Small business owners prevail, Court denies all damages sought by FTC

WASHINGTON D.C. (May 10, 2019) – In a major victory, Cause of Action Institute (CoA Institute) today, celebrated the decision by the U.S. District Court Middle District of Florida denying all damages against its client, small business owners Robert and Angelo Cupo and their business Vylah Tec LLC. In January 2019, the Court found Messrs. Cupo and Vylah Tec liable, however the Court denied all financial damages, decrying the government’s failure to support its demand and writing in its opinion, “[a]s this Court stated in trial, it is obvious that the disgorgement (financial penalty) total is a moving target.” The decision repeatedly chided the government for continually changing both the total damages sought and the basis for the calculations – both of these “moving targets” make it impossible for small business owners like the Cupos to defend. Today’s decision is a major blow to the Federal Trade Commission’s (FTC), which had sought millions of dollars from the small business.

“Today’s decision serves as a rebuke to the Federal Trade Commission’s attempt to confiscate a small business owners’ property while completely ignoring the legal standards required to do so.” said John Vecchione, president and CEO of Cause of Action Institute. “While the Cupos and Vylah Tec may be the named parties, this victory should be celebrated by all small business owners and entrepreneurs who fear the Federal Trade Commission’s wrath, which too often treats small businesses more harshly than larger corporations, and by all supporters of the rule of law.”

Case background

After obtaining a secret court order in early 2017, the FTC targeted, Vylah Tec, LLC, a small family-run tech company and conducted an hours-long raid of the company’s headquarters on suspicion of “deceptive” sales practices because it bore a superficial resemblance to companies with illegitimate practices. The raid was initiated as part of a politically-hyped campaign known as Operation Tech Trap headed by the FTC in conjunction with the Florida Attorney General’s office. Failing to take into account Vylah Tec’s substantial well-regarded services, the government sought to shut the company down, depriving thousands of customers of pre-paid technical support services.

Not only did the FTC demand a freeze of assets of the defendants, but it also went so far as to demand a freeze of the jointly held marital assets of the wife of one of the defendants. After the 11th Circuit Court of Appeals reversed this freeze, the FTC filed a new motion to recapture the same personal assets without the evidence needed in equity. The Court strongly rebuked the motion. In September, the government prevailed in finding Messrs Cupo and V-Tec liable for damages. However, as the Court found today, the government was unable to prove these damages.

The Vylah Tec case demonstrates the vast power of the federal government and the ability of the FTC to use a court order obtained in secret to deny a family-run company due process by swooping in and seizing assets—including the money they needed to hire a lawyer and mount a defense. Cause of Action Institute firmly believes a prosperous society allows all individuals, entrepreneurs, and companies an opportunity to succeed, but far too often when facing the FTC, companies or individuals have their livelihoods threatened and must defend themselves against a regulatory authority with near endless resources and no motive to render justice.

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Media ContactMatt Frendewey, matt.frendewey@causeofaction.org | 202-699-2018

Dennis Cupo Officially Dismissed from FTC v. Vylah Tec LLC

WASHINGTON D.C. In a major victory, Cause of Action Institute (CoA Institute) today, celebrated the decision by a federal district court to dismiss, with prejudice, all claims against Dennis Cupo in an ongoing case, FTC v. Vylah Tec LLC. The Federal Trade Commission moved to dismiss Mr. Cupo from the case after the U.S. District Court Middle District of Florida ruled the FTC had failed to produce any evidence linking him to any alleged wrongdoing and denied the FTC’s motion to re-freeze his assets.

“We applaud today’s decision to dismiss Mr. Dennis Cupo from this case so he can rebuild his life after being unfairly targeted by the government,” said John Vecchione, president and CEO of Cause of Action Institute. “While we celebrate today’s dismissal, the FTC is still casting overbroad nets to freeze the assets of Americans and illustrates the urgent need to reform the agency from the top down.”

After obtaining a secret court order, Vylah Tec, a family-run tech support company owned by Dennis’ brother Robert Cupo, was targeted by the Federal Trade Commission as part of “Operation Tech Trap” because it bore a superficial resemblance to other companies with illegitimate practices. Failing to take into account Vylah Tec’s substantial well-regarded services, the Government sought to shut the company down, depriving thousands of customers of pre-paid technical support services. The FTC aggravated that overreach by implicating Dennis Cupo, for whom the FTC failed to establish any meaningful relationship to the business. Despite this, it took a year of litigation and a court order to motivate the Federal Trade Commission to finally dismiss an innocent bystander from the case.

