Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—9th Cir.: Marketer personally liable for former company’s restitution judgment, (Mar 4, 2016)

By Linda O’Brien, J.D., LL.M.

In the FTC’s suit against a former online auction website marketing company over its deceptive and unfair practices of automatically enrolling consumers in its membership plan, a district court did not err in holding the firm’s president personally liable for the company’s unlawful practices and ordering him to pay restitution, the U.S. Court of Appeals in Pasadena, California has held (Federal Trade Commission v. Commerce Planet, Inc., March 3, 2016, Watford, P.).

Charles Gugliuzza and his company, Commerce Planet, Inc., operated the “OnlineSupplier” website, which marketed a free “Online Auction Starter Kit” on how to turn a profit from buying and selling on auction websites. Gugliuzza’s website concealed the fact that consumers who ordered the kits were automatically enrolled in a membership plan that placed fees on their credit cards. Gugliuzza directed the marketing of OnlineSupplier and approved the manner of how the automatic enrollment was disclosed to consumers.

In 2009, the FTC sued Gugliuzza and Commerce Planet for engaging in deceptive and unfair practices in violation of Section 5(a) of the FTC Act. After a bench trial, the district court found that Commerce Planet had violated the FTC Act by failing to disclose the automatic enrollment and that Gugliuzza was personally liable for the company’s unlawful conduct. The court entered an injunction and $18.2 million judgment against Gugliuzza. Gugliuzza appealed.

The district court had the authority to award restitution under Section 13(b) of the FTC Act and the imposition of joint and several liability was permissible, the appellate court determined. Gugliuzza’s arguments that the district court lacked any authority to award restitution and any restitution award must be limited to the amount of his unjust gains were rejected. According to the appellate court, although Section 13(b) only mentions injunctive relief, its holding in FTC v. Pantron Corp., 33 F.3d 1088 (9th Cir. 1994) provided that district courts were empowered to grant any ancillary relief necessary, including restitution. The equitable jurisdiction to enjoin future violations of Section 5(a) includes the inherent power to deprive defendants of their unjust gains from past violations.

The appellate court noted that restitution involves a return to the plaintiff of gains that a defendant unjustly received and an individual may be held personally liable for restitution of a corporation’s unjust gains, provided the requirements for imposing joint and several liability are satisfied. To establish joint and several liability, the FTC is required to prove that the individual (1) directly participated in the unlawful acts or practices at issue and (2) had actual knowledge of the misrepresentations involved or aware of a high probability of fraud.

The district court found that the FTC satisfied both prongs and that Gugliuzza made material misrepresentations on the website; he knew the representatives were false and deceptive; consumers actually and reasonably relied on the representations and were misled by them; and the deceptive marketing directly caused consumer injury. These findings were adequately supported by the record, the appellate court held. Because joint and several liability is permissible, restitution awards need not be limited to the funds each defendant received from the wrongful conduct.

Furthermore, the district court did not abuse its discretion in calculating the amount of the restitution award. Gugliuzza’s contention that the $18.2 million award was arbitrary also was rejected. The appellate court determined that, under Section 13(b), the FTC proved that the amount sought in restitution reasonably approximated the defendant’s unjust gains with undisputed evidence of Commerce Planet’s net revenues and Gugliuzza failed to show that the award overstated the amount of his unjust gains.

Since the judgment inadvertently did not actually hold Gugliuzza jointly and severally liable for Commerce Planet’s restitution obligations, the judgment was vacated and remanded. On remand, the district court may reinstate the $18.2 million restitution award if Gugliuzza is held jointly and severally liable; otherwise, the award must be limited to the unjust gains that Gugliuzza himself received, the appellate court concluded.

The case is No. 12-57064.

Attorneys: Michele Arington, Jonathan E. Nuechterlein, and John F. Daly for the Federal Trade Commission. Theodore J. Boutrous, Jr., M. Sean Royall, and Blaine H. Evanson (Gibson, Dunn & Crutcher LLP) and Michael V. Schafler and Jeffrey M. Chemerinsky (Caldwell Leslie & Proctor, PC) for Charles Gugliuzza.

Companies: Commerce Plant, Inc.

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