The FTC has been denied NetForce contempt sanctions against Jay Noland.

The request for sanctions stems from Noland allegedly violating his NetForce injunction judgment.

Back in mid 2020 the FTC was denied contempt sanctions, pending resolution of the FTC’s Success by Health pyramid scheme case.

The FTC renewed its motion for contempt sanctions in June 2021.

Defendant James D. Noland, Jr., along with co-contemnors Scott Harris, Thomas Sacca, Success By Media LLC, and Success By Media Holdings Inc. violated multiple terms of this Court’s 2002 Stipulated Final Judgment and Permanent Injunction.

Until the Court imposed preliminary relief in January 2020, they ran two pyramid schemes—Success By Health (“SBH”) and VOZ Travel—using false earnings claims to bilk thousands of consumers out of $7 million.

The FTC, therefore, requests the Court find them in contempt and award civil compensatory sanctions.

Despite acknowledging “the FTC has established that the Contempt Defendants violated some provisions of the (NetForce) permanent injunction”, on March 22nd the FTC’s renewed sanction motion was denied.

The Court concludes that the FTC has not clearly and convincingly established, at this stage of the proceedings, that the Contempt Defendants violated Sections I, II, and III of the permanent injunction through their operation of SBH.

The FTC will need to seek to establish those violations at an evidentiary hearing.

Because the FTC has not established all of the violations alleged in its motion, it follows that the FTC has not established an entitlement to the $7,012,913.25 compensatory contempt award sought in its motion.

Following the March 22nd denial, the FTC filed a motion for consideration on March 24th.

In its reconsideration motion, the FTC argues that the Court should have deemed its evidence sufficient to establish the SBH-related violations of Section I of the permanent injunction because, regardless of whether SBH qualifies as a “pyramid scheme” under Ninth Circuit law (which was the issue addressed in the summary judgment order in the Second Action), SBH necessarily qualifies as a “prohibited marketing scheme” as that term is defined by the permanent injunction.”

The court conceded the FTC’s point but in a March 30th order denying the motion, wrote;

The Court is not persuaded that the best and most efficient solution is to revisit the issue now via another written order issued in advance of an evidentiary hearing.

This case has been pending for over two years, discovery is closed, and a consolidated evidentiary hearing in the First and Second Actions will need to take place regardless of how the reconsideration motion is resolved.

I last checked the Success by Health case docket on March 23rd. As of yet we don’t have any future court dates.

One other interesting tidbit from the original denial motion was the court noting it might adjust the FTC’s requested $7 million figure.

If NetForce contempt sanctions are eventually granted, the court has signalled it will factor in product distributed to affiliates as part of the Success by Health pyramid scheme.

The FTC acknowledges that its calculations do not account for the inherent value of the products that consumers actually received and consumed.

Factoring in the value of products distributed as part of the Success by Health pyramid scheme, would effectively reduce the requested $7 million award.

The Supreme Court’s AMG decision potentially impacting enforcement of the NetForce injunction also comes up.

Here are unresolved questions about the FTC’s authority to pursue a compensatory civil sanction based on new § 13(b) violations that also violate an injunction issued in a previous § 13(b) enforcement action (such as the permanent (NetForce) injunction issued in the First Action).

I’ll continue to monitor the NetForce case docket. I’m not expecting any significant filings though pending resolution of the Success by Health case.

 

Update 29th May 2022 – The FTC’s contempt claims have survived a Motion to Dismiss, filed by Noland and his co-defendants back in March.

As per the May 18th order;

There is a disconnect between the substantive argument raised in the Contempt Defendants’ motion (i.e., the FTC’s request for monetary contempt sanctions in the First Action is barred by AMG Capital) and the relief they seek (i.e., a dismissal based on the absence of subject-matter jurisdiction).

The Court unquestionably has subject-matter jurisdiction to entertain a claim for civil contempt sanctions based on the violation of a permanent injunction it previously issued.

With respect to the AMG decision, which the dismiss motion was based around, the order states;

The Court acknowledges that, at some point in the near future, it may be necessary to decide whether the FTC’s request for monetary sanctions in the First Action is foreclosed by AMG Capital.

But the only request now properly before the Court is the Contempt Defendants’ request for dismissal for lack of subject-matter jurisdiction.

As explained above, that request lacks merit.

Noland and co. also tried to peg an “unclean hands” defense on the FTC, which the court described as “procedurally confusing”.

The court went on to deny Noland and co.’s Motion to Dismiss.

Looking forward;

The next step will be to hold an evidentiary hearing to resolve the FTC’s contempt allegations in the First Action (as well as its claims in the Second Action) on the merits.

I’ll continue to monitor the case docket for updates.