The opinion of the court was delivered by: Robert W. Gettleman United States District Judge
Judge Robert W. Gettleman
MEMORANDUM OPINION AND ORDER
Following remand by the United States Court of Appeals for the Seventh Circuit directing this court to explain the monetary sanction imposed after this court (and the Court of Appeals) found defendant Kevin Trudeau ("Trudeau") in contempt of previous orders, and reversing a portion of the injunctive relief awarded by this court, plaintiff Federal Trade Commission ("FTC") filed two motions against Trudeau: a "Renewed Motion for Entry of Compensatory Monetary Remedy Against Kevin Trudeau" (Doc. 267; the "Monetary Remedy Motion"); and a "Renewed Motion to Modify the Stipulated Final Order for Permanent Injunction as to Kevin Trudeau" (Doc. 269; the "Motion to Modify"). After extensive briefing and argument after remand, the court grants both motions in part.
The sad history of this case is set forth in detail in this court's earlier opinions,*fn1 as well as the August 27, 2009, opinion by the Seventh Circuit.*fn2 The following discussion addresses the issues remanded to this court by the Court of Appeals.
The Seventh Circuit affirmed this court's finding that Trudeau was in contempt of this court's September 2004 consent order that settled a prior finding of contempt in which Trudeau, (a) paid $2 million for consumer redress, (b) agreed to an order prohibiting him from advertising any products in infomercials and allowing him to participate in infomercials for books and publications, so long as the infomercial did not "misrepresent the content of the book." As this court found, and the Seventh Circuit affirmed, Trudeau willfully violated that order with respect to a book he published known as the Weight Loss Cure book. Rather than repeat the details of this court's and the Court of Appeals' findings, the court refers to the opinions cited above.
Of particular importance to the matters currently before the court, the Court of Appeals confirmed that the infomercial was deceptive and "induc[ed] consumers to purchase the book on false hopes and assumptions. . . . Trudeau . . . outright lied." 579 F.3d at 767.
II. The Monetary Sanctions
A. Consumer Loss as Measure of Sanction for Contempt
Although the Court of Appeals affirmed this court's contempt finding against Trudeau (at that time the second such finding in the history of the case*fn3 ), the reviewing court remanded the case for this court to "explain how it arrived at the specific amount of the sanction imposed. . . .
[T]his means not only explaining where the numbers came from, but also outlining the methodology the court used to crunch those numbers and arrive at what it believed to be the appropriate amount." Id. at 770.
The first step, then, is for this court to explain why it ultimately chose an award approximating consumer loss rather than an award approximating the gain Trudeau might have received as a result of the infomercials. Initially, the court had ordered a sanction of slightly over $5 million, which the FTC had argued represented a conservative estimate of the royalties Trudeau received from the sales of the book. Both parties sought revision of that order, with Trudeau arguing, as he continues to argue, that the evidence demonstrated that he received no royalties from ITV and had no profit from the infomercial book sales to disgorge.
As the court has previously found, the court is very dubious of Trudeau's claims of relative impecunity. The FTC has calculated that the sales of the Weight Loss Cure book totaled over $49 million, yet Trudeau claims that he has received zero for his efforts. In the trial conducted by this court in the contempt proceedings, Trudeau attempted to rely on a balance sheet that, as this court found, was not worth the paper it was written on. It was merely a series of numbers that Trudeau's financial planner put together at Trudeau's direction in an unsuccessful attempt to show he could not afford to pay the compensation the FTC was seeking. See, FTC v. Trudeau, 572 F.Supp.2d at 925. The FTC has argued on numerous occasions that Trudeau is hiding substantial assets, and was in the process of discovering those assets when the Court of Appeals' opinion was issued. That process should be concluded before the final chapter is written in this litigation.
Nonetheless, although the court did not and does not believe that Trudeau received nothing for producing the infomercials or from the sales of the book through the infomercials, Trudeau did convince the court that he has made it next to impossible to determine his gain and, as a result, any sanction based on disgorgement of profits would be a wholly ineffectual remedy and would do nothing to deter (and indeed might encourage) further contempt. Although not noted in its final order, the court first notified the parties of its intent to base the sanction on consumer loss in the October 30, 2008, post-trial (pre-judgment) hearing, and heard extensive argument on the subject.
Moreover, as the Court of Appeals noted, "courts have broad discretion to fashion contempt remedies and the particular remedy chosen should be `based on the nature of the harm and the probable effect of alternate sanctions.' Consumer loss is a common measure for civil sanctions in contempt proceedings and direct FTC actions. Indeed, some courts, including ours, have held that in certain cases consumer loss is a more appropriate measure than ill gotten gains." Id. at 771 (internal citations omitted). The court also noted that "as a prerequisite to basing sanctions on consumer loss, courts often require a finding that the defendants were 'engaged in a pattern or practice of contemptuous conduct' as opposed to 'isolated incidents of contumacy.'" Id. at 772 (citing FTC v. Kuykendall, 371 F.3d 745, 764 (10th Cir. 2004) (en banc)).
