Second Circuit Hears Oral Argument Regarding the Proper Form and Measure of Monetary Redress (If Any) Permitted Under Section 13(b) of the FTC Act

On Friday, February 4, 2011, Judges Calabresi, Lynch, and Wesley of the U.S. Court of Appeals for the Second Circuit heard oral argument in FTC v. Bronson Partners, LLC, No. 10-878. The district court had found that appellant Bronson Partners violated the FTC Act by making deceptive claims in advertising for two weight loss products, and, in addition to awarding injunctive relief, ordered the company to pay nearly $2 million in equitable restitution.” On appeal, Bronson Partners challenged the propriety of the district court’s award of consumer redress.

Bronson Partners’ appeal argues, first, that monetary relief is not even a permissible remedy under Section 13(b) of the FTC Act. Indeed, Section 13(b) only specifically identifies injunctions and temporary restraining orders as relief that the FTC may obtain in such actions. However, despite the plain language of the statute, various courts have awarded the FTC monetary relief - typically either restitution or disgorgement - under the courts’ inherent equitable powers. While several other Circuit Courts of Appeal have ruled that monetary relief is available under Section 13(b), the Second Circuit has not yet decided that issue.

Second, Bronson Partners argued that, assuming monetary relief were available in a Section 13(b) case, the particular monetary award in this case was not permissible. It is well-established that only equitable forms of relief may be awarded under Section 13(b). However, while the district court in this case labeled its award as equitable restitution,” Bronson contends that it was actually legal relief because the FTC failed to trace” the consumer payments at issue into the defendant’s current possession, as required for equitable restitution. Bronson Partners argued that, to the extent any monetary relief may be available to the FTC under Section 13(b), it should be limited to a disgorgement of defendants’ profits, if any.

Bronson Partners is represented on appeal by Lew Rose, Steven Caley (who argued on behalf of Bronson Partners before the Second Circuit), and Damon Suden of Kelley Drye & Warren LLP. A decision is expected within the next few months.

The specific issues involved in the Bronson Partners appeal were discussed in more detail in a previous blog posting available here.