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FEDERAL TRADE COMMISSION v. VERITY INTERNATIONAL

May 2, 2001

FEDERAL TRADE COMMISSION, PLAINTIFF,
v.
VERITY INTERNATIONAL, LTD., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Lewis A. Kaplan, United States District Judge.

MEMORANDUM OPINION

This is a motion to hold defendants Verity International, Ltd. ("Verity"), Robert Green and Marilyn Shein in civil contempt of court for failing to comply with the preliminary injunction previously entered in this action.*fn1 There are no issues of fact.

I

This is an action by the FTC against, insofar as is relevant to this motion, the operators of a billing service for Internet pornographers. The general nature of the action and the claims asserted here are set forth in the Court's opinion granting the plaintiff's motion for a preliminary injunction, familiarity with which is assumed.*fn2

Among the forms of relief the FTC sought in its motion for a preliminary injunction were an asset freeze and a direction that defendants Verity, Green and Shein, all of whom are foreigners, provide full and truthful disclosure of their financial condition. While these defendants contested the propriety of a preliminary injunction in general and the necessity for a freeze order in particular, they did not otherwise resist the FTC's request for an order requiring disclosure of their financial condition. Indeed, when the Court ruled in the Commission's favor, it directed that the Commission serve a proposed form of order and afforded these defendants the opportunity to respond. When these defendants responded to the FTC's proposed form of order, which contained financial disclosure provisions, with their own proposed form, they essentially adopted the Commission's form on these points.

The two provisions of the order at issue here are Section III.E and V. The former provides that defendants are ordered to "[p]rovide plaintiff access to the defendants' records and documents held by financial institutions outside the territorial United States, by signing the Consent to Release of Financial Records attached [to the injunction] as Attachment A." The latter provides:

"IT IS FURTHER ORDERED that within twenty-one (21) days after entry of this Order, each defendant shall provide to counsel for the Commission a completed financial statement, on the forms attached hereto as Attachment B for the individual defendants and Attachment C for the corporate defendant, accurate as of the date of entry of this Order."

The FTC acknowledges that Verity has complied with these provisions of the preliminary injunction, albeit belatedly, and no longer seeks to hold it in contempt. Green and Shein, however, are another matter. Neither has complied with either Section III.E or V. In fact, although they appear to have told their prior counsel that they would comply at least with Section V by January 25, 2001, they changed their mind, leading to the withdrawal of prior counsel.*fn3 Now, both have submitted declarations stating that they have not complied, and do not intend to comply, with those provisions of the preliminary injunction. They add that they "realize that there is no legal excuse for [their] disobedience of those aspects of the Court's Order, and [that they] have been advised by [their] attorneys to comply with the order in its entirety."*fn4

II

As defendants concede, a finding of contempt is appropriate if there was a clear and valid order and defendants, knowing of the order, failed to comply and made no diligent effort to do so.*fn5 As Green and Shein further concede, these requirements, with two minor quibbles, have been satisfied here. Certainly defendants knew of the order and deliberately made no effort to comply with it. Indeed, Green and Shein have submitted declarations acknowledging that there is no legal excuse for their failure to comply. Nevertheless, their counsel has advanced two arguments in opposition to holding them in contempt.

A. Validity of the Order

In most circumstances, the validity of an order is not an appropriate consideration on a contempt motion, as a court order ordinarily must be obeyed unless and until it is reversed or vacated. The only exceptions are where the order exceeds the court's jurisdiction or is "transparently invalid."*fn6 Moreover, an alleged contemnor will not be heard to allege even the transparent invalidity of a court order unless the defendant has made "some good faith effort to seek emergency relief from the appellate court" or shown compelling circumstances such as a need for immediate action.*fn7 Nevertheless, Green and Shein contend that Section III.E, which required them to provide the FTC with consents allowing the Commission to access their foreign bank records, and Section V, which required the submission of financial statements, are transparently invalid because the forms attached to the injunction wrongly would have required them to attest that the forms were executed voluntarily rather than pursuant to court order.*fn8 The argument is utterly without merit.

To begin, there is every reason to conclude that the forms would have been executed voluntarily. The FTC proposed an injunction requiring the execution of these forms. Green and Shein not only did not object to that aspect of the order, they incorporated it into the form of order that they proposed to the Court.*fn9 But there is no need to rely on this, as their position must be rejected on other grounds.

In this case there was nothing stopping Green and Shein from raising their objection to the wording of the form of consent and of the financial statements. Their contention that they could not object earlier because they lacked counsel is without merit. The Court's opinion inviting proposed forms of the preliminary injunction was issued on December 13, 2000, more than a month before defendants fired the second firm that represented them.*fn10 In fact, defendants did respond and object to other aspects of the order in their December 21 submission. Even if they had lacked counsel earlier than in fact was the case, it would be difficult to see why defendants, having voluntarily discharged their counsel,*fn11 should be heard to claim that they were prevented by their own act from objecting to ...


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