The Second Circuit Court of Appeals has determined that federal courts have the authority to award restitution in Federal Trade Commission (FTC) proceedings and that a district court did not err in ordering companies that make and falsely promote weight loss products to disgorge the full proceeds from the products’ sales. FTC v. Bronson Partners, LLC, No. 10-0878 (2d Cir., decided August 19, 2011). The ruling involved “the thoroughly unmiraculous Chinese Diet Tea and Bio-Slim Patch” products that FTC alleged were deceptively advertised, citing such product claims as “Sheds pound after pound of fat – fast!,” “[e]liminates an amazing 91% of absorbed sugars,” “[p]revents 83% of fat absorption,” and “[d]oubles your metabolic rate to burn calories fast.”
While the defendants agreed that the product promotions were deceptive under the Federal Trade Commission Act, they appealed from an order entering a permanent injunction against them and ordering the payment of nearly $2 million in monetary equitable relief and interest. They contended that the Act does not permit a court to order monetary relief and that the award was incorrectly calculated because the court awarded legal instead of equitable relief. The sum represented what the defendants earned in revenues from product sales in 2003 and 2004, calculated as a percentage of total revenues for that period. The district court concluded that it could award monetary relief under section 13(b) of the FTC Act, 15 U.S.C. § 53(b), as “a form of ancillary equitable relief that could be granted under its equitable jurisdiction.” The defendants also argued that the award should not include losses due to bounced checks and credit card chargebacks or to its expenses, including postage, storage and advertising. Given poor recordkeeping, however, the district court refused to adjust the award on these bases.
According to the Second Circuit, FTC’s unqualified statutory authority, which includes injunctive relief, also encompasses “the full range of equitable remedies, including the power to grant consumer redress and compel disgorgement of benefits.” So ruling, the court agreed with similar rulings rendered in five other circuits and relied on U.S. Supreme Court authority that the comprehensiveness of equitable jurisdiction “is not to be denied or limited in the absence of a clear and valid legislative command.” The court also agreed with the district court that the defendants had failed to meet their burden of proving their expenses and thus, that the award was correctly calculated. The court further ruled that, because the remedy involved disgorgement, the defendants were not entitled to deduct their costs.