FTC v Affordable Media, the Anderson case

The facts

Michael and Denyse Anderson ran a thriving telemarketing business out of San Diego. Back in 1995, long before any legal difficulties arose, they set up a Cook Islands trust and placed considerable assets into it. Years afterward they were engaged by a telemarketing venture that the Federal Trade Commission would later deem fraudulent. The FTC brought suit and, in May 1998, secured a temporary restraining order together with a preliminary injunction directing the Andersons to bring back assets held for their benefit outside the United States.

Complying with the court's order, the Andersons wrote to AsiaCiti, their Cook Islands trustee, asking for an accounting and for the assets to be repatriated. AsiaCiti instead invoked an event of duress under the terms of the trust deed, stripped the Andersons of their co-trustee status, and refused both to render an accounting and to return the assets.

Back before the court, the Andersons contended that compliance had become impossible: the assets sat with the trustee, who had refused and lay beyond the reach of any US court. The district court dismissed this defence, found the Andersons in civil contempt, and directed that they be jailed. That ruling was affirmed by the Ninth Circuit. 179 F.3d 1228 (9th Cir. 1999).

The structural mistake that determined the outcome

Alongside AsiaCiti, the licensed Cook Islands trustee, the Andersons had named themselves as co-trustees, and on top of that they had assumed the position of trust protectors.

After AsiaCiti triggered the duress provision and stripped the Andersons of co-trustee status, the Andersons continued to hold protector powers. In the Ninth Circuit's view, those protector powers left them a workable path to compliance: by exercising their protector authority they could shape how the trust was administered, and via that avenue satisfying the court's repatriation order was not truly beyond them. The impossibility was thus of their own making, and self-created impossibility does not excuse civil contempt.

That is the controlling holding. The court never ruled that Cook Islands trusts fail to work. It never ruled that anti-duress clauses are void. It never ruled that a US court can force the hand of a Cook Islands trustee. What it ruled was that these particular settlors, holding the co-trustee and protector roles at the same time, could not credibly claim to lack control over the trust.

What the anti-duress clause in fact accomplished

The clause functioned precisely as it had been drafted.

AsiaCiti spotted an event of duress, formally declared it, removed the compromised co-trustees, and refused repatriation. No US court forced it to act otherwise, either then or afterward. The assets remained in the Cook Islands. Summaries that portray the result as a structural failure routinely leave this part of the story out.

The purpose of the duress clause was to shield the assets from forced repatriation, and it did exactly that. The settlors ran into contempt on account of the role they had held onto, not because the clause broke down. Those are distinct results stemming from distinct causes.

What the Cook Islands court ruled

Most retellings of this case stop at the Ninth Circuit contempt ruling. Hardly any note what unfolded in the Cook Islands.

The trust was upheld by the Cook Islands High Court, which also ordered the FTC to pay costs. In the end the FTC reached a confidential settlement with AsiaCiti, the terms of which were never disclosed. The recurring assertion in secondary sources that the FTC got the assets back finds no support anywhere in the public record. Practitioners acquainted with the case consistently and without contradiction report that the funds remained in the Cook Islands.

Take the two results side by side. The Ninth Circuit held the Andersons in contempt for not repatriating assets over which they had kept a practical ability to exert influence. The Cook Islands High Court sustained the trust and ordered costs against the agency that sought to reach through it. The structure held. It was the structural mistake that damaged the settlors personally, not the trust itself.

What the case does and does not stand for

Three rules that follow directly

Never act as your own trustee, not even in a co-trustee capacity. Legal title ought to rest with the licensed Cook Islands trustee company on its own. Naming yourself as co-trustee undoes the very reason for appointing them and manufactures precisely the retained control that led to the contempt finding in this case.

Never act as your own protector. It is a protector who is truly independent of the settlor that lends the trustee's refusal its credibility. A settlor who is also protector is a built-in contradiction that a court will detect and exploit, exactly as the Ninth Circuit did here.

Hold back as little as you can live with. Each power you keep is another link in a chain a court can trace. For any reserved power, the question to test is not simply what it accomplishes on its own, but what chain of steps it might ultimately make possible. Lawrence v Goldberg came undone over a two-step chain: appoint a trustee who then reinstates access. Anderson came undone through parallel reasoning by way of the protector role.

The Cook Islands proceedings that go unreported

Discussion of the FTC v Affordable Media litigation runs almost entirely through the Ninth Circuit lens. The Cook Islands proceedings, which are the ones that genuinely settled the fate of the assets, get next to no attention in US practitioner commentary. Seeing the whole thing requires both.

The FTC pursued relief in the federal courts of the United States and in the Cook Islands alike. In the Cook Islands, the High Court was asked to recognise and enforce the US repatriation order and to grant related relief against the trust. On both counts the Cook Islands High Court refused. It affirmed the trust as valid under Cook Islands law, declined to recognise the US court's order, and ordered costs against the FTC.

That is the result that counts for grasping what the structure delivers. The Ninth Circuit held the Andersons in contempt because they had kept protector powers. The Cook Islands High Court found the trust valid and the FTC's claims meritless. Throughout, the assets sat in the Cook Islands. The FTC's settlement with the trustee was on confidential terms. What its repatriation order set out to recover, the FTC did not recover.

What the case actually proves about the statute in particular

Anderson is occasionally taken as proof that the Cook Islands statute goes too far, offering more protection than US courts will stomach. That interpretation is upside down. The statute did exactly what it was built to do, and the US court simply had a finding at its disposal, the Andersons' retained protector powers, that yielded the contempt result without ever having to grapple with whether Cook Islands law was valid.

At no point did the federal courts in Anderson rule that the Cook Islands statute was invalid, that anti-duress clauses cannot be enforced, or that a Cook Islands trustee's refusal was wrongful. Their holding was that the Andersons, specifically, had held on to enough practical authority to be found personally in contempt for failing to comply. A settlor lacking those retained powers raises a genuinely different question, and no federal appellate court has ruled against the trust on that question in any reported case.

The lasting significance

Three things Anderson established remain settled. A properly triggered anti-duress clause lets a Cook Islands trustee turn down a US court order, and no later case has managed to compel one. A settlor who takes on the protector role for themselves has kept control that a US court will identify. And the Cook Islands High Court will stand behind a properly structured international trust against challenges from abroad, including from a well-resourced US federal agency.

The case stays the leading authority in the field not because it reveals the structure to be fragile, but because it pinpoints exactly where the line sits and what results on each side of it.

General information rather than legal advice. Case summaries are inevitably condensed. Consult the full ruling with qualified US counsel before you rely on it. See the other reported cases and contempt and repatriation.