UNITED STATES DISTRICT COURT FOR THE 

DISTRICT OF NEW HAMPSHIRE

Federal Trade Commission

v. Civil No. 04-cv-377-JD

Seismic Entertainment

Productions, Inc., et al.

O R D E R

In October of 2004, the Federal Trade Commission (“FTC”)

brought suit under the Federal Trade Commission Act, 15 U.S.C. 

§§ 45(a) and 53(b), seeking injunctive relief. On April 12,

2005, the FTC filed an amended complaint that named Mailwiper,

Inc., Spy Deleter, Inc., and John Robert Martinson as additional

defendants. Default was entered as to Mailwiper, Inc., and Spy

Deleter, Inc., on May 17, 2005. Since his counsel withdrew in

November of 2005, Martinson has proceeded on a pro se basis.

Background

Martinson filed a motion for an order of judgment on

December 6, 2005, in which he explained that he could not afford

to hire counsel to represent him in this matter and did not feel

he was capable of representing himself. He stated that his

attempts to settle with the FTC had not been successful and asked

the court to enter an order of permanent injunction and

disgorgement of funds to settle the case. The FTC filed a

Case 1:04-cv-00377-JD Document 128 Filed 06/20/06 Page 1 of 10
2

proposed order of judgment as to the liability of Martinson,

Mailwiper, Inc., and Spy Deleter, Inc., ordering a permanent

injunction and disgorgement of $1,162,498. Martinson responded

to the FTC’s proposed judgment, stating that he did not contest

the permanent injunction proposed by the FTC but did object to

the amount of disgorgement because he “did not earn nor [could

he] pay $1,162,498.44 as proposed by the FTC.” Martinson

asserted that his “total net profits for Mailwiper, Inc. and

Spydeleter, Inc. for 2003 and 2004, during [co-defendant Sanford

Wallace’s] actual affiliation was [sic] $462,379.92.” The FTC

replied to Martinson’s response, stating that Martinson had not

provided sufficient financial information to support an

adjustment in the amount the FTC was requesting in disgorgement. 

The FTC also proposed that a permanent injunction issue, but that

discovery be reopened as to the amount of disgorgement. 

On February 27, 2006, the court denied Martinson’s motion

for judgment and directed him to respond to the FTC’s most recent

proposed judgment and request for additional discovery on or

before March 6, 2006. The court further stated that if Martinson

failed to respond by that date his silence would be deemed to be

to be agreement to the FTC’s revised proposed order of judgment. 

When Martinson did not file any response by March 6, 2006, as he

had been ordered to do, the court deemed his failure to respond

to be agreement with the revised proposed order of judgment. 

Case 1:04-cv-00377-JD Document 128 Filed 06/20/06 Page 2 of 10
3

Order, March 16, 2006 (document no. 108). The court concluded,

however, that the revised proposed order of judgment included

matters that would be better resolved in one single judgment

following the additional discovery proposed by the FTC. The

court granted the FTC’s motion to reopen discovery for six weeks

and denied the remainder of the motion “without prejudice to

filing a second revised proposed order, after discovery has

concluded, that addresses the current circumstances of the

corporate defendants and seeks appropriate relief.” Id. at 6. 

The trial that was scheduled for March 21, 2006, was continued to

a date to be set at least eight weeks from March 17, 2006.

The FTC pursued discovery by propounding interrogatories to

Martinson and scheduling the depositions of Martinson and his

wife. On April 20, 2006, the court granted Martinson’s motion

for a protective order, directing the FTC to review the

information it had received and to determine whether further

discovery was necessary. The court added that “[w]ith respect to

any further issues that may arise in this case, Martinson is

directed to first make a reasonable effort to resolve those

issues with counsel for the FTC before resorting to filing a

motion for relief with the court.” Order of April 20, 2006

(document no. 118). On May 8, 2006, the court noted that the FTC

had not requested additional discovery and that the six weeks

allowed for discovery had expired. The court directed the

Case 1:04-cv-00377-JD Document 128 Filed 06/20/06 Page 3 of 10
4

parties to file a report “explaining the status of the parties’

progress toward a permanent injunction and order of judgment.” 

Order of May 8, 2006, (document no. 119).

