FTC v. Kristy Ross

74 F.4th 186
Court of Appeals for the Fourth Circuit·Decided July 19, 2023·No. 22-2078·Published·Cited by 16 cases

Opinion

PUBLISHED

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 22-2078

FEDERAL TRADE COMMISSION, Plaintiff - Appellee,

v.

KRISTY ROSS, individually, and as officer of Innovative Marketing, Inc., Defendant - Appellant.

Appeal from the United States District Court for the District of Maryland, at Baltimore. Richard D. Bennett, Senior District Judge. (1:08-cv-03233-RDB)

Argued: May 3, 2023 Decided: July 19, 2023

Before DIAZ, Chief Judge, RUSHING, Circuit Judge, and FLOYD, Senior Circuit Judge.

Affirmed by published opinion. Senior Judge Floyd wrote the opinion in which Chief Judge Diaz and Judge Rushing joined.

ARGUED: Robert P. Greenspoon, DUNLAP, BENNETT & LUDWIG, Chicago, Illinois, for Appellant. Matthew Michael Hoffman, FEDERAL TRADE COMMISSION, Washington, D.C., for Appellee. ON BRIEF: William W. Flachsbart, DUNLAP, BENNETT & LUDWIG, Chicago, Illinois, for Appellant. Anisha S. Dasgupta, General Counsel, Joel Marcus, Deputy General Counsel, Matthew M. Hoffman, Miriam R. Lederer, FEDERAL TRADE COMMISSION, Washington, D.C., for Appellee.

FLOYD, Senior Circuit Judge:

Defendant-Appellant Kristy Ross victimized over a million Americans by furthering a country-wide “scareware” scam that tricked innocent computer users into paying for unnecessary software to remedy entirely fabricated issues purported to plague their devices. An apparent fugitive—having sought for years to evade paying even a cent of the $163,167,539.95 in restitution ordered for her role in the scheme—Ross now seeks vacatur of that aging monetary judgment. For the reasons that follow, we affirm.

I.

In the early 2000s, Ross was a vice president of Innovative Marketing, Inc.—a company perpetrating a country-wide “scareware” scam that tricked more than one million Americans into purchasing unnecessary software to fix computer issues that did not exist. Ross helped to develop software advertisements and pop-ups that falsely represented to viewers that their computers were infected by malicious software and viruses, contained illegal pornography, or were about to suffer critical system failures. The advertisements offered remedial software (for purchase) for the fraudulently represented issues. Costs of the remedial software ranged anywhere from $30 to $100. Once purchased by desperate device owners, not only did the software do nothing to fix the purported issues—those issues never existed—but reputable computer-security vendors considered the fraudsters’ software to itself be harmful to purchasers’ devices. In the course of the scam, Ross and her co-conspirators fraudulently accumulated more than $160 million. Reaping the fruits of her duplicitous scheme, Ross enjoyed a lavish life with scam proceeds, frequenting Four

Seasons resorts abroad and shopping at luxury retailers.

In 2008, the Federal Trade Commission (“FTC”) sued Ross, alleging that the scareware scam violated Section 5(a) of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 45(a), which prohibits unfair or deceptive practices in or affecting commerce. 1 The FTC specifically sought relief via the FTC Act’s injunctive provision, Section 13(b), 15 U.S.C. § 53(b). Under that provision, the agency may seek to enjoin any entity from conduct believed to be in violation of the Act. Tied to its request for statutory injunctive relief via Section 13(b), the FTC also sought an equitable monetary judgment to fund consumer redress.

In 2012, the case against Ross proceeded to a bench trial. See Fed. Trade Comm’n v. Ross (Ross I), 897 F. Supp. 2d 369 (D. Md. 2012). The district court entered judgment in favor of the FTC and against Ross. The court permanently enjoined and restrained Ross’s participation in any “marketing [or] sale of computer security software and software that interferes with consumers’ computer use as well as from engaging in any form of deceptive marketing.” Id. at 389; J.A. 78. It also held her jointly and severally liable with her co-defendants for consumer redress in the amount of $163,167,539.95. Ross I, 897 F. Supp. 2d at 389.

