A federal court in New Jersey has, for a second time, requested supplemental briefing before approving a stipulated final order for permanent injunction and other equitable relief in the Federal Trade Commission’s (FTC’s) action against a company that allegedly marketed acai-berry weight-loss products with “fake” news reports and deceptive claims. FTC v. Circa Direct LLC, No. 11-2172 (U.S. Dist. Ct., D.N.J., Camden Vicinage, order filed June 13, 2012). Among other matters, the court seeks FTC’s views on whether the agency has shown it was likely to succeed on the merits “without an admission of liability by the Defendants and with no evidentiary submissions before the Court.” The court also requests additional briefing on whether it “may consider the lack of an admission by the defendants in its public interest analysis under the [FTC Act].”
When the parties submitted their first supplemental briefs, FTC Commissioner J. Thomas Rosch submitted a letter indicating that, in his view, FTC’s submission “suffers from two failings.” Rosch contended that FTC should have addressed whether the court is bound by section 13(b) of the FTC Act, “which he asserts requires this court to consider both the FTC’s likelihood of success in litigation and the public interest before approving a settlement and both of which are implicated by a lack of an admission by the Defendants.” Rosch also “questioned the level of deference the FTC’s decision is owed and the notion that this Court ‘should simply “rubber stamp” an agency decision.’”
In light of the letter and a recent Second Circuit decision that the parties to a Securities and Exchange Commission consent decree, which also lacked an admission of liability, are likely to succeed on their claim that a district court erred in rejecting their settlement, the court found new questions to consider. Accordingly, the court sought briefing on whether it is bound by section 13(b), the scope of its review under that section and how the stipulated order satisfies it, particularly without an admission of liability, and the scope of the public interest review and “whether the Court may consider the lack of an admission by the defendant in its public interest analysis under the statute.”
Assuming that section 13(b) did not apply, the court found that the stipulated order was fair, adequate and reasonable in light of information included in the first round of supplemental briefs. According to the court, an $11.5-million suspended judgment against defendants with just $2.89 million in remaining assets, the same amount as the alleged damages in the case, was clearly a “strong recovery for the FTC.” The court also found that vigorous arms-length negotiation by counsel over a matter of months ameliorated its concerns that the settlement was unfair to the defendants.
Still, the court could make no determination that the parties’ agreement was in the public interest, stating “settlement without an admission of liability forecloses a determination of the truth of the FTC’s allegations and leaves the public with no better appreciation of the truth of the matter than when the litigation began.” In the court’s view, the public has a “significant interest in knowing the truth” as to whether the products were deceptively marketed for nearly two years with ads designed to look like news and claiming the products could stimulate weight loss. While asking FTC to address the matter, the court also asked it to “address whether there are any other efforts the FTC can make, short of requiring an admission of liability, to address the Court’s articulated concerns.”