Another Judge Refuses to Rubber Stamp FTC Settlement

Another Federal Judge has refused to rubber stamp a Federal Trade Commission settlement that allows the defendant to settle without admitting to any of the allegations lodged by the agency. Recent scrutiny of neither admit nor deny settlement clauses suggests that they may be losing favor with federal court judges.

In the most recent case, U.S. District Judge Renee Marie Bumb offered a creative solution. She will sign the consent decree so long as the FTC creates a website informing the public about the allegations against the company.

The FTC alleges that Circa Direct used deceptive marketing to tout its acai berry weight-loss products. It specifically claims that Circa marketed the products, through the internet, as promoting rapid and substantial weight loss, when those claims were unsupported and false.

The parties presented a stipulated order, which provides for both a monetary judgment of $11,500,000 (to be suspended subject to certain conditions) and a permanent injunction against the company. However, Judge Bumb has twice sent the FTC back to the drawing board after finding she could not confirm that the settlement was “in the public interest” because the settlement contains no admission of any wrongdoing.

Judge Bumb expressly referenced SEC v. Citigroup Global Markets, Inc., in which U.S. District Judge Jed Rakoff refused to sign off on a Securities and Exchange Commission settlement containing “neither admit nor deny” language. In Citigroup, the court reasoned that it was required, before approving the SEC Settlement, to ensure that the SEC settlement was fair, adequate, reasonable, and in the public interest.

In her most recent court order, Judge Bumb concluded that the court should also be able to consider the lack of an admission of liability in its public interest analysis. “Because the Court’s approval of the Stipulated Order signals its approval of the Stipulated Order as a whole, it naturally follows that it must retain the ability to review all terms that comprise the settlement for consistency with the public interest, including its lack of an admission of liability,” she wrote.

Judge Bumb ultimately decided that she would not require an admission of liability before approving the settlement. However, she also refused to sign off on the settlement in its current form. Since the FTC did not offer any alternatives to an admission of guilt, she came up with her own.

By requiring the FTC to create a webpage regarding the allegations, Judge Bumb concluded, 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.”

Donald Scarinci is a managing partner at Lyndhurst, N.J.-based law firm Scarinci Hollenbeck.  He is also the editor of the Constitutional Law Reporter and Government & Law blogs.

Another Judge Refuses to Rubber Stamp FTC Settlement