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Related Cases

Federal Trade Commission v. Trudeau, 845 F.3d 272, 2016-2 Trade Cases P 79,856

Facts

After a civil contempt judgment against Kevin Trudeau for failing to surrender profits from violating FTC orders, the FTC demanded business records from entities affiliated with him. The district court appointed a receiver to manage the assets of these entities, including Website Solutions, which was found to be under Trudeau's control. The receiver collected approximately $8 million, which the FTC sought to distribute to defrauded customers. The law firms representing Website Solutions requested compensation from these funds, which the district court denied.

The receiver collected a net of approximately $8 million, which the FTC wants to distribute to Trudeau's defrauded customers.

Issue

Did the district court abuse its discretion in denying the law firms' request for compensation from the funds held by the receiver?

The Law Firms have appealed—but from the October 2015 order rather than any of the later orders.

Rule

The court applied the principle that claims for compensation by law firms representing an entity under a receiver's control are junior to the claims of victims defrauded by that entity.

As a proxy for Trudeau, Website Solutions had no right to make commitments to pay third parties with funds belonging to Trudeau's victims.

Analysis

The court determined that the law firms' claims for compensation were subordinate to the claims of the victims because the federal judiciary had previously directed Trudeau to turn over all proceeds from his improper activities. The judge found that the law firms had not obtained court approval for their engagement and did not demonstrate that their actions benefited the estate. Therefore, the district court did not abuse its discretion in denying their request for compensation.

Indeed, the Law Firms have not even tried to show that they would have satisfied the requirements for compensation had this been a bankruptcy rather than a receivership.

Conclusion

The court affirmed the district court's decision, concluding that the denial of the law firms' request for compensation was not an abuse of discretion.

The district court did not abuse that discretion by saying 'no.'

Who won?

The FTC prevailed in this case as the court upheld the denial of the law firms' request for compensation, prioritizing the claims of defrauded customers over those of the law firms.

The court affirmed the denial of the law firms' request for compensation, concluding that the order was final and appealable.

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