Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-12-57064/USCOURTS-ca9-12-57064-0/pdf.json

Parties Involved:
Commerce Planet, Inc.

Federal Trade Commission
Appellee
Aaron Gravitz

Charles Gugliuzza
Appellant
Michael Hill

Superfly Advertising, Inc.

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

FEDERAL TRADE COMMISSION,

Plaintiff-Appellee,

v.

COMMERCE PLANET, INC., a

corporation; MICHAEL HILL; AARON

GRAVITZ,

Defendants,

and

SUPERFLY ADVERTISING, INC., a

Delaware corporation, FKA Morlex,

Inc.; SUPERFLY ADVERTISING, INC.,

an Indiana corporation,

Third-party-defendants,

and

CHARLES GUGLIUZZA,

Defendant-Appellant.

No. 12-57064

D.C. No. 

8:09-cv-01324-

CJC-RNB

OPINION

Appeal from the United States District Court

for the Central District of California

Cormac J. Carney, District Judge, Presiding

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2 FTC V. COMMERCE PLANET, INC.

Argued and Submitted 

February 9, 2015—Pasadena, California

Filed March 3, 2016

Before: Consuelo M. Callahan, Paul J. Watford, and

John B. Owens, