October 20, 2014

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October 20, 2014

Eleventh Circuit Holds that Net Revenue, Not Profits, Should Determine Damages in FTC Deceptive Marketing Case

The US Court of Appeals for the Eleventh Circuit recently affirmed a judgment against three individual defendants finding that the district court correctly used net revenue to calculate damages. Defendant-appellants were involved in a mortgage loan scheme in which they solicited financially distressed homeowners and offered them assistance either through loan modifications or bankruptcy. The district court found that the defendant-appellants engaged in deceptive activities relating to the sale and marketing of the mortgage relief and home foreclosure services they offered.

On appeal, the court addressed only the issue of whether the district court abused its discretion in calculating damages by using net revenue. The Eleventh Circuit agreed with defendant-appellants that an award based on consumer losses would be improper, but found that the district court appropriately based the award on the defendant-appellants’ net revenue. In doing so, the Eleventh Circuit rejected defendant-appellants’ argument that profits should have been considered as a basis for the damages award. Agreeing with opinions from the First, Second and Seventh Circuits, the Eleventh Circuit held that a judgment ordering defendants to disgorge only profit (net revenue minus expenses) would inappropriately allow defendants to “deduct costs associated with committing their illegal acts.”

FTC v. Washington Data Resources, Inc., No. 12-13392 (11th Cir. Jan. 16, 2013).

©2014 Katten Muchin Rosenman LLP

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