MEMORANDUM AND ORDER
Richard D. Rogers United States District Judge
Judge Robinson of this court entered a judgment of $1, 682, 950 against defendant Meggie Chapman in the above-captioned consumer protection action brought by the Federal Trade Commission and four states. Subject to a reservation of rights, State Farm Fire and Casualty Company provided defense counsel for Chapman during the case before Judge Robinson and on appeal. Judge Robinson’s order was affirmed by the Tenth Circuit on May 7, 2013 and Judge Robinson has transferred the case to the undersigned judge for further proceedings.
Plaintiffs, as judgment creditors, have filed a writ of garnishment (Doc. No. 447) to collect upon the judgment by garnishing an errors and omissions insurance policy issued by State Farm to Chapman. This case is now before the court upon the motion of the garnishee State Farm to quash plaintiffs’ writ of garnishment. Doc. No. 469.
The issue before the court is whether the insurance policy covers the conduct encompassed in this lawsuit.
I. Factual background
The relevant facts appear to be undisputed. Plaintiffs alleged and prevailed in proving that Chapman and other defendants violated the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 1601-1608, while marketing and selling goods and services upon the unfounded promise or representation that the buyers of the goods and services would have success in obtaining government grants. Specifically as to defendant Chapman, Judge Robinson found that she violated the Telemarketing Sales Rule (TSR), 16 C.F.R. 310.3(b), which prohibits anyone from providing “substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in any act or practice that violates” regulations prohibiting deceptive or abusive telemarketing conduct. In support of this holding, Judge Robinson found that:
- Chapman wrote portions of a “Grant Guide” which was sold to consumers;
- she researched potential money sources for the consumers who purchased grant research services and completed lists of potential money sources which were then provided to purchasing consumers;
- she helped develop a questionnaire for telemarketers to use in collecting information from consumers and provided limited training to telemarketers;
- she performed the “vast majority if not all of the research fulfillment for the Kansas Defendants” which was provided to more than 8, 000 individual consumers;
- she performed grant-research, grant writing, and grant coaching and mentoring services sold by other defendants;
- she supplied talking points to respond to questions or complaints from consumers;
- she responded to inquiries from two state attorneys general regarding the Kansas Defendants’ grant-related services, but she never reviewed defendants’ telemarketing materials or tracked whether purchasing consumers ever received a grant after purchasing defendants’ goods and services; and
- she performed similar work for a different operation after receiving notice of the original complaint and notice of a restraining order against the defendants in this case.
In her findings of fact and conclusions of law, Judge Robinson agreed with plaintiffs that the court should award “damages in the amount of the gross revenue collected by Chapman in the course of assisting and facilitating the Kansas Defendants.” Doc. No. 422, p. 23. Judge Robinson determined that there was sufficient evidence that Chapman collected $1, 682.950 in the course of assisting and facilitating the Kansas Defendants’ violation of the TSR. She awarded plaintiffs damages against Chapman in this amount. Later, in the judgment entered by the court, Judge Robinson ordered that funds paid to plaintiffs as a result of this lawsuit “be deposited into a fund or funds administered by the Plaintiffs or their designees to be used for consumer redress and any attendant expenses for the administration of any redress fund.” Doc. No. 423, p. 2. She further ordered that:
In the event that direct redress to consumers is wholly or partially impracticable or funds remain after redress is completed, the Plaintiffs may apply any remaining funds for any other equitable relief . . . that they determine to be reasonably related to Defendant’s practices alleged in the Second Amended Complaint. Any funds paid to the [Federal Trade] Commission not used for equitable relief shall be deposited into the U.S. Treasury as disgorgement.
Id. at pp. 2-3.
II. Choice ...