Vicarious Liability in FTC Practice
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Transcript Vicarious Liability in FTC Practice
Hilary B. Miller
November 1, 2012
VICARIOUS LIABILITY IN FTC
PRACTICE
Why does it matter?
FTC and CFPB have concurrent enforcement
authority over financial practices
FTCA § 5 and D-F § 1031 are in pari materia
FTC Has Various Theories For
Holding Actors Vicariously
Liable
“Enterprise” liability
“Control person” liability
“Relief” defendants
“Common Enterprise”
liability
Defendants that operate in a common
enterprise may be held liable for one
another's deceptive acts and practices.
FTC v. Think Achievement Corp., 144 F.Supp.2d
993, 1011 (N.D. Ind. 2000)
Defendants found to be a common enterprise
are held jointly and severally liable for their
violations.
FTC v. J.K. Publications, Inc., 99 F. Supp.2d 1176,
1202 (C.D. Cal. 2000).
Factors considered
common control
sharing of office space and officers
business is transacted through "a maze of
interrelated companies”
commingling of corporate funds and failure
to maintain separation of companies
unified advertising
any other evidence of no real distinction
between the corporate defendants.
Enterprise Liability
A “common enterprise” exists when an
enterprise transacts business through “a
maze of interrelated companies,” i.e., when,
as a whole, “the pattern or framework” of an
enterprise indicates that the several
companies are actually transacting the same
or similar business.
Delaware Watch v. FTC, 332 F.2d 745, 746 (2d Cir.
1964).
Broad catch-all
Inasmuch as no one factor is controlling,
courts must consider "the pattern and framework of the whole enterprise . . . .”
Delaware Watch Co., 332 F.2d at 746.
“Control” liability
A corporate officer or other employee can be
held individually liable for company
malfeasance
Once corporate liability is established, the
FTC must then generally demonstrate that
“the individual defendants participated
directly in the practices or acts or had the
authority to control them.”
FTC v. Amy Travel Svc., Inc., 875 F.2d at 573-574;
FTC v. Transnet Wireless Corp., 506 F.Supp.2d
1247, 1270-71 (2007).
“Control” factors
Active involvement in business affairs and the
making (direction, formulation, control, etc.)
of corporate policy, including assuming the
duties of a corporate officer.
Not limited to respondeat superior
Importantly, in a small closely-held
corporation, an individual’s status as a
corporate officer gives rise to a presumption
of ability to control.
FTC Operating Manual, Chapter Four
Standard of liability
The FTC is not required to prove that an
individual defendant intended to deceive
consumers.
The individual must have “knowledge” of the
unlawful conduct, but the “knowledge” may
be satisfied by showing reckless indifference,
or an awareness of a high probability of
wrongfulness.
FTC v. Amy Travel Svc., Inc., 875 F.2d at 574.
Extent of liability
Individual liability is truly joint and several –
i.e., not limited to disgorgement of the
benefit received by the individual
FTC v. Windward Marketing, Ltd., 1997 WL
33642380, at 15 (September 30, 1997)
“Relief” defendants
Federal courts may order equitable relief
against a ‘nominal’ or ‘relief’ defendant, an
individual who is not accused of wrongdoing,
where that person has:
received ill-gotten funds; and
does not have a legitimate claim to those funds.
Targets: usually wives, but also lawyers, etc.
FTC v. Transnet Wireless Corp., 506 F. Supp.2d at
1273
Summary
Federal common law permits the imposition
of vicarious liability on corporate officers,
owners, control persons, affiliates and alter
egos.
Liability is joint and several, and not limited
to disgorgement of benefits received
Third parties may be “relieved” of ill-gotten
gains, even if blameless
CFPB will likely follow FTC precedent
The End