A new decision out of the Middle District of Florida may signal further erosion of the FTC’s authority to seek monetary relief as it sets forth a heightened standard of proof the FTC must satisfy to support its disgorgement calculation. In FTC v. Vylah Tech LLC, the court found Vylah Tech, a small tech company, liable for disseminating false and misleading information regarding its computers. However, the court completely shut down the FTC’s demand for disgorgement of $3,400,000 in Vylah Tech’s purported revenues, awarding the FTC a whopping $0.
In a scathing opinion, the court admonished the FTC’s disgorgement calculation, stating that under the FTC’s current practices, “the disgorgement total is [obviously] a moving target.” First, the court found that the FTC’s calculation—based solely on bank records—was unreasonable. Specifically, the bank records were not specific enough to establish that the requested disgorgement figure “reasonably approximate[d]” the defendant’s unjust gains, as the records did not allow for identification of actual consumer transactions.
The court also took issue with the FTC’s failure to use all available records to determine the total disgorgement figure and to conduct adequate due diligence in collecting all pertinent financial documents. Indeed, the court noted that the FTC’s lack of diligence was particularly questionable, given the fact that Vylah Tech kept specific records of each consumer transaction and made those records available to the FTC. The FTC simply chose not to provide those records to its forensic accountant, undermining its disgorgement calculation.
Perhaps one of the most interesting parts of the court’s ruling was with respect to a non-party. Tech Logic, a company that worked with Vylah Tech, was not named in the complaint, but the FTC still sought to obtain injunctive relief against Tech Logic and disgorgement of its funds earned as part of a common enterprise with Vylah Tech. The court, however, was unwilling to award injunctive relief against a non-party or to include third-party funds in the disgorgement calculation, citing jurisdictional concerns. The court went so far as to conclude that including these non-party funds in the disgorgement calculation was only further indication that the FTC’s disgorgement calculation was unreasonable.
Given the FTC’s failure to consider all information available to it, the improper inclusion of third-party funds, and the lack of precision in its disgorgement calculation, the court ultimately denied the FTC any disgorgement.
This ruling represents a cautionary tale for the FTC that it must “show the receipts” when seeking monetary relief. As the attack on the FTC’s authority to seek monetary relief rages on, it will be interesting to see if other courts follow the Vylah Tech court’s lead.