For the second time in four months, a U.S. District Court Judge in New Jersey has declined to accept a settlement between the Federal Trade Commission and the marketer of an acai berry weight-loss product.
In February, Judge Renee Marie Bumb refused to sign off on the deal, which imposed a permanent injunction on marketer Circa Direct as well as a suspended $11.5 million monetary payment. Judge Bumb made headlines when she wrote that because the defendant did not admit fault in the settlement, she could not determine whether the monetary award or other terms were appropriate without “established facts as to the extent of the alleged wrongdoing at issue.” She ordered further briefing from the parties regarding her concerns.
But after those briefings, Judge Bumb again declined to approve the terms of the settlement and requested yet another round of briefing. The judge stated that although the parties alleviated some of her concerns about the terms of the settlement, it remained unclear if the settlement was in the interests of the public.
In her order, Judge Bumb noted a letter she received from FTC Commissioner J. Thomas Rosch, cautioning her not to “simply ‘rubber-stamp’ an agency decision.”
Judge Bumb also referenced a similar order from a New York federal court, where a judge rejected a settlement with the Securities and Exchange Commission in which the defendant did not admit fault. After her first order in the Circa Direct case, the 2nd Circuit issued an unsigned opinion indicating that the New York decision was likely to be reversed on appeal, as “Requiring such an admission would in most cases undermine any chance for compromise.”
Judge Bumb acknowledged that an admission of fault may not be necessary to assess the fairness, adequacy, and reasonableness of a proposed settlement if the parties have provided sufficient context for the settlement terms. But the FTC and Circa Direct have “not demonstrated that the settlement is in the public interest notwithstanding defendants’ failure to admit to liability,” she wrote.
And while the court acknowledged that she must afford substantial deference to the FTC’s views, “This deference does not mean, however, that this court must accept compulsory arguments regarding the public interest. It is instead entitled to the FTC’s reasoning and the fact supporting that reasoning.
“The court is also cognizant that it may not dictate the FTC’s policy choices. But neither can this court abdicate its own responsibility to conduct meaningful judicial review. Some tension between these directives is unavoidable,” Judge Bumb wrote.
Therefore, she requested that the agency – and not the defendants – provide additional briefing on whether the court “may consider the FTC’s failure to obtain an admission of liability in its public interest analysis and, if so, why the [settlement] is in the public interest.”
To read the court’s order in FTC v. Circa Direct, click here.
Why it matters: The practice of neither admitting nor declining fault in such settlements is commonplace, particularly with entities that could face civil suits as a result of making a deal with the government. Judge Bumb’s challenge to the practice – and Commissioner Rosch’s caution not to “rubber stamp” the agency’s deals – should be closely watched by advertisers and marketers.