F.T.C. v. Qt, Inc.
| Decision Date | 22 January 2007 |
| Docket Number | No. 03 C 3578.,03 C 3578. |
| Citation | 472 F.Supp.2d 990 |
| Parties | FEDERAL TRADE COMMISSION, Plaintiff, v. QT, INC., Q-Ray Company, Bio-Metal, Inc., Que Te Park, a.k.a. Andrew Q. Park, and Jung Joo Park, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
Theodore H. Hoppock, Heather Hippsley, Janet M. Evans, Edward Glennon, Federal Trade Commission, Washington, DC, Steven M. Wernikoff, Federal Trade Commission, Chicago, IL, for Plaintiff.
Michael A. Ficaro, Ross E. Kimbarovsky, Richard H. Tilghman, Ungaretti & Harris, LLP, Chicago, IL, for Defendants.
Following a seven-day bench trial, the Court found in FTC v. QT, Inc., 448 F.Supp.2d 908 (N.D.Ill.2006) ("Memorandum Opinion") that Defendants QT, Inc., Q-Ray Company, Bio-Metal, Inc., and Que Te Park (collectively "Defendants") violated the Federal Trade Commission Act. The facts are set forth in the Memorandum Opinion. The Court entered a final judgment order on November 13, 2006 ("Final Judgment Order"), ordering Defendants to provide for consumer redress, disgorgement, and restitution, and granting injunctive relief. Defendants have now brought two motions: (1) Motion to Alter or Amend the Court's Nov. 13, 2006 Final Judgment Order and To Reconsider Its Sept. 8, 2006 Memorandum Opinion and Order ("Motion to Reconsider"); and (2) Motion to Stay Enforcement of the Final Judgment Order Pending Resolution of Defendants' Post-Trial Motions and Pending Appeal ("Motion to Stay"). On November 28, 2006, the Court granted in part the Motion to Stay pending resolution of the motion. For the following reasons, the Court grants in part and denies in part Defendants' Motion to Reconsider, and grants in part and denies in part Defendants' Motion to Stay.
Under Fed.R.Civ.P. 52(b), a party may move the court to amend its findings or make additional findings, and to amend the judgment accordingly. Fed. R.Civ.P. 52(b). Post-trial motions are to be used only to correct manifest legal or factual errors or to present newly discovered evidence. RKI, Inc. v. Grimes, 200 F.Supp.2d 916, 920 (N.D.Ill.2002). A losing party should not use a motion to reconsider to retry its case or rehash arguments it has made previously. Id. at 921. "If evidence is available to a party at the time of trial, the party is obligated to make those arguments at that time...." Id.
Defendants offer ten main reasons why the Court should alter, amend, or reconsider the Memorandum Opinion and Final Judgment Order: (1) "the evidence at trial failed to support numerous material findings of fact and conclusions of law," of which Defendants list several; (2) the Court improperly concluded that the Q-Ray Ionized Bracelet ("the Q-Ray bracelet") is a device as that term is used in the FTC Act; (3) "the FTC failed to prove that QT's advertising probably would mislead a reasonable consumer"; (4) the Court "adopted the wrong legal standard for substantiation"; (5) the Court improperly concluded that QT did not have a reasonable basis for its alleged advertising claims; (6) the Court improperly found that QT's advertising was false; (7) the Court improperly found that QT's return policy guarantee was false; (8) the Court improperly granted injunctive relief; (9) "the disgorgement amount awarded by the Court was clearly erroneous"; and (10) the Court improperly found that the claims against Mr. Park were not barred by res judicata or collateral estoppel. Reasons one through eight and reason ten rehash arguments made and rejected in the Memorandum Opinion, and will not be further discussed because the Court stands by its findings and conclusions therein set forth. Reason nine, the propriety of the amount of disgorgement ordered by the Court, warrants further analysis.
The Court ordered Defendants to disgorge $22.5 million in profits earned from direct sales of the bracelet to consumers. The factual findings underlying that ruling are as follows, with citations to the record provided in italics:
Total Sales of the Q-Ray Bracelet.
QT's gross sales of the Q-Ray bracelet from January 1, 1996 through June 30, 2003 were $137,172,907. Stipulated.
QT's gross "consumer direct" sales for the period were $114,609,182. Stipulated.
QT's net sales direct to consumers from January 1, 1996 through June 30, 2003 were $87,476,933. Stipulated.
Total Sales Since Inception of Infomercials.
There was a substantial jump in sales of the Q-Ray bracelet after the infomercials started airing in 2000 and that significant increase in sales continued as the infomercials kept airing. T. [Transcript] 96-97....
QT's gross sales direct to consumers in 2000 were $6,190,566, compared to $175,488 in 1999. Stipulated.
