JOSHUA S. MILLARD
LEMUEL W. DOWDY
KIMBERLY L. NELSON
Federal Trade Commission
600 Pennsylvania Ave., NW, Mailstop M8102B
Washington, DC 20580
(202) 326-2454, [email protected]
(202) 326-2981, [email protected]
(202) 326-3304, [email protected]
(202) 326-2558 (fax)
SUSAN J. STEELE
Chief, Civil Division
United States Attorney’s Office
970 Broad Street, Suite 700
Newark, NJ 07102
(973) 645-2920, [email protected]
(973) 645-2702 (fax)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
FEDERAL TRADE COMMISSION,
Plaintiff,
v.
DUTCHMAN ENTERPRISES, LLC;
UNITED COMMUNITY SERVICES
OF AMERICA, INC., also doing
business as UCSA DEALERS GROUP,
LLC; and DENNIS LEE;
Defendants.
Civ. No. 2:09-141 (FSH-MAS)
Return Date: Oct. 4, 2010
PLAINTIFF’S OPPOSITION TO DEFENDANT LEE’S COMBINED
PRO SE MOTION FOR DISMISSAL, STAY, OR SUMMARY JUDGMENT
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i
TABLE OF CONTENTS
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
I. Lee Was Not “Compelled to Represent” the Corporate Defendants. . .
4
II. Lee Did Not Have a “Fiduciary Duty” to Resist Discovery,
and Did Not Face an Irreconcilable “Conflict” in
Participating in Discovery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
III. Lee’s Arguments About Preliminary Proceedings
and the FTC’s Supposed Motivations are Irrelevant. . . . . . . . . . . . . . .
6
IV. Lee’s Remaining Arguments Are Without Merit. . . . . . . . .
. . . . . . . . . 7
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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Plaintiff, Federal Trade Commission (“FTC” or “Commission”), respectfully
submits this consolidated Opposition to defendant Dennis Lee’s (“Lee”) pro se
Motion for Dismissal, Stay, or Summary Judgment (“Motion” or “Mot.”) (#99).
Defendant Lee’s motion largely reiterates the erroneous arguments raised in
his recent Motion for Reconsideration (#98) and Objection or Appeal (#97) of the
August 2, 2010 Order of U.S. Magistrate Judge Michael A. Shipp compelling the
defendants to produce discovery (#96). Lee incorrectly maintains that the FTC
obtained “unlawful” discovery from corporate defendants Dutchman Enterprises,
LLC (“Dutchman”) and United Community Services of America, Inc. (“UCSA”)
because documents and information of unrepresented corporations are somehow
exempt from discovery. According to Lee, this conclusion mandates the dismissal
of this action, the entry of summary judgment, or a stay for appeal.
However, the defendant pro se fails to recognize that, under the Federal
Rules of Civil Procedure, information and documents belonging to the corporate
defendants, whom he owns and controls, are already lawfully discoverable through
him, and in any event, unrepresented corporations are not immune from discovery.
At bottom, the defendant’s motion is largely duplicative of his recent filings and
just as fatally flawed. The Court should deny his motion for the reasons stated in
the FTC’s September 7
th
Opposition to Lee’s recent filings (“Opp’n”) (#101).
While demanding the same improper “relief” proposed in his recent filings,
Lee’s motion puts additional emphasis on two arguments addressed herein.
First, Lee now extensively argues that, in “compelling” him to represent
corporate defendants, Judge Shipp caused him to violate his fiduciary duties to the
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2
firms or commit other wrongdoing. Here, Lee disregards the reality that he was
never compelled to represent the corporate defendants, and that the defendants are
aligned in interest, so there was no “conflict” in his personal and fiduciary roles.
Second, Lee generally complains about the evidence that the FTC cited in
its original TRO papers, and the FTC’s supposed motivation in bringing this case,
in an apparent effort to re-litigate preliminary proceedings. The defendant pro se’s
arguments are irrelevant to, and provide no legal grounds for, a final determination
on the merits. There are no proper grounds to dismiss or summarily adjudicate this
case in favor of the defendant, or to stay the case for a protracted and unnecessary
appeal. Lee’s current motion, like his recent filings, is completely devoid of merit.
BACKGROUND
Defendant Lee’s filing significantly misstates the nature of the evidence that
the FTC had at its disposal and presented at the outset of this case, and other facts.
The FTC will not burden the Court with a point-by-point rebuttal, which would
consume many pages (and unnecessarily consume significant resources on the part
of counsel). In the interest of brevity, FTC counsel respectfully refers the Court to
the “background” section of its recent Opposition to defendant Lee’s Objection or
Appeal and Motion for Reconsideration for an accurate summary of this case.
