IN THE UNITED STATES COURT OF APPEALS
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No. 23-1616
IN THE UNITED STATES COURT OF APPEALS
FOR THE EIGHTH CIRCUIT
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
FEDERAL TRADE COMMISSION,
Plaintiff-Appellee,
v.
AMERICAN SCREENING, LLC,
a Louisiana limited liability company;
RON KILGARLIN, JR.,
individually and as an officer of American Screening, LLC; and
SHAWN KILGARLIN,
individually and as an officer of American Screening, LLC,
Defendants-Appellants.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
On Appeal from the United States District Court
for the Eastern District of Missouri – St. Louis
No. 4:20-cv-01021 (Hon. Ronnie L. White)
–––––––––––––––––––––––––––––––––––––––––––––
CORRECTED ANSWERING BRIEF
FOR THE FEDERAL TRADE COMMISSION
–––––––––––––––––––––––––––––––––––––––––––––
SAMUEL LEVINE
Director
ANISHA S. DASGUPTA
General Counsel
ANNE COLLESANO
Attorney
MARIEL GOETZ
Acting Director of Litigation
BUREAU OF CONSUMER PROTECTION
MICHAEL D. BERGMAN
Attorney
FEDERAL TRADE COMMISSION
600 Pennsylvania Avenue, N.W.
Washington, DC 20580
(202) 326-3184
mbergman@ftc.gov
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SUMMARY OF THE CASE
The Federal Trade Commission sued appellants for failing to
honor their shipping promises or make required refunds for personal
protective equipment in violation of FTC law and rules during the first
year of the COVID-19 pandemic. The district court granted summary
judgment for the FTC, found all appellants liable for the misconduct,
ordered them to refund $14.6 million to consumers, and enjoined them
from future violations. Appellants contest the amount of the refund and
the ban on future sales. But consumers were entitled to full refunds
based on appellants’ violations of FTC rules and appellants provided no
contrary evidence. Imposing fencing-in relief against future sales was
reasonably based on appellants’ “egregious” misconduct during the
pandemic. Appellants also contend that the court erred by holding
Shawn Kilgarlin individually liable and by refusing to consider their
supplemental fact statement. But uncontested evidence showed
Shawn’s corporate control, and appellants’ statement was noncompliant
with local rules and irrelevant. This case presents no novel legal issues
and the facts are straightforward. Should the Court deem oral
argument appropriate, 10 minutes would be sufficient.
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TABLE OF CONTENTS
Summary of the Case .................................................................................. i
Table of Authorities ................................................................................... iv
Introduction ................................................................................................ 1
Statement of Jurisdiction ........................................................................... 4
Statement of the Issues Presented ............................................................ 4
Statement of the Case ................................................................................ 6
A. Appellants’ Deceptive Practices .......................................................... 6
B. The FTC’s Enforcement Suit and Orders on Review ....................... 11
Summary of the Argument ...................................................................... 18
Argument .................................................................................................. 22
I.
The Monetary and Injunctive Relief Ordered by the
District Court Was Proper. ................................................................ 22
A. The District Court’s Monetary Relief Award Was
Proper Under Section 19 of the FTC Act. .................................. 23
1.
2.
3.
The District Court Properly Held That The FTC
Was Not Required To Prove Individual Reliance
Or Injury. ............................................................................. 24
The District Court Did Not Abuse Its Discretion
By Treating Orders Shipped After Two Days As
Late. ...................................................................................... 29
The District Court Was Not Required to Deduct
the Value of the Products Shipped from the
Refund Amount or to Order the Return of the
Shipped Product. .................................................................. 33
B. The District Court Properly Enjoined Appellants
From Future Sales of Protective Goods and Services. .............. 39
ii
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II. The District Court Properly Held Shawn Kilgarlin
Personally Liable................................................................................ 43
III. The District Court Properly Declined to Consider
Appellants’ Supplemental Statement of Facts in
Accordance With Local Rules. ........................................................... 50
Conclusion ................................................................................................. 55
CERTIFICATE OF COMPLIANCE ............................................................
CERTIFICATES OF SERVICE AND ELECTRONIC VIRUS
SCAN ......................................................................................................
iii
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TABLE OF AUTHORITIES
CASES
Americans United for Separation of Church &
State v. Prison Fellowship Ministries, Inc.,
509 F.3d 406 (8th Cir. 2007) ................................................................. 40
Baxter v. Palmigiano,
425 U.S. 308 (1976) ............................................................................... 48
Bigelow v. RKO Radio Pictures, Inc.,
327 U.S. 251 (1946) ............................................................................... 32
Brown v. Plata,
563 U.S. 493 (2011) ............................................................................... 40
Carter v. Pulaski Cnty. Special Sch. Dist.,
956 F.3d 1055 (8th Cir. 2020) ............................................................... 44
CFPB v. Gordon,
819 F.3d 1179 (9th Cir. 2016) ................................................... 26, 36, 38
Doe v. Glanzer,
232 F.3d 1258 (9th Cir. 2000) ............................................................... 49
FTC v. Bay Area Bus. Council, Inc.,
423 F.3d 627 (7th Cir. 2005) ............................................................. 5, 44
FTC v. Blue Hippo Funding,
762 F.3d 238 (2nd Cir. 2014) ................................................................ 25
FTC v. Colgate-Palmolive Co.,
380 U.S. 374 (1965) ........................................................................... 5, 40
FTC v. Commerce Planet,
815 F.3d 593 (9th Cir. 2016) ................................................................. 35
FTC v. Elegant Solutions, Inc.,
No. 20-55766, 2022 WL 2072735 (9th Cir. June
9, 2022) .................................................................................................. 47
FTC v. Figgie Int’l,
994 F.2d 595 (9th Cir. 1993) ........................................... 4, 25, 31, 38, 39
FTC v. Gem Merch. Corp.,
87 F.3d 466 (11th Cir. 1996) ............................................................. 5, 44
iv
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FTC v. Kuykendall,
371 F.3d 745 (10th Cir. 2004) ................................... 5, 26, 32, 35, 37, 38
FTC v. Moses,
913 F.3d 297 (2d Cir. 2019) .................................................. 5, 35, 36, 45
FTC v. Romero,
No. 5:21-CV-343-BJD-PRL, 2023 WL 2445339
(M.D. Fla. Feb. 27, 2023); ..................................................................... 54
FTC v. Security Rare Coin & Bullion Co.,
931 F.2d 1312 (8th Cir. 1991) ............................. 4, 16, 19, 24, 25, 26, 37
FTC v. Zaappaaz, LLC,
No. 4:20-CV-02717, 2023 WL 5018433 (S.D.
Tex. Aug. 3, 2023).................................................................................. 54
FTC v. Zaappaaz, LLC.,
No. 4:20-CV-2717, 2023 WL 5020618 (S.D. Tex.
June 9, 2023) ......................................................................................... 54
In re Caucus Distributors, Inc.,
83 B.R. 921 (E.D. Va. Bankr. 1988)...................................................... 49
Jones v. UPS,
461 F.3d 982 (8th Cir. 2006) ............................................................. 5, 51
Kaliannan v. Liang,
2 F.4th 727 (8th Cir. 2021) .................................................................. 44
Lemon v. Kurtzman,
411 U.S. 192 (1973) .............................................................................. 40
McGregor v. Chierico,
206 F.3d 1378 (11th Cir. 2000) ................................................. 26, 37, 38
N.W. Bank & Trust Co. v. First Ill. Nat’l Bank,
354 F.3d 721 (8th Cir. 2003) ................................................. 5, 50, 52, 53
SEC v. Colello,
139 F.3d 674 (9th Cir.1998) .................................................................. 49
Thompson v. Normandy Sch. Collaborative,
No. 4:19-CV-03220-MTS, 2021 WL 3286810
(E.D. Mo. Aug. 2, 2021) ......................................................................... 53
v
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Triple Five of Minn. v. Simon,
404 F.3d 1088 (8th Cir. 2005) ............................................................... 22
United States v. W.T. Grant Co.,
345 U.S. 629 (1953) ........................................................................... 5, 40
STATUTES
15 U.S.C. § 45 ................................................................................. 2, 11, 14
15 U.S.C. § 53(b) ................................................................. 5, 11, 12, 15, 39
15 U.S.C. § 57b.................................................... 3, 4, 11, 12, 16, 23, 25, 39
39 U.S.C. § 3009........................................................................................ 35
OTHER AUTHORITIES
RULES
16 C.F.R. § 435 .................................................... 2, 4, 11, 12, 13, 29, 32, 34
40 Fed. Reg. 51582.................................................................................... 28
79 Fed. Reg. 55615-01 .............................................................................. 28
E.D. Mo. L.R. 4.01......................................................... 5, 14, 15, 50, 51, 52
vi
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INTRODUCTION
When the COVID-19 pandemic hit the United States in March
2020, consumer demand skyrocketed for items like face masks, hand
sanitizer, and other forms of personal protective equipment (“PPE”).
