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Federal Trade Commission v. Dalbey

United States District Court, D. Colorado

December 29, 2014

FEDERAL TRADE COMMISSION, and STATE OF COLORADO, ex rel. JOHN W. SUTHERS, ATTORNEY GENERAL Plaintiffs,
v.
RUSSELL T. DALBEY; DEI, LLLP; DALBEY EDUCATION INSTITUTE, LLC; IPME, LLLP; and CATHERINE L. DALBEY Defendants.

ORDER

R. BROOKE JACKSON, District Judge.

This case is before the Court on Russell and Catherine Dalbey's motion challenging the government's determination of their "maximum ability to pay" under an amended stipulated judgment entered by this Court on July 22, 2013. The motion has been fully briefed, and the Court heard argument on November 18, 2014. Following argument the parties were given time to negotiate an agreed resolution of this latest dispute. No settlement was reached, and the Court now grants in part and denies in part the Dalbeys' motion.

BACKGROUND

In about 1996 Russell Dalbey began pitching products and services that, he claimed, would teach people how to make money quickly by brokering promissory notes. Much of his advertising and selling was done via nationally broadcast infomercials. It was a scam. Mr. Dalbey and his wife Catherine ultimately bilked approximately 900, 000 gullible consumers out of hundreds of millions of dollars. According to the government, between 2006 and 2011 alone the Dalbeys received some $60 million through various corporate entities that they used to perpetrate the massive fraud.

The Federal Trade Commission and the Colorado Attorney General filed this lawsuit against the Dalbeys and their companies on May 26, 2011. The case was set for trial beginning May 28, 2013. During a pretrial conference on May 14, 2013 the parties disclosed that they had been discussing settlement. Approximately one week before trial the parties informed the Court that they had reached a settlement in principal and wished to vacate the trial date. See [ECF No. 277]. They later filed a stipulated order and, finally, on July 22, 2013, an Amended Stipulated Order for Final Judgment and Order for Permanent Injunction and Other Equitable Relief as to Russell T. Dalbey and Catherine L. Dalbey. [ECF No. 283]. A stipulated final judgment, executed by the parties and by a trustee for the Dalbeys' bankrupt companies, was entered on July 29, 2013. [ECF No. 285].

The parties' stipulation and judgment included the following terms:

• The Dalbeys were permanently enjoined from participating in any enterprise purporting to offer consumers a business opportunity and from engaging in telemarketing, the production of infomercials, and misrepresenting consumer products or services. [ECF No. 283 at 8-11].
• Judgment was entered in favor of the Federal Trade Commission and the State of Colorado against the Dalbeys in the amount of $330, 084, 354.70 as "equitable monetary relief" representing "consumer injury and disgorgement." Id. at 11-12.
• Payment of the judgment would be suspended pending certain disclosures by the Dalbeys, discovery conducted by the government, and ultimately the government's determination within 12 months of the Dalbeys' "maximum ability to pay amount." Id. at 12-14.
• Within 10 days of receiving the government's determination of their maximum ability to pay amount and its basis, the Dalbeys could either pay it or move the Court to reduce it. Id. at 12.
• If such a motion were filed, the Court must uphold the government's determination unless it finds it to be "objectively unreasonable" for the Dalbeys to pay the amount set by the government as their maximum ability to pay. Id. And "[i]n no circumstance shall the Court find such sum objectively unreasonable if inability has been self-induced by Defendants ( e.g., through asset protection vehicles or transfers to third parties not conducted at arms-length." Id. at 12-13.
• Suspension of the monetary judgment would be lifted if the Court finds that the Dalbeys "failed to disclose any material asset, materially misstated the value of any asset, or made any other material misstatement or omission in their financial statements or during asset discovery." Id. at 20. Upon the lifting of the suspension the full amount, $330, 084, 354.70, becomes immediately due. Id.

The government initially determined that the Dalbeys' maximum ability to pay amount was $1, 715, 808.61 but later modified that amount to $1, 708, 996.58. The Dalbeys moved for a reduction, claiming that their actual ability to pay was only $8, 997. [ECF No. 293]. They supported the motion with documents purporting to show liabilities of $1, 971, 386 as of July 17, 2014 (including $1.5 million of "potential taxes owed" for 2006-2012) and assets of $8, 997 cash in bank accounts. [ECF No. 292-1 at 7-10].

The government filed a response supported by 19 exhibits. [ECF No. 294]. The Dalbeys filed a reply, supported by the affidavit of their tax advisor. [ECF Nos. 295 & 296]. Both sides declined the Court's invitation to ...


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