Fed. Trade Comm'n v. Bronson Partners Llc

• Decision Date: 19 August 2011
• Docket Number: Docket No. 10–0878–cv.
• Citation: 654 F.3d 359,2011 Trade Cases P 77574
• Parties: FEDERAL TRADE COMMISSION, Plaintiff–Appellee,v.BRONSON PARTNERS, LLC, d/b/a New England Diet Ctr, d/b/a/ Bronson Day Spa; Martin Howard; and H & H Marketing, LLC, Defendants–Appellants,Sandra Howard, Defendant.*
• Court: U.S. Court of Appeals — Second Circuit

654 F.3d 359

2011-2 Trade Cases P 77,574

FEDERAL TRADE COMMISSION, Plaintiff–Appellee,

v.BRONSON PARTNERS, LLC, d/b/a New England Diet Ctr, d/b/a/ Bronson Day Spa; Martin Howard; and H & H Marketing, LLC, Defendants–Appellants,Sandra Howard, Defendant.*

Docket No. 10–0878–cv.

United States Court of Appeals, Second Circuit.

Argued: Feb. 4, 2011.Decided: Aug. 19, 2011.

Lawrence Demille–Wagman, Federal Trade Commission, Washington, DC (Willard K. Tom, John F. Daly, on the brief) (Robin E. Eichen, Nur–ul–Haq, Federal Trade Commission, New York, NY, of counsel), for Plaintiff–Appellee.Steven P. Caley, Kelley Drye & Warren LLP, New York, N.Y. (Lewis M. Rose, Daniel S. Blynn, Damon W. Suden, on the brief), for Defendants–Appellants.Before: CALABRESI, WESLEY, and LYNCH, Circuit Judges.GERARD E. LYNCH, Circuit Judge:

In 2003 and 2004, Bronson Partners, LLC, Martin Howard, H & H Marketing, and Sandra Howard (collectively, “Bronson”) advertised and sold two purportedly miraculous weight loss products. According to advertisements, Bronson's Chinese Diet Tea “SHEDS POUND AFTER POUND OF FAT—FAST!” Among other claims, Bronson's advertisements also proclaimed that the Chinese Diet Tea “[e]liminates an amazing 91% of absorbed sugars,” “[p]revents 83% of fat absorption,” and “[d]oubles your metabolic rate to burn calories fast.” Over the same time period, Bronson advertised its Bio–Slim Patch as a way to achieve “LASTING weight loss.” The advertisements promised that by “carry[ing] on with your normal lifestyle” and wearing the Bio–Slim Patch, “[r]epulsive, excess ugly fatty tissue will disappear at a spectacular rate.”

Bronson now admits that it engaged in deceptive advertising of both products in violation of the Federal Trade Commission Act, 15 U.S.C. §§ 41–58 (“FTC Act”). Bronson nevertheless appeals from a January 5, 2010 judgment of the United States District Court for the District of Connecticut (Underhill, J.) that entered a permanent injunction against Bronson and ordered it to pay $1,942,325 in monetary equitable relief plus statutory interest. Bronson contests the judgment on the grounds that: (1) the statute on which the district court's jurisdiction was based—Section 13(b) of the FTC Act, 15 U.S.C. § 53(b)—does not permit a court to order monetary relief; and (2) even if monetary relief may be awarded, the district court calculated its award incorrectly by awarding legal rather than equitable relief. We hold that Section 13(b) empowers a court to award ancillary equitable remedies, including disgorgement of wrongfully obtained funds, and that the district court's monetary award was appropriately calculated. Accordingly we AFFIRM the judgment of the district court.

BACKGROUND

On November 4, 2004, the FTC sued Bronson for its deceptive advertising practices related to the thoroughly unmiraculous Chinese Diet Tea and Bio–Slim Patch. The FTC alleged that in 2003 and 2004, Bronson's advertisements for these two products violated Sections 5(a) and 12 of the FTC Act, 15 U.S.C. §§ 45(a), 52. Bronson conceded liability with respect to the Bio–Slim Patch and, on July 10, 2008, the district court granted summary judgment in favor of the FTC with respect to the Chinese Diet Tea.

On June 2, 2009, the district court held a remedies hearing. The district court learned that after issuing refunds to some consumers, Bronson earned $1,942,325 in revenues from sales of the Chinese Diet Tea and the Bio–Slim Patch during 2003 and 2004.¹ Together, sales of these two products accounted for 25.25 percent of Bronson's company-wide revenues during 2003 and 2004. Bronson deposited the proceeds from all of its more than sixty products, including the Chinese Diet Tea and the Bio–Slim Patch, into one bank account. Bronson did not maintain separate records to identify which proceeds were tied to particular products. Likewise, Bronson did not calculate its expenses or losses on a per-product basis; as a result, Bronson submitted to the district court its overall expenses and losses for all of its sixty-plus products, but could not provide an itemized list of expenses and losses attributable to the Chinese Diet Tea and the Bio–Slim Patch.