Appellants Ron and Shawn Kilgarlin and their company American
Screening sought to take advantage of that demand and advertised on
their website that they had PPE products “in stock” and “available to
ship,” and that items would ship either “24-48 hours after processing” or
within “7-10 business days.” They also purported to offer overnight and
expedited delivery. Predictably, American Screening was soon flooded
with new PPE orders, for which it collected payment up front.
But appellants’ representations that items were in stock and
would ship quickly were false. Appellants lacked sufficient inventory to
satisfy the orders they solicited, and had no reasonable expectation that
they would be able to ship products within the advertised timeframes.
They nonetheless continued taking orders and collecting payments.
When consumers complained that their products had not arrived as
promised, appellants rarely cancelled the orders or offered refunds,
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citing bogus excuses. Appellants also at times performed “SKU swaps”
where they sent products different than the ones ordered.
The FTC sued the Kilgarlins and American Screening for
violations of the FTC Act’s prohibition on deceptive acts or practices, 15
U.S.C. § 45, and the Mail, Internet, or Telephone Order Merchandise
Rule (“MITOR”), 16 C.F.R. Pt. 435, which requires sellers to have a
reasonable basis for their shipping claims and to offer refunds where
they cannot ship products within the advertised time frames. The
district court granted summary judgment for the FTC, finding
appellants liable for both claims. To remedy the MITOR violations, the
court entered a monetary judgment of $14.6 million, to be paid into a
fund administered by the FTC and used to provide refunds to
consumers, with any unclaimed funds to be returned to appellants. The
district court also entered an injunction permanently barring appellants
from further sales of protective goods and services and from further
MITOR violations or misrepresentations about shipping times or
refunds for any product.
On appeal, appellants argue that the district court abused its
discretion in calculating the monetary relief and by permanently
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barring appellants from selling protective goods or services. Appellants
also argue that the district court erred by holding Shawn Kilgarlin
individually liable and by rejecting a proposed “supplemental
statement” submitted in opposition to summary judgment.
None of these arguments have merit. The district court has broad
discretion under Section 19 of the FTC Act, 15 U.S.C. § 57b, to grant
such relief as it found necessary to redress consumer injury, including
the refund of money. The court could presume consumer reliance
because appellants made widely disseminated material misstatements.
Consumers were injured when their orders arrived late and without
receiving their MITOR-required refund offers. Appellants claim the
$14.6 million figure is too high, but that amount was based on their own
business records, and they never provided alternative calculations or
evidence showing deductions from that amount. The district court also
had broad discretion to fashion injunctive relief to prevent future
violations, including the ban on sales of protective goods and services,
based on the court’s findings that appellants’ conduct was “egregious”
and that they likely will violate the law again.
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The district court properly held Shawn Kilgarlin individually
liable, based on undisputed evidence that she had authority to control
American Screening’s conduct. And the court rightly rejected
appellants’ supplemental facts as violative of local rules and irrelevant.
This Court should affirm the judgment.
STATEMENT OF JURISDICTION
The district court had subject-matter jurisdiction pursuant to 28
U.S.C. §§ 1331, 1337(a), and 1345. The district court issued its
summary judgment decision on July 14, 2022, and its Final Order and
Judgment on January 31, 2023. Defendants timely filed a notice of
appeal on March 30, 2023 and an amended notice of appeal on March
31, 2023. This Court has jurisdiction pursuant to 28 U.S.C. § 1291.
STATEMENT OF THE ISSUES PRESENTED
1.
Did the district court act within the scope of its discretion
with respect to the amount of monetary relief for the MITOR violations?
15 U.S.C. § 57b
16 C.F.R. § 435.2
FTC v. Sec. Rare Coin & Bullion Corp., 931 F.2d 1312 (8th
Cir. 1991)
FTC v. Figgie Int’l, 994 F.2d 595 (9th Cir. 1993)
4
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FTC v. Moses, 913 F.3d 297 (2d Cir. 2019)
FTC v. Kuykendall, 371 F.3d 745 (10th Cir. 2004)
2.
Did the district court act within the scope of its discretion in
permanently enjoining appellants from future marketing and sales of
protective goods and services?
15 U.S.C. § 53(b)
FTC v. Colgate-Palmolive Co., 380 U.S. 374 (1965)
United States v. W.T. Grant Co., 345 U.S. 629 (1953)
3.
Did the district court properly hold appellant Shawn
Kilgarlin individually liable for American Screening’s violations of
MITOR and the FTC Act?
FTC v. Bay Area Bus. Council, Inc., 423 F.3d 627 (7th Cir.
2005)
FTC v. Gem Merch. Corp., 87 F.3d 466 (11th Cir. 1996)
FTC v. Moses, 913 F.3d 297 (2d Cir. 2019)
4. Did the district court act within the scope of its discretion in not
considering appellants’ “Supplemental Statement of Facts”?
E.D. Mo. L.R. 4.01(E)
N.W. Bank & Trust Co. v. First Ill. Nat’l Bank, 354 F.3d 721
(8th Cir. 2003)
Jones v. UPS, 461 F.3d 982 (8th Cir. 2006)
5
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STATEMENT OF THE CASE
A.
Appellants’ Deceptive Practices
American Screening markets and sells medical supplies and
equipment, mostly through the internet. Ron Kilgarlin is the company’s
founder, CEO, and president. He is responsible for “overseeing and
managing the day-to-day affairs and operations of the company in all
aspects,” including department managers, website content, policy and
procedures, expenditures, and at least some marketing efforts. App.
282, 297; R. Doc. 80, at 2, 17.1 Shawn Kilgarlin (who is married to Ron)
is the Quality and International Organizations of Standardization
(“ISO”) manager for American Screening. She also held herself out as
American Screening’s Chief Operating Officer, although when asked
about that role at deposition she invoked her Fifth Amendment right
against self-incrimination. App. 282, 296; R. Doc. 80, at 2, 16.
Regardless of her title, she had significant operational responsibilities
for the company, including authority over inventory, customer service,
“App.” refers to appellants’ Appendix; “FTCApp.” refers to the FTC’s
Appendix; “FTCApp2.” refers to the FTC’s Appendix Vol. 2; “R. Doc.”
refers to district court docket entries; “Br.” refers to appellants’ opening
Brief. Page cites (other than to appellants’ opening Brief) are to ECFgenerated page numbers.
1
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product orders, and web content; she supervised employees and helped
her husband run the company. App. 296-297; R. Doc. 80, at 16-17.
This case concerns American Screening’s sales of PPE, including
items such as hand sanitizer, face masks, disinfecting wipes, gowns,
face shields, goggles, shoe covers, and thermometers. Prior to 2020,
American Screening sold small amounts of PPE, mainly as ancillary
supplies to its other products. FTCApp. 226-227; R. Doc. 55-1, at 2-3 (¶¶
9, 11-17). When the COVID pandemic hit in early 2020, however,
American Screening began an aggressive online marketing campaign to
sell PPE. In just March and April of that year, American Screening
spent more than $1.5 million on advertising with Google AdWords to
boost online PPE sales. FTCApp. 228-229; R. Doc. 55-1, at 4-5 (¶¶ 31,
35). The company also sent mass promotional emails hawking
“PRODUCTS TO RESPOND TO COVID-19” and “Essentials for
Combating COVID-19,” and urging consumers to “BUY NOW.”
FTCApp. 228-229; R. Doc. 55-1, at 4-5, 15 (¶¶ 37, 38, 41-44, 49, 123).
The marketing campaign drove consumers to American
Screening’s website, which told consumers that the company had PPE
products “in stock” and “available to ship.” App. 283; R. Doc. 80, at 3. At
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least at the start of the pandemic, the website stated that “[a]l shipping
occurs 24-48 hours after processing, pending product availability.” Id.
The company’s representatives reiterated this timeframe directly to
some customers by email. FTCApp. 235; R. Doc. 55-1, at 11 (¶¶ 76-77).
At some point in or around March 2020 (the precise date is
unclear), American Screening updated the website to state prominently
at the top of the homepage that “Products may ship 7-10 business days
after order has been placed.” App. 283; R. Doc. 80, at 3; FTCApp. 236,
239; R. Doc. 55-1, at 12, 15 (¶¶ 87, 124, 126, 127).
But even then, for some period of time that appellants cannot
determine, the 24-48 hour promise remained on the website despite the
addition of the 7-10 business day claim. See FTCApp2. 281; R. Doc. 51,
at 12 (webpage in mid-June 2020 promising shipping “7-10 business
days after order is placed” along with the company’s online “shipping
policy” of “24-48 hours after processing.”). The company also offered
overnight shipping, for an extra fee. App. 283; R. Doc. 80 at 3; FTCApp.
236-237; R. Doc. 55-1, at 12-13 (¶¶ 88-90). The company collected
payments up front, charging customers as soon as they hit “submit” on
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their orders, and before confirming that the item was in stock. FTCApp.
233; R. Doc. 55-1, at 9 (¶¶ 62-65).
