Consumer Loss Is An Appropriate Benchmark For Determining Contempt Penalty
FTC v. TRUDEAU (November 29, 2011)
Kevin Trudeau advertises his books on infomercials. The FTC, after entering into a court approved settlement, alleged that Trudeau violated the settlement and sought a contempt finding. Judge Gettleman (N.D. Ill.) agreed and found Trudeau in contempt. He imposed a $37.6 million fine and banned Trudeau from making infomercials for three years. On appeal, the Seventh Circuit affirmed (opinion and intheiropinion) the finding of contempt but remanded on the sanctions. It concluded that the district court failed to adequately explain its rationale for the monetary sanctions and also concluded that a complete ban was inappropriate, in that he did not give Trudeau an opportunity to comply with the agreement. On remand, Judge Gettleman reinstated the monetary penalty, explaining that he arrived at it by multiplying the number of books ordered through the 800 number by the price of the books plus shipping. The court also imposed a $2 million performance bond if Trudeau wanted to do any more infomercials, to be effective for five years. Trudeau appeals.
In their opinion, Seventh Circuit Judges Ripple, Manion, and Tinder affirmed. The Court rejected Trudeau's argument that the fine was improper because it was based on consumer loss. That is an appropriate approach to a contempt finding even if, as he alleges, Trudeau did not benefit to the same degree as the consumers lost. The Court actually noted that the district court's figures were conservative. It only included those books that were sold through the infomercial’s 800 number, even though other books were sold through the Internet and retail outlets. With respect to the performance bond, the Court rejected Trudeau's argument that the FTC had to show significantly changed circumstances. That rule applies only in institutional reform cases. Here the proper test is whether the order was achieving its purpose -- and it clearly was not. Finally, the Court rejected Trudeau's First Amendment argument and found the requirement narrowly enough drawn to meet the constitutional standard: a) the bond is only triggered if Trudeau decides to engage in infomercials, b) the district court gave him an opportunity to seek a reduction in the amount of the bond with proof of his financial position, and c) the amount of the bond is proportional to the threatened harm.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select