United States: Let It Go – Best Song From Frozen And What Judge Orders About Some Frozen Assets

Last Updated: April 25 2014
Article by Randal M. Shaheen and Amy R. Mudge

There aren't too many things worse than showing up at the office in the morning and realizing that the FTC has gotten a temporary restraining order against your company and frozen your assets.

While most FTC investigations don't occur in such dramatic fashion, occasionally some do and the consequences are often dire. This is exactly what happened to several companies and individual defendants in a case filed by the FTC in Utah last month.  In that case, the FTC alleged a tangled web of purported misrepresentations involving a training/business education company and several of its suppliers. The federal court granted the FTC's request for a temporary restraining order as well as imposing an asset freeze that froze not only those assets directly traceable to the businesses that were the subject of the complaint but also assets from unrelated businesses and assets of the named individuals. Under the original order, the individuals had no access to any funds, including funds that might be needed to buy food or fuel, pay legal fees, or pay utility bills nor did the businesses have access to funds needed to maintain their operations. Since the FTC routinely argues that assets other than those directly traceable to the alleged unlawful activity are fair game in satisfying any consumer redress requirement, the FTC's request in this regard is hardly surprising.

Rather than settle, the Defendants, for the most part, (one individual defendant stipulated to a PI and an asset freeze that closely mirrored the one entered as part of the TRO) opted to fight and late last month the court held a hearing on the FTC's request for a preliminary injunction.  In a ruling earlier this week, the Court reaffirmed in part its original entry of a TRO but significantly narrowed the asset freeze.  With respect to the supplier, the court dismissed the Order entirely, finding that the FTC had not demonstrated a likelihood of success.  With respect to the company that was allegedly at the center of the alleged fraud, the court granted a preliminary injunction but imposed a partial asset freeze only on those companies operated by the defendant that were engaged in the training and business education activities that were the subject of the FTC's complaints.  (Defendants and the FTC were ordered to work out the extent of the freeze on those assets.)  The assets of other companies owned by Defendants that were engaged in unrelated businesses were unfrozen. In addition, the court also ordered the release of the assets of the individual owners of the defendant companies; thus allowing them to pay personal living expenses, legal fees, etc.

Of course, this war is far from over and the FTC may yet prevail and obtain a substantial judgment.  However, this court was at least sympathetic to the argument that an asset freeze that goes so far as to deprive an alleged – but not yet judicially determined – misleading advertiser of funds needed to buy essentials or pay attorneys to mount a legal defense goes too far as does a freeze that potentially threatens to put other unrelated businesses out of business.  Assuming the FTC does ultimately prevail, it will be interesting to see how much, if any, of the court's sympathies in this regard transfer over to the issue of damages and consumer redress.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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