At a time when consumers were desperate, store shelves were
empty, and many retailers had run out of inventory, American
Screening’s “in stock” and fast-shipping claims were wildly successful in
driving consumer purchases. Many customers complained that they had
ordered PPE from American Screening primarily because of its shipping
representations and purported product availability. FTCApp. 235-237;
R. Doc. 55-1, at 11-13 (¶¶ 78-82, 87, 93). But the company’s
representations were false—it did not have nearly enough PPE “in
stock” to satisfy customer demand. In fact, from March through
November 2020, American Screening did not even know how much
inventory it had in stock. App. 284, 288; R. Doc. 80, at 4, 8. Nonetheless,
the company permitted customers to order PPE items advertised as “in
stock” that were not available, and many did. FTCApp. 244; R. Doc. 551, at 20 (¶¶ 192-195, 202).
The lack of inventory resulted in backorders, with the result that
many products did not ship within the 24-48 hours that American
Screening originally promised or within 7-10 days as it promised on its
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updated website, or even within 30 days. During at least the early part
of the pandemic, most PPE products took about six weeks to ship. App.
289; R. Doc 80, at 9. In thousands of cases, American Screening also
made “SKU swaps,” where it filled orders with different products than
what customers had ordered and paid for. FTCApp. 247; R. Doc. 55-1, at
23 (¶¶ 235. 236).
American Screening did not comply with MITOR requirements to
inform affected customers that their products would be delayed or
obtain their consent to longer shipping times or SKU swaps. Nor did it
offer customers the opportunity to cancel their orders and obtain a
refund. The company’s policy was not to cancel orders without a prior
demand from the customer. And in some cases, even when customers
requested refunds, the company refused to process them, and instead
simply shipped the product. App. 285; R. Doc 80, at 5 (citing testimony
of Shawn Kilgarlin’s assistant). Many customers pursued chargebacks
through their credit card companies. Id.
Not surprisingly, thousands of customers complained to the
company. App. 285; R. Doc. 80, at 5. American Screening’s customer
service manager testified that throughout 2020, the company was
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receiving 500 complaints per day about shipping delays, incorrect
shipments, and failure to give refunds. The company did not respond to
all of these complaints. App. 285-286; R. Doc. 80, at 5-6.2
B.
The FTC’s Enforcement Suit and Orders on
Review
The FTC sued American Screening and the Kilgarlins in August
2020, alleging that their sales conduct violated the FTC Act’s
prohibition of deceptive acts or practices, 15 U.S.C. § 45(a), and the
requirements of MITOR, 16 C.F.R. § 435.2. The complaint sought relief
under two provisions of the FTC Act: Section 13(b), which authorizes
courts to issue a permanent injunction against violation of any
provision of law enforced by the FTC, and Section 19, which authorizes
courts to grant such relief as they find necessary to redress consumer
injury resulting from the violation of an FTC rule, such as MITOR. 15
2 As a result of its deceptive business practices, in 2020, the Better
Business Bureau revoked American Screening’s accreditation. FTCApp.
257; R. Doc. 55-1, at 33 (¶ 349). In addition, the Louisiana Attorney
General sent the company a “Notice of Unfair Trade Practices”
concerning its questionable inventory and shipping practices, and two
months later sued American Screening for violating state consumer
protection laws. FTCApp. 256; R. Doc. 55-1, at 32 (¶¶ 342-343).
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U.S.C. §§ 53(b), 57b(a)(1), (b). Section 19(b) expressly permits the
“refund of money” as a type of authorized relief. 15 U.S.C. § 57b(b).
MITOR prohibits sellers from soliciting online, phone, or mail
order sales “unless, at the time of the solicitation, the seller has a
reasonable basis to expect that it will be able to ship any ordered
merchandise to the buyer … within the time clearly and conspicuously
stated in any such solicitation,” or “if no time is clearly and
conspicuously stated, within thirty (30) days after receipt of a properly
completed order from the buyer. 16 C.F.R. § 435.2(a)(1). A seller’s
“failure … to have records or other documentary proof establishing its
use of systems and procedures” to assure shipping within these time
frames creates “a rebuttable presumption that the seller lacked a
reasonable basis for any expectation of shipment within said applicable
time.” Id. § 435.2(a)(4).
MITOR also establishes procedures that apply when a seller is
unable to ship products within these time frames, regardless of whether
it had a reasonable basis for the original shipping claims. Within a
reasonable time, the seller must “offer to the buyer clearly, and
conspicuously, and without prior demand, an option either to consent to
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a delay in shipping or to cancel the buyer’s order and receive a prompt
refund.” Id. § 435.2(b)(1). If a seller fails to provide this option and has
not shipped the merchandise within the promised timeframe, it must
“deem [the] order canceled and … make a prompt refund to the buyer[.]”
Id. § 435.2(c)(5). Again, the seller’s “failure … to have records or other
documentary proof establishing its use of systems and procedures which
assure compliance” with these requirements creates “a rebuttable
presumption that the seller failed to comply with said requirement[s].”
Id. § 435.2(d).
The FTC’s complaint alleged that appellants violated all three of
MITOR’s proscribed practices: (1) they solicited PPE orders without any
reasonable expectation that the products would ship within the
advertised time frames of 24-48 hours or 7-10 business days; (2) they
failed to contact customers for consent to the delayed shipping or to
provide an opportunity to cancel orders and receive a refund; and
(3) having failed to contact customers, they did not deem the orders
cancelled and provide a prompt refund. App. 11-12; R. Doc. 1, at 11-12.
The complaint further alleged that appellants’ shipping representations
and their claims that PPE items were “in stock” and “available to ship”
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were false, misleading or unsubstantiated, and thus constituted
deceptive acts or practices under Section 5(a) the FTC Act, 15 U.S.C.
§ 45(a). App. 12-13; R. Doc. 1, at 12-13.
Following discovery, the FTC moved for summary judgment. As
required by the district court’s local rules, E.D. Mo. R. 4.01(E), the FTC
submitted a Statement of Uncontroverted Material Facts, with 578
numbered paragraphs and citations to the record supporting each fact.
FTCApp. 1-70; R. Doc. 50. Appellants submitted a “Response to
Statement of Material Facts” (App. 220-258; R. Doc. 53), but that
document responded to only a quarter of the numbered paragraphs in
the FTC’s statement. Because appellants did not “specifically
controvert” the remaining paragraphs of the FTC’s statement, those
facts were “deemed admitted for purposes of summary judgment.” See
E.D. Mo. R. 4.01(E).3
Appellants also included in their response a “Supplemental
Statement of Facts.” App. 236-248, R. Doc. 53, at 27-39. The district
court declined to consider the “Supplemental Statement” because the
3 The FTC filed with its reply a statement of the facts that were
deemed admitted by appellants’ failure to address them. FTCApp. 225;
R. Doc. 55-1.
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local rule “does not contemplate a separate statement of facts by the
opposing party.” App. 282 n.2; R. Doc. 80, at 2 n.2. The court stated that
even if the Supplemental Statement was intended as a “further
response to the FTC’s statement,” it was “improper” because “(1) It does
not note the paragraph number to which it responds, as required by
Rule 4.01; and (2) It contains numerous irrelevant facts pertaining to
the progression of the COVID-19 pandemic.” Id.
Based on the undisputed facts, the district court granted summary
judgment for the FTC against American Screening on the three MITOR
claims and the FTC Act’s deceptive acts or practices claim. App. 288295; R. Doc. 80, at 8-15. It also held that both Kilgarlins were
individually liable for American Screening’s violations because they had
the authority to control the company and knowledge of its wrongful
acts. App. 295-297; R. Doc. 80, at 15-17.
Turning to relief, the district court determined that a permanent
injunction under Section 13(b) was appropriate, including a permanent
bar against advertising or selling “Protective Goods and Services” and
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various compliance-monitoring measures.4 App. 323, 331-335; R. Doc.
89, at 8, 16-20. The court noted the “egregious nature of Defendants’
conduct … during a global pandemic” and concluded that even though
appellants had altered some of their business practices since being sued
by the FTC, there was still a “cognizable danger of recurrent violation.”
App. 298; R. Doc. 80, at 18. The court also enjoined appellants from
further violations of MITOR or misrepresentations about shipping
times and refunds with respect to any product ordered by mail, the
internet, or by telephone. App. 323-327; R. Doc. 89, at 8-12.
The court also held that monetary relief under Section 19 was
necessary to redress consumer injury resulting from the MITOR
violations. Relying on this Court’s decision in FTC v. Security Rare Coin
& Bullion Co., 931 F.2d 1312 (8th Cir. 1991), the court held that the
FTC was “not required to prove individual injury and reliance.” App.
301; R. Doc. 80, at 21. Because appellants made “materially misleading
shipping promises” prior to the consumer’s purchase, the court could
4 “Protective Goods and Services” is defined as: “any good or service
designed, intended, or represented to detect, treat, prevent, mitigate, or
cure COVID-19 or any other infection or disease, including, but not
limited to, Personal Protective Equipment, hand sanitizer, and
thermometers.” App. 321; R. Doc 89, at 6.
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“presume that consumers actually relied upon [those] shipping
statements.” Id. Further, the pre-purchase misrepresentations that
“induced the sale of PPE” meant that even customers who received their
orders were entitled to refunds. Id. The court observed that although
“the large number of consumers affected by [appellants’] deceptive trade
practices creates a risk of uncertainty regarding the exact amount” of
the refunds, appellants should “bear that risk.” App. 301-302; R. Doc.
