FTC Ordered to Address Marketers’ Failure to Admit Liability in Açai-Berry Consent Decree
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 açai-berry weight-loss products with “fake” news reports and deceptive claims. FTC v. Circa Direct LLC, No. 11-2172 (D.N.J., 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.”
