Free Response to Motion - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

PAUL K. CHARLTON United States Attorney District of Arizona RACHEL C. HERNANDEZ Arizona State Bar No. 016543 GARY M. RESTAINO Arizona State Bar No. 017450 Assistant U.S. Attorneys Two Renaissance Square 40 N. Central Avenue, Suite 1200 Phoenix, Arizona 85004-4408 Telephone: (602) 514-7500 [email protected] [email protected]

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA United States of America CR-04-820-PHX-FJM Plaintiff, v. Harvey L. Sloniker, Jr., Defendant. The United States of America, by and through undersigned counsel, hereby responds to defendant's Motion to Dismiss for Double Jeopardy. For the reasons set forth below, the Court should deny defendant's motion as there has been no violation of the Double Jeopardy Clause. A. Background On July 8, 2002, the Federal Trade Commission (FTC) filed a complaint and motion for a temporary restraining order against Harvey Sloniker, co-defendant Tye Sloniker and their affiliated companies. The complaint alleged violations of 15 U.S.C. §§ 53(b) and 57(b) (FTC Act), 15 U.S.C. §§ 6101 et seq. (Telemarketing Act) and 15 U.S.C. § 6822(a) (Gramm-LeachBliley Act) and sought to obtain "preliminary and permanent injunctive relief...for Defendant's deceptive and unfair acts or practices..." (See Complaint, CV-02-1256-PHX-RCB, dkt. # 1.) A preliminary temporary restraining order was granted on July 8, 2002. On February 3, 2003, District Judge Robert C. Broomfield signed a stipulated judgment and order for permanent injunction. (See Stipulated Judgment and Order for Permanent Injunction, CV-02-1256-PHXGOVERNMENT'S RESPONSE TO MOTION TO DISMISS (DOUBLE JEOPARDY)

Case 2:04-cr-00820-FJM

Document 119

Filed 09/16/2005

Page 1 of 6

1 RCB, dkt. # 129.)

The Court enjoined defendant from engaging or participating in

2 telemarketing. Id. at 5. The Order also required a monetary judgment in the amount of $20 3 million with the provision "that all of this amount except for a sum equal to the value of the 4 assets that are subject to asset freeze in this case...shall be suspended until further order of this 5 Court." Id. at 11 (emphasis added). The total amount seized pursuant to the order was 6 $537,941.00. 1/ (See Motion for Approval of Receiver's Final Report, CV02-1256-PHX-RCB, 7 dkt. # 132.) Of that amount, $149,802.94 was expended on the outstanding obligations of 8 defendant's companies and Of the remaining funds, $283,688.93 went to pay receivership 9 administrative expenses and $146,594.53 was disgorged to the United States Treasury. 2/ 10 On July 8, 2002, agents from the FBI, the Postal Inspection Service and the Criminal

11 Investigation Division of the IRS executed search warrants at the home and offices of defendant. 12 As a result of the criminal investigation into defendant and others and the relevant businesses, 13 an indictment was returned on August 5, 2004. In the indictment, defendant was charged with 14 73 counts including charges of conspiracy to commit mail and wire fraud, mail fraud, wire fraud, 15 conspiracy to commit money laundering, money laundering, conspiracy to commit loan fraud, 16 loan fraud and failure to pay taxes. These charges arise out of defendant's role as president and 17 CEO of Corporate Industries, Inc. and other related companies that operated as a telemarketing 18 business between August, 2001 and July, 2002. The indictment alleges that defendant, along 19 with the co-defendants, devised a scheme and artifice to defraud over 57,000 consumers and to 20 obtain money in excess of $5,000,000 by means of false and fraudulent pretenses, 21 representations and promises, in that they falsely misled consumers into believing that they 22 would receive a major credit card in exchange for a payment in excess of $200.00. 23 // 24 25 26 Contrary to defendant's claim at page 2 of his motion, $20 million was never placed into a fund by defendant or on his behalf, nor did he pay $2 million over to the FTC.
2/ 1/

Although the final expenses of the receiver and the final amount remitted to the FTC 27 differ slightly from the final order, no modification of the order was submitted. 28
2

Case 2:04-cr-00820-FJM

Document 119

Filed 09/16/2005

Page 2 of 6

1 B. The Civil Sanctions Imposed in the FTC Injunction Are Not Criminal Penalties and Do Not Violate the Double Jeopardy Clause. 2 The Double Jeopardy Clause of the Fifth Amendment provides that "[n]o person [shall]...be 3 subject for the same offense to be twice put in jeopardy of life or limb..." U.S. Const. amend. 4 V. The Supreme Court has "long recognized that the Double Jeopardy Clause does not prohibit 5 the imposition of all additional sanctions that could, `in common parlance,' be described as 6 punishment." Hudson v. United States, 522 U.S. 93, 98-99 (1997) (internal citations omitted). 7 "The Clause protects only the imposition of multiple criminal punishments for the same 8 offense." Id. at 99. See also United States ex rel. Marcus v. Hess, 317 U.S. 537, 549 (1943). 9 Here, the civil statutes that give rise to the Court's jurisdiction in the FTC injunction provide 10 for civil remedies. See 15 U.S.C. §§ 45(a), 53(b), 57(b), 6102(c), and 6101(b). In order to 11 determine whether a double jeopardy violation exists in relation to a civil sanction, the sanction 12 must be determined to be so punitive as to be in actuality a criminal penalty. The Supreme Court 13 set forth a multi-factor test in order to make this determination. Hudson, 522 U.S. at 99. The 14 factors include: (1) whether the sanction involves an affirmative disability or restraint; (2) 15 whether the sanction has historically been regarded as a punishment; (3) whether the sanction 16 comes into play only upon a finding of scienter; (4) whether the sanction promotes the 17 traditional aims of punishment-retribution and deterrence; (5) whether the behavior which is 18 sanctioned is already a crime; (6) whether the sanction serves an alternative purpose; and (7) 19 whether the sanction appears excessive in relation to the alternative purpose assigned. Id. at 9920 100. Under this test, no one factor is dispositive. Id. at 101. In addition, only the "clearest proof" 21 will transform what the legislature has designated a civil remedy into a criminal punishment. Id. 22 at 100. In this matter, the Double Jeopardy Clause was not violated as the sanctions set forth in 23 the FTC civil injunction against defendant fail to meet any of the factors set forth above, and 24 therefore cannot be considered criminal punishment. 25 First, a monetary fine is clearly not an affirmative disability or restraint. Furthermore, 26 since the FTC civil injunction prohibits only telemarketing and not all types of employment, it 27 28
3