On December 4, 2009, the district court issued its remedies order. FTC v. Bronson Partners, LLC, 674 F.Supp.2d 373 (D.Conn.2009). The district court first determined that it could award monetary relief pursuant to Section 13(b) of the FTC Act. Section 13(b) does not explicitly permit monetary awards; the provision states that “in proper cases the [FTC] may seek, and after proper proof, the court may issue, a permanent injunction.” 15 U.S.C. § 53(b). The court nevertheless found monetary relief available as a form of ancillary equitable relief that could be granted under its equitable jurisdiction.

Next, the district court calculated its award using our Court's two-step burden-shifting framework for calculating equitable monetary relief. That framework requires a court to look first to the FTC to “show that its calculations reasonably approximated the amount of the defendant[s'] unjust gains” and then shift the burden “to the defendants to show that those figures were inaccurate.” FTC v. Verity Int'l, Ltd., 443 F.3d 48, 67 (2d Cir.2006) (internal quotation marks and citation omitted).

At the first step of the burden-shifting analysis, the FTC calculated Bronson's unjust gains as $1,942,325. This amount, the FTC asserted, equals both Bronson's revenues from the Chinese Diet Tea and the Bio–Slim Patch and consumers' losses on these same products. The district court agreed, reasoning that Bronson collected money directly from consumers without using a middleman. Further, there was no evidence that any of Bronson's gains were “just” gains because the Chinese Diet Tea and the Bio–Slim Patch in no instance worked as advertised. Additionally, the district court rejected Bronson's assertion that the baseline should be reduced to account for bounced checks or credit card chargebacks. Bronson argued that the court should estimate that 25.25 percent of all of Bronson's company-wide losses due to bounced checks and credit card chargebacks were attributable to the Chinese Diet Tea and the Bio–Slim Patch because these products accounted for 25.25 percent of Bronson's revenues. The district court rejected Bronson's rough calculations:

It is entirely possible that the amount of chargebacks and bounced check fees attributable to Diet Tea or the Patch exceed 25.25% of total chargebacks and bounced checks. It is also entirely possible that defendants issued few, if any, chargeback refunds and received few bounced checks for Diet Tea and the Patch. When defendants' lack of record keeping renders it impossible to distinguish between just and unjust gains, the risk of the uncertainty falls on the wrongdoer.

Bronson, 674 F.Supp.2d at 381–82.

At the second step of the burden-shifting analysis, Bronson urged the district court to reduce the FTC's calculation to account for Bronson's expenses, including postage, storage, and advertising. These operating expenses totaled $1,986,119, including $1,217,862 in expenditures to advertise the diet tea. Beyond these expenses, Bronson could not present accurate figures specific to the Chinese Diet Tea or the Bio–Slim Patch for the remainder of its costs, due in part to incomplete record keeping. Relying on our decision in Verity, the district court rejected Bronson's effort to deduct its expenses. The district court reasoned that in this case, because no middleman had been involved, “the full amount of ... proceeds, even if they are equivalent to the consumers' losses, may be the subject of an award of equitable relief.” Id. at 384.

On December 29, 2009, the district court entered a permanent injunction prohibiting Bronson from, among other things, “making, expressly or by implication, any material false or misleading oral or written statement or representation in connection with the advertising, marketing, promotion, offer for sale, distribution, or sale of any weight loss product.” On January 5, 2010, the district court entered a judgment against Bronson in the amount of $1,942,325 plus statutory interest.

This appeal followed.

DISCUSSION

Bronson challenges both the district court's authority to award a money judgment under Section 13(b) of the FTC Act and the district court's computation of that award in this case. Because we conclude that Section 13(b) permits a court to order ancillary equitable relief, including monetary relief, and that such relief may be calculated on the basis of proceeds that the defendant received from its unlawful activity, we affirm the judgment of the district court.

I. Standard of Review

The scope of the district court's remedial authority under Section 13(b) is an issue of statutory interpretation that we decide de novo. See United States v. Douglas, 626 F.3d 161, 164 (2d Cir.2010).

II. Ancillary Remedies Under Section 13(b) of the FTC Act

Section 13(b) of the FTC Act provides: “in proper cases the [FTC] may seek, and after proper proof, the court may issue, a permanent injunction.” 15 U.S.C. § 53(b). While the provision's express text refers only to injunctive relief, courts have consistently held that “the unqualified grant of statutory authority to issue an injunction under [S]ection 13(b) carries with it the full range of equitable remedies, including the power to grant consumer redress and compel disgorgement of profits.” FTC v. Gem Merch. Corp., 87 F.3d 466, 468 (11th Cir.1996); see also FTC v. Freecom Commc'ns, Inc., 401 F.3d 1192, 1202 n. 6 (10th Cir.2005); FTC v. Pantron I Corp., 33 F.3d 1088, 1102 (9th Cir.1994); FTC v. Sec. Rare Coin & Bullion Corp., 931 F.2d 1312, 1314–15 (8th Cir.1991); FTC v. Amy Travel Serv., Inc., 875 F.2d 564, 571–72 (7th Cir.1989); FTC v. Sw. Sunsites, Inc., 665 F.2d 711, 718 (5th Cir.1982). We join these courts and hold that Section 13(b) of the FTC Act permits courts to grant ancillary equitable relief,...