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Federal Trade Commission v. QT

December 22, 2006

FEDERAL TRADE COMMISSION, PLAINTIFF,
v.
QT, INC., Q-RAY, COMPANY, BIO-METAL, INC., QUE TE PARK, A.K.A. ANDREW Q. PARK, AND JUNG JOO PARK, DEFENDANTS.



The opinion of the court was delivered by: Magistrate Judge Morton Denlow

MEMORANDUM OPINION AND ORDER

Defendants QT, Inc., Q-Ray Company, Bio-Metal, Inc., Que Te Park, and Jung Joo Park (collectively "Defendants"), petition the Court to release funds frozen under the June 11, 2003 Stipulated Order for Preliminary Injunction With Asset Transfer Restrictions And Other Equitable Relief ("Preliminary Injunction Order") to compensate and reimburse fees and costs incurred by their counsel, Ungaretti & Harris, LLP ("the Ungaretti Firm"). Defendants seek release of $1,265,226.72 to pay legal fees and costs incurred from March 2005 through the entry of the Final Judgment Order on November 13, 2006.*fn1 The Court grants Defendants' Petition in part, and orders that interest earned through November 13, 2006, on any accounts frozen under the Preliminary Injunction Order be released to the Ungaretti Firm on the condition that the Ungaretti Firm agrees to subject itself to this Court's jurisdiction in the event the Federal Trade Commission ("FTC") seeks review of this order. The Court defers further consideration of this Petition until after the FTC has completed asset discovery against Defendants.

I. RELEVANT PROCEDURAL HISTORY

This case commenced on May 27, 2003, when the FTC filed its complaint and motion for a temporary restraining order, alleging that Defendants violated various provisions of the Federal Trade Commission Act, 15 U.S.C. §§ 45(a), 52, 53(b).On June 11, 2003, Judge Darrah entered the Preliminary Injunction Order, which included a provision freezing $17 million of Defendants' assets. Provisions for attorneys' fees and expenses were included as follows:

D. Notwithstanding the $17 million [in frozen assets], Defendants may pay reasonable, usual, ordinary, and necessary business and living expenses, and attorneys' fees, costs and expenses of up to $2.5 million from existing assets. Defendants may also pay such reasonable, usual, ordinary, and necessary business and living expenses, and attorneys' fees, costs and expenses from any income of any type generated after the date of this Order. Defendants shall produce a monthly balance sheet and accounting of such expenses and income to the Federal Trade Commission no later than five (5) days after the end of each month.

E. [O]nce Defendants secure and retain $17 million in assets . . ., any additional existing assets over the $17 million may be used to pay reasonable, usual, ordinary, and necessary business and living expenses, and attorneys' fees, costs and expenses. . . .

Preliminary Injunction Order, p. 5, ¶ III.D&E.

On September 8, 2006, the Court entered its Memorandum Opinion and Order, finding that all Defendants other than Jung Joo Park violated the FTC Act, and ordering refunds to consumers, disgorgement of Defendants' profits, and a permanent injunction to be set forth in a final judgment order. FTC v. QT, Inc., 448 F. Supp. 2d 908, 975-76 (N.D. Ill. 2006). The Final Judgment Order was entered on November 13, 2006. In addition to its injunctive provisions, the Final Judgment Order requires Defendants (other than Jung Joo Park) to provide refunds to any unsatisfied consumers up to a total of $87,019,840 plus pre-judgment interest, but to disgorge a minimum of $22.5 million in profits regardless of the amount of refunds sought by consumers. While the assets frozen under the Preliminary Injunction Order belonging to Jung Joo Park were released, the remaining assets were to remain frozen. The Final Judgment Order further provides that: the Court reserves the right to permit, if allowed by law, some of the restricted assets . . . to be used to pay Defendants' reasonable attorneys fees and costs . . . up to [$1.3 million].

Within seven (7) days from the date of entry of this Order, Defendants shall file an up-to-date petition identifying the reasonable attorneys' fees and costs incurred in this matter. . . .

[T]he Court may enter a supplemental order concerning attorneys' fees and costs incurred in this matter.

Final Judgment Order, p. 18, ¶ XIV. Defendants' Petition for Compensation and Reimbursement of Expenses of Ungaretti & Harris is currently before the Court.

II. RELEVANT EQUITABLE PRINCIPLES

While FTC defendants do not have a legal entitlement to an asset freeze provision allowing for the payment of attorneys' fees, courts in this circuit have routinely made such allowances to permit some of the frozen assets to be used to pay the lawyers defending against the FTC's suit. See FTC v. Think Achievement Corp., 312 F.3d 259, 262 (7th Cir. 2002); FTC v. Amy Travel Service, Inc., 875 F.2d 564, 570, 575-76 (7thCir. 1989); FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1032 (7th Cir. 1988); FTC v. Windermere Big Win International, ...


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