FTC denied SBH summary judgment on monetary remedies
The FTC has been denied summary judgment on monetary remedies against Success by Health.
Back in September, the FTC was granted liability summary judgment.
This judgment ruled that, among other things, Success by Health violated the FTC’s Merchandise and Cooling-Off Rules
by failing to offer customers the ability to consent to a delay in shipping or to cancel delayed orders (Count Four) and by not canceling or providing a refund for delayed orders or complying with buyers’ requests to cancel orders (Count Five).
Following on from liability summary judgment, the FTC sought motion for summary judgment as to monetary remedies.
The monetary remedies sought pertained to Success by Health’s confirmed Merchandise Rule violations.
With respect to the Merchandise Rule; in a nutshell Success by Health was late to ship disputed products.
These product orders date back to at least March 2018.
Success by Health’s defense was that the products were eventually fulfilled – which the FTC’s argument made no concession for.
Instead, the FTC’s theory is that, at the moment any shipment became overdue (and SBH failed to provide notice of the buyer’s right to seek a refund or consent to a shipping delay), the consumer immediately suffered harm equal to the purchase price of the unshipped product, irrespective of whether the consumer later received the product from SBH.
The court shot down this argument.
The FTC is not entitled to summary judgment on its request for an award of $630,377 in damages arising from the Merchandise Rule violations.
Although the Court does not foreclose the possibility that consumers suffered some form of cognizable harm from the violations, the all-or-nothing methodology presented in the FTC’s motion papers is flawed because it fails to account for the inherent value of the product that consumers ultimately received, even if the product was shipped late.
The problem with the FTC’s damages methodology is that it goes beyond redressing injury to consumers and provides a potential windfall to consumers.
An example provided by the court pertains to $5000 of product shipped one day late.
Under the FTC’s proposed approach … the consumer would nevertheless be entitled to a $5,000 damage.
It is difficult to see how such an outcome could be viewed as “necessary to redress injury” to the affected consumer.
The FTC’s arguments to the contrary are unavailing.
The court did acknowledge, within the context of Success by Health running an MLM opportunity, that consumers
might suffer other forms of harm from a late shipment—such as lost resale opportunities or a decrease in the market price of the product between the anticipated and actual shipping dates.
The FTC however “made no effort to prove the existence of such forms of harm.”
Instead, the FTC asks the Court to assume that every consumer who received a late shipment was dissatisfied and would have requested an immediate refund if aware that such refunds were available.
This approach is improper.
With respect to the Cooling-Off Rule, the FTC cites $526,488 in ticket sales to a Success by Health event.
The FTC argues … because SBH did not comply with the Cooling-Off Rule when making these sales, the entire sum constitutes recoverable damages.
The FTC claimed the onus was on Success by Health to prove refund rights would not have been exercised if provided.
I as a matter of principle disagree with this sentiment, as it’s impossible to prove a negative.
The court took up the same position;
The FTC has made no effort to prove that particular consumers would have exercised their refund rights under the Cooling-Off Rule—instead, the FTC seeks to flip the burden onto the Individual Defendants to identify consumers who wouldn’t have exercised their refund rights.
The Court declines to follow this approach.
Perhaps there are some consumers who would have exercised their refund rights under the Cooling-Off Rule after making purchases at SBH training events (and, thus, suffered some redressable injury from SBH’s failure to comply with the Cooling-Off Rule), but it was the FTC’s burden to identify them and it has failed to do so.
The FTC is not entitled to summary judgment on its request for an award of $526,488.50 in damages arising from the Cooling-Off Rule violations.
The court’s denial order was filed on November 23rd. The case continues…