A federal judge on Tuesday imposed unique conditions on a settlement of Federal Trade Commission action to make up for lack of an admission of wrongdoing.
U.S. District Judge Renee Marie Bumb, who sits in Camden, conditioned approval on the FTC setting up a web page about the case, so that the public may evaluate allegations of deceptive marketing of acai berry weight-loss products by a New Jersey company.
In Bumb’s view, the settlement would not be in the public interest without some way for the public to assess the allegations, and in the absence of an admission of wrongdoing, some other means was needed.
She gave the FTC until Oct. 12 to show it had created a webpage discussing the false-marketing claims and summarizing the supporting evidence and, if it did, she would sign the consent decree in FTC v. Circa Direct, 11-cv-2172.
The FTC sued Circa Direct, of Margate, N.J., in April 2011, alleging it used fake online news sites to market acai berry diet products.
The sites, with addresses like onlinenews6.com, were designed to resemble legitimate news portals. They often included names and logos of major television outlets and featured purportedly objective reports by fictional reporters and commentators extolling the dramatic weight loss achieved with acai berry products, according to the FTC.
The settlement presented to Bumb for approval provided for a permanent injunction and an $11.5 million payment that would be suspended if Circas Direct provided honest information about its financial condition and turned over its assets.
It also said the defendants accepted the terms of the consent order without admission or finding of wrongdoing or liability.
Judges routinely approve settlements without making an issue of such language.
But last Nov. 28, U.S. District Judge Jed Rakoff, of the Southern District of New York, broke with that practice in a Securities and Exchange Commission suit accusing Citigroup of negligent misrepresentation in its marketing of collateralized debt obligations.
Rakoff wrote, in SEC v. Citigroup Global Markets, 11-cv-7387, that without an admission of wrongdoing, he could not determine whether the resolution was fair, adequate and reasonable.
Bumb initially balked at approving the settlement on Feb. 22, stating “the propriety of courts approving settlements of regulatory actions, similar to the Order at issue here, has been questioned” and citing Citigroup.
She stated she had no factual predicate to assess such questions as whether the $11.5 million was appropriate and why approving the deal would be in the public interest.
She ordered supplemental briefing by March 14 on whether she should use the same “fair, adequate and reasonable” standard as in Citigroup and if so, whether the settlement met it.
The FTC said the standard applied and the settlement should be approved because it met those criteria and was in the public interest.
It also contended that the lack of an admission or finding of liability was not relevant because the defendants were forfeiting their rights to contest the facts and there was no reason to believe an admission was necessary or would be beneficial given the arms’-length negotiations and stringent terms.
A day later, on March 15, the U.S. Court of Appeals for the Second Circuit stayed Rakoff’s decision in Citigroup, finding that the SEC and Citigroup, which had both appealed the rejection of their settlement, had shown a likelihood of success on the merits.
Bumb also heard from FTC commissioner J. Thomas Rosch, who wrote to her on March 21, to state his own views, which differed from those of the commission.
Rosch criticized the FTC for not mentioning section 13(b) of the FTC Act and called the settlement’s “no admission” language “tantamount to a denial of liability.”
He termed it “rather bold” for the FTC to suggest that Bumb should “rubber-stamp an agency decision … where the Commission has accepted what is in essence an implied denial of liability.”
Bumb followed up with a June 13 order for more briefing on whether section 13(b) — which empowers the FTC to ask for injunctive relief — applied, whether she could consider the lack of admitted wrongdoing in her public interest analysis and whether the FTC had suggestions for an alternative way to address her concerns.
On Tuesday, Bumb agreed with the FTC’s view that 13(b) did not apply.
On the other hand, the lack of admitted liability could be a factor in her public interest analysis, she found.
It would be “incongruous” to exclude it while exercising her “broad equitable powers,” she had a “special duty to give careful scrutiny” given the significant public interest at stake and she was placing the court’s imprimatur on the consent decree.
Bumb concluded that settlement without an admission of liability “would deprive the public, on an important matter of public concern, of an adjudication of the truth of the FTC”s allegations.”
She said the FTC’s argument for approval — that the monetary and injunctive relief vindicated the most important interests — gave “undue weight” to the injunction, which barred actions already prohibited by law.
The FTC’s contention that a trial would not further the interest in truth but simply determine whether the agency met its burden of proof was demeaning to the courts, in her view.
Bumb was persuaded, however, by the argument that if she denied approval, the FTC would be forced to spend a lot of time and money trying the case.
Because the FTC had come up with no suggestions to make up for the failure to admit liability, Bumb came up with her own, the webpage.
She stated that although “the FTC’s allegations will not be tried in a court of law, they will at least be put before the public for evaluation and discussion.”
Bumb said she considered having the FTC dedicate some settlement proceeds to promote public awareness of the case but decided it was unnecessary, although she might consider the idea in evaluating future settlements.
A statement by David Vladeck, director of the FTC’s Bureau of Consumer Protection, said, “The settlement is in the public interest because it contains strong injunctive and monetary relief, and the FTC believes the court should approve it.”
But he did not indicate whether the agency would accept Bumb’s condition.
Circa Direct’s lawyer, Edwin Larkin of Venable in New York, did not return a call.