The Second Circuit affirmed summary judgment and a $1.9 million award to the Federal Trade Commission in a suit the agency brought against Bronson Partners and its principals over two weight loss products, the Bio-Slim Patch and Chinese Diet Tea.
The FTC filed suit alleging that the defendants engaged in deceptive advertising. The defendants conceded liability with regard to the Bio-Slim Patch and a U.S. District Court judge granted summary judgment to the FTC regarding the Chinese Diet Tea.
The court then awarded the agency $1.9 million, the amount equal to the defendants’ revenues from the products, plus interest.
The defendants appealed, arguing that the court lacked the power to award a monetary judgment, which alternatively should have been reduced by its $1.2 million marketing expenses, that included postage, storage, and advertising.
But the Second Circuit disagreed, ruling that the FTC Act Section 13(b) empowers a court to award ancillary equitable measures – including disgorgement of wrongfully obtained funds.
Although the statute’s express text refers only to injunctive relief, the court said that because Section 13(b) invokes the equitable jurisdiction of the court, a “money judgment is thus permitted as a form of ancillary relief. Once its equitable jurisdiction has been invoked, ‘the court has the power to decide all relevant matters in dispute and to award complete relief.’ ”
Classifying the district court’s monetary judgment as equitable disgorgement, the court said the amount was also calculated correctly. Further, to allow the defendant a deduction for the amount it spent on fraudulent advertisements would be “equivalent to an armed robber’s seeking to deduct the cost of his gun from an award of restitution,” the court said, affirming the award.
Noting that Bronson did not maintain separate records to identify which of its proceeds were tied to a specific product (of which it had more than 60), the court said the defendant submitted to the district court its overall expenses and losses, but not an itemized accounting for the two diet products at issue.
To read the court’s decision in FTC v. Bronson Partners, click here.
Why it matters: While the power of a district court to award remedies other than a permanent injunction under Section 13(b) of the FTC Act was a matter of first impression for the Second Circuit, the court cited several other federal courts of appeal that had reached similar conclusions, including the Fifth, Seventh, Eighth, Ninth, Tenth, and Eleventh Circuits.