As Lee’s motion repeatedly refers to his record with state law enforcement
authorities in vague terms, and further challenges the propriety of the injunctive
and monetary relief sought by the FTC, this section briefly addresses Lee’s record
of deceptive activities involving the promotion of purported energy-generating
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1
Pl.’s TRO Mot., PX07 at 3-6 (Cal.) (#4-11); PX07A (#4-12); PX07B
at 2-8 (Alaska) (#4-13); PX07C at 2 (Idaho) (#4-14); PX07D at 10-14 (Ky.) (#4-
15); PX07E at 2-8 (Maine) (#4-16); PX07F at 2-10 (N.M.) (#4-17); PX07G at 2-3
(Or.) (#4-18); PX07H at 2 (Vt.) (#4-19); PX07I at 2-8 (Wash.) (#4-20). Citations
to “PX” exhibits herein refer to the exhibits filed with the FTC’s TRO motion.
2
Notably, in an exhibit to his combined motion, defendant Lee falsely
denies his criminal convictions in California. See Def.’s Ex. F at 22 (identifying
Kentucky conviction as “LEE’S ONE
ACTUAL CONVICTION SINCE 1977”)
(emphasis in original) (#99-6).
3
PX07C at 3 (Idaho), PX07E at 28 (Maine), PX07H at 12-13 (Vt.).
4
PX07B at 10-11 (Alaska), PX07F at 11-12 (N.M.), PX07G at 8, 38
(Or.), PX07I at 10-11 (Wash.)
.
5
PX07I at 43-52 (Wash.); see also PX07G at 22-26, 28, 35 (Or.)
(additional contempt order, vacated due to error in taping of hearing).
3
devices, which supports the imposition of permanent, federal injunctive relief.
Defendant Lee is a convicted felon with a history of consumer fraud
involving the promotion of purported energy-generating devices. At least nine
states have charged Lee with violating consumer protection laws by promoting the
sale of products and/or business opportunities with false or unsubstantiated claims,
such as claims that his products generate “free electricity.”
1
These enforcement
actions have resulted in felony convictions against Lee, PX07 at 3-6 (Cal.), Lee v.
Ventura County Sheriff's Dept., No. 90-56368, 1992 U.S. App. LEXIS 7361 (9
th
Cir. 1992), PX07D at 2-4 (Ky.),
2
jail time for Lee, PX07 at 3-6 (Cal.), court orders
banning Lee from advertising or selling products in at least three states,
3
court
orders enjoining Lee from making unsubstantiated claims in advertisements,
4
and at least one court order finding Lee in violation of an earlier order.
5
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4
As detailed in the FTC’s original moving papers, Lee promoted the HAFC
kit on websites accessible throughout the United States, PX01 ¶ 23 (#4-5), PX12
(#25, 26), which violated other court orders banning him from advertising products
in specific states. See PX07C at 3 (Idaho); PX07E at 28 (Maine); PX07H at 12-13
(Vt.). His deceptive marketing of the HAFC kit violated several state court orders
prohibiting him from making unsubstantiated advertising claims. See PX07B at
10-11 (Alaska); PX07G at 8, 38 (Or.); PX07I at 10-11 (Wash.). As a whole, the
record shows that defendant Lee has made a career out of deceptively promoting
purported energy-generating or energy-conserving products such as the HAFC kit.
DISCUSSION
Defendant Lee, acting in pro per, seeks a dismissal, summary judgment, and
other relief on spurious grounds addressed below.
I. Lee Was Not “Compelled to Represent” the Corporate Defendants.
Defendant Lee’s motion relies on the core fallacy that he was compelled to
represent defendants Dutchman and UCSA, or reasonably had that impression. See
Mot. at 7. As noted in the FTC’s recent Opposition, the Court could not, and did
not, authorize Lee to serve as corporate counsel. Opp’n at 4 n.3. If Lee had any
other impression, he was acting unreasonably. FTC counsel repeatedly advised
Lee that he was a pro se defendant and a corporate officer, not corporate counsel.
Id. at 6 n.8. This fact flatly contradicts Lee’s assertion that “it was not made clear
to Defendant . . . what his status with Corporate Defendants was.” Mot. at 11.
At all relevant times, Lee reasonably should have known that he was not legally
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6
Lee’s arguments pertaining to the unlicensed practice of law are not
within the jurisdiction of the FTC and are irrelevant to this matter.
5
representing the corporate defendants, or compelled to do so. See id. at 8.
II. Lee Did Not Have a “Fiduciary Duty” to Resist Discovery, and Did Not
Face an Irreconcilable “Conflict” in Participating in Discovery.
Lee also argues that, in “compelling” him to represent corporate defendants
and participate in discovery, Judge Shipp caused him to violate his fiduciary duties
to the corporate defendants or commit other wrongdoing.