Case 2:04-cr-00820-FJM

Document 119

Filed 09/16/2005

Page 3 of 6

1 fails to rise to the level of a restraint. In Hudson, the Court found that a total prohibition on 2 working in the banking industry was not an affirmative disability or restraint because the 3 prohibition was limited to one area or industry. Id. at 104. Similarly, the Ninth Circuit has held 4 where the specific disability is narrow it may be considered non-punitive. Doe I v. Otte, 259 5 F.3d 979, 988 (9th Cir. 2001). The prohibition on telemarketing set forth in the injunction is 6 similar to the prohibition in Hudson and should not be viewed as a restraint. 7 Secondly, as an historical matter, the civil judgment of restitution is not viewed as a criminal

8 punishment. Hudson, 522 U.S. at 104. A civil judgment may serve the alternative purpose of 9 attempting to make whole the consumers who were cheated. Similarly, the prohibition on 10 defendant against telemarketing in the future is not criminal punishment. The Supreme Court 11 has "long recognized that revocation of a privilege voluntarily granted, such as debarment, is 12 characteristically free of the punitive criminal element." Id. Here, as in Hudson, the sanctions 13 are traditionally non-punitive. 14 As to the third prong, neither sanction in the civil injunction comes into play only on a

15 finding of scienter. The permanent injunction specifically sets forth that it "does not constitute 16 an admission by Defendants that the law has been violated as alleged in the complaint or that the 17 facts as alleged in the complaint, other than jurisdictional facts, are true." (Exhibit 2, page 3.) 18 There was no finding regarding the defendant's state of mind, making it clear that scienter is not 19 a requirement for imposing the sanctions. Furthermore, the FTC's Trade Regulation Rule, as 20 referenced in the injunction and codified at 16 C.F.R. §310 defines deceptive practices based on 21 the actions and omissions of a company rather than the state of mind of its principals. 22 Fourth, as discussed above, monetary sanctions in a civil case such as this are traditionally

23 not viewed as punishment. There are no factors in this case that weigh in favor of the civil 24 sanctions being deemed punitive. The Hudson Court held that while monetary sanctions and 25 debarment may have a deterrent effect, that "is insufficient to render a sanction criminal as 26 deterrence may serve civil as well as criminal goals." Id. at 105 (internal citations omitted). In 27 this case the fact that the sanctions in the civil injunction may have a deterrent effect on other 28
4

Case 2:04-cr-00820-FJM

Document 119

Filed 09/16/2005

Page 4 of 6

1 telemarketers does not convert the civil sanctions into criminal punishment. Indeed, the 2 injunction expressly declares that, "[t]his order is in addition to, and not in lieu of, any other civil 3 or criminal remedies that may be provided by law." (See Stipulated Judgment and Order for 4 Permanent Injunction, CV-02-1256-PHX-RCB, dkt. # 129.) 5 Fifth, although the conduct covered in the civil action is punishable by the criminal statutes,

6 this factor alone is insufficient to deem the sanctions criminally punitive. Citing United States 7 v. Usery, 518 U.S. 267, 292 (1996), the Hudson Court found that this fact is particularly 8 unpersuasive in the double jeopardy context. Hudson, 522 at 105. Therefore in the instant case, 9 this factor must be disregarded as it is similarly unpersuasive. With regard to the sixth factor, 10 there are several other purposes to the civil sanctions, not the least of which is to make the 11 consumers whole and to protect the interests of consumers. 12 The sanction in this case was not disproportionate to the purpose for which it was issued.

13 Defendant agreed to relinquish the rights to $537,000 of which $149,000 went to pay for 14 defendant's own business expenses. When compared to defendant's actions as alleged in the 15 original FTC complaint, this represents only a small fraction of the money he obtained from 16 consumers. Again as discussed above, the telemarketing ban is also not disproportionate as it 17 is narrowly tailored and is not an all out prohibition on working. 18 C. Conclusion 19 In sum, the balance of the Hudson factors weigh in favor of a finding that the civil judgment

20 was in fact civil in nature and not criminal punishment. The double jeopardy clause has not been 21 violated. For these reasons, defendant's motion to dismiss should be denied. 22 23 24 25 26 27 28
5

Respectfully submitted this 16th day of September, 2005. PAUL K. CHARLTON United States Attorney District of Arizona s/ Rachel C. Hernandez RACHEL C. HERNANDEZ GARY M. RESTAINO Assistant U.S. Attorneys

Case 2:04-cr-00820-FJM

Document 119

Filed 09/16/2005

Page 5 of 6

1

CERTIFICATE OF SERVICE 2 I hereby certify that on this date, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic 3 Filing to the following CM/ECF registrants: Bruce Blumberg, Jeanette Alvarado, Ivan Mathew, Tom Hoidal, Greg Parzych and Michael Bresnehan. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
6

Case 2:04-cr-00820-FJM

Document 119

Filed 09/16/2005

Page 6 of 6