New Jersey District Court judge Renee Bumb ordered the FTC to respond to concerns regarding the proposed $11.5-million deceptive marketing settlement with Circa Direct LLC, an Internet advertiser of acai berry weight loss products. Like many settlements of government investigations, Circa Direct settled the FTC’s deceptive marketing investigation without an admitting liability. Judge Bumb worried: “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.” Following the Southern District of New York’s November 2011 decision to reject a $285 settlement between Citibank and the SEC, Judge Bumb explained that she would not approve the FTC’s settlement unless the FTC convinces her that the settlement is fair, adequate, reasonable, and in the public’s interest. The FTC has already persuaded Judge Bumb that the settlement is fair, adequate, and reasonable; but without an admission of liability or a full explanation of the facts leading to the settlement, the court has refused to accept that the parties’ settlement is in the public’s interest. Until it receives further FTC arguments, the court will not “abdicate its… responsibility to conduct meaningful judicial review” of the settlement.
This is not the first time that Judge Bumb has requested additional arguments by the parties before allowing the FTC’s settlement with Circa Direct. On February 22, 2012, the judge ordered the parties to explain the proper standard of review of the parties’ original settlement order and whether the order satisfied that standard. The FTC’s response did not fully satisfy the judge, leading to the current request for additional briefing from the FTC. The judge has not requested further submissions from Circa Direct.
TIP: Historically, FTC settlements almost always included affirmative language that the investigated company did not admit fault. Judge Bumb’s order signals a continuing judicial trend of disfavoring settlements with this language. Moving forward, the FTC will likely reject settlement offers that include such affirmative no-fault language.