Ross timely appealed. As relevant here, she argued that the district court lacked the authority to impose an equitable monetary judgment under the FTC Act’s injunctive provision—Section 13(b). This Court affirmed in 2014, joining every other circuit to

1

Notably, the FTC also sued many of Ross’s colleagues, but each either settled or defaulted. Ross is the only defendant who proceeded to trial.

address the issue (including the First, Second, Third, Seventh, Eighth, Ninth, Tenth, and Eleventh) by holding that Section 13(b) impliedly granted district courts the authority to award consumer redress as an equitable component of the injunctive provision. The Court reasoned that “[a] ruling in favor of Ross would forsake almost thirty years of federal appellate decisions and create a circuit split, a result that we will not countenance in the face of powerful Supreme Court authority pointing in the other direction.” Fed. Trade Comm’n v. Ross (Ross II), 743 F.3d 886, 892 (4th Cir. 2014). The Court further reasoned that Ross’s argument “attempt[ed] to obliterate a significant part of the [FTC’s] remedial arsenal.” Id. Notably, since this Court’s affirmance, Ross has not paid a penny toward satisfying the monetary judgment for consumer redress. Resp. Br. 5. Her whereabouts are unknown, and she is believed to have fled the United States. Id.

In April 2021—nearly a decade after the district court entered judgment against Ross—the Supreme Court decided AMG Capital Management, LLC v. Federal Trade Commission, 141 S. Ct. 1341 (2021). There, the Court wiped out the almost entirely uniform approach of the federal circuits 2 to the question of whether Section 13(b) authorized equitable monetary relief. Rather, the Court held that Section 13(b) authorized only injunctive relief. AMG, 141 S. Ct. at 1349, 1352 (“[The FTC Act] does not grant the [FTC] authority to obtain equitable monetary relief.”). Five months after the issuance of the Supreme Court’s decision in AMG, Ross moved to vacate the restitution portion of the

2

In 2019—after this Court’s decision in Ross’s direct appeal but before AMG—the Seventh Circuit deviated from the rest of the federal circuits on the question of whether Section 13(b) permitted equitable monetary awards. See Fed. Trade Comm’n v. Credit Bureau Ctr., 937 F.3d 764 (7th Cir. 2019).

judgment against her. She argued that the equitable monetary judgment was void under Federal Rule of Civil Procedure 60(b)(4) because of a perceived post-AMG jurisdictional defect, and, additionally or alternatively, because “extraordinary circumstances” justified vacatur under Rule 60(b)(6).

The district court denied Ross’s motion. See Fed. Trade Comm’n v. Ross (Ross III), No. RDB-08-3233, 2022 WL 4236339, at *4 (D. Md. Sept. 14, 2022). Regarding Rule 60(b)(4), the court held that the monetary judgment was not void because the remedial provisions of Section 13(b) are not jurisdictional in nature and because, at the time of judgment, an arguable basis existed for the monetary remedy given that other circuits uniformly permitted such a remedy under that provision. Id. at *3. Regarding Rule 60(b)(6), the court held that, in the Fourth Circuit, a subsequent change in law does not amount to an “extraordinary circumstance” justifying relief. Id. at *4. The court further declared that so much time had passed since the entry of judgment that the interest of finality weighed heavily against a finding of extraordinary circumstances. Id. Ross timely appealed.

II.

We review a district court’s denial of a Rule 60(b)(4) motion de novo. United States v. Welsh, 879 F.3d 530, 533 (4th Cir. 2018) (citation omitted). Meanwhile, we review a district court’s denial of relief sought under Rule 60(b)(6) for abuse of discretion. Id. (citation omitted).

Importantly, an appeal of a district court’s denial of Rule 60(b) relief “does not bring

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FTC v. Kristy Ross, 74 F.4th 186 (4th Cir. 2023).

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