Tug McGraw
Photo by slgckgc [CC BY 2.0] via flickr
Folks tend to stay at the Federal Trade Commission’s (“FTC”) Bureau of Consumer Protection for a long time.  One notable example is Steve Baker, who just ended a 27-plus-year run as the Director of the Midwest Regional Office in Chicago (“MWRO”).  Prior to that Steve was an attorney advisor to Daniel Oliver.  Under Steve’s leadership, the MWRO was a zealous enforcer of consumer protection laws, especially in the telemarketing and Internet marketing areas.  Steve also worked tirelessly to build ties between the FTC and state and local law enforcement entities.  On a personal note, Steve was generous with his time and experience with me when I was trying to learn how to be a regional director.  Todd Kossow now leads the MWRO.

Also moving on from the FTC is Rob Kaye, who had been serving as the Bureau of Consumer Protection’s first Director of Litigation.  Rob moves to the Department of Education (“DOE”) as the Chief Enforcement Officer for Federal Student Aid.  Rob’s arrival at DOE probably signals that DOE will likely continue to be actively involved in policing alleged deception in the student aid arena.  Liz Tucci succeeds Rob.

In their prior roles both Steve and Rob were involved in numerous cases where the FTC went into court and obtained a pre-judgment asset freeze over the assets of the companies and individuals that the FTC sued.  Last week, the Supreme Court issued an interesting opinion in Luis v. U.S., circumscribing the government’s ability to seek that kind of relief in a criminal context.

A federal statute (18 USC §1345) authorizes the United States to obtain an asset freeze before trial in cases involving the accused’s violations of health care or banking laws.  The statute authorizes the freezing of property:  1) obtained as a result of the alleged crime; 2) traceable to the crime; and 3) of equivalent value to that derived from the crime.

Luis was charged with submitting fraudulent health care claims in the amount of $45 million.  Most of that money was spent, as Ms. Luis appears to have gotten her financial plan from former Phillies and Mets great Tug McGraw.  Tug once was asked what he would do with the money he’d make on a new contract.  He replied:  “Ninety percent I’ll spend on good times, women and Irish Whiskey.  The other ten percent I’ll probably waste.”

The government, however, sought to freeze $2 million in funds that both sides agreed was “clean” and unrelated to the alleged wrongdoing.  Luis argued that freezing those funds would deprive her of the opportunity to hire the lawyer of her choice to defend her violating her 6th Amendment right to counsel.  The district court entered the freeze over the objection, and the 11th Circuit affirmed.  The Supreme Court reversed.

In a plurality opinion by Justice Breyer, the Court stressed the fundamental nature of the right to counsel in a criminal proceeding, and noted that the “Sixth Amendment guarantees a defendant the right to be represented by an otherwise qualified attorney whom that defendant can afford to hire.”

The Court distinguished its prior holdings in Caplin & Drysdale and Monsanto, which upheld asset freezes and rejected similar arguments because the funds in question in those cases were tainted or the fruits of the illegal conduct.  The Court reasoned that tainted funds were never truly those of the defendant and should not play a part in the calculation of whether the defendant was being deprived of the ability to hire an attorney.  The Court also found that the government’s interest in preserving funds for possible restitution did not outweigh the “fundamental” Sixth Amendment right.

The Court thus ruled that untainted funds could not be frozen pre-judgment if doing so deprived the accused of the right to retain counsel of his or her choice.  The Court recognized that some “tracing” of funds might be required in future cases, but found tracing a well-established legal tool.

Justice Thomas issues a concurring opinion finding that given the fundamental nature of the Sixth Amendment right, the inquiry should have ended there.  Justice Kennedy issued a dissent noting that money is fungible and that distinguishing between clean and tainted funds was an illusion.  Justice Kagan dissented agreeing with Kennedy that the clean/tainted distinction was illusory, but also calling into question the legitimacy of the Monsanto case and the ability of the government to deprive someone only accused of a crime of the funds to defend themselves.  Kagan noted that the legitimacy of the Monsato case, however, was not before the Court.  As the makeup of the Court changes in the near (or not so near) future, it will be worth watching to see whether the views of Justices Kagan and Thomas cause a re-thinking of the ability of the government to freeze assets pre-judgment.

So what does all of this mean for advertisers?  By its terms the Sixth Amendment applies only to criminal cases, and courts have refused to find it applies to other cases brought by the government.  The FTC freezes assets not pursuant to a specific statutory authorization, as in the Luis case, but as part of its broad interpretation of the powers conferred upon it and a court by Section 13(b) of the FTC Act.  The FTC justifies asset freezes as necessary to allow potential future monetary injunctive relief.

Thus, nothing in the Luis case applies directly to an FTC case, but some of the powerful language in the plurality, Justice Thomas and Kagan’s opinions, may give lawyers some ammunition to try and pry funds loose for attorneys’ fees in the right case.  Whether a judge in an FTC case involving an asset freeze allows some of the frozen funds to go to the payment of the defendant’s attorneys’ fees is at the discretion of the judge and depends on the position taken by FTC staff, which varies.  Given the position a defendant finds himself or herself in after an asset freeze, even a little thaw based on the Luis opinion might help.  As Tug would say, “Ya Gotta Believe!”