On May 15, 2006, Martinson filed a status report, and the

FTC filed a status report and a motion for leave to take

Martinson’s deposition. Martinson reported that the amount of

disgorgement was still in dispute and that his attempts by email

to reach a settlement with counsel for the FTC had been

unsuccessful. Martinson also stated that he had refused to

discuss the case with counsel for the FTC by telephone because he

was not represented by counsel, insisting instead that the FTC

submit written requests for information. In its status report,

the FTC confirmed that Martinson refused to communicate by

telephone, which had impeded progress in the case. The FTC also

detailed its discovery efforts and the results. The FTC

concluded that Martinson appeared to continue to dispute many of

the facts pertaining to the amount of disgorgement. The FTC also

filed a motion for leave to depose Martinson.

Before Martinson responded to that motion, the FTC filed a

status report explaining that it and Martinson had worked out an

affidavit that addressed most but not all of the issues that

would have been addressed in a deposition. The FTC represented

that the affidavit was acceptable as an alternative to a

deposition, which was no longer necessary. The court terminated

Case 1:04-cv-00377-JD Document 128 Filed 06/20/06 Page 4 of 10
5

the motion for Martinson’s deposition as moot.

On June 9, 2006, the FTC filed a motion for a permanent

injunction as to Martinson, Mailwiper, Inc., and Spy Deleter,

Inc., seeking both an injunction and a judgment of disgorgement

in the amount of $1,862,270.18. Martinson responded by filing

“Request to Deny Proposed Order of Judgment for Permanent

Injunction.” Martinson contends that he was not given sufficient

time to respond to the FTC’s proposed order and that the FTC did

not make sufficient efforts to negotiate a settlement with him. 

He also contests the amount of disgorgement requested as being

too high and duplicative of the amount awarded against Wallace

and SmartBot. The FTC replies that Martinson’s affidavit

supports the amount of disgorgement it is seeking, that joint and

several liability applies and will prevent duplicative amounts of

disgorgement, that no further issue exists as to the liability of

Mailwiper, Inc., and Spy Deleter, Inc., and that “[s]ettlement

negotiations ended many weeks ago, after Defendant Martinson

refused to provide sworn information concerning his assets and

financial situation.”

Discussion

The court expected that the FTC and Martinson would use the

reopened discovery period to obtain information that would

facilitate a settlement of the issues remaining in this case. A

Case 1:04-cv-00377-JD Document 128 Filed 06/20/06 Page 5 of 10
6

settlement was not achieved, however. The corporate defendants

are in default. Martinson agrees that he is liable for the

violations of the FTCA alleged in the complaint against him and

does not contest the FTC’s request for a permanent injunction or

that disgorgement may ordered against him. 

The only remaining disputed issue appears to be the amount

of disgorgement. Martinson continues to argue that he cannot pay

the amount sought by the FTC. He also argues that the FTC is

seeking a double recovery based on the amounts sought from him

and from his co-defendant Sanford Wallace. The FTC responds that

Martinson’s ability to pay restitution is not a relevant

consideration at this stage and that joint and several liability

is the basis for its claims against the defendants, which

precludes a double recovery.

A. FTCA Remedies

The FTCA provides for a permanent injunction against further

violations of the Act, see 15 U.S.C. § 53(b), which courts have

interpreted to include the equitable remedy of restitution of

unjust gains derived from illegal conduct. FTC. v. Verity Int’l,

Ltd., 443 F.3d 48, 65-66 (2d Cir. 2006) (citing cases); FTC v.

Freecom Commc’ns, Inc., 401 F.3d 1192, 1202-03 (10th Cir. 2005)

(same). Because the restitution remedy allowed under § 53(b) is

equitable, a jury trial is not available on that issue. Verity

Int’l, 443 F.3d at 67. 

Case 1:04-cv-00377-JD Document 128 Filed 06/20/06 Page 6 of 10
7

To prove the amount of restitution to be ordered, the FTC

must “first show that its calculations reasonably approximated

the amount of the defendant’s unjust gains, after which the

burden shifts to the defendants to show that those figures were

inaccurate.” Id. (internal quotation marks omitted). The amount

of a defendant’s gross receipts from consumer sales in violation

of the FTCA is “a proper beginning point” for calculating the

amount of disgorgement. Freecom, 401 F.3d at 1206. “The

appropriate measure for restitution is the benefit unjustly

received by the defendants.” Id. That amount need not be

reduced to the amount of a defendant’s profits from the illegal

activities. Febre, 128 F.3d at 536. 

The FTC asserts that a defendant’s ability to pay is not a

factor in determining the amount of restitution to be awarded. 