80, at 21-22 (cleaned up).
To determine the refunds due, the district court relied on
calculations prepared by an FTC data analyst, which in turn were
based on a spreadsheet showing all invoices for PPE or COVID products
sold in 2020 and explanatory testimony by the company’s controller.
App. 128-129; R. Doc. 50-19, at 2-3 (¶¶ 8, 16, 17). For each invoice, the
spreadsheet showed the amount paid and any refunds or chargebacks
issued; most of the orders also contained shipping information. App.
129-132; R. Doc. 50-19, at 4-7 (¶¶ 24-28, 33-34, 44-48, 52). The FTC’s
data analyst calculated that the net revenue (total revenue less refunds)
on PPE orders in 2020 that took longer than two days to ship (or for
which there was no shipping information) was $14,651,185.42. App.
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302; R. Doc. 80, at 22. The court agreed that this was the appropriate
amount of monetary relief and ordered appellants to pay that sum to
the FTC to be used for a consumer redress fund. App. 303; R. Doc. 80, at
23. Because the court recognized some customers may have been
satisfied with their orders despite the delay, it did not order an
automatic refund to every customer. Rather, the court required the FTC
to “implement a plan that requires customers to make refund requests
rather than receiving refunds outright.” Id. Any “unclaimed funds” will
be returned to the appellants, less FTC costs administering the redress
program. Id.
Following further briefing, the district court rejected appellants’
objections to specific provisions of the contemplated final order. See
App. 305-315; R. Doc. 88. The court entered the Final Order and
Judgment for Permanent Injunction and Monetary Relief on January
31, 2023. App. 316-335; R. Doc. 89. This appeal followed.
SUMMARY OF THE ARGUMENT
1. The district court’s $14.6 million redress order was well within
the court’s discretion to craft appropriate relief. The court properly
applied a long-established presumption, adopted by this Court in FTC
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v. Security Rare Coin & Bullion Co., 931 F.2d 1312 (8th Cir. 1991), that
consumers rely on and thus are harmed by widely disseminated,
material misrepresentations. Appellants’ advertisements of protective
goods “in stock” that would ship within “24-48 hours” or “7-10 business
days” were untrue; desperate consumers plainly relied on them in
deciding to purchase from appellants; and the claims were widely
disseminated through online sources. The district court properly
presumed consumer reliance on appellants’ false claims.
Appellants failed to rebut the presumption with proof that
individual consumers did not rely on such claims. To the contrary, the
undisputed evidence showed that many consumers bought from
American Screening specifically because it promised quick shipping.
The district court also correctly held that under binding
precedent, the FTC was not required to prove individualized injury.
Where consumers relied on promises of fast shipping within a specified
period, they were necessarily injured when the products did not arrive
on time. Appellants’ practices were especially harmful given the
pandemic, when product availability and shipping time was critical—
with many store shelves empty and online suppliers out of stock.
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Appellants contend that the court should not have treated so many
orders as late, but undisputed evidence supported the court’s approach.
And the court correctly held that appellants—who kept shoddy
records—should bear the risk of any uncertainty on this point.
The court properly ordered appellants to pay an amount sufficient
to offer consumers full refunds. Courts long have recognized that using
a baseline of full refunds is appropriate in FTC cases, and appellants
failed to offer admissible evidence to show any other amount was
proper. Furthermore, MITOR specifically requires sellers to offer
refunds when they do not ship products on time. On this record, and
given the nature of the products at issue, the court was not required to
order product returns or deduct an amount for the products’ value.
Moreover, the district court did not make refunds automatic; it required
consumers to apply for refunds, ensuring that only those who are
dissatisfied would get money back.
2. The district court acted within its discretion when it enjoined
appellants’ future sales of protective goods. District courts enjoy broad
discretion to fashion effective equitable relief to prevent defendants
from engaging in similar illegal practices in the future. Here, the court
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found that appellants had engaged in “egregious” misconduct by
misrepresenting availability and shipping time of important PPE,
exploiting consumer fear during a deadly pandemic. Appellants
persisted with the misconduct even after consumer complaints poured
in and the FTC gave notice of this lawsuit. The court reasonably
concluded that appellants’ practices reflected an indifference to the law
and required particularly strict fencing in.
Nor is the injunction unduly burdensome. It prohibits conduct
that constituted only a fraction of appellants’ pre-pandemic business,
and does not bar them from selling other products. The court’s order
was reasonably tailored to prevent similar future misconduct.
3. The district court properly held Shawn Kilgarlin personally
liable for American Screening’s violations. Undisputed evidence showed
that she controlled the company and knew of its violations, which
satisfies the test for personal liability. That evidence was bolstered by
proper adverse inferences arising from repeated invocations of her Fifth
Amendment right against self-incrimination when asked about her role.
4. The district court did not abuse its discretion in refusing to
consider appellants’ “Supplemental Statement of Facts.” The statement
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clearly violated local rules and the court was permitted to disregard it.
Even so, any error would be harmless because the statement’s content
was irrelevant to the summary judgment issues. The pandemic did not
excuse appellants’ responsibility to make truthful claims and notify
customers of delays. Appellants knew full well when they made their “in
stock” and fast shipping claims that they could not timely fulfill the
orders that predictably resulted. Appellants were not innocent victims
of unforeseen circumstances but purposefully exploited the pandemic
for their own financial gain—at the expense of consumers.
ARGUMENT
I.
THE MONETARY AND INJUNCTIVE RELIEF ORDERED BY THE
DISTRICT COURT WAS PROPER.
Appellants do not challenge the district court’s grant of summary
judgment as to either the MITOR or the FTC Act violations committed
by American Screening and Ron Kilgarlin. Instead, they challenge two
aspects of the relief ordered by the district court: the $14.6 million in
consumer refunds, and the portion of the injunction permanently
barring them from sales and marketing of protective goods or services.
The district court’s choice of remedies is reviewed for abuse of
discretion. Triple Five of Minn. v. Simon, 404 F.3d 1088, 1095 (8th Cir.
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2005). The district court did not abuse its discretion either with respect
to the award of monetary relief or the permanent ban on sales of
protective goods and services.
A.
The District Court’s Monetary Relief Award Was
Proper Under Section 19 of the FTC Act.
Section 19 of the FTC Act provides that where a defendant has
violated an FTC consumer protection rule like MITOR, the district court
may “grant such relief as the court finds necessary to redress injury to
consumers … resulting from the rule violation[,]” including without
limitation “the refund of money” but excluding any “exemplary or
punitive damages.” 15 U.S.C. §§ 57b(a)(1), (b). Appellants focus on the
word “necessary” (Br. 10-14), but ignore the words that immediately
precede it: “such relief as the court finds necessary.” (Emphasis added.)
This language gives the district court broad discretion to determine
what kind of monetary or other relief is necessary to remedy consumer
injury, depending on the facts and circumstances in a particular case.
The district court did not abuse its discretion in concluding that up to
$14.6 million in refunds was necessary to redress consumer injury from
appellants’ MITOR violations.
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1.
The District Court Properly Held That The
FTC Was Not Required To Prove Individual
Reliance Or Injury.
This Court’s decision in Security Rare Coin squarely bars
appellants’ argument that the FTC should have been required to show
that individual consumers relied on appellants’ misrepresentations
concerning shipping time. In that case, the defendants sold rare coins to
consumers at inflated prices, fraudulently describing the coins as lowrisk investments. The district court ordered monetary relief to redress
consumer injury. Like appellants here, the Security Rare Coin
defendants argued that the FTC was required to prove actual reliance
on the false and misleading statements by each consumer to be
reimbursed. 931 F.2d at 1315-16. The Court rejected this argument,
holding that the FTC only had to show that “the misrepresentations or
omissions were of a kind usually relied upon by reasonable and prudent
persons, that they were widely disseminated, and that the injured
consumers actually purchased the defendants’ products.” Id. at 1316.
The Court explained that an FTC enforcement action “is not a private
fraud action, but a government action brought to deter unfair and
deceptive trade practices and obtain restitution on behalf of a large
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class of defrauded [consumers]” and that requiring “proof of subjective
reliance by each individual consumer” would be “inconsistent with the
statutory purpose” and “thwart and frustrate the public purposes of
FTC action.” Id.
Many other courts have reached the same conclusion and have
applied the presumption of reliance to a variety of FTC cases involving
harm to a large number of consumers. For example, in FTC v. Figgie
Int’l, 994 F.2d 595 (9th Cir. 1993), the Ninth Circuit relied on Sec. Rare
Coin and held that the FTC was not required to prove individual
consumer reliance in a misrepresentation case where the agency sought
relief under Section 19. The court held that “[a] presumption of actual
reliance arises once the Commission has proved that the defendant
made material misrepresentations, that they were widely disseminated,
and that consumers purchased,” and that the burden then “shifts to the
defendant to prove the absence of reliance.” Id. at 605-06. Courts have
similarly applied a presumption of reliance where defendants’
misrepresentations violated a court order and the FTC sought consumer
redress as a contempt sanction, as well as in other related contexts. See
FTC v. Blue Hippo Funding, 762 F.3d 238, 243-46 (2nd Cir. 2014) (“To
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require proof of each individual consumer’s reliance on a defendant’s
misrepresentations would be an onerous task with the potential to
frustrate the purpose of the FTC’s statutory mandate.”); FTC v.
