FTC v. Kevin Trudeau: The Seventh Circuit Rules

As anyone who’s watched TV in the past decade knows, Kevin Trudeau is — to use the term coined by the United States Court of Appeals for the Seventh Circuit — an “infomercialist.” The Seventh Circuit’s recent opinion in FTC v. Trudeau offers interesting insights into order enforcement and upholds a multimillion dollar judgment for consumers.

A little history: As the Court recapped, Mr. Trudeau violated the terms of a court-approved settlement with the FTC by misrepresenting the content of his book, The Weight Loss Cure “They” Don’t Want You to Know About. The district court held Trudeau in contempt, ordered him to pay $37.6 million, and banned him from making infomercials for three years.

On appeal, the Seventh Circuit affirmed the contempt finding, but vacated the sanctions. The $37.6 million figure “might be correct,” said the Court in 2009, but it remanded the case so the trial court could “explain its math” and flesh out how the funds would be administered. The Seventh Circuit also held that the ban was inappropriate because it didn’t give Mr. Trudeau the chance to purge the contempt – in other words, to comply with the underlying order not to misrepresent his publications.

So back to the trial court the case went. On remand, the judge explained that he reached the $37.6 million figure by multiplying the price of the book by the number of sales made via the toll-free number plus the cost of shipping, less returns. As for how the funds would be used, the judge instructed the FTC to distribute the money to people who bought the book through the 800 number, with any remaining amount going back to Mr. Trudeau. In addition, the court imposed a $2 million performance bond effective for at least five years.

Mr. Trudeau again appealed to the Seventh Circuit. He argued that trial court was wrong to calculate the remedy as the amount of consumer loss, rather than the amount of unjust gain. He also challenged the performance bond as outside the trial court’s authority and as a violation of the First Amendment. In its November 29, 2011, opinion, the Seventh Circuit rejected both arguments.

As for the $37.6 million, the appellate court held that the trial judge “did what many other courts have done in similar situations and awarded relief based on consumer loss instead of the defendant’s unjust gain.” Having “aired infomercials in violation of the order at least 32,000 times,” Mr. Trudeau “should not now be surprised that he must pay for the loss he caused.” The Seventh Circuit expressly rejected Trudeau’s reliance of the Second Circuit’s opinion in FTC v. Verity, concluding that he had misread the narrow exception in that case. If anything, noted the Court, the trial judge’s calculation was “conservative.”

The Seventh Circuit also upheld the trial judge’s imposition of the $2 million performance bond. As a threshold matter, it cited caselaw that courts have the discretion “to modify the decree so as to achieve the required result.” The “required result” in this case: “to protect consumers from [Trudeau’s] deceptive practices and compensate those already allegedly deceived.” The Court reasoned, “In light of Trudeau’s 32,000-plus broadcasts of deceptive infomercials for The Weight Loss Cure, we have little trouble agreeing with the district court that its original order provided insufficient consumer protections.” Thus, it was within the trial court’s authority to add the $2 million performance bond.

What about Mr. Trudeau’s First Amendment argument that his right to engage in commercial speech was violated by the requirement that he post a bond before participating in any infomercial, whether misleading or not? Of course, misleading commercial speech doesn’t enjoy constitutional protection, the Court observed, so it doesn’t implicate the Constitution.

The Seventh Circuit devoted more attention to the question of non-misleading commercial speech, but ruled that “The government is not impotent to protect consumers — nor is the court powerless to enforce its orders — by imposing narrowly tailored restrictions on commercial speech.”

Concluding that the FTC had met its burden under the Supreme Court’s Central Hudson test, the Court held that “the protection of consumers is a substantial interest,” the performance bond “directly advances that interest,” and it was appropriately tailored. “If anything,” the Court observed, “the number seems low given that, over the course of nearly a year, Trudeau’s Weight Loss Cure infomercial sold thousands of books each day for many months.”