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The FTC’s request for a NetForce contempt penalty against Jay Noland has been refused.

Noland is accused of breaking his NetForce injunction, prompting the request for fines.

The FTC was granted contempt fines in mid-2020, awaiting the outcome of the Success by Health pyramid-scheme case.

In June 2021, the FTC reiterated its request for a contempt penalty.

Multiple provisions of this Court’s 2002 Stipulated Final Judgment and Permanent Injunction were breached by defendant James D. Noland, Jr., co-contemnors Scott Harris, Thomas Sacca, Success By Media LLC, and Success By Media Holdings Inc.

They conducted two pyramid schemes—Success By Health (“SBH”) and VOZ Travel—using bogus earnings promises to defraud thousands of customers out of $7 million until the Court granted preliminary remedy in January 2020.

As a result, the FTC asks the court to declare them in contempt and impose civil compensatory damages.

The FTC’s fresh punishment request was refused on March 22nd, even though “the FTC has proven that the Contempt Defendants breached various aspects of the (NetForce) permanent injunction.”

The Court determines that, at this point of the proceedings, the FTC has not proved that the Contempt Defendants breached Sections I, II, and III of the permanent injunction via their use of SBH.

At an evidentiary hearing, the FTC will have to prove those breaches.

The FTC has not shown an entitlement to the $7,012,913.25 compensatory contempt judgment requested in its motion because it has not proved all of the offenses asserted in its motion.

The FTC submitted a move for consideration on March 24th, after the March 22nd refusal.

The FTC argues in its reconsideration motion that the Court should have considered its evidence sufficient to establish the SBH-related violations of Section I of the permanent injunction because, regardless of whether SBH qualifies as a “pyramid scheme” under Ninth Circuit law (which was the issue addressed in the summary judgment order in the Second Action), SBH must qualify as a “prohibited marketing scheme” as that term is defined by the permanent injunction.”

The court acknowledged the FTC’s premise, but in dismissing the application on March 30th, wrote:

The Court is not convinced that revisiting the matter via another written order issued in advance of an evidentiary hearing is the best and most expedient option.

This matter has been ongoing for almost two years, the discovery has ended, and regardless of how the reconsideration motion is handled, a combined evidentiary hearing in the First and Second Actions will be required.

On March 23rd, I checked the Success by Health case docket for the last time. We don’t have any future court dates as of yet.

The court also said it may revise the FTC’s sought $7 million number in the initial rejection motion, which was an intriguing nugget.

If NetForce is found in contempt, the court has indicated that merchandise provided to affiliates as part of the Success by Health pyramid scheme would be taken into account.

The FTC admits that its estimates do not take into consideration the intrinsic worth of the items that consumers received and consumed.

When the value of items sold as part of the Success by Health pyramid scheme is taken into account, the claimed $7 million compensation is effectively reduced.

The Supreme Court’s AMG ruling might influence the NetForce injunction’s execution.

The FTC’s power to pursue compensating civil penalties based on new 13(b) breaches that simultaneously violate an injunction obtained in a previous 13(b) enforcement action (such as the permanent (NetForce) injunction issued in the First Action) remains unclear.

I’ll keep an eye on the NetForce case file. Until the Success by Health lawsuit is resolved, I don’t foresee any big filings.

Updated on May 29th, 2022 – The FTC’s contempt accusations have survived Noland and his co-defendants’ Motion to Dismiss, which was filed in March.

By the May 18th order;

The substance of the Contempt Defendants’ motion (that the FTC’s request for monetary contempt penalties in the First Action is precluded by AMG Capital) and the remedies they seek are incompatible (i.e., a dismissal based on the absence of subject-matter jurisdiction).

The Court has undisputed subject-matter jurisdiction to hear a claim for civil contempt penalties based on a violation of a previous permanent injunction.

The order reads with regards to the AMG decision, which formed the basis for the dismissal motion:

The Court recognizes that it may be important to consider whether AMG Capital precludes the FTC’s request for monetary sanctions in the First Action at some point shortly.

However, the Contempt Defendants’ request for dismissal for lack of subject-matter jurisdiction is the only request presently properly before the Court.

As previously said, that request is without merit.

The court called Noland and co.’s attempt to pin an “unclean hands” argument on the FTC “procedurally convoluted.”

The court then denied Noland and his associates’ Motion to Dismiss.

Looking ahead;

The FTC’s contempt accusations in the First Action (as well as its claims in the Second Action) will be resolved on the merits at an evidentiary hearing.

I’ll keep an eye on the case docket for any further developments.

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