A Slovakia-based company accused by U.S. federal regulators of bilking sums potentially amounting to millions of dollars by scamming and harassing unsuspecting small and mid-sized businesses has won a chance to defend itself in Chicago's federal court against the allegations and – for now – avoid paying more than $9 million in damages.
On Dec. 11, U.S. District Judge Andrea R. Wood vacated a $9.1 million default judgment previously entered against the company known as Construct Data Publishers and Wolfgang Valvoda and Susanne Anhorn, identified as owners and officers in the company.
The decision came despite the defendants’ previous repeated failures to both respond to summons and orders of the court, and repeated attempts by their counsel in the U.S. to contact them and persuade them to mount a defense in court against the charges brought by the Federal Trade Commission.
However, the judge said a quick response to the default judgment by the defendants earned them a chance to reset the case and renew their contest of the FTC’s allegations.
“In this case, the disproportionate size of the default judgment - $9.1 million – in comparison with the minimal prejudice suffered by the FTC represents good cause to vacate the default judgment,” Wood wrote in her opinion.
The case has been pending in federal court since 2013, when the FTC announced it was acting to shut down Construct Data’s U.S. business, and collect reparations in response to what the federal agency asserted were fraudulent activities.
The FTC alleged that Construct Data had set its sights on businesses in the U.S. after being ordered by European regulators to cease contacting businesses in the European Union.
According to a release posted online by the FTC, the company would send direct mail under the name “Fair Guide” to “retailers, home-based businesses, local associations and others who attend trade shows” in the U.S., asking the business representatives to “update and check the accuracy of information for the ‘exhibitors directory’” for particular trade shows or exhibitions they had attended.
While the business believed its information was being listed for free, the FTC said Construct Data would then begin charging them $1,700 per year for the listing, using as justification a notice “buried in fine print at the bottom of the form” which stated, by returning a completed form, the business was agreeing to pay that amount for three years.
Should a business refuse to pay, the FTC said, Construct Data would then initiate collections actions, and harass the business until it paid “just to end the harassment.”
After the FTC sued the company, Valvoda and Anhorn initially hired counsel to represent them. While the proceedings began, the court slapped a preliminary injunction on the defendants, freezing most of their assets, but allowing them to withdraw sums for “reasonable living expenses,” subject to an accounting by the court.
But within months, their U.S. attorneys asked the court to allow them to withdraw, as their clients were non-responsive to either the court or their lawyers.
The FTC then successfully asked the court to enter default judgment against the defendants for $9.1 million, which the regulators estimated was the amount in fees Construct Data had collected since 2005, and to permanently freeze defendants’ assets.
However, within a month of the judgment, the defendants asked the court to vacate the judgment and lift the freeze.
While Wood rejected the defendants’ contention the court lacked jurisdiction over them, she said the defendants’ quick move to request the judgment and freeze be lifted-- as well as assertions their previous lack of responsiveness was “inadvertent” and based on their lack of knowledge of the U.S. legal system-- represented “good cause” to vacate, particularly in light of the “grossly excessive penalty.”
Further, she said the defendants should be allowed another opportunity to contest the charges, as the forms did include the language allegedly disclosing to “potential customers that they will be charged for the listing.”
The judge, however, did not immediately lift the freeze on the defendants’ assets. Wood said the defendants must first comply with the terms of the preliminary injunction and provide the court with an accounting of their finances.
Court records show the FTC is being represented in this case by Guy G. Ward, a Chicago attorney with the commission. The defendants are being represented by Chad Matthew Clamage, James R. Ferguson and Lori E. Lightfoot of Mayer Brown LLP and Daniel T. Fahner of Greenberg Traurig LLP, all of Chicago.