses they sustained. Consumers, had they known the contempt
defendants were not in compliance with state law, would not have entered into
contracts for debt adjustment and would have paid no fees.
The district court did not deprive the contempt defendants of due process.
The contempt defendants were afforded notice and an opportunity to be heard.
They were placed on notice by the motion by the Commission, as well as prior
motions to extend the monitor’s tenure in the light of the defendants’ failure to
cancel existing clients in accordance with the injunction. The district court
provided them an opportunity to be heard, both in written form and in oral form
during a protracted two-day evidentiary hearing to show cause.
The district court also reasonably interpreted the injunction before it
modified the injunction. The interpretation of the injunction did not modify the
injunction because it did not “change[] the legal relationship of the parties.” Sierra
Club, 296 F.3d at 1029. Moreover, the interpretation is not such a gross
misinterpretation of the original command that it “leaps from the page.” Id.
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(internal quotation marks omitted). The district court modified the injunction only
after it held the defendants in contempt for violating the original terms of the
injunction in the light of all the evidence.
E. The Provision of the Final Order of Disgorgement that Allows the Commission
to Convert the Unpaid Balance into a Money Judgment Is Not Ripe for Review.
The contempt defendants argue that the district court abused its discretion
when it provided in the final order of disgorgement that the Commission could
apply to the district court to convert the unpaid balance of the disgorgement into a
money judgment. The contempt defendants argue that “[b]y converting any unpaid
balance of a civil contempt remedy to a money judgment, the [district] [c]ourt
improperly eliminated [defendants’] right of the opportunity to purge the contempt
by a showing of inability to pay.” We lack jurisdiction to decide this issue.
This issue is not ripe for review. “A claim is not ripe for adjudication if it
rests upon contingent future events that may not occur as anticipated, or indeed
may not occur at all.” Texas v. United States, 523 U.S. 296, 300, 118 S. Ct. 1257,
1259 (1998) (internal quotation marks omitted). The final order of disgorgement
did nothing more than state that the Commission “may apply” for the order to be
converted into a monetary judgment. (Emphasis added). The order did not convert
the sanction into a monetary judgment. Furthermore, the contempt defendants’
inability to pay may be relevant to and provide a defense for contempt if they fail
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to comply with the order of disgorgement, but it is not relevant to the current
appeal. See Chairs, 143 F.3d at 1436.
IV. CONCLUSION
We find no reversible error in the well-reasoned and thorough orders of the
district court. We AFFIRM the order of contempt and final order of
disgorgement.
AFFIRMED.
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