The court finds that the consumers who purchased the Weight Loss Cure book as a result of the infomercials did so based upon Trudeau's "outright lies" and misrepresentations that "induc[ed] consumers to purchase the book on false hopes and assumptions" that they would lose weight by following an "easy" protocol, which was anything but easy. As the Court of Appeals held, "Trudeau repeatedly distorted the content of the Weight Loss Cure book in multiple infomercials"*fn4 in direct contempt of this court's orders and Trudeau's own agreement to refrain from misrepresenting the content of any book in an infomercial. See id. at 767-68. Based on his long record of deceptive conduct in direct and willful violation of this court's orders, there can be no serious question that Trudeau has engaged in a "pattern and practice of contemptuous conduct."
Therefore, given Trudeau's history of contemptuous conduct, the fact that his misrepresentations were so widely disseminated, and the fact that disgorgement of ill-gotten-gains would be wholly ineffectual, the court concludes, once again, that a sanction based on consumer loss is the only appropriate remedy.
The court rejects Trudeau's argument that FTC v. Verity Int'l Ltd., 443 F.3d 48, 66-70 (2d Cir. 2006), compels disgorgement as the only available remedy. In Verity, the FTC sued foreign operators of a billing service retained by internet pornographers, alleging that the operators committed statutory unfair trade practices by billing telephone line subscribers for internet access whether or not they actually accessed or authorized access to the pornographers' website. After issuing a preliminary injunction requiring certain financial disclosure requirements, the court held a bench trial on stipulated facts, found in the FTC's favor and ordered the restitutionary remedy of disgorgement to the FTC. On appeal, the Second Circuit held that because the case was brought under the second provision of § 13(b) of the FTC Act, 15 U.S.C. § 53(b), which provides for a preliminary injunction, any award of restitution had to be limited to "equitable restitution," which allows a plaintiff to recover money or property in the defendant's possession that could be identified as belonging to the plaintiff. "Here, because the availability of restitution under § 13(b) of the FTC Act, to the extent it exists, derives from the district court's equitable jurisdiction, it follows that the district court may only award equitable restitution." Id. at 67. The Verity court thus rejected an amount of restitution based on the full amount of consumer loss, concluding that the appropriate measure was the benefits unjustly received by the defendants. Id. at 68.
Trudeau's argument that Verity compels disgorgement of unjustly retained profits as the only appropriate remedy for his contumacious conduct is misplaced. Verity involved a remedy for a direct violation of the FTC Act, and the FTC sought relief only under § 13(b), which provided solely for equitable relief. Id. at 67. The instant case is a civil contempt proceeding based on a direct and willful violation of a court order. Verity itself recognizes the difference in its review of the contempt sanctions the district court had ordered as a result of the defendants' violation of the preliminary injunction. In that discussion, which never mentioned disgorgement, the court, quoting United States v. United Mineworkers of America, 330 U.S. 258, 303 (1947), stated "[j]udicial sanctions in civil contempt proceedings may, in the proper case, be employed for either or both of two purposes; to coerce the defendant into compliance with the court's order, and to compensate the complainant for loses sustained." Id. at 70. Thus, even Verity recognizes that consumer loss is an appropriate measure of a contempt sanction. In the instant case, this court concludes that it is the only appropriate civil monetary remedy.
Trudeau has little credibility with this court. Based on his demeanor and conduct, the court has found, and continues to find, that Trudeau cannot be trusted. Any attempt to fashion a monetary sanction against him based on what he says he earned from the infomercials would be sheer folly. The consumers who were deceived by him in the infomercials deserve to be compensated for the money they spent on the book that was misrepresented in the infomercials, which includes the cost of the Weight Loss Cure book itself along with the shipping and handling charges associated with the book. In short, if there was ever a case in which consumer loss was the proper measure of damages, this is it.
B. Calculation of Consumer Loss
With respect to the calculation of consumer loss, this court has examined the evidence submitted by the FTC*fn5 to support the figure of $37,616,161. To answer the Court of Appeals' questions at 579 F.3d at 771, this figure includes only the cost of the book purchased through the "800" telephone number displayed during the deceptive infomercial (including infomercials that were broadcast over the internet), along with shipping and handling costs, less returns to consumers. In other words, it is a net figure. It does not include internet sales (sales consummated by computer rather than by the 800 number), retail sales or the shipping and handling costs associated with other books that were sent to consumers who purchased the Weight Loss Cure book.*fn6
Frankly, this is a conservative number, because there is little doubt that at least some purchasers of the book from retail stores were influenced to buy the book by the deceptive infomercials. The cover of the book displays a conspicuous sticker reading "As Seen on TV," thus directing the consumer to the misrepresentations in the infomercials. Surely, some consumers bought the book without opening it and discovering that they had been deceived. The same can be said of people who bought the book through the internet. Because the court cannot put a reliable number on such sales, it has decided in the exercise of its discretion to eliminate these entirely from its calculation of consumer loss.
