During a recent motion hearing in Utah federal court, Judge Dee Benson, FTC lawyers, and lawyers for the defendants squared off over issues related to a wrongfully obtained TRO and unnecessary receivership. In February 2014, the FTC obtained a TRO and appointment of a temporary receiver. However, the court later learned that FTC had provided what the court characterized as incomplete information in order to obtain the TRO and appointment of temporary receiver. As a result of the omitted information, the court dissolved both the TRO and receivership and denied the FTC’s request for a preliminary injunction. However, during the interim 37 days, the appointed receiver, Robb Evans & Associates, had racked up nearly $500,000 in fees and costs. The question thus arose as to who was supposed to pay the bill.
The defendants claimed the FTC should pay the receiver’s bill on account that their actions caused the wrongfully obtained TRO, which led to the approximately $500,000 in fees and costs incurred by Robb Evans. Defendants argued that the Equal Access to Justice Act waives sovereign immunity for purposes of a claim under Rule 65(c). The FTC disagreed, arguing in its motion to dismiss that defendants claim is an intentional tort, which is barred by sovereign immunity, and even if sovereign immunity was waived, defendants failed to comply with notice requirements under the Federal Tort Claims Act.
During the arguments from defense counsel, the court seemed to be looking for a reason to levy the bill against the FTC. However, Judge Benson wasn’t persuaded that the FTC wasn’t protected by sovereign immunity. Even though Judge Benson ultimately granted the motion to dismiss, he took the receiver’s request for fees under advisement. His comments as to why he was taking it under advisement undoubtedly left shivers down the spine of the FTC. The following are excerpts from the judge’s comments regarding the fees to be paid to Robb Evans:
- I’m also concerned that the F.T.C. was the reason for the overreaching. It strikes me that this receiver was working far more for the F.T.C. than it was for the Court. I look back at this T.R.O., and I will say again I regret granting it….
- My biggest regret in granting this T.R.O. was that one that I was persuaded by the Federal Trade Commission that these defendants were of that nature, that if I didn’t do this ex parte that the money would be gone and the culprits would be mostly gone. They would have hidden their tracks and for the most part the assets would not be ascertainable, and from everything that I read in the briefing that led up to the preliminary injunction and to the information and arguments given at the preliminary injunction hearing, I just found that I had improvidently granted a T.R.O. and regret it.
- To the extent my equitable powers allow, it seems unfair to have the Sonnenberg defendants, especially because they didn’t agree to any preliminary injunction going forward as the Essent Media defendants did, to have them have to pay for a receiver to come in and swoop in and do all of this to their business
- One last point, which the Federal Trade will not enjoy hearing, and that is if I can find require the Federal Trade Commission to pay these receivership fees, I will. I think they should pay them. They recommended the receiver. They persuaded me that this T.R.O. was proper. They should have to pay these fees if it is legally allowed.
- To summarize, I’m thinking that rather than 400 or $500,000, the appropriate fee would be about half of that, and I am inclined to impose it against the Federal Trade Commission if I can.
- I think equity says that the F.T.C. should pay it.
Thus, while the court dismissed the defendant’s counterclaim against the FTC for damages related to the receiver’s fees, the court sent a strong signal that the FTC may still be on the hook for those fees under the court’s equitable powers. The court said it would have a hearing on the issue before any ruling was made.