The case highlights much-needed reform in the FTC due to its aggressive, overbearing, and unfair enforcement process. Cause of Action Institute recently filed more than 15 pages of recommended changes that can read here.

About Cause of Action Institute

Cause of Action Institute is a 501(c)(3) non-profit working to enhance individual and economic liberty by limiting the power of the administrative state to make decisions that are contrary to freedom and prosperity by advocating for a transparent and accountable government free from abuse.

CoA Institute Submits Comment to FTC, Recommends Multiple Reforms to Curb Agency Overreach and Abuse

Cause of Action Institute (“CoA Institute”) today submitted a public comment to the Federal Trade Commission (“FTC” or “Commission”) in advance of a series of hearings concerning the agency’s efforts to evaluate its law enforcement and policy agenda, improve investigative processes, and otherwise reform its implementation of the FTC Act.

CoA Institute’s recommendations are based on considerable experience dealing with the FTC.  Our attorneys regularly practice before the Commission.  At present, CoA Institute represents D-Link Systems, a networking equipment manufacturer, which is fighting vague and unsubstantiated allegations that it placed consumers “at risk,” despite any evidence of actual or likely substantial injury.  CoA Institute also represents Vylah Tec, LLC, a family-run technical support company that has been targeted on suspicion of “deceptive” sales practices.  The FTC has failed to uncover any concrete evidence of wrongdoing, yet the company remains subject to a punitive injunctive order.  In the past, CoA Institute represented LabMD, Inc., a small cancer-detection company, against claims that it had unreasonable data-security practices.  And CoA Institute has directly litigated against the FTC over matters related to the Freedom of Information Act.

As explained in the comment, CoA Institute’s track-record with the FTC gives it unique insight into how the agency can be improved in four general areas:

Reforming the FTC’s Enforcement Processes

When FTC staff believes there has been a violation of the law, the agency typically threatens a regulated entity with an enforcement proceeding and attempts to settle the matter by consent order.  This is the outcome in most cases.  But these consent orders tend to be vague; they provide little guidance about the standards with which other regulated companies are expected to comply.  This opens the door to regulatory overreach.  The FTC should provide specificity in its consent orders.

The FTC also should refine its use of ex parte injunctions, which are an extraordinary remedy.  Without clearer guidance limiting the use of temporary restraining orders and asset freezes, the FTC may continue to raise due process concerns and impose unjustifiable hardships on regulated entities defending themselves in enforcement proceedings.

Concerns about due process likewise arise with respect to the FTC’s own rules of procedure, which differ in material ways from well-accepted rules of procedure and evidence in federal courts.  The Commission’s rules provide its staff a decided advantage, particularly given the relatively boundless resources available to the agency.  This is unfair and flouts the rule of law.

Finally, the FTC should eliminate its practice of seeking legal damages in excess of what the agency is statutorily authorized to pursue.  Although the FTC may request equitable monetary damages, including restitution or disgorgement of ill-gotten gains, in practice the damages sought by the Commission are pecuniary and ultra vires.  In short, they amount to the imposition of personal liability on defendants.  This approach cannot be countenanced by the FTC Act.

Increasing FTC Transparency

Related to the reforms of the FTC’s enforcement regime are the changes that should be made to its disclosure practices.  As mentioned, the FTC regularly relies on consent orders to settle matters before an actual enforcement proceeding is opened.  The use of these negotiated orders, which are party-specific and, again, vague, fails to provide the requisite notice of legal standards to which regulated parties are expected to conform.  The FTC should abandon efforts to treat consent orders as a “common law” body of precedent that shapes future obligations for regulated parties.

To the extent the FTC continues to use consent orders in this problematic way, however, it should aim to make the orders specific, with detailed analysis about the application of generally applicable standards.  The Commission also should proactively disclose the closing letters and closing memoranda from matters where enforcement is not pursued.  In these cases, the FTC has determined that a potential respondent is operating within legal bounds.  The Commission itself admits that these documents are useful, but they are not uniformly disclosed to the public.

Developing a Proper Understanding of “Substantial Injury”

At the heart of Section 5 of the FTC Act is the concept of “substantial injury.”  Without actual, or the threat of “likely,” substantial injury, the FTC can do nothing.  But the exact scope of what is “likely” and “substantial” harm is unclear.  The FTC does not define the terms precisely, and the body of consent orders that reflect settled matters provide little further detail.  What is clear, however, is that the FTC prefers to maintain ambiguity to facilitate its overreach.