6
Lee specifically claims
that “[a]s a fiduciary, . . . [he] had no right to surrender anything to Plaintiff” from
his unrepresented corporations. Mot. at 5. Lee asserts that “[i]f he acts in the best
interest of the corporations, he is forced to defy the Magistrate’s order.” Id. at 11.
In essence, Lee claims that his fiduciary duties require the act of contempt. His
argument is defective for many reasons; the FTC will briefly address two.
First, the law already properly required Lee to disclose the requested
information and documents. As the sole owner and controlling officer of the
closely-held corporate defendants, Opp’n at 5, Lee has had custody and control
of the relevant material, and the indisputable ability to obtain that material upon
demand. In his personal capacity, Lee received the same discovery requests that
were directed to the corporate defendants. Consequently, all information sought
from the corporate defendants has been properly subject to discovery. See Opp’n
at 8-10 (citations omitted). Lee was obligated to produce the requested discovery.
His argument that a default or “[s]ummary judgment [would] have made it far
more difficult to obtain the discovery Plaintiff has gotten from Corporate
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6
Defendants,” Mot. at 10, is simply incorrect as a matter of law.
Second, the defendants are clearly aligned in interest in this case. All three
defendants are charged with the same violations of the FTC Act, 15 U.S.C. § 41 et
seq., in the deceptive promotion of the HAFC kit. As previously noted, Lee owns
and has authority to control the corporate defendants; Lee denies any personal or
corporate violations of law in connection with the promotion of the HAFC kit, so
the corporate defendants’ interests are not materially different from his own. Lee
does not face any irreconcilable conflict and is not, in any event, under any
fiduciary duty to violate orders of the Court.
III. Defendant Lee’s Arguments About Preliminary Proceedings
and the FTC’s Supposed Motivations are Irrelevant.
Next, Lee complains in general about the evidence that the FTC cited in its
original TRO papers, and the FTC’s motivation in bringing this action. He alleges
that “[t]he FTC had no case,” Mot. at 14, and that “allowing corporate defendants
to continue unrepresented was an attempt to acquire information extraneous to this
case.” Id. at 11. The defendant’s arguments are incorrect and irrelevant.
First, in arguing that “[t]he FTC had no case,” Mot. at 14, Lee pointedly
ignores the fact that this Court found good cause to enter the requested TRO based
on the documentary evidence presented by the FTC. Lee also ignores the fact that,
when he was confronted with further evidence on re-hearing, he stipulated to the
FTC’s requested Preliminary Injunction, which contained adverse findings, on the
advice of counsel, without an evidentiary hearing.
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7
On a related note, Lee states that “Defendants requested UCSA be
dropped from the Complaint, but Plaintiff refused. Defendants were going to file a
motion, but Plaintiff talked Defendant Lee out of it. . . . Plaintiff has told [Lee] that
he must confer with him on everything before going to the Judge.” Mot. at 12.
FTC counsel does not understand this reference. FTC counsel has conferred
with defendant Lee on discovery disputes pursuant to Local Civil Rules. Any
suggestion that FTC counsel have prevented Lee from filing motions is spurious.
7
Second, Lee’s argument also ignores the fact that all of the discovery from
the defendants in this case was lawfully obtained through himself, as a defendant
pro se and as the owner and controlling officer of the corporate defendants, who
are not exempt from discovery. See supra p. 6-7; see also Opp’n at 8-10. Contrary
to Lee’s suggestion, his companies did not have to be included as defendants in
order for the FTC to obtain discovery relating to them. See Gen. Env’t Sci. Corp.
v. Horsfall, 136 F.R.D. 130, 133 (N.D. Ohio 1991) (stating that corporate officers
may be compelled to produce discovery relating to non-party corporations).
Third, Lee has repeatedly failed to identify discovery requests that were
“extraneous.” He briefly contends that UCSA should not be a defendant to this
case, but there is ample record evidence rebutting that contention. See Opp’n at 5
n.6.
7
Lee has had a full opportunity to object to the FTC’s discovery requests, and
Judge Shipp has considered and dismissed most of his arguments. Order (#96).
IV. Defendant Lee’s Remaining Arguments Are Without Merit.
Defendant Lee raises several other arguments that do not withstand scrutiny.
First, Lee’s motion invites the Court to rule against the FTC without
developing a factual record. His motion does not demonstrate that there are any
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8
factual or legal grounds for dismissal under Federal Rule 12, or that he is entitled
to judgment as a matter of law under Federal Rule 56. Lee’s motion roundly fails
to comply with the Federal Rules applicable to motions for dismissal or summary
judgment, or the Local Civil Rules applicable thereto. While pro se filings may be
liberally construed, pro se litigants still must comply with the Federal Rules. See,
e.g., Burgs v. Sissel, 745 F.2d 526, 528 (8
th
Cir. 1984); see also McNeil v. United
States, 508 U.S. 106, 113 (1993); Williams v. Cochran, 187 F.3d 639, 1999 WL
164911, at *2 (6
th
Cir. Mar. 12, 1999) (affirming sanctions against pro se plaintiff
whose fallacious position regarding discovery of certain documents “was not
arguable”). This precept is clearly applicable to litigants as experienced with the
legal system as defendant Lee. The Court should dismiss Lee’s unsupported
argument for dismissal or summary judgment.