Kuykendall, 371 F.3d 745, 765-66 (10th Cir. 2004) (applying
presumption of reliance in contempt case); McGregor v. Chierico, 206
F.3d 1378, 1388 (11th Cir. 2000) (same); CFPB v. Gordon, 819 F.3d
1179, 1196 (9th Cir. 2016) (applying presumption of reliance in
misrepresentation case brought by the CFPB).
Applying these principles here, the district court properly found
that the FTC was not required to prove consumer reliance by each
individual consumer. Appellant’s representations that products were “in
stock” and would ship either within 24-48 hours or 7-10 business days
are statements “of a kind usually relied upon by reasonable and
prudent persons,” particularly during a pandemic. Sec. Rare Coin, 931
F. 2d at 1316. And the undisputed evidence showed that many
consumers did in fact rely on the promises and purchased products from
American Screening specifically because it promised quick shipping. See
infra at 9; FTCApp, 11-13, 21, 79-82, 87; R. Doc. 55-1, at 11-13, 21, 7982, 87. Appellants do not dispute that the false statements were widely
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disseminated through internet search engine ads, their website, direct
mail, and mass email promotions. Nor is there any dispute that tens of
thousands of consumers purchased the products. App. 128; R. Doc. 5019, at 4.
Accordingly, the district court properly presumed consumer
reliance on appellants’ shipping promises. App. 301; R. Doc. 80, at 21.
The burden then shifted to appellants to rebut that presumption by
identifying individual consumers who did not rely on appellants’
misrepresentations. Appellants failed to do that.
Appellants’ argument that the FTC was required to prove
individualized injury fails for the same reasons. Where consumers were
promised prompt shipping within a specified time frame, and they
relied on that promise, they were necessarily injured when the products
did not arrive on time. This was especially true in the early days of the
pandemic, when many Americans were desperately trying to find PPE,
only to find that store shelves were empty and the websites they usually
ordered from were out of stock. In other words, what consumers wanted
and what they were promised (and paid for) was PPE now. When
appellants shipped PPE later, consumers did not get the benefit of their
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bargain, and that was an injury. To be sure, some consumers ultimately
may have been satisfied with their purchases, notwithstanding the late
shipment. The district court addressed that issue by requiring
customers to make specific refund requests, rather than receiving
refunds outright. App. 303; R. Doc. 80, at 23. In any event, given the
presumption of reliance, the court did not err by holding that the FTC
did not need to prove individualized injury.
Requiring the FTC to prove individual consumer reliance and
injury also would be improper here given the nature of the MITOR
violations at issue. The underlying premise of MITOR is that consumers
are entitled to (and often do) rely on a seller’s representations about
shipping times, and that they are entitled to a refund if the seller does
not timely ship the product.5 Here, appellants did not violate MITOR
MITOR is the successor to the FTC’s Mail Order Merchandise Rule,
40 Fed. Reg. 51582 (Nov. 5, 1975), issued to “ensure that sellers either
shipped mail-ordered merchandise on time or offered cancellations and
refunds for merchandise.” See 79 Fed. Reg. 55615-01, at *55615 (Sept.
14, 2014). In amending the rule in 1993 to cover telephone sales, the
Commission found that “shipment time is important to consumers” and
that “reasonable consumers expect that merchandise . . . will be shipped
in the time expressly represented or, if no time is specified, within 30
days.” Id. at *55616. MITOR was issued to address complaints about
“shipment and refund failures for Internet orders of merchandise” and
5
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simply by making misrepresentations about quick shipping times. They
also separately violated MITOR when an order was delayed by failing to
contact customers and giving them the option to either consent to the
delayed shipping or cancel their orders and receive a refund, 16 C.F.R.
§ 435.2(b)(1), and they violated the rule again by failing to deem late
orders canceled and provide a refund without request when the
products did not ship on time, id. § 435.2(c)(5). Consumers were injured
because they were not given the refunds to which they were entitled
under MITOR.
2.
The District Court Did Not Abuse Its
Discretion By Treating Orders Shipped
After Two Days As Late.
Appellants also fail to show that the district court abused its
discretion by including in the refund calculation all orders that were
shipped more than two days after the order was placed. Appellants’
argument is that even though many customers were promised shipment
within 24-48 hours, not all of them were, because the message on the
website was updated sometime in March 2020 to promise shipping
evidence showing that “deceptive and unfair practices remain
prevalent” for such orders. Id.
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within “7-10 business days.” See App. 283; R. Doc. 80, at 3. Appellants
also contend that new shipping promises were made “specific to each
product” showing that the item was either “available to ship” right
away or was “expected to ship between” two future dates. Br. 16-18.
The problem with these arguments is that while the 24-48 hour
shipping promise may not have been made with respect to all
shipments, appellants have not established which of their multiple
shipping representations applied to which order. Appellants’
representations were often inconsistent and confusing. For example,
appellants point to a webpage captured on June 18, 2020. Br. 17; App.
139, FTCApp2. 279-281; R. Doc. 51, at 9-12. The top of the webpage
says “[P]roducts may ship 7-10 business days after order has been
placed.” FTCApp2. 279; R. Doc. 51, at 9. But the “Shipping Policy” says
“All shipping occurs 24-48 hours after processing, pending availability,”
FTCApp2. 281; R. Doc. 51, at 12 —even though appellants contend they
stopped making that claim three months earlier. For some products,
there are ‘“expected to ship” dates, e.g., a surgical gown listed as
expected to ship between June 1 and July 1. App. 139; R. Doc. 51, at 10.
But many other items are claimed to be ready to ship with no expected30
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to-ship dates even though the undisputed evidence is that American
Screening did not know how much inventory it had in stock at this time.
FTCApp. 244; R. Doc. 55-1, at 20 (¶ 188). Furthermore, the 24-48 hour
promise was not made only on the website. Company representatives
also reiterated the same promise in emails with customers, who in turn
referenced the 48 hour shipping guarantee when corresponding with
the company. See FTCApp. 235-36; R. Doc. 55-1, at 11-12 (¶¶ 76-82).
Once the FTC showed that the 24-48 hour representation was
widely disseminated, the district court was entitled to presume reliance
on that representation, and the burden shifted to appellants to produce
evidence that particular orders were not made in reliance on the 24-48
hour representation. See, e.g., Figgie, 994 F.2d at 605-06. Appellants
failed to rebut the presumption with affidavits or other evidence
showing that the 24-48 hour shipping claim did not apply to particular
shipments. Absent any objection to the inclusion of particular invoices,
or alternative calculations of the proper refund amount, it was not an
abuse of discretion for the district court to award the full $14.6 million.
Appellants misplace their reliance on arguments that they lacked
data to determine what specific representations were made to specific
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customers, which orders were shipped after the promised date, and
even when they made their various shipping promises. Br. 18-20.
MITOR specifically requires a seller to maintain “records or other
documentary proof establishing its use of systems or procedures” to
ensure compliance with the rule, and establishes a rebuttable
presumption of non-compliance where the seller fails to maintain such
records, 16 C.F.R. §§ 435.2(a)(4), (d), which appellants failed to do here.
Along similar lines, as the district court noted (App. 301; R. Doc.
80, at 21), courts have recognized that “[t]o the extent the large number
of consumers affected by … defendants’ deceptive trade practices
creates a risk of uncertainty” about the amount of gross receipts
defendants were paid, “the defendants must bear that risk.”
Kuykendall, 371 F.3d at 765. This rule is rooted in “the most
elementary conceptions of justice and public policy” which “require that
the wrongdoer shall bear the risk of the uncertainty which his own
wrong has created.” Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251,
265 (1946). Appellants attempt to distinguish Bigelow by arguing that
“uncertainty falls on Defendants only where Defendants’ misconduct
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renders more accurate data unavailable.” Br. 19. But that is exactly the
situation here.
The undisputed evidence shows that for much of 2020 appellants’
recordkeeping was a shambles and they had lost track of company
inventory and shipping orders. American Screening had no “direct
records” showing “what a customer ordered and what was shipped.”
FTCApp. 247; R. Doc. 55-1, at 23 (¶ 241). From March to November
2020, the company “did not know how much inventory it had in stock,”
and “did not know whose orders were back ordered.” FTCApp. 244; R.
Doc. 55-1, at 20 (¶¶ 188-89). Thus, although appellants complain that
the “necessary” amount of redress remains “uncertain,” Br. 14, they
must bear the risk of that uncertainty, which their own inadequate
recordkeeping created.
3.
The District Court Was Not Required to
Deduct the Value of the Products Shipped
from the Refund Amount or to Order the
Return of the Shipped Product.
Also unavailing is appellants’ argument that the district court
abused its discretion by ordering a full refund of the amounts
consumers paid for PPE (i.e., total receipts less refunds). See Br. 21-23.