Finally, with respect to the monetary award, the figures arrived at by the court were established by the unchallenged FTC summary exhibit (Plaintiff's Ex. 20), along with excerpts from the Rule 30(b)(6) deposition of ITV's George Potts, which exhibits were admitted into the record by agreement. Although Trudeau argues in the remand proceedings (for the first time) that these exhibits somehow do not support the sales figures advanced by the FTC and adopted by the court, Trudeau is incorrect. Because the history of the admission of trial exhibits has been challenged by Trudeau after remand, the court has reviewed the record and verified that the $37.6 million figure is accurate and, indeed, was never contested by Trudeau until recently.
After the trial testimony concluded in July 2008, the court encouraged the parties to submit an agreed set of exhibits to be incorporated into the court's final order. During this period Trudeau's counsel from the law firm of Jenner & Block (David Bradford and Daniel Hurtado) sought leave to withdraw, and his current counsel from Winston & Strawn (Kimball Anderson) appeared. Both sets of lawyers worked together to accomplish as smooth a transition as possible, but counsel for both sides were unable to agree with respect to all the exhibits. Both the FTC and Trudeau eventually submitted objections, and the court specifically ruled (and the parties agreed) that any exhibit to which no objection was made would be admitted into evidence. (See, 9/30/08 Tr. at 10.)
The FTC objected to the admission of the entire Potts deposition (which the court sustained), but not specific excerpts offered by Trudeau.*fn7 Likewise, Trudeau did not object to the excerpts from the Potts deposition submitted by the FTC, nor to the summary exhibit (Plaintiff's Ex. 20) that was based on the sales information provided by ITV. (See Docs. 182, 184.) Indeed, at the October 20, 2008, hearing Mr. Anderson agreed that the ITV payment schedule (Plaintiff's Ex. 23; Potts Dep. Ex. 23) "is in the record." (10/20/08 Tr. At 35, l. 24-25.)*fn8 Most importantly, Trudeau agreed to the admission of Plaintiff's Ex. 20, the summary of sales resulting from the infomercial, submitted under Fed. R. Evid. 1006. Mr. Anderson conceded at the hearing conducted by the court on March 12, 2010, that Trudeau never objected to this exhibit either at trial or on appeal.*fn9 Of course "summaries admitted pursuant to Rule 1006 are evidence." United States v. Winn, 948 F.2d 145, 158 (5th Cir. 1991) (emphasis in original). See also 6 Jack B. Weinstein & Margaret A. Berger, Weinstein's Federal Evidence, § 1006.04 (Joseph M. McLaughlin, ed., Matthew Bender 2 ed. 1997). Trudeau's recent attempt to repudiate this record and question the basis of the court's quantification of consumer loss is wholly without merit.
Trudeau argues that the Court of Appeals' reference to his right to discovery and a hearing entitles him to initiate a new round of discovery and requires the court to hold another trial. Nonsense. Both Trudeau and the FTC took (or had the opportunity to take) extensive discovery prior to the trial conducted by this court on the issue of contempt.*fn10 Over a three day period in July 2008, the FTC presented extensive evidence to support its charge of contempt, the damages suffered by consumers, and the remedies it sought.*fn11 Trudeau chose to present evidence and testimony that this court weighed and largely found to be bogus (the phony financial statements) or incredible (including Trudeau's testimony about the weight loss program). See FTC v. Trudeau, 572 F.Supp.2d 919, 923-25 (N.D. Ill. 2008). Trudeau eschewed the opportunity to present evidence of so-called consumer satisfaction or other mitigating factors, other than the expert testimony about retail sales that the court found at least partly convincing. In short, Trudeau has already been given all the process that he is due in these civil contempt proceedings, and the court has refused to open the record to give him a second (or third) bite at the apple.
For these reasons, the court grants the FTC's Renewed Motion for Entry of Compensatory Monetary Remedy Against Kevin Trudeau (Docket No. 267), and awards the sum of $37,616,161 subject to the terms discussed below.
D. Administration of the Sanction
In addition to directing this court to explain how it calculated the amount of the award, the Court of Appeals directed the court to "outline how the sanction should be administered," noting that payment to the U.S. Treasury rather than consumers "looks more like a criminal fine than a compensatory sanction." 579 F.3d at 774. The Court of Appeals, however, rejected Trudeau's argument that any "excess money not reimbursed to consumers . . . be returned back to Trudeau." Id.
