FTC object to Vemma’s pyramid complaint defenses
In their latest filing against Vemma, the FTC have taken issue with the raising of “affirmative defenses”.
In their Answers to the FTC’s Complaint, Defendants raise several “affirmative defenses” that are insufficiently pled, legally unavailable in defense of this action, or redundant.
For those unfamiliar with the term, an “affirmative defense” is
a justification for the defendant having committed the accused crime. It differs from other defenses because the defendant admits that he did, in fact, break the law.
He is simply arguing that he has a good reason for having done so, and therefore should be excused from all criminal liability. (FindLaw)
I’d have thought Vemma and Boreyko admitting to running a pyramid scheme would be a good thing for the FTC, so what are these objections all about?
Turns out the FTC aren’t objecting to the defenses themselves, but are rather claiming them to be invalid.
Affirmative defenses must meet minimum pleading standards to provide the opposing party with fair notice of the defense and the grounds on which it rests.
An affirmative defense is invalid if “the plaintiff would succeed despite any set of facts which could be proved in support of the defense.”
I think that goes back to the mention of redundancy, with the FTC arguing that some of the defenses raised are irrelevant (ie. they don’t defend the allegations brought against Vemma).
I’m not a lawyer, so the particulars of affirmative defenses, particularly a deficiency with Vemma’s own, didn’t occur to me.
But in going over Vemma and BK Boreyko’s response to the FTC filing, I did call out their throwing of consumers under the bus.
Any losses sustained by the FTC and/or the consumers it purports to represent were caused by the acts or omissions of third parties over whom the Corporate Defendants had no control or right to control.
Consumers represented by the FTC knowingly and voluntarily, and possibly unreasonably, exposed themselves to any claimed losses with knowledge or appreciation of the risk involved.
Not surprisingly, this is one of the defenses the FTC object to.
Whereas my own objections originated from an ethical standpoint, the FTC frame theirs within a legal context:
By way of example, all Defendants assert that “any losses sustained by the FTC and/or the consumers it purports to represent were caused by the acts or omissions of third parties over whom the [Defendants] had no control or right to control,” without providing any facts whatsoever or identifying the other parties that are supposedly responsible.
Third-parties within this specific defense are of course Alex Morton and his #YPR gang. Unfortunately for Vemma, they’re trapping themselves by trying to blame Morton and #YPR for their mess without calling them out directly.
That would run counter to the “united front” image they’re trying to engineer of social media. That and who knows what might happen if Morton was put under enough pressure such that he felt compelled to defend his part in all of this in court.
It’s one thing to invent a narrative on Facebook and follow it up with some hypey videos, but on the record?
Yeah, you can’t hide behind your dad in court.
Specific to consumers being thrown under the bus;
All Defendants assert that the “FTC and/or the consumers it purports to represent have failed to mitigate their losses, if any;” the Corporate Defendants and Defendant Boreyko assert that “[c]onsumers represented by the FTC knowingly and voluntarily, and possibly unreasonably, exposed themselves to any claimed losses with knowledge or appreciation of the risk involved;” and Defendant Alkazin asserts that “any consumers represented by the FTC knowingly and voluntarily assumed the risk of losses.”
These defenses refer to the consumers affected by Defendants’ actions, who are not parties to this suit.
The FTC brings this suit in its own name, so defenses asserted against consumers are inapplicable and inappropriate.
It’s not all about Morton and consumers though, with the FTC objecting to other “broad” defenses raised by Vemma and Boreyko.
Similarly, Defendants nakedly assert that the “FTC’s claims for injunctive relief are not authorized or available at law or equity,” and the Corporate Defendants and Defendant Boreyko likewise assert that the injunctive claims “may be” or “were and are” unconstitutional.
Again, Defendants provide no facts to support these defenses, do not identify what proposed injunctive provisions are unconstitutional or what constitutional provisions the requested injunction allegedly violates.
Such unrestrained pleading will lead to unnecessarily broadening the issues in the case and in discovery.
Another defense raised was the boiler-plate “failure to state a claim”.
As this district has recognized in striking this defense, it “is not a proper affirmative defense but, rather, asserts a defect in [Plaintiff’s] prima facie case.”
The FTC’s Complaint alleges facts, which taken as true for the purposes of this motion,21 are sufficient to support the counts set forth in the Complaint.
In addition, the Court has already ruled the FTC is likely to succeed on the merits in this case.
Also, apparently “acting in good faith” isn’t a valid defense under the FTC Act;
Each of the Defendants asserts that they “acted reasonably, in good faith, and in accordance with any applicable standards and duties.”
This defense should be stricken because the law is well established that good faith is not a valid defense to liability under the FTC Act.
All in all, the FTC move to differentiate Vemma, Boreyko and Alkazin’s defenses as “negative defenses”:
In an affirmative defense, the defendant is asserting that the defendant should
prevail in the case even if all of the allegations of the complaint are true.
Negative defenses, on the other hand, simply repeat a defendant’s denials of the allegations in a complaint.
Consequently, under Federal Rule of Civil Procedure 12(f), such defenses are redundant and should be stricken.
In this case, it is clear from their Answers that the Defendants deny engagement in the unlawful acts and practices alleged in the Complaint and that they deny liability for any consumer injury caused by these unlawful acts or practices.
The so-called affirmative defenses in question relate to whether Defendants have violated statutes enforced by the FTC and whether they should be enjoined and are liable for consumer injury.
In addition, once the FTC proves that the Defendants have violated the FTC Act, the culpability or actions of others are utterly irrelevant to the liability of the Defendants.
These defenses should be stricken.
Conclude the FTC:
(Vemma) should not be permitted to use legally insufficient “affirmative defenses” to frustrate the purpose of a federal statute or to thwart public policy.
An agency charged with enforcement of an important regulatory scheme in the public interest, such as the FTC, should not be thwarted or distracted by conclusory and improbable allegations.
Accordingly, the FTC respectfully requests that the Court strike each of Defendants’ so-called affirmative defenses, other than the Corporate Defendants’ eighth affirmative defense.
A hearing tomorrow will decide whether Vemma are able to push ahead with a revised compensation plan.
The FTC’s objection filing discussed above was filed on the 19th of October, with a response expected by Vemma either later this week or early next.
Footnote: Our thanks to Don@ASDUpdates for providing a copy of the FTC’s “Motion to Strike Affirmative Defenses” October 19th filing.
Update 7th November 2015 – Vemma have been granted a requested extension to reply to the FTC’s motion. Vemma’s response is now due by November 12th.