The Commission should do a better job considering the countervailing benefits to consumers or competition provided by allegedly unfair acts or practices, too.  This can be done with rigorous cost-benefit analysis.  The FTC often focus on amorphous concepts of harm while ignoring how regulated entities’ practices benefit the consumer or, more broadly, competition in the marketplace.

How Congress Should Amend the FTC Act

Although CoA Institute’s recommendations are principally directed to the FTC, Congress should play a key role in reforming the Commission’s enforcement processes.  We propose that legislators amend the FTC Act to allow direct appeals to a U.S. Court of Appeals following an administrative law judge decision.  This would replace the current process by which an appeal is first made to the full Commission.  It would be better to permit respondents to seek appellate relief in an Article III venue, and bypass the full Commission, because the FTC has a remarkable track record of never losing its own administrative appeals.  Regulatory agencies should not be allowed to wear the dual hats of prosecutor and judge.

Ryan P. Mulvey is Counsel at Cause of Action Institute

Click here to access the full comment or read below.


 

FTC Raids Small Business and then Obscures Participation in the Raid

Update: On Thursday, March 29, 2018, after clarifying that there was no legal impediment to its production, CoA Institute received from the FMPD the unredacted body cam footage showing the raid on Vylah Tec’s offices.

On May 3, 2017, the Federal Trade Commission (“FTC”) raided a small family-run tech support company, Vylah Tec, LLC (“V-Tec”), on suspicion of “deceptive” sales practices. The hours-long raid was initiated as part of a politically-hyped campaign known as Operation Tech Trap headed by the FTC in conjunction with the Florida Attorney General’s office. The FTC’s sting-like raid, assisted by local police, included hands-in-the air orders, temporary confiscation of employee cell phones, and police-escorted bathroom breaks.

On January 4, 2018, Cause of Action Institute (“CoA Institute”), under Florida’s “Sunshine Law,” requested from the Fort Myers Police Department access to the body camera recordings taken by officers participating in the raid at V-Tec’s headquarters. In the request, CoA Institute specifically  stated that any denial of access to the requested records should be accompanied by an identification of the statutory exemption relied upon.

On March 15, 2018, two body cam recordings were produced to CoA Institute. Despite the multi-hour duration of the raid, the recordings were brief: ten minutes and eighteen minutes. The recordings showed Fort Myers police officers entering V-Tec’s offices, ordering V-Tec employees to put their hands in the air, and shepherding the employees into a small office vestibule where the employees were told they were being held until they were interviewed by unidentified people who had not yet arrived.

Curiously, although the police officers and the employees were clearly visible on the recording, several minutes into the recording, when other people entered the scene, the view immediately became obscured. Even more curiously, at times only a portion of the view is obscured so that the image of the employees is still clear, but people on the other side of the room cannot be seen – such as in the image below.

CoA Institute reached out the Fort Myers Police Department, seeking an explanation of what appeared to be redacted footage. In response, the FMPD confirmed that the footage had been redacted because they could not release the “agency” portion of the video. The Florida Sunshine law is very broad and does not include an exception to its broad disclosure requirements for images of agency personnel operating in their official capacity. It thus appears that the FMPD was instructed to deny access to body cam footage that shows the participation of those entities in the raid of V-Tec’s offices.

On March 16, 2018, CoA Institute requested that the FMPD “state in writing and with particularity the reasons for the conclusion that the record is exempt or confidential’ as required by Fla. Stat. § 119.07(1)(f)” because CoA Institute believes that the FMPD’s refusal to release an unredacted version of the footage to be improper.

Cynthia Crawford is senior counsel at Cause of Action Institute

Appellate Court Unfreezes Small Business Owner’s Assets After Being Wrongly Targeted by FTC

Washington, D.C. – The 11th Circuit Court of Appeals has ruled to unfreeze in part the assets of our client, Robert Cupo, who owns a small family-run tech support company, Vylah Tec, LLC (“V-Tec”), after the Federal Trade Commission (“FTC”) used misleading evidence to convince the lower court to grant a damaging injunctive order against his company. The ruling rejects the government’s clear overreach in not only freezing assets of the company, but also the joint marital assets of Mr. Cupo and his wife, and the assets of his brother who had no business connection to V-Tec.  Cause of Action Institute (“CoA Institute”) filed an appeal of the district court’s order in September 2017.

