Ninth Circuit Affirms $120 Million FTC Judgment After Defendants Fail to Comply With Settlement Agreement Requiring Lien on Real Estate

In FTC v. Seasilver USA, Inc., et. al. (CV-S-03-0676-RLH) (D. Nevada) defendants entered into a standard settlement agreement providing for injunctive relief and a monetary judgment, representing the approximate gross sales of the product, which was one hundred twenty million dollars. The Stipulated Final Judgment provided that all but three million dollars of the one hundred twenty million would be suspended provided certain monies were paid. Also not later than five days after the Commission authorizes staff to sign the Final Judgment, defendants were required to execute and deliver mortgages and security agreements on certain specified real property to provide security to the Commission for the settlement amount.

As is sometimes the case, it took a long time between the time that the defendants executed the settlement agreement and the time of Commission approval. In the interim, certain of the property listed was foreclosed upon and defendants were unable to provide the promised liens. The FTC therefore entered judgment for the full $120 million. The Ninth Circuit Court of Appeals affirmed, ruling that defendants should have expected that changing conditions could make their performance more difficult, and the $120 million amount was not barred as punitive.

This case demonstrates that settlement agreements must be carefully adhered to or risk the entry of an unexpected avalanche judgment.

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