The case is FTC v. BlueHippo Funding, LLC, No. 11-374-cv (2d Cir. Aug. 12, 2014). It involves an appeal of the damages component of a 2010 order by the U.S. District Court for the Southern District of New York that granted, in part, the Federal Trade Commission’s (“FTC”) Motion for Contempt against Blue Hippo for its alleged violation of a 2008 consent order (the “Consent Order”).
The Consent Order had enjoined Blue Hippo from making any express or implied misrepresentations of material fact with respect to, inter alia, its credit and refund policy. In 2009, the FTC sought damages for alleged violations of the Consent Order from failing to provide products and services within the promised time frame, and failure to disclose material details, at the time of purchase.
The district court found that BlueHippo and its Chief Executive Officer violated the Consent Order. The FTC sought more than $14 million in damages, an amount equal to BlueHippo’s gross receipts. The theory being that the FTC was entitled to a presumption of consumer reliance based upon the material misrepresentations and omissions. However, the district court based its damages calculation upon other factors and only awarded the FTC $609,856.
The court of appeals reversed.
“[T]he FTC is entitled, when the proper showing has been made, to a presumption of consumer reliance.” The district court was subsequently instructed to consider whether the requirements for such a presumption had been met. The baseline for contempt damages was BlueHippo’s gross receipts.
“To require proof of each individual consumer’s reliance on a defendant’s misrepresentations would be an onerous task with the potential to frustrate the purpose of the FTC’s statutory mandate.”
Other circuits have already recognized that presuming reliance in contempt cases would further statutory purposes.
The FTC is therefore entitled to a presumption of consumer reliance upon showing that “(1) the defendant made material misrepresentations or omissions that ‘were of a kind usually relied upon by reasonable prudent persons;’ (2) the misrepresentations or omissions were widely disseminated; and (3) consumers actually purchased the defendants’ products.”
Upon establishing the presumption, damages must be calculated to ensure that all consumers who presumptively relied on the misrepresentations receive full compensation. In other words, total gross receipts resulting from tainted purchasing decisions.
It is clearly a defendant’s burden to set-forth offsets.
The FTC’s enforcement of consent orders is been steadily increasing. Consult with an experienced FTC and State Attorney General compliance and defense attorney in order to avoid allegations of Internet-related advertising misconduct, in the first place.
Disclaimer: This article is intended for informational purposes only and does not constitute legal advice.