CoA Institute Senior Counsel Cynthia Crawford: “The Government attempted to bulldoze Mr. Cupo and his family with punitive financial penalties before they had an opportunity to defend themselves. The preliminary injunction was granted based on faulty and mischaracterized evidence. That’s not due process, and it certainly is not justice. After nine long months of financial hardship, a large portion of the burden has finally been lifted, allowing our client to continue to fight to clear his name.”

The 11th Circuit found that the district court “did not make sufficient factual findings to support freezing these assets.”

Case Background:

V-Tec provides tech support to customers and also sells third-party antivirus and other data security software. In May 2017, the company’s headquarters was raided by FTC regulators, in conjunction with the Florida Attorney General’s office, on suspicion of “deceptive” sales practices.

To obtain the injunctive order that froze the Cupos’ assets, the FTC in court cited two examples of recorded calls that were both mischaracterized. The Government conceded that it submitted false evidence. Nonetheless, a Florida district court judge granted the injunctive order turning V-Tec’s operation over to a third-party receiver and freezing the assets of Mr. Cupo and several of his family members.

The 11th Circuit ruling vacates the asset freeze imposed against the assets held jointly by Mr. Cupo and his wife, as well as the asset held by his brother.

The full opinion can be found here.

For information regarding this press release, please contact Zachary Kurz, Director of Communications at CoA Institute: zachary.kurz@causeofaction.org.

 

The FTC Raided My Office, Found Nothing, And Is Destroying My Business Anyway

The FTC Raided My Office, Found Nothing, And Is Destroying My Business Anyway

ROBERT CUPO

Without due process or conviction in a court of law, the government is destroying my family’s business.

In early May, federal investigators raided my small tech-support company, Vylah Tec LLC, d/b/a “V-Tec,” on suspicion of “deceptive” sales practices. The raid was part of a politically hyped campaign by the Federal Trade Commission with the Florida Attorney General’s office, dubbed Operation Tech Trap, to “crack down on tech-support scams.” The problem: My business is not a scam.

Read the full article at Investor’s Business Daily.

Family Business Fights Back Against FTC, Files Appeal After Lower Court Wrongly Granted Injunctive Order

Washington, D.C. – Cause of Action Institute (“CoA Institute”) today filed its opening brief in the 11th Circuit Court of Appeals on behalf of a family-run tech support company, Vylah Tec, LLC (“V-Tec”), after the Federal Trade Commission (“FTC”) used misleading evidence to convince the lower court to grant a damaging injunctive order against the company. V-Tec is a small start-up, owned by Robert Cupo, that provides tech support to customers who have purchased electronic devices from the Home Shopping Network and other shopping channels. V-Tec also generates revenue from selling third-party antivirus and other data security software.

In May, the FTC, in conjunction with the Florida Attorney General’s office, raided the company’s headquarters on suspicion of “deceptive” sales practices, but were unable to uncover any concrete evidence of wrongdoing. In court, the FTC cited two examples of recorded calls that were both mischaracterized. A Florida federal judge granted the government’s request for a preliminary injunctive order (“PI”) that turned the company’s operation over to a third-party receiver and froze the assets of Mr. Cupo and several of his family members. In August, CoA Institute filed a motion to stay the district court’s order. While that decision is still pending, today’s brief is the first in CoA Institute’s appeal of the district court’s decision.

The brief states:

“The PI was granted without benefit of an evidentiary hearing, without application of the proper legal standard for issuing a preliminary injunction, and without application of the proper legal standard for analyzing the likelihood of success on the merits. It was based on untested and facially inadequate factual allegations.

“The Government has conceded that it submitted false evidence and mischaracterized other evidence it offered to the trial court, but it has done nothing to correct the record. To the contrary, the Government insists that the lower court and this Court condone its false evidence to crush a small business and to personally destroy its managers… The Government is seeking to bulldoze V-Tec before this Court can even rule on this appeal. That is not due process, and it certainly is not justice.”

CoA Institute Senior Counsel Cynthia Crawford: “The FTC’s facts in this case are either incomplete or patently false. Without evidence, it was wrong for the district court to grant an order that is draining V-Tec’s finances and destroying its reputation. We urge the 11th Circuit Court of Appeals to reexamine the flawed evidence and allow the Cupo family the due process they deserve, before their company is destroyed.”

The full brief can be found here

For information regarding this press release, please contact Zachary Kurz, Director of Communications at CoA Institute: zachary.kurz@causeofaction.org