The cases it cites in support of that proposition, however,

discuss the calculation of the amount of restitution for an FTCA

violation but do not appear to address the question of whether

ability to pay may be considered as a factor in that calculation. 

In contrast, it appears that the FTC does consider a defendant’s

ability to pay restitution when entering into settlements with

defendants. See Freecom, 401 F.3d at 1198. Indeed, the FTC in

this case sought sworn information from Martinson about his

assets and financial situation. In addition, a defendant’s

ability to pay is a required factor in determining an appropriate

penalty under 15 U.S.C. § 45(m)(1)(C). Further, unless a statute

Case 1:04-cv-00377-JD Document 128 Filed 06/20/06 Page 7 of 10
8

provides otherwise, restitution, being an equitable remedy,

generally includes a consideration of the defendant’s ability to

pay. See, e.g., United States v. Rostoff, 164 F.3d 63, 71-72

(1st Cir. 1999); cf. United States v. Cheal, 389 F.3d 35, 53 (1st

Cir. 2003) (discussing statutory prohibition in 18 U.S.C. §

3664(f)(1)(A) against considering defendant’s ability to pay). 

Therefore, the amount of the defendants’ net profits from

their illegal actions is not the measure of the amount of

restitution that may be ordered against them. It remains

unclear, however, whether the defendants’ ability to pay may be

considered in awarding restitution.

B. Joint and Several Liability

When “each defendant repeatedly participated in the wrongful

acts and each defendant’s acts materially contributed to the

losses suffered, all defendants [may be] held jointly and

severally liable.” FTC v. Gem Merch. Corp., 87 F.3d 466, 468

(11th Cir. 1996). Joint and several liability means that each

defendant is liable for the full amount of the judgment,

separately, but the plaintiff cannot recover more than the amount

of the judgment from them individually or jointly. Tilcon

Capaldi, Inc. v. Feldman, 249 F.3d 54, 62 (1st Cir. 2001). 

Individual and corporate defendants may be held jointly and

severally liable for violations of the FTC Act. See, e.g., FTC

v. World Media Brokers, 415 F.3d 758, 765-66 (7th Cir. 2005).

Case 1:04-cv-00377-JD Document 128 Filed 06/20/06 Page 8 of 10
9

Therefore, based upon the principle of joint and several

liability, the FTC is not seeking duplicative recoveries from the

defendants in this case.

C. Settlement

 Based on those principles, the question of the amount of

restitution to be ordered in this case must be resolved either by

further litigation, possibly requiring a trial, or through

further efforts to settle this case. The FTC represents that it

was not attempting to reach a settlement after Martinson refused

to provide sworn information concerning his assets and financial

situation. The FTC withdrew its motion to compel Martinson’s

deposition, however, after Martinson provided a sworn affidavit

that the FTC found was an acceptable alternative to a deposition. 

The FTC does not dispute that it allowed Martinson only a few

hours to consider its proposed order of judgment before filing it

with a motion for a permanent injunction. Martinson’s responses

indicate a lack of understanding of the legal standards that are

applicable to the FTC’s claims against him in this case. 

Under these circumstances, further efforts to reach a

settlement would be appropriate. To that end, Martinson shall

participate in settlement discussions in person or by telephone

with counsel for the FTC. The parties shall file a joint status

report on or before July 12, 2006, in which they either report

their settlement and file a stipulation of dismissal, an agreed

Case 1:04-cv-00377-JD Document 128 Filed 06/20/06 Page 9 of 10
10

order, or a consent decree or notify the court that settlement

was not possible. In the event a settlement is not reached, the

case will be scheduled for trial.

Conclusion

For the foregoing reasons, the FTC’s motion to enter an

order of judgment remains pending during the period that the

parties will further explore the possibilities of settling this

case. The parties shall file a joint status report on or before

July 12, 2006.

SO ORDERED.

____________________________

Joseph A. DiClerico, Jr.

United States District Judge

June 20, 2006

cc: Stacey P. Ferguson, Esquire

David P. Frankel, Esquire

Charulata B. Pagar, Esquire

Rosemary Russo, Esquire

Laura M. Sullivan, Esquire

Martha Van Oot, Esquire

John McFerrin Clancy, Esquire

John Robert Martinson, Esquire

Case 1:04-cv-00377-JD Document 128 Filed 06/20/06 Page 10 of 10