Federal Trade Commission v. Commerce Planet, Inc.
2016 U.S. App. LEXIS 3992
| 9th Cir. | 2016Background
- Commerce Planet marketed an "OnlineSupplier" service via a free "Online Auction Starter Kit" offer; shipping payment required and fine print enrolled consumers in a 14-day free trial followed by automatic monthly charges (negative option).
- Many consumers did not realize ordering the free kit enrolled them; recurring monthly membership charges appeared on their credit card statements.
- FTC sued Commerce Planet and officers for unfair/deceptive practices under § 5(a) of the FTC Act; two individual defendants and the company settled, Charles Gugliuzza proceeded to trial.
- District court found deceptive conduct and held Gugliuzza personally liable for company violations during the period he controlled operations; permanently enjoined him and ordered $18.2 million restitution.
- The restitution award equaled one-half of Commerce Planet’s $36.4 million in net revenues from OnlineSupplier; the court reduced the full amount to a conservative floor because Gugliuzza failed to present reliable proof of how many consumers were not deceived.
- On appeal, the Ninth Circuit affirmed liability issues (separately) but addressed restitution: it upheld the court’s authority to order restitution under § 13(b) but vacated the judgment because the district court failed to expressly enter joint-and-several liability (an oversight that determines whether the full $18.2 million can be enforced against Gugliuzza).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Authority to award restitution under § 13(b) | FTC: §13(b) injunction power includes ancillary equitable relief such as restitution | Gugliuzza: §13(b) authorizes only injunctions; §19(b) provides exclusive monetary remedies | Court: §13(b) invokes equity jurisdiction; restitution is available (Porter principle); §19(b) does not bar §13(b) restitution |
| Scope of restitution against an individual | FTC: individual who controlled/participated in fraud can be held jointly and severally liable for corporate unjust gains | Gugliuzza: restitution must be limited to his personal unjust gains (~$3M); joint-and-several liability improper in equity here | Court: Individual may be held personally liable if control and scienter tests met; equity can impose joint-and-several liability; remand because district court did not expressly order joint-and-several liability |
| Applicability of tracing/Great‑West limitations | FTC: tracing requirement (Great‑West) does not apply to §13(b) restitution; equitable powers broader here | Gugliuzza: Great‑West/GreaAWest distinction requires tracing or converts relief to legal damages (invoking Seventh Amendment jury right) | Court: Great‑West/Mertens constraints do not control §13(b); restitution under §13(b) remains equitable for Seventh Amendment purposes; no jury right established |
| Calculation of restitution amount | FTC: net revenues ($36.4M) approximate unjust gains; presumption consumers relied on misrepresentations | Gugliuzza: many consumers were not deceived; district court’s 50% reduction arbitrary; offered survey and expert | Court: Adopted two-step burden-shifting: FTC proved net revenues; Gugliuzza failed to rebut with reliable evidence; district court permissibly reduced award to $18.2M as conservative exercise of discretion |
Key Cases Cited
- Porter v. Warner Holding Co., 328 U.S. 395 (equity injunctive jurisdiction permits ancillary restitution to accomplish complete justice)
- FTC v. Bronson Partners, 654 F.3d 359 (2d Cir.) (§13(b) restitution principles and burden-shifting framework)
- FTC v. Network Servs. Depot, 617 F.3d 1127 (9th Cir.) (individual liability standards and joint-and-several restitution enforcement)
- Great‑West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (limits on "equitable" restitution under ERISA and tracing discussion)
- Mertens v. Hewitt Assocs., 508 U.S. 248 (interpretive limits on "equitable relief" in private statutory schemes)
- Teamsters v. Terry, 494 U.S. 558 (restitution characterized as equitable for Seventh Amendment purposes)