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Federal Trade Commission v. QT

March 17, 2009


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


Plaintiff Federal Trade Commission ("Plaintiff" or "Commission") brought this action against Defendants under Section 13(b) of the Federal Trade Commission Act ("the Act"), seeking monetary and injunctive relief for alleged violations of Sections 5 and 12 of the Act.

15 U.S.C. §§45(a), 52 and 53(b), as amended. Following a seven-day bench trial, this Court found Defendants Que Te Park, QT, Inc., Q-Ray Company, and Bio-Metal, Inc. ("Defendants") violated Sections 5 and 12 of the Act; but found that Jung Joo Park ("Mrs. Park") had not committed a violation. F.T.C. v. QT, Inc., 448 F. Supp. 2d 908 (N.D. Ill. 2006), aff'd 512 F.3d 858 (7th Cir. 2008). The Court subsequently entered a Final Judgment Order ("Order"), in which it continued the asset freeze previously imposed in the Stipulated Order for Preliminary Injunction With Asset Transfer Restrictions and Other Equitable Relief ("Preliminary Injunction"). Dkt. 211, 34. Two bank accounts of QT Foundation ("Foundation") totaling $1,410,000 in the custody of Foster Bank were among the assets frozen (the "Disputed Accounts").

Two motions related to the Order and the asset restriction provision of the Preliminary Injunction are presently before the Court: (1) the Motion of QT Foundation to Release Its Bank Accounts from Continuing Freeze Order ("Motion to Release"); and (2) the Cross Motion of Plaintiff Federal Trade Commission for Turnover to Commission of QT Foundation Accounts Subject to the Freeze Order ("Cross Motion"). Dkt. 317, 326. Catherine Steege, as the trustee appointed in bankruptcy for the estates of Que Te Park, QRay Company, and AQP Liquidating, Inc., the successor to QT, Inc., ("Trustee") joins in the Commission's Opposition to the QT Foundation motion. Dkt. 323. The Commission and the Trustee also request the Court to maintain the asset freeze over the remaining assets until such time as the Trustee is able to administer those assets for the benefit of the bankruptcy estates. For the reasons discussed herein, the Court denies the Foundation's Motion to Release and grants the Commission's Cross Motion to turn over the Disputed Accounts to the Commission.


The history and facts of this case are extensive. This Court detailed the factual background of this case in F.T.C. v. QT, Inc., 448 F. Supp. 2d 908 (N.D. Ill. 2006), aff'd 512 F.3d 858 (7th Cir. 2008). Therefore, this Court provides as background only what is necessary to decide the present motions.

On May 27, 2003, the Commission filed a complaint for permanent injunction, and other equitable relief, against Defendants. Dkt. 1. The Commission alleged that Defendants engaged in deceptive acts or practices and false advertising in violation of Sections 5(a) and 12 of the Act. Dkt. 1, 211. On May 29, 2003, the Commission successfully obtained a Temporary Restraining Order ("TRO") against Defendants that, inter alia, froze Defendants' assets. Dkt. 2.

On June 9, 2003, the parties appeared before District Judge John W. Darrah for a hearing on the Commission's preliminary injunction motion. Dkt. 25, 63, 64. Prior to the hearing, Judge Darrah requested the parties to enter chambers and to discuss a possible negotiated resolution to the preliminary injunction issues. While in chambers, Defendants agreed, without argument, to all of the substantive relief requested by the Commission in its TRO and in its preliminary injunction motion; the parties also negotiated restrictions to be placed on Defendants' assets. The parties orally agreed on a $17 million asset restriction on Defendants' assets, which included $1,410,000 of the Foundation's assets. See also Declaration of Theodore H. Hoppock in Support of Opposition of Plaintiff Federal Trade Commission to Motion of QT Foundation to Release its Bank Accounts from Continuing Freeze Order and Cross Motion for Turnover of Those Assets to the Commission ("Hoppock Decl.") (Dkt. 322), at Ex. 1. The terms of the oral agreement became effective on June 11, 2003 when the court entered the Preliminary Injunction. Dkt. 34.

On August 21, 2003, in Defendants' Motion for Relief From or in the Alternative to Amend the Preliminary Injunction Order ("Motion for Relief"), Defendants sought to lift the asset restriction from the Disputed Accounts. Dkt. 63. Defendants claimed the Foundation was not a party to the litigation and that the Foundation's assets could only be used for charitable purposes. The court summarily denied Defendants' motion. Dkt. 61.

On September 8, 2006, following a bench trial, the Court issued a Memorandum Opinion and Order finding that Defendants' infomercials, which aired on television between 2000 and 2003, contained deceptive claims regarding the Q-Ray bracelet and its purported ability to eliminate pain. QT, Inc., 448 F. Supp. 2d at 919, 975. The Court found that Defendants' false claims caused $87 million in consumer injury. QT, Inc., 448 F. Supp. 2d at 953. As a remedy, the Court ordered refunds be made to the consumers and ordered Defendants' current assets frozen to ensure such remedy. Id.

On November 13, 2006, the Court issued a Final Judgment Order which continued the asset freeze previously entered in the preliminary injunction. Dkt. 211. Specifically, the Foundation assets were stated in the Order to be assets "belonging to, under the control of, or for the benefit of the Defendant Judgment Debtors, in whole or in part . . . that may or may not be traceable to ill-gotten gains, that are restricted pursuant to the Stipulated Preliminary Injunction." Dkt. 211, at Attachment A. The asset restriction in the preliminary injunction, in relevant part, ordered the following:

Defendants and their officers, directors, agents, servants, employees, attorneys, and all other persons or entities in active concert or participation with them who receive actual notice of this [o]rder by personal service or otherwise, are hereby enjoined from: selling, liquidating, assigning, transferring, converting, loaning, encumbering, pledging, concealing, dissipating, spending, withdrawing, or otherwise disposing of $17 million in assets wherever located, including any assets outside the territorial United States, that are: (1) owned or controlled by any Defendant, in whole or in part; or (2) in the actual or constructive possession of any Defendant. . . .

Dkt. 34. The Final Judgment Order prohibits any transfer or disposition of such frozen assets, including the Foundation assets, without the prior, express written permission of the Commission. Dkt. 211, at ¶ VII.B.2. In addition, the Final Judgment Order empowered the Commission to seek the entry of "additional Orders to ensure that Defendants transfer to the Commission the required sum . . . ." Dkt. 211, at ¶ V, VII.A.4.b.

The Foundation has now filed a Motion to Release and a supporting memorandum ("Foundation Memo"). Dkt. 317, 335. In support of its motion, the Foundation argues that the asset restriction does not apply to the Foundation and that the Disputed Accounts should be released from the asset freeze to allow the Foundation to continue making charitable distributions. Furthermore, as a procedural matter, it argues that its accounts should not be used to ...

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