FEDERAL TRADE COMMISSION v. AMERICAN FUTURE SYSTEMS, INC., 2:20-cv-02266

Background

The FTC (joined by the Commonwealth of Pennsylvania) sued American Future Systems, Inc. (AFS), Progressive Business Publications of New Jersey (PBPNJ), and AFS CEO Edward Satell for allegedly using deceptive telemarketing scripts to sell subscription publications; complaint filed May 13, 2020.
AFS marketed on a "no risk" 60‑day subscription model: telemarketing script with an offer/disclosure read verbatim, follow‑up confirmation emails, online account access, and a quality‑control review of calls; cancellations were honored.
The Pennsylvania AG investigated AFS beginning in 2012 and administratively closed its inquiry in 2018; the FTC opened its own investigation in 2017 and issued a civil investigative demand.
After voluminous discovery and a 15‑day non‑jury trial (Sept–Oct 2023) the court entered judgment for Defendants on March 29, 2024, finding the FTC had not proven deception.
AFS moved under the Equal Access to Justice Act (EAJA) for attorneys’ fees, expenses, and costs (filed Sept. 3, 2024). The court found AFS eligible, concluded the FTC’s position was not "substantially justified," granted relief in part, approved a cost‑of‑living uplift, denied special‑factor uplifts, awarded costs, and ordered supplementation of fee/expense documentation.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
EAJA eligibility of corporate defendant where sole owner is ineligible	Satell’s net worth > $2M; allowing AFS to recover would subvert EAJA's anti‑large‑entity goal; apply a "real party in interest" test	AFS is a separate corporate entity with net worth < $7M and <500 employees; Satell’s ineligibility shouldn’t bar corporate recovery	AFS is an eligible EAJA "party" despite Satell’s ineligibility; award will be apportioned among defendants per Third Circuit guidance (Brinegar).
Whether FTC’s factual position was substantially justified	FTC relied on consumer complaints, BBB data, discovery, and prior procedural rulings to justify suit	FTC cherry‑picked script phrases, failed adequately to verify complaints, did not analyze tens of thousands of call recordings, and many FTC witnesses undermined its case at trial	FTC’s factual position (pre‑litigation and litigation) was not substantially justified — court found insufficient reliable extrinsic evidence and trial testimony contradicted FTC theory.
Whether FTC’s legal theory was substantially justified	FTC treated the scripts as facially deceptive and argued extrinsic evidence was unnecessary under Third Circuit precedent	AFS argued FTC ignored its own and Third Circuit precedent requiring extrinsic evidence in implied/net‑impression cases when facial review is inconclusive	Court held FTC lacked a reasonable legal basis: it misapplied Beneficial/American Home Prods. and abandoned the usual practice of producing extrinsic evidence where needed.
Scope and amount of EAJA fee/expense award	FTC challenged amount, special‑factor uplifts, some expense categories, and timeliness of cost submissions	AFS sought $4.46M in attorney fees, $848k in other expenses, and $60,259.46 in taxable costs; sought COLA to $252.52/hr and special‑factor increases for certain partners	Court: awarded entitlement in principle, granted COLA to $252.52/hr, denied special‑factor uplifts, approved $60,259.46 in costs, and ordered AFS to supply detailed time‑and‑rate and unredacted expert invoices and e‑discovery expense breakdown within 14 days for final award determination.

Key Cases Cited

Pierce v. Underwood, 487 U.S. 552 (1988) (defines EAJA "substantially justified" standard and district court fact‑sensitive inquiry)
Comm’r, INS v. Jean, 496 U.S. 154 (1990) (EAJA prevailing‑party requirements and procedural filing rules)
Beneficial Corp. v. FTC, 542 F.2d 611 (3d Cir.) (net‑impression/deception: evaluate advertising as a whole and consider evidence of actual consumer misunderstanding)
Am. Home Prods. Corp. v. FTC, 695 F.2d 681 (3d Cir.) (FTC need not always present actual‑deception evidence when ad inherently tends to mislead)
Citizens Council of Delaware v. Brinegar, 741 F.2d 584 (3d Cir.) (treatment of multiple plaintiffs for EAJA eligibility and apportionment)
Hanover Potato Prods., Inc. v. Shalala, 989 F.2d 123 (3d Cir.) (legal justification must not offend established precedent)
Morgan v. Perry, 142 F.3d 670 (3d Cir.) (EAJA burden: reasonable basis in fact, law, and connection between them)
Richlin Sec. Serv. Co. v. Chertoff, 553 U.S. 571 (2008) (EAJA allows recovery of reasonable paralegal fees)
AMG Cap. Mgmt., LLC v. FTC, 593 U.S. 67 (2021) (Supreme Court limits FTC’s authority to seek monetary relief under Section 13(b))
Thouvenot, Wade & Moerschen, Inc. v. United States, 596 F.3d 378 (7th Cir.) (survival of motions to dismiss/summary judgment does not conclusively establish substantial justification)