When calculating sanctions for civil contempt of FTC consent order, district court has broad discretion to use amount of loss by consumers, the Ninth Circuit held in FTC v.EDebitPay LLC (9th Cir. Case No. 11-55431, Aug. 28, 2012).
The Federal Trade Commission (FTC) sued EDebitPay LLC, which marketed online prepaid charge cards, and its owners, Dale Cleveland and William Wilson, alleging that their online marketing of prepaid debit cards and short-term loans violated the Federal Trade Commission Act (Act). The parties settled and stipulated to the terms of a final order, under which the defendants were enjoined from making misrepresentations of fact material to a consumer’s decision to apply for or purchase their products. Later, the FTC applied for an order to show cause why the defendants should not be held in contempt for violating the order due to their marketing of a shopping club membership program and a “no cost” debit card. The district court held the defendants in contempt, awarding the FTC $3,778,315, which constituted the amount of loss by consumers. The defendants argued that they only should have been ordered to disgorge their profits.
The Ninth Circuit affirmed the order, holding that “[d]istrict courts have broad equitable power to order appropriative relief in civil contempt proceedings.” Under the Act, district courts have “broad authority” to grant the necessary relief to accomplish complete justice in direct FTC actions, which includes the power to order restitution to consumers. In addition, this court held that district courts have broad discretion to use consumer loss to calculate sanctions for civil contempt of an FTC consent order. Here, the district court sanctioned the defendants for the full amount lost by consumers, and sufficiently explained that full restitution, instead of disgorgement, would be appropriate given that the defendants disregarded core provisions of the final order. Thus, the Ninth Circuit concluded, the district court’s decision was not an abuse of discretion.
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