The FTC's Rule 60(b) renewed motion to modify the inunction suggests the appropriate method for administering the award. Because the FTC is confident that it can identify the consumers who purchased the Weight Loss Cure book via the 800 telephone number listed in the contumacious infomercials, it is confident that it can distribute the $37.6 million to most all of the victims of Trudeau's fraudulent conduct. To the extent that any of these consumers cannot be found or reimbursed, the FTC has proposed to refund the excess left over after deducting Trudeau's profits and costs of administration to Trudeau. In the exercise of its discretion the court declines to reduce any refund to Trudeau by the amount of his profits from the sale of Weight Loss Cure book, because those profits might be subsumed in the award of consumer loss. Given the history of this case and his willful misconduct, Trudeau can ask for no more.
For these reasons, the Modified Final Order for Permanent Injunction and Awarding Monetary Relief (Attachment A hereto) will include the award of $37,616,161 to be paid by Trudeau to the FTC, subject to the terms described above.
III. Modification of Stipulated Order for Permanent Injunction
The Seventh Circuit reversed this court's three-year infomercial ban primarily because it found that Trudeau had not been given sufficient notice that this court was considering such a remedy in connection with the contempt proceedings. The Court of Appeals also acknowledged that this court "is in a better position to fashion an appropriate coercive remedy should it do so on remand. The court could also, of course, choose to impose a criminal sanction instead." 579 F.3d at 779. It is in this context that the FTC filed its Motion to Modify under Rule 60(b)(5) to modify the order of permanent injunction (Doc. 269).
First, the court agrees with the FTC that modification of the September 2, 2004 "Stipulated Order for Permanent Injunction as to Defendant Kevin Trudeau" (Doc.56; the "2004 Order") is warranted under Fed. R. Civ. P. 60(b)(5). That rule provides that the court may relieve a party from a final judgment or order if "applying it prospectively is no longer equitable." The FTC relies primarily on United States v. United Shoe Machinery, 391 U.S. 244, 247-52 (1968), and its progeny for the proposition that an injunction should be modified when the purposes of the order have not been achieved. The FTC also cites to cases in which it has obtained "substantial modification" when defendant's contemptuous conduct "evidences the need for more stringent injunctive relief."*fn12 Indeed, performance bonds have been granted in FTC enforcement actions even absent contempt findings. See, FTC v. U.S. Sales Corp., 785 F. Supp. 737, 753 (N.D. Ill. 1997), aff'd, FTC v. Vlahos, 51 F.3d 275 (7th Cir. 1995).
Trudeau disagrees with the notion that United Shoe articulates the proper standard, and cites United States v. Krilich, 303 F.3d 784, 789-90 (7th Cir. 2002), and Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367, 383 (1992), as requiring a two-part test to determine whether modification is warranted: "a party seeking to modify a Consent Decree `bears the burden of establishing that a significant change in circumstances warrants revision of the decree.'" Krilich at 789-90 (quoting Rufo, at 383). The FTC argues that United Shoe should apply when a plaintiff seeks modification, and that Rufo addresses the situation when a defendant seeks to modify a consent decree.
It matters not whose position is correct on the proper standard, because this court finds that Trudeau's willful violations of this court's orders in general, and in particular the deceptive infomercials misrepresenting the content of his book in direct violation of the 2004 Order, constitute sufficiently changed circumstances to merit modification of the 2004 Order to prevent further consumer harm and deter Trudeau from further violations. As the Seventh Circuit noted in is opinion remanding this case, the 2004 Order "had two purposes: to protect consumers from deceptive practices and to compensate those already deceived." 579 F.3d at 764. As noted above, contrary to Trudeau's current position, the Court of Appeals specifically recognized that this court "is in a better position to fashion an appropriate coercive remedy, should it choose to do so on remand. The court could also, of course, choose to impose a criminal sanction instead. Or the district court could modify the  Consent Order, on motion from the FTC or on its own motion, provided it give Trudeau sufficient notice and an opportunity to be heard on the matter." Id. at 779. As the extended briefing and hearings on remand demonstrate, Trudeau has been given ample notice and an opportunity to be heard with respect to the modifications of the 2004 Order sought by the FTC.
Although the court agrees that the 2004 Order should be modified to accomplish its purposes of consumer protection and compensation, the court does not agree with the FTC that all of its suggested modifications should be adopted. The FTC seeks three specific changes to the 2004 Order: (1) requiring Trudeau to post a $10 million performance bond; (2) prohibiting Trudeau from misrepresenting the "benefits, performance, or efficacy of any product, program or service" in any infomercials he ...