Appellants first claim that the district court should have deducted the
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value of the PPE that customers eventually received, but they
presented no evidence that the products had any significant value and
made no effort to quantify any such value. See, e.g., FTCApp. 242; R.
Doc. 52 at 19.
Yet even if appellants had produced evidence of the late-shipped
product’s value, a deduction would have been inappropriate given the
nature of consumers’ injuries resulting from the MITOR violations at
issue. Under MITOR, once it became clear that American Screening
could not ship products within the advertised time frames, it had an
obligation to contact customers and give them the option to either
cancel their orders and receive a refund or consent to a later shipping
date. 16 C.F.R. § 435.2(b)(1). Having failed to do that, American
Screening had an obligation to deem such orders canceled and provide a
prompt refund without request when the products did not ship on time.
Id. § 435.2(c)(5). But instead of cancelling the orders and providing a
refund as it was legally required to do, American Screening went ahead
and shipped the orders late. Because appellants injured consumers by
depriving them of the refunds to which MITOR entitled them, their
injury could only be redressed by providing consumers with the full
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refunds MITOR provided for. Any deductions from that amount would
effectively reward American Screening for its failure to comply with the
cancel-and-refund provisions.6
Further, full refunds would be an appropriate remedy even if
there were no MITOR violations here. When the FTC establishes a
presumption of reliance, a court can “use the defendants’ gross receipts
as a baseline for calculating damages at the first step of the burdenshifting framework.” FTC v. Moses, 913 F.3d 297, 310-11 (2d Cir. 2019);
see also Kuykendall, 371 F.3d at 764-65 (same); FTC v. Commerce
Planet, 815 F.3d 593, 603 (9th Cir. 2016) (using defendants’ net
revenues—payments less refunds and chargebacks—as the
compensatory baseline); FTC v. Febre, 128 F.3d 530, 535-36 (7th Cir.
1997) (“consumers’ net payments” was the compensatory baseline). The
FTC showed—through its data analyst’s declaration based on
6 Awarding full refunds did not result in a “windfall” to consumers, as
appellants suggest. Br. 21-22. American Screening chose to send out
merchandise after it was legally required to cancel the orders. Under 39
U.S.C. § 3009, any such merchandise “may be treated as a gift by the
recipient, who shall have the right to retain, use, or dispose of it in any
manner he sees fit without any obligation whatsoever to the sender.” Id.
§ 3009(b). Sending the merchandise after the order was deemed
cancelled did not obviate American Screening’s refund obligations under
MITOR.
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appellants’ business records, App.132-33; R. Doc. 50-19, at 8-9 (¶¶ 5357)—that appellants’ net revenue derived from its 2020 PPE sales was
the appropriate compensatory baseline.
The burden then shifted to the appellants to show that the net
revenue figure was inaccurate. But they failed to proffer any
admissible evidence to rebut or offset the net revenue amount they
received from consumers including (as explained above) as to the value
of PPE received. Instead, they submitted only unsupported “Revenue,
Costs and Refunds” data, see App. 258; R. Doc. 53, at 39, which lacked
any evidentiary basis, and as part of appellants’ supplemental
statement was rejected by the district court for violating the local rules.
See App. 282 n.2; R. Doc.80 at 2 n.2. Absent any admissible, reliable
rebuttal evidence, the district court certainly did not abuse its
discretion in ordering a refund of the full amounts paid by consumers.
See Gordon, 819 F.3d at 1194-1196; Moses, 913 F.3d at 310-311.7
7 Appellants urge the Court to adopt the reasoning of FTC v. Noland,
No. CV-20-00047, 2021 U.S. Dist. LEXIS 226238 (D. Ariz. Nov. 23,
2021), which required consideration of the value of late-shipped
products where its MITOR violations occurred after the consumer made
her purchase. See Br. 22. Noland does not help appellants because, as
the scheme’s operators, they were in the best position to provide such
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Even if appellants had shown some value in the late-shipped PPE,
other courts of appeals have rejected the argument that compensatory
awards must be reduced by the value of the products obtained. The
Tenth Circuit has held that in calculating contempt sanctions for
magazine sales that violated an injunction, “the district court need not
offset the value of any product the defrauded consumers received.”
Kuykendall, 371 F.3d at 766. The Eleventh Circuit likewise affirmed a
compensatory contempt award for fraudulent print toner sales in the
amount of gross revenue without deducting the value of the toner.
McGregor, 206 F.3d at 1388-89. Whether any amounts should be
deducted from the total sales figure depends on the circumstances of the
case and defendants’ factual showing, and district courts have broad
discretion in ordering such relief. See Sec. Rare Coin, 931 F.2d at 1316.
Appellants unpersuasively attempt to distinguish other FTC cases
where courts have awarded monetary relief equal to full refunds. Br.
product values, but failed to do so. Further, the Noland court later
distinguished that case from one which – just like here – involved “prepurchase misrepresentations about whether the products were in stock
and would be shipped quickly” which induced sales and thus allowed
full refunds as an appropriate remedy. FTC v. Noland, No. CV-2000047, 2023 WL 3372517, at *54 (D. Ariz. May 11, 2023) (cleaned up).
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26-28. In the pandemic context of appellants’ PPE sales, shipping time
was critical to purchasing consumers. FTCApp. 235-237, 245; R. Doc.
55-1, at 11-13, 21 (¶¶ 78-82, 87, 93, 217). Appellants’
misrepresentations thus tainted the transaction just as much as a
misrepresentation about the product’s “qualities” (Br. 26-28); i.e., the
product’s effectiveness or nature. See Figgie, 994 F.2d at 606;
Kuykendall, 371 F.3d at 766; McGregor, 206 F.3d at 1388-89.
Finally, appellants’ bare assertion that the district court should
have ordered the return of PPE before a consumer could receive a
refund, Br. 9, 21, 28, fails both because it was waived and it lacks merit.
Appellants waived this contention by failing to raise and explain it in
the district court. See N. Bottling Co. v. Pepsico, Inc., 5 F.4th 917, 922
(8th Cir. 2021). The district court thus had no reason to opine on it.
Appellants also waived the contention on appeal because it was
conclusory, raised in passing, and lacked an explanation. See, e.g.,
CFPB v. Gordon, 819 F.3d 1179, 1194 (9th Cir. 2016).
Even if the argument is considered, appellants provide no reason
why returns are necessary before a consumer can obtain a refund.
District courts have the discretion to order return of property as a
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condition for obtaining a refund under Section 19. See, e.g. Figgie, 994
F.2d at 606. But Figgie does not hold that returns are required in all
cases, and it involved very different facts from this case. The devices at
issue in Figgie were relatively costly home heat detectors that sold for
$170 apiece (about $457-$635 in 2023 dollars, depending on year of
sale) and retained meaningful value notwithstanding the Figgie
defendants’ misrepresentations about effectiveness during the sales
process. 994 F.2d at 601, 606. In contrast, most of the PPE products
American Screening sold were low-priced consumable items such as
disposable wipes, masks, or bottles of hand sanitizer that American
Screening had promised to ship expeditiously. In these circumstances,
the district court did not have to require product returns as a condition
for receiving refunds.
B.
The District Court Properly Enjoined Appellants
From Future Sales of Protective Goods and
Services.
Appellants fail to show that the district court overstepped its
authority under Section 13(b) of the FTC Act by permanently barring
them from sales and marketing of protective goods and services. See Br.
28-33. It is well-settled that “those caught violating the [FTC] Act …
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must expect some fencing in.” FTC v. Colgate-Palmolive Co., 380 U.S.
374, 394-395 (1965) (citation omitted).
Injunctions must be framed “broadly enough” so they prohibit not
just the conduct giving rise to the violations in the case but also that
necessary “to prevent respondents from engaging in similarly illegal
practices” in the future. Id. Even where the violation has ceased, an
injunction is appropriate where “there exists some cognizable danger of
recurrent violation.” United States v. W.T. Grant Co., 345 U.S. 629, 633
(1953). Moreover, district courts enjoy “substantial flexibility” in
fashioning effective equitable relief. Brown v. Plata, 563 U.S. 493, 538
(2011) (cleaned up). “In shaping equity decrees, the trial court is vested
with broad discretionary power” such that “appellate review is
correspondingly narrow.” Americans United for Separation of Church &
State v. Prison Fellowship Ministries, Inc., 509 F.3d 406, 426 (8th Cir.
2007) (citing Lemon v. Kurtzman, 411 U.S. 192, 200 (1973)).
Here, the district court determined that appellants engaged in
“egregious” misconduct by making “misrepresentations regarding
shipping and availability of PPE during a global pandemic.” App. 298;
R. Doc. 80, at 18. Appellants took advantage of consumers’ panic during
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the early days of the pandemic to vigorously advertise PPE products as
“in stock” and “available to ship” when in fact the products were
backordered for months. For months, appellants had no idea what was
in their inventory and had no basis to make these claims, but they
continued to collect payments upfront for orders that were not shipped
for weeks or even months. Appellants then failed to satisfy their
obligations to contact consumers about the shipping delays and offer
refunds, and in many cases they further deceived customers through
SKU swaps, sending consumers products different than what had been
ordered. FTCApp. 247; R. Doc. 55-1, at 23 (¶¶ 235, 236). These
violations were systemic and continued for months after notice of the
FTC’s lawsuit. FTCApp. 274; R. Doc. 55-1, at 50 (¶¶ 577-78).
