Federal Trade Commission v. AH Media Group, LLC

Background

The Federal Trade Commission (FTC) sued AH Media Group, LLC, Henry Block, Alan Schill, and relief defendant Zanelo, LLC, alleging an online subscription scam involving personal-care products and dietary supplements. According to the complaint, consumers were offered low-cost trial products and then enrolled, without their knowledge or consent, in recurring billing plans that charged about $90 and additional monthly shipping fees. The FTC alleged that defendants collected more than $35 million from consumers.

The court first entered a temporary restraining order that prohibited the alleged practices, froze assets, and appointed a temporary receiver. Defendants later stipulated to a preliminary injunction. After settlement-related proceedings, the parties stipulated to two permanent injunction and monetary judgment orders. One order, against Schill and Zanelo, included a $74.5 million monetary judgment and required the transfer of specified cryptocurrency, after which the remaining judgment would be suspended. The other order, against AH Media and Block, included a $67 million judgment and required Block to pay $1.045 million and transfer funds from five bank accounts, after which the remaining judgment would be suspended.

About a year later, the Supreme Court decided AMG Capital Management, LLC v. Federal Trade Commission. The Supreme Court held that Section 13(b) of the Federal Trade Commission Act did not authorize the FTC to seek, or a court to award, equitable monetary relief such as restitution or disgorgement through the procedure used in that case. The FTC’s footnote in this opinion explained that the decision did not hold that the FTC could never obtain monetary relief; it identified other procedures the FTC could use.

Defendants’ Rule 60(b) Motion

Defendants moved under Federal Rule of Civil Procedure 60(b)(4), (5), and (6) to set aside and vacate the stipulated orders. Rule 60(b)(4) permits relief when a judgment is void. Rule 60(b)(5) permits relief when a judgment has been satisfied, released, or discharged; is based on an earlier judgment that was reversed or vacated; or has a prospective application that is no longer equitable. Rule 60(b)(6) permits relief for another reason that justifies reopening a final judgment.

Defendants argued under Rule 60(b)(4) that the court lacked subject-matter jurisdiction to enter the preliminary and final orders and that they were denied a meaningful opportunity to be heard. The court rejected both arguments. It noted that the complaint alleged violations of the FTC Act, the Restore Online Shoppers’ Confidence Act, and the Electronic Fund Transfer Act—federal statutes that supported federal-question jurisdiction. The court distinguished a lack of jurisdiction from an argument that particular statutes did not authorize particular remedies. It also found that defendants repeatedly stipulated that the court had jurisdiction and had authority to issue the orders.

The court likewise rejected the due-process argument. Defendants had filed a response opposing a preliminary injunction, but two days later voluntarily stipulated to the preliminary injunction without asking the court to resolve their objections. They later stipulated to the final orders without objecting or asking the court to decide the Section 13(b) issue. The court concluded that defendants had a full and fair opportunity to litigate and had chosen not to use it. Rule 60(b)(4) relief was therefore denied.

Rule 60(b)(5)

The court found no basis for relief under Rule 60(b)(5). The stipulated orders were not based on an earlier judgment that had been reversed or vacated. The Supreme Court’s decision in AMG was a later decision in a different case, not a reversal or vacatur of a judgment on which these orders were based.

The court also concluded that the orders did not have the type of prospective effect covered by Rule 60(b)(5). The injunction and monetary judgments provided a present remedy for alleged past conduct, and the equitable part of Rule 60(b)(5) could not be used to relieve a party from a money judgment merely because payment obligations continued into the future.

Rule 60(b)(6)

The court then considered whether extraordinary circumstances justified relief under Rule 60(b)(6). It recognized that a change in controlling law can sometimes support relief, but concluded that the circumstances here did not warrant it. When defendants entered the stipulated orders, the law in the circuit was settled against their position, and the Supreme Court’s AMG case was already pending and fully briefed. The court characterized defendants’ decision to stipulate as a calculated and deliberate choice that could not be undone merely because later events made that choice look unwise.

The court also rejected defendants’ claims of economic pressure and inability to afford counsel. It had denied an initial request for attorney’s fees without prejudice and had indicated that defendants could renew the request with additional information and that their lawyers could eventually be paid from receivership funds. Defendants did not renew the request. The court further found that defendants had not acted diligently because they never asked the court to decide the Section 13(b) issue before stipulating.

After balancing the relevant factors, the court concluded that denying relief best served justice. It also noted that defendants had waived rights to appeal or otherwise challenge the stipulated orders, although the court did not treat those waivers as automatically barring Rule 60(b) relief. The court stated that granting the motion would likely only require the FTC to use a different procedure to pursue the same substantive result.

Disposition

The Rule 60(b) motion to set aside and vacate the stipulated orders for permanent injunction and monetary relief was denied. Judge James Donato signed the order.