Beware of FTC & SBH – Review

Summary judgment on monetary remedies against Success by Health has been refused by the FTC.

The FTC was given a liable summary judgment in September.

This decision found that Success by Health, among other things, violated the FTC’s Merchandise and Cooling-Off Rules.

by failing to provide consumers with the option to consent to a shipment delay or cancel delayed purchases (Count Four), and by failing to cancel or refund delayed orders or comply with purchasers’ requests to cancel orders (Count Five).

Following the summary decision on liability, the FTC sought summary judgment on monetary remedies.

The monetary remedies sought were for substantiated Merchandise Rule breaches by Success by Health.

In terms of the Merchandise Rule, Success by Health was late in shipping disputed items.

These goods orders extend back at least to March of this year.

The FTC’s reasoning made no recognition of Health’s defense’s success in that the items were finally provided.

Instead, the FTC contends that when a shipment becomes overdue (and SBH fails to notify the buyer of the buyer’s right to seek a refund or consent to a shipping delay), the consumer suffers immediate harm equal to the purchase price of the unshipped product, regardless of whether the consumer later receives the product from SBH.

This argument was rejected by the court.

The FTC is not entitled to summary judgment on its request for a $630,377 award in damages for Merchandise Rule breaches.

Although the Court does not rule out the possibility that consumers suffered some form of cognizable harm as a result of the violations, the all-or-nothing methodology presented in the FTC’s motion papers is flawed because it fails to account for the inherent value of the product that consumers eventually received, even if it was delivered late.

The problem with the FTC’s damages model is that it goes beyond redressing consumer injury and instead rewards customers with a possible windfall.

The court offered an example involving $5000 of merchandise sent one day late.

The customer would still be entitled to $5,000 in damages under the FTC’s suggested method.

It’s hard to understand how such a result could be considered “necessary to rectify harm” to the impacted customer.

The FTC’s counterarguments are ineffective.

Within the context of Success by Health running an MLM opportunity, the court did accept that consumers

Other types of harm may result from a late shipment, such as lost resale possibilities or a drop in the market price of the goods between the anticipated and actual shipping dates.

The FTC, on the other hand, “made no effort to demonstrate the existence of such types of injury.”

Instead, the FTC requests that the Court presume that every customer who got a late shipment was unsatisfied and would have demanded an instant refund if they had known such refunds were available.

This technique is incorrect.

The FTC mentions $526,488 in ticket sales to a Success by Health event about the Cooling-Off Rule.

The FTC claims that because SBH did not follow the Cooling-Off Rule while making these sales, the whole amount is recoverable.

The FTC argued that the onus was on Success by Health to demonstrate that refund rights would not have been used if they had been granted.

In theory, I disagree with this notion since it is difficult to establish a negative.

The court took the same stance;

The FTC has made no effort to demonstrate that specific customers would have utilized their Cooling-Off Rule refund rights; instead, the FTC wants to shift the burden to the Individual Defendants to identify individuals who would not have exercised their refund rights.

This approach is rejected by the Court.

Perhaps some consumers would have exercised their Cooling-Off Rule refund rights after making purchases at SBH training events (and thus suffered some redressable injury as a result of SBH’s failure to comply with the Cooling-Off Rule), but it was the FTC’s burden to identify them, and it has failed to do so.

The FTC is not entitled to summary judgment on its request for $526,488.50 in damages for breaches of the Cooling-Off Rule.

On November 23rd, the court issued its rejection order. The investigation continues…

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