Appellants miss the mark in arguing that their conduct is less
egregious than other cases in which district courts have imposed
permanent bans. Br. 30-31. The district court could reasonably conclude
that preying on vulnerable consumers in the midst of a deadly
pandemic demonstrated a general disregard for legal guardrails and
called for especially rigorous fencing-in. That is especially so where, as
the district court recognized, the PPE products being sold were needed
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“to maintain [consumers’] own lives and livelihood,” App. 293; R. Doc.
80, at 13, and where appellants persisted with their misconduct despite
receiving over 500 consumer complaints per day in 2020. App. 285-286;
R. Doc. 80, at 5-6.
For the same reasons, appellants are not aided by their argument
that other provisions of the injunction, such as the prohibition on
MITOR violations for the sales of any product, are sufficient to deter
future violations. Br. 29-30. As noted, the district court found that
appellants’ practices—inducing upfront PPE sales with bald misleading
claims of quick shipping, regardless of product availability—were
sufficiently egregious to warrant banning future sales of protective
goods and services. The court could reasonably conclude that simply
prohibiting appellants from future MITOR violations – which were
already unlawful – was insufficient to deter future violations. “A district
court has a wide range of discretion in framing an injunction in terms it
deems reasonable to prevent wrongful conduct.” Soltex Polymer Corp. v.
Fortex Indus., Inc., 832 F.2d 1325, 1329 (2d Cir. 1987) (cleaned up).
Finally, appellants fail to show that the sales ban is unduly
burdensome for their business. The ban is limited to “Protective Goods
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and Services,” “including, but not limited to, [PPE], hand sanitizer, and
thermometers.” App. 321; R. Doc 89, at 6. Before the pandemic such
sales were only a small part of American Screening’s business. As
appellants concede, the injunction does not prohibit them from selling
their other products. Br. 32. The district court considered the level of
burden but concluded that the injunction would not put appellants “out
of business.” App. 298; R. Doc. 80 at 18.8 The district court’s injunction
was reasonably tailored to prevent future misconduct very closely
related to the unlawful practices appellants engaged in, and this Court
should not second guess that judgment.
II.
THE DISTRICT COURT PROPERLY HELD SHAWN KILGARLIN
PERSONALLY LIABLE.
Appellants do not dispute the district court’s determination that
Ron Kilgarlin was personally liable for American Screening’s violations,
but do challenge the finding of personal liability as to Shawn Kilgarlin.
Br. 33-40. This issue is subject to de novo review because it goes to the
8 American Screening notes that it has filed for bankruptcy, but does
not assert the bankruptcy was caused by the injunction against selling
protective goods or services. Br. 13 n.3. Also, the company’s bankruptcy
petition seeks its reorganization under Chapter 11 so presumably it
intends to remain a viable business.
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district court’s liability determination on summary judgment. See e.g.
Kaliannan v. Hoong Liang, 2 F.4th 727, 736 (8th Cir. 2021). A party
opposing summary judgment “may not rely on allegations or denials,”
but rather “must substantiate [her] allegations with sufficient probative
evidence that would permit a finding in [her] favor on more than mere
speculation or conjecture.” Carter v. Pulaski Cnty. Special Sch. Dist.,
956 F.3d 1055, 1059 (8th Cir. 2020) (cleaned up). The district court
properly found no genuine dispute of fact that Ms. Kilgarlin had
sufficient control over American Screening and knowledge of its
violations to render her personally liable.
Individuals are liable for injunctive and monetary relief for
corporate violations of the FTC Act if they (1) participated directly in
the practices or acts or had authority to control them and (2) had some
knowledge of the wrongful practices. E.g., FTC v. Bay Area Bus.
Council, Inc., 423 F.3d 627, 636 (7th Cir. 2005); FTC v. Gem Merch.
Corp., 87 F.3d 466, 470 (11th Cir. 1996). As to knowledge, Ms. Kilgarlin
does not challenge the district court’s determination that “no reasonable
jury could conclude [she] was unaware of the wrongful practices.” App.
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297; R. Doc. 80, at 17.9 She challenges only the district court’s
determination that she had authority to control those practices.10 The
district court properly concluded that she did have such authority.
Authority to control can be evidenced by active involvement in
business affairs and the making of corporate policy, including assuming
the duties of a corporate officer. E.g., Moses, 913 F.3d at 307. Here, the
undisputed evidence showed that Ms. Kilgarlin had authority to control
American Screening’s wrongful practices, both by virtue of her job title
and her actual duties. She served as Quality and ISO Manager, and
also held herself out in 2020 as the company’s Chief Operating Officer.
App. 296; R. Doc. 80, at 16. Specifically, her email signature identified
her as COO, her job description on American Screening’s employee list
Ms. Kilgarlin admitted that American Screening violated MITOR,
and was well aware of American Screening’s PPE inventory problems,
thousands of backorders, chargebacks, and the “overwhelming” number
of consumer complaints regarding delayed and missing shipments.
FTCApp. 261-262, 266-267, 270-271; R. Doc. 55-1, at 37-38, 42-43, 46-47
(⁋⁋ 401, 407-14, 467-79, 496, 503).
9
10 Undisputed evidence also establishes that Ms. Kilgarlin directly
participated in the wrongful acts, but the district court’s liability
determination was based on authority to control rather than direct
participation.
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identified her as COO, and Ron Kilgarlin referred to her as COO.
FTCApp. 262; R. Doc. 55-1, at 38 (¶¶ 424-26).
Ms. Kilgarlin’s argument that she was never an owner of
American Screening, Br. 35, is irrelevant because the applicable
individual liability test turns not on ownership but on whether she had
authority to control the wrongful practices. She also tries to cast doubt
on whether she really served as COO, Br. 36, but the undisputed
evidence shows that she held herself out as the COO. App. 296; R. Doc.
80, at 16. She is not now in a position to deny that she held that
position, having chosen to remain silent when asked about the COO
title at deposition. In any event, whether or not Ms. Kilgarlin formally
held the title of COO, the undisputed evidence of her job functions
clearly demonstrates her authority to control.
Undisputed evidence also showed that Ms. Kilgarlin had a
significant operational role in American Screening, which included
helping Ron Kilgarlin run the company, meeting with the company’s
controller to discuss “operational issues” like “inventory numbers” and
“process review,” and “ensuring that processes are being performed by
people in their respective areas.” FTCApp. 262-263; R. Doc. 55-1, at 3846
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39 (⁋⁋ 430-432). Ms. Kilgarlin directed changes to the company’s
website, had authority to approve cancellations, refunds, and purchases
for inventory, supervised the group of employees that was attempting to
find new suppliers during the COVID-19 pandemic, and helped oversee
“personnel in customer service and quality control” and “responses to
consumer complaints and quality control.” FTCApp. 263-264; R. Doc.
55-1, at 39-40 (⁋⁋ 433-443, 448). She was also directly involved in
American Screening’s MITOR violations, including by directing
employees to take product orders, to stop cancelling orders, to refuse
refund requests, and to respond to BBB complaints. FTCApp. 264-265;
R. Doc. 55-1, at 40-41 (⁋⁋ 453, 455-463).
Thus, extensive undisputed record evidence clearly establishes
that she was “actively involved with business matters and corporate
policy,” and had (at the very least) an important managerial role at
American Screening, which demonstrates her authority to control the
wrongful practices. See App. 296-297; R. Doc. 80, at 16-17. Her control
and involvement in corporate operations equals or exceeds that found in
other FTC cases which have imposed individual liability. See, e.g., FTC
v. Elegant Solutions, Inc., No. 20-55766, 2022 WL 2072735, at *2 (9th
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Cir. June 9, 2022) (affirming personal liability for corporate officer who
held herself out as the director of operations, made decisions about
payments to lenders, worked closely with the company owner, and was
aware of customer complaints including passing one to the owner).
Further, as the district court properly held, the conclusion that
Ms. Kilgarlin had the authority to control the company is bolstered by
adverse inferences which may be drawn from her repeated Fifth
Amendment invocations. See App. 296; R. Doc. 80, at 16. For example,
Ms. Kilgarlin invoked her Fifth Amendment right against selfincrimination when asked about her COO title and when she held that
position, FTCApp. 262, R. Doc. 55-1, at 38 (¶ 427). She did so again
when asked about her specific tasks at the company. FTCApp. 263-264,
266-271; R. Doc. 55-1 at 39-40, 42-47 (¶¶ 442-444, 464, 467, 475-479,
481-494, 497, 499-502, 504).
It is well established that “the Fifth Amendment does not forbid
adverse inferences against parties to civil actions when they refuse to
testify in response to probative evidence offered against them.” Baxter v.