Second, even if defendant Lee’s motion were proper, Lee stipulated on the
advice of counsel to a pre-trial finding that “Plaintiff is . . . likely to prevail on
the merits of this action.” Prelim. Inj. at 2 ¶ 2 (#65). Having so stipulated, Lee
cannot reasonably argue that he is entitled to a pre-trial judgment as a matter of
law. See generally Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986).
Lee also argues about whether the Court should grant the monetary and
injunctive relief requested by the Commission. This argument is not appropriately
before the Court for the reasons set forth above. Further, the requested monetary
relief is fully warranted in view of the defendants’ deceptive promotion of HAFC
kit, which yielded several million dollars in sales. This unlawful activity, and
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8
As suggested in the defendant’s Motion, the FTC retains the right to
move for an entry of default against the corporate defendants.
9
Lee’s long history of similar consumer frauds in peddling energy-generating
devices, amply justifies the requested injunctive (commonly termed “fencing in”)
relief. It is well-established that “those caught violating the FTC Act must expect
some fencing in.” FTC v. National Lead Co., 352 U.S. 419, 431 (1957);
Consumers Prods. of Am., Inc. v. FTC, 400 F.2d 930, 935 (3d Cir. 1968)
(citation omitted).
Lee further contends that Judge Shipp “should have allowed [him] . . . to sell
assets to engage legal counsel for the Corporate Defendants, appoint legal counsel
for them, or issue a Summary Judgment against the Corporate Defendants.” Mot.
at 4. These arguments were addressed in the FTC’s recent Opposition filing.
There is no just reason why the Court should lift the limited asset freeze, which
Lee accepted on the advice of counsel. Opp’n at 22-23. This would result in the
further depletion of assets that may be available or found for consumer redress.
Judge Shipp properly rejected this demand when he reopened discovery. Id. at 4.
Further, the Court is not obligated to “appoint” counsel for corporations that fail
to retain their own. Id. at 23 n.16.
8
Lee also reiterates his arguments for a stay, which the FTC has already
addressed; a stay will delay, not materially advance, this case. Id. at 21.
The defendant briefly raises other groundless arguments in his filing. At
present, the FTC will rely on its motion to compel, Judge Shipp’s order, and the
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10
FTC’s recent Opposition to the defendant’s Objection to answer these arguments.
CONCLUSION
For the above stated reasons, the FTC respectfully requests that the Court
deny the defendant’s ill-founded motion for a dismissal, a stay, or summary
judgment.
Respectfully submitted,
s/ Joshua S. Millard
Date: September 20, 2010 JOSHUA S. MILLARD
LEMUEL W. DOWDY
KIMBERLY L. NELSON
Federal Trade Commission
600 Pennsylvania Ave., Mailstop M8102B
Washington, DC 20580
(202) 326-2454, [email protected]
(Millard)
(202) 326-2981, [email protected]
(Dowdy)
(202) 326-3304, [email protected]
(Nelson)
(202) 326-2558 (fax)
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CERTIFICATE OF SERVICE
I hereby certify that on this date, the foregoing document was served by
operation of the Court’s electronic case filing (“ECF”) system upon the following:
SUSAN J. STEELE
Chief, Civil Division
United States Attorney’s Office
970 Broad Street, Suite 700
Newark, NJ 07102
(973) 645-2920; [email protected]
(973) 645-2702 (fax)
I further certify that on this date, the foregoing document was served by U.S.
first class mail and email upon the following non-participants in the ECF system:
Dennis Merle Lee
Dutchman Enterprises, LLC
United Community Services of America, Inc.
3002 State Route 23
Newfoundland, NJ 07435-1412
Defendants
Additionally, a courtesy copy has been mailed to:
CHAMBERS OF THE HONORABLE FAITH S. HOCHBERG,
U.S. DISTRICT JUDGE
Dr. Martin Luther King, Jr.
Building & U.S. Courthouse
50 Walnut Street
Newark, NJ 07101
CHAMBERS OF THE HONORABLE MICHAEL A. SHIPP,
U.S. MAGISTRATE JUDGE
Dr. Martin Luther King, Jr.
Building & U.S. Courthouse
50 Walnut Street
Newark, NJ 07101
s/ Joshua S. Millard
Date: September 20, 2010 JOSHUA S. MILLARD
Federal Trade Commission
600 Pennsylvania Ave., Mailstop M8102B
Washington, DC 20580
(202) 326-2454, [email protected]
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