* * * * * *
Thus QT's net sales from January 1, 2000 through June 30, 2003, when the infomercials were airing, were $98,424,773. Stipulated.
i. Net sales direct to consumers from January 1, 2000 through June 30, 2003 were $87,019,840. Stipulated.
a. Net sales direct to consumers in the year 2000 totaled $5,538,850. Stipulated.
b. Net sales direct to consumers in the year 2001 totaled $14,759,120. Stipulated.
c. Net sales direct to consumers in the year 2002 totaled $37,177,379. Stipulated.
d. Net sales direct to consumers from January 1, 2003 through June 30, 2003 totaled $29,544,491. Stipulated.
ii. Net sales to wholesalers from January 1, 2000 through June 30, 2003 were $11,404,933. Stipulated.
QT's net profit for the years 1996 through September 2003 was approximately $22,600,000. T. 363-64; PX [Plaintiffs Exhibit] 70.
i. QT's net profit for 2000 was approximately $440,000. PX 70.
ii. QT's net profit for 2001 was approximately $860,000. PX 70.
iii. QT's net profit for 2002 was approximately $9,100,000. T. 363-64; PX 70.
iv. QT's net profit for 2003 was approximately $12,100,000. T. 363-64; PX 70.
Pages 363-64 of the transcript are from Que Te Park's testimony. The relevant portions are as follows:
Q. Why don't we go to an exhibit. It would be Plaintiff's Exhibit 70. Plaintiff s Exhibit 70 is a profit and loss statement that QT, Inc., has provided the Federal Trade Commission, and I ... Would like to blow up the column on the year 2002....
* * * * * *
Q. ... [F]or 2002, the net income to the company was approximately $9 million. ... Can you see that?
A. Yeah, I can see that, yes.
Q. Okay. And for 2003 going across, the net income was about $12 million; is that correct?
A. Yes, I can see that.
Q. And then the net income for the years 1996 though September of '03 is about $22 million; is that correct?
A. Yes, I can see that.
Although PX 70 was shown to the witness, it was never entered into evidence, and the Court erred in citing to it in support of the factual findings. Therefore, the Court reconsiders its ruling that Defendants disgorge $22.5 million in profit.1
Defendants argue that the FTC has not reasonably approximated the amount of profits attributable to direct sales of the bracelet, and that the Court must amend the Memorandum Opinion and Final Judgment Order to remove any profit disgorgement provision. Alternatively, Defendants seek to introduce new evidence related to their profits.
The relevant Seventh Circuit case addressing the FTC's burden in establishing the amount of damages is FTC v. Febre, 128 F.3d 530 (7th Cir.1997). In that case, the district court entered summary judgment for the FTC, and ordered the defendants to make restitution to all affected consumers, or to disgorge the full amount of consumer losses should any refunds go unclaimed. Id. at 533. The amount was calculated based on statements from the defendants' employees, an FTC computer specialist, and a certified public accountant. Id. at 535. The defendants argued that the district court abused its discretion in the amount of disgorgement ordered because of data missing from the FTC's calculations, but presented no evidence to the district court challenging the accuracy of the number reached by the FTC. Id. The Seventh Circuit held that the FTC "must show that its calculations reasonably approximated the amount of customers' net losses, and then the burden shifts to the defendants to show that those figures were inaccurate." Id. The court upheld the award because "the amount was properly supported in the record and defendants failed to dispute the facts in a timely and appropriate manner." Id. at 536.
While Febre involved a different measure of damages and procedural posture than this case, its analysis is relevant: if the FTC reasonably approximated Defendants' profits and Defendants failed to introduce evidence at trial refuting the FTC's calculations, the FTC has met its burden. Defendants presented no evidence to refute the FTC's calculations, so the issue is whether the FTC's approximation was reasonable.2
In its post-trial brief to the Court, the FTC argued that the Court should order a minimum of $22 million plus pre judgment interest in disgorgement, and characterized $22 million as Defendants'"ill gotten gains" and as "net profit." Pl. Post-Trial Br. at 42. The FTC cited as support for this argument its proposed Conclusions of Law at 51-57, and its Finding of Fact 383a. Finding of Fact 383a cites only to the portions of Mr. Park's testimony above, and states that QT's net profits for 1996 through September 2003 was $22 million, with net profits of $9 million in 2002 and $12 million in 2003.
The FTC's approximation, while far from ideal, was reasonable. The $22 million figure is over-inclusive in that it includes profits earned before 2000 and after June 30, 2003 (the period of time during which the infomercials aired), and includes sales to wholesalers. It is clear from the evidence in the record, however, that the overwhelming majority of Defendants' business came from sales of the Q-Ray bracelet directly to customers during the...
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