Antitrust Law Daily Sellers of phony ‘health insurance’ plans were properly enjoined from continuing scheme
Friday, February 7, 2020

Sellers of phony ‘health insurance’ plans were properly enjoined from continuing scheme

By E. Darius Sturmer, J.D.

A federal district’s court issuance of preliminary injunctive relief and ancillary relief including an asset freeze did not exceed its authority under Section 13(b) of the Federal Trade Commission Act.

The federal district court in Miami made no reversible error in its May 2019 issuance of a preliminary injunction and ancillary relief against a company and its individual owner alleged by the FTC to have lured health care consumers into buying their non ACA-compliant health plans through misrepresentations and false promises that the plans would provide affordable, comprehensive coverage, the U.S. Court of Appeals in Atlanta has held in a not-for-publication decision. The lower court did not exceed its authority under Sec. 13(b) of the FTC Act by issuing a temporary restraining order and then by granting preliminary injunctive relief and ancillary relief, including an asset freeze and appointment of a receiver. The individual defendant’s argument that disgorgement and restitution were legal remedies and punitive measures unavailable under Sec. 13(b) was foreclosed by binding precedent to the contrary, the appellate court said. Therefore, the district court’s order was affirmed (FTC v. Simple Health Plans, LLC, February 5, 2020, per curiam).

Background. According to the uncontested facts in the FTC’s October 2018 complaint, defendant Simple Health Plans LLC and its owner, Steven Dorfman, lured health care consumers to his websites that falsely promised that the offered health plans would provide affordable, comprehensive coverage. In reality, the agency claimed, the plans were not compliant with the Affordable Care Act and offered virtually no protection, resulting in consumers being forced to pay as much as $300,000 out of pocket for health care services. The owner allegedly reaped roughly $180 million in commissions. The FTC sued for violations of the FTC Act and moved for a temporary restraining order (TRO) and asset freeze.

The district court entered a TRO on October 31, 2018 and later the preliminary injunction at issue, ordering the owner and his companies to cease their deceptive practices and freezing the owner’s personal and corporate assets, citing concerns over the defendants’ off-shore bank accounts.

In its preliminary injunction order, the court determined that the defendants "online and through telemarketing calls – had engaged in a classic ‘bait-and-switch scheme’ whereby [they] misled consumers into believing [they] were selling comprehensive health insurance coverage when, in reality, [they] were selling only limited indemnity plans or medical discount memberships." The court concluded that the injunctive relief was appropriate because the FTC demonstrated a likelihood of success on the merits and that injunctive relief was in the public interest. It also ordered a continued freeze on the defendants’ assets to preserve the availability of funds for consumer redress.

The court rejected the owner’s argument that the FTC lacked statutory authority to obtain asset freezes, and the owner appealed. His appeal raised no challenge to the district court’s factual findings or determination that the FTC had satisfied its burden of showing that a preliminary injunction was warranted in the case.

FTC authority. According to Dorfman, the district court exceeded its authority under Sec. 13(b) by issuing the TRO and by granting preliminary injunctive relief and preliminary ancillary relief. However, the appellate court pointed out, previous decisions of the 11th Circuit have said expressly that the unqualified grant of statutory authority to issue an injunction under section 13(b) carries with it the full range of equitable remedies, including the power to grant consumer redress and compel disgorgement of profits.

Dorfman’s subsequent argument that this circuit precedent had since been "substantially undermined" by a 2017 Supreme Court decision and an Eleventh Circuit decision in 2016 was rebuffed by the court. Each of the cases referred to by the defendant involved a question about the applicability of a statute of limitations to disgorgement claims in a Securities and Exchange Commission enforcement action, the appellate court noted. Neither made any express rulings about the FTC Act or about the remedies authorized under Sec. 13(b). "Following a precedent and extending a precedent are entirely different things," the court said, so it declined to overrule its Sec. 13(b) precedent based upon the "reasoning" of two cases involving "a different statutory scheme and a different agency."

Motion to dissolve injunction. In a separate ruling, also not-for-publication, the appellate court denied Dorfman’s appeal of the lower court’s decision denying his motion to dissolve the preliminary injunction entered in May 2019 against him and the companies he controlled. Dorfman contended that dissolution of the preliminary injunction was required pursuant to Sec. 13(b) of the FTC Act because the FTC had not initiated an administrative proceeding within 20 days after the preliminary injunction issued. The court rejected this reasoning, noting that the statute contained a second proviso—"that in proper cases the Commission may seek, and after proper proof, the court may issue, a permanent injunction" (FTC v. Dorfman, February 5, 2020, per curiam).

Citing FTC v. U.S. Oil & Gas, Corp., 748 F.2d 1431 (11th Cir 1984), the appellate court explained that 13(b)’s second proviso gave a district court the authority to order preliminary relief during the pendency of an action for permanent injunctive relief. Because "[n]either the Supreme Court nor the 11th Circuit sitting en banc has issued a decision overruling U.S. Oil & Gas, Corp. or undermining it to the point of abrogation," the appellate court said, it "remains good law" and the court was thus "bound by that decision." Therefore, the FTC’s motion for summary affirmance was granted and its motion to stay the briefing schedule was denied as moot.

The appeals are Nos. 19-11932 and 19-13275.

Attorneys: Bradley Grossman for the FTC. Elan Abraham Gershoni (DLA Piper, LLP) for Steven J. Dorfman and Simple Health Plans, LLC.

Companies: Simple Health Plans, LLC

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