Federal Trade Commission v. Commerce Planet, Inc., et al.
- Summarized by Lars Fuller , BakerHostetler
- 8 years 10 months ago
- Citation:
- No. 12-57064 (9th Cir. Mar. 3, 2016)
- Tag(s):
-
- Ruling:
- In a published decision, the 9th Circuit affirmed in part, and vacated in part, the district court's (C.D. Cal.) order finding that defendant entity violated s 5 of the FTC Act; holding the entity's principal liable for the company's unlawful conduct, and ordering him to pay $18.2 million in restitution. The panel agreed that the district court had the authority to award restitution under the FTC, and rejected the individual defendant's contention be limited to the unjust gains each defendant personally received, because liability could be joint and several. The panel remanded to enable the trial court to enter judgment either jointly and severally, in the amount of $18.2 million, or, if the trial court entered judgment only against the individual, in an amount limited to the individual's unjust gains. The panel found that the district court did not abuse its discretion in calculating the amount of the restitution award by following the proper two-step burden-shifting framework for calculating restitution under the FTC Act, which the panel adopted as the law of the 9th Circuit. Under the first step, the FTC bore the burden of proving that the amount sought in restitution reasonably approximated the defendant's unjust gains. In the second step, the burden shifted to the defendant to show that the FTC's figures overstated the amount of the defendant's unjust gains. The panel agreed that the FTC met its burden at the first step, having proved that all of the revenues represented presumptively unjust gains, and the individual failed to meet his burden at step two to show that the FTC's figure overstated the entity's restitution obligation. The 9th Circuit noted that the individual's chapter 7 bankruptcy, filed after he filed his notice of appeal, did not stay the appeal, because the automatic stay did not apply to the police or regulatory action of the FTC, though it did stay any attempt by the FTC to enforce or executed upon the judgment.
- Procedural context:
- The FTC sued Commerce Planet, Inc. and three of its top officers for unfair or deceptive business practices under the FTC Act. The company and two of the officers settled with the FTC. The remaining defendant elected to stand trial. After a 16 day bench trial, the district court found that Commerce Planet had violated the FTC Act, and held the remaining individual defendant, the company's former president, personally liable for the company's unlawful conduct, and entered judgment against him in the amount of $18.2 million in restitution. The former president appealed to the 9th Circuit.
- Facts:
- The FTC brought suit to enjoin Commerce Planet's deceptive marketing of a product called "OnlineSupplier." The company touted OnlineSupplier as a website-hosting service that would enable consumers to make money by selling products online. The company charged a membership fee for the service that ranged over time from $29.95 to $59.95 per month. Commerce Planet sold OnlineSupplier through its website. The landing page for the website, however, said nothing about OnlineSupplier. Instead, consumers saw an offer for a free "Online Auction Starter Kit" that explained how they could sell products on eBay. To obtain the sarter kit, consumers needed to enter their shipping address and a valid credit card number to pay for shipping and handling ($1.95 for standard delivery, $7.95 for expedited delivery). Buried in the fine print was an advisement stating that by ordering the starter kit, consumers were also agreeing to purchase OnlineSupplier through a "negative option." Unless customers affirmatively cancelled OnlineSupplier, they would be billed a recurring monthly membership fee. Many consumers did not realize that by ordering the free starter kit they had also agreed to purchase OnlineSupplier. They first learned of that fact when the monthly charges for the service began showing up on their credit card bills.
Gugliazza exercised operational control of Commerce Planet first as a consultant, and then as president, for two and a half years. Gugliazza oversaw and directed the marketing of OnlineSupplier, including the negative option, and the manner of the disclosures. The district court determined that Commerce Planet's net revenues from the sale of OnlineSupplier during the relevant period totaled $36.4 million. After adopting Gugliazza's argument that not all customers were deceived, the district court relied on testimony from an FTC expert that "most" customers were deceived, and estimated as a "conservative floor" that at least half were deceived, in arriving at a restitution figure of $18.2 million.
- Judge(s):
- Callahan, Watford, Owens
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