Fed. Trade Comm'n v. Noland
| Docket Number | CV-20-00047-PHX-DWL |
| Decision Date | 23 November 2021 |
| Parties | Federal Trade Commission, Plaintiff, v. James D. Noland, Jr., et al., Defendants. |
| Court | U.S. District Court — District of Arizona |
On September 9, 2021, the Court issued an order granting the FTC's motion for summary judgment as to liability against the Individual Defendants. (Doc. 406.) As relevant here, this order concluded that the Individual Defendants were liable for violating the FTC's Merchandise Rule and Cooling-Off Rule and should be held jointly and severally liable for any monetary award arising from those Rule violations. (Id. at 48-54.)
Now pending before the Court is the FTC's motion for summary judgment as to monetary remedies. (Doc. 365.) The FTC seeks the entry of judgment against the Individual Defendants in the amount of $1, 156, 865.50, composed of $630, 377 in damages arising from Merchandise Rule violations and $526 488.50 in damages arising from Cooling-Off Rule violations. (Id.) The motion is fully briefed (Docs. 392, 398) and neither side requested oral argument. For the following reasons, the motion is denied.
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“The court shall grant summary judgment if [a] movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “A fact is ‘material' only if it might affect the outcome of the case, and a dispute is ‘genuine' only if a reasonable trier of fact could resolve the issue in the non-movant's favor.” Fresno Motors, LLC v. Mercedes Benz USA LLC, 771 F.3d 1119, 1125 (9th Cir. 2014). The court “must view the evidence in the light most favorable to the nonmoving party and draw all reasonable inference in the nonmoving party's favor.” Rookaird v. BNSF Ry. Co., 908 F.3d 451, 459 (9th Cir. 2018). “Summary judgment is improper where divergent ultimate inferences may reasonably be drawn from the undisputed facts.” Fresno Motors, 771 F.3d at 1125 (internal quotation marks omitted).
A party moving for summary judgment “bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Fed.R.Civ.P. 56(c)). “In order to carry its burden of production, the moving party must either produce evidence negating an essential element of the nonmoving party's claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial.” Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir. 2000). “If . . . [the] moving party carries its burden of production, the nonmoving party must produce evidence to support its claim or defense.” Id. at 1103.
“If the nonmoving party fails to produce enough evidence to create a genuine issue of material fact, the moving party wins the motion for summary judgment.” Id. There is no issue for trial unless enough evidence favors the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). “If the evidence is merely colorable or is not significantly probative, summary judgment may be granted.” Id. at 249-50 (citations omitted). At the same time, the evidence of the non-movant is “to be believed, and all justifiable inferences are to be drawn in his favor.” Id. at 255. “[I]n ruling on a motion for summary judgment, the judge must view the evidence presented through the prism of the substantive evidentiary burden.” Id. at 254. Thus, “the trial judge's summary judgment inquiry as to whether a genuine issue exists will be whether the evidence presented is such that a jury applying that evidentiary standard could reasonably find for either the plaintiff or the defendant.” Id. at 255.
The relevant text of the Merchandise Rule, 16 C.F.R. § 435.2, provides that it is a violation of the FTC Act:
In the summary judgment order on liability, the Court concluded that the FTC's proffered evidence-which was largely undisputed-established that the Individual Defendants had violated the Merchandise Rule in the course of their operation of Success By Health (“SBH”). (Doc. 406 at 48-51.) Not only did the Individual Defendants admit in their answer that Merchandise Rule violations occurred, but the undisputed evidence submitted by the FTC showed that consumers experienced extensive shipping delays related to certain SBH products and that SBH adhered to an explicit no-refunds policy. (Id.) Although unresolved issues remained as to the extent of the Merchandise Rule violations and the harm, if any, associated with those violations, the Court stated that “[t]he scope of the violations is better taken up in the Remedies MSJ.” (Id. at 51.)
The FTC argues the Individual Defendants should be held liable for $630, 377 in damages based on two sets of the Merchandise Rule violations. (Doc. 365 at 1.) First, the FTC presents evidence that SBH sold a large number of “Founder Packs” during its early stages but did not timely ship all of these orders due to production and shipping backlogs and did not offer a refund after the shipments became overdue. (Id. at 2.) The FTC argues that, as of March 13, 2018, SBH “still owed approximately 200 Founder Pack purchasers $370, 130 in products” and that all of the unfulfilled orders on this date were at least six weeks old. (Id. 2.) Notably, the FTC does not argue that SBH never subsequently fulfilled these orders. Instead, the FTC's theory is that, at the moment any shipment became overdue (and SBH failed to provide notice of the buyer's right to seek a refund or consent to a shipping delay), the consumer immediately suffered harm equal to the purchase price of the unshipped product, irrespective of whether the consumer later received the product from SBH. (Id. at 11-12.) Although the FTC acknowledges the novelty of its argument- it is “unaware of any court having addressed the proper monetary remedy for a . . . standalone Merchandise Rule violation” (Id. at 11 n.6)-it attempts to justify its methodology as follows:
Defendants, presumably, will argue that consumers were not harmed because they eventually received the products. As a threshold matter, that is wrong. In many cases, consumers never received their orders. In any event, the Rule does not permit Defendants to choose their own remedy. By law, consumers' orders were cancelled when Defendants failed to offer them the opportunity to consent to or cancel a delayed shipment. 16 C.F.R. § 435.2(c)(5). The fact that Defendants nevertheless chose to send the products makes those products unordered merchandise, which consumers by law may treat as a gift, and for which they have no obligation to return. See 39 U.S.C. § 3009 ()
(Id. at 12.) At a minimum, the FTC argues that “if Defendants intend to argue that consumers who eventually received their orders are not entitled to refunds they must bear the burden of proving which late orders were eventually sent” and that such an approach is “particularly [appropriate] here, given Defendants' poor shipping records.” (Id. at 12 n.7.) The second set of Merchandise Rule violations proffered...
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