Palmigiano, 425 U.S. 308, 318 (1976). To be sure, “such adverse
inference can only be drawn when independent evidence exists of the
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fact to which the party refuses to answer.” Doe v. Glanzer, 232 F.3d
1258, 1264 (9th Cir. 2000); see also SEC v. Colello, 139 F.3d 674, 678
(9th Cir.1998) (ruling was proper where it was based on evidence
presented by SEC combined with adverse inference drawn from the
defendant’s silence). Here, as the district court held, the FTC presented
such evidence, and an adverse inference could properly be drawn. See
App. 296; R. Doc. 80, at 16.
Ms. Kilgarlin is wrong in claiming that adverse inferences are
improper at the summary judgment stage. Br. 38. Courts recognize that
“the claim of [Fifth Amendment] privilege will not prevent an adverse
finding or even summary judgment if the litigant does not present
sufficient evidence to satisfy the usual evidentiary burdens in the
litigation.” Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d 83, 98
(2d Cir. 2012) (emphasis added). In re Caucus Distributors, Inc., 83 B.R.
921 (Bankr. E.D. Va. 1988), Br. 38, is not to the contrary. The court
there observed that a court “may not draw [adverse] inferences to fill in
the gaps of the movant’s case.” Id. at 926. Here, the district court noted
that the FTC had presented undisputed evidence to show Ms.
Kilgarlin’s control. The adverse inferences merely corroborated what
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the evidence already showed. But in any case, even if the use of an
adverse inference was improper, the error was harmless because the
undisputed facts clearly show control even without such inferences.
III.
THE DISTRICT COURT PROPERLY DECLINED TO CONSIDER
APPELLANTS’ SUPPLEMENTAL STATEMENT OF FACTS IN
ACCORDANCE WITH LOCAL RULES.
The district court’s refusal to consider appellants’ “Supplemental
Statement of Facts” (App. 246-258; R. Doc. No. 53, at 27-39) was based
on its application of its local rules and is reviewed for abuse of
discretion. See App. 282 n.2; R. Doc. 80, at 2 n.2; N.W. Bank & Trust Co.
v. First Ill. Nat’l Bank, 354 F.3d 721, 725 (8th Cir. 2003). The court did
not abuse its discretion in declining to consider this material, but even
if it had the error would be harmless because, as the court noted, the
material was irrelevant.
The district court’s Local Rule 4.01(E), which is similar to local
rules in many other district courts, controls the way parties must
establish or dispute the facts relevant to a summary judgment motion.
The rule requires the moving party to submit a “Statement of
Uncontroverted Material Facts” which must “set forth each relevant
fact in a separately numbered paragraph stating how each fact is
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established by the record, with appropriate supporting citation(s).” E.D.
Mo. L.R. 4.01(E). The opposing party must then submit a “Response to
Statement of Material Facts,” which must “set forth each relevant fact
as to which the party contends a genuine issue exists,” with “specific
citation(s) to the record, where available, upon which the opposing
party relies.” Id. The Response must also “note for all disputed facts the
paragraph number from the moving party’s Statement of
Uncontroverted Material Facts.” Id. The rule provides that “All matters
set forth in the moving party’s Statement of Uncontroverted Material
Facts shall be deemed admitted for purposes of summary judgment
unless specifically controverted by the opposing party.” Id.
As this Court has explained, the obvious purpose of such rules is
to “distill to a manageable volume the matters that must be reviewed by
a court undertaking to decide whether a genuine issue of fact exists for
trial.” Jones v. UPS, 461 F.3d 982, 990 (8th Cir. 2006) (district court did
not abuse its discretion by disregarding non-movant’s factual statement
which failed to comply with local rules). “With both the movant’s list of
uncontroverted facts and the non-movant’s list of controverted facts and
accompanying cross-references, including specific citations to the
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record, the court can focus its review on materials that may
demonstrate a disputed issue for trial.” Id.; see also N.W. Bank, 354
F.3d at 725 (similar local rule for another court in this Circuit “exists to
prevent a district court from engaging in the proverbial search for a
needle in the haystack.”); Febre, 128 F.3d at 535–36) (no abuse of
discretion in awarding monetary relief under similar local Illinois court
rules based on the FTC’s record-supported statement of facts where
defendants failed to properly dispute the facts).
In this case, appellants appended a “Supplemental Statement of
Facts” to the responsive statement required by the rule. The district
court declined to consider the “Supplemental Statement” because the
local rule “does not contemplate a separate statement of facts by the
opposing party.” App. 282 n.2; R. Doc. 80, at 2 n.2. And even if the
Supplemental Statement was intended as a “further response to the
FTC’s statement,” the district court found it “improper” because “(1) It
does not note the paragraph number to which it responds, as required
by Rule 4.01; and (2) It contains numerous irrelevant facts pertaining to
the progression of the COVID-19 pandemic.” Id.
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The district court did not abuse its discretion in making these
determinations. It simply applied the terms of the local rule. The court’s
conclusion that the rule does not contemplate a separate statement of
facts by the opposing party is correct and consistent with other
decisions from within the same district. See Thompson v. Normandy
Sch. Collaborative, No. 4:19-CV-03220-MTS, 2021 WL 3286810, at *1
(E.D. Mo. Aug. 2, 2021) (declining to consider supplemental statement
submitted by party opposing summary judgment). That the
supplemental statement did not note the paragraph numbers of the
FTC statement to which it responded provides a further justification for
the court’s decision. “[I]t is the parties who know the case better than
the judge,” N.W. Bank, 354 F.3d at 725, and the court should not have
to guess what part of the moving party’s statement a particular fact is
intended to respond to.
In any event, as the district court found, the “facts” set forth in the
Supplemental Statement were irrelevant to the issues presented by the
summary judgment motion. Appellants argue that these facts related to
the “unprecedented and overwhelming challenges” they faced in
operating their businesses during the early days of the pandemic. Br.
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41. But appellants do not cite any legal authority as to why these
circumstances would excuse their misrepresentations and failures to
comply with MITOR. As the district court recognized, neither MITOR
nor the FTC Act contains an exigent circumstances exception. See App.
292-293; R. Doc. 80, at 12-13 (“[T]he law provides no exceptions for
sellers who do their ‘best’ during pandemics, particularly when
customers paid upfront for PPE they need to maintain their own lives
and livelihoods.”).11 The pandemic did not excuse appellants’
responsibility to give their customers reasonable notice about shipping
delays. American Screening exploited the pandemic for its own financial
gain—at great cost to consumers. Appellants now must face the
consequences of that decision.
11 Other courts likewise have recognized that pandemic conditions did
not excuse sellers’ unreasonable shipping time claims made in violation
of MITOR and the FTC Act. See FTC v. QYK Brands, LLC, No. SACV
20-1431 PSG (KESx), 2022 WL 1090257 (C.D. Cal. Apr. 6, 2022); FTC v.
Romero, No. 5:21-CV-343-BJD-PRL, 2023 WL 2445339 (M.D. Fla. Feb.
27, 2023); FTC v. Zaappaaz, LLC., No. 4:20-CV-2717, 2023 WL 5020618
(S.D. Tex. June 9, 2023), report and recommendation adopted sub nom.
FTC v. Zaappaaz, LLC, No. 4:20-CV-02717, 2023 WL 5018433 (S.D.
Tex. Aug. 3, 2023).
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CONCLUSION
For the foregoing reasons, the district court’s decision should be
affirmed.
Respectfully submitted,
SAMUEL LEVINE
Director
ANISHA S. DASGUPTA
General Counsel
ANNE COLLESANO
Attorney
MARIEL GOETZ
Acting Director of Litigation
BUREAU OF CONSUMER PROTECTION
/s/ Michael D. Bergman
MICHAEL D. BERGMAN
Attorney
FEDERAL TRADE COMMISSION
600 Pennsylvania Avenue, N.W.
Washington, DC 20580
(202) 326-3184
mbergman@ftc.gov
September 6, 2023
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CERTIFICATE OF COMPLIANCE
I certify that the foregoing “Corrected Answering Brief for the
Federal Trade Commission” complies with the volume limitations of
Fed. R. App. P. 32(a)(7)(B) because it contains 11,015 words, excluding
the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii). I
certify further that it complies with the typeface and type style
requirements of Fed. R. App. P. 32(a)(5)-(6) because it was prepared
using Microsoft Word 2010 in 14 point Century Schoolbook.
September 6, 2023
Appellate Case: 23-1616
/s/ Michael D. Bergman
MICHAEL D. BERGMAN
Attorney
FEDERAL TRADE COMMISSION
600 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20580
Page: 63
Date Filed: 09/07/2023 Entry ID: 5313822
CERTIFICATES OF SERVICE AND ELECTRONIC VIRUS SCAN
I certify that the foregoing “Corrected Answering Brief for the
Federal Trade Commission” has been filed using the Court’s CM/ECF
system, and that all parties have consented to electronic service via that
system, and will thus be served via the Court’s CM/ECF system.
In addition, pursuant to 8th Cir. Rule 28A(h)(2), the electronic
version of this brief is in PDF format and has been scanned for
computer viruses and found to be virus-free.
September 6, 2023
Appellate Case: 23-1616
/s/ Michael D. Bergman
MICHAEL D. BERGMAN
Attorney
FEDERAL TRADE COMMISSION
600 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20580
Page: 64
Date Filed: 09/07/2023 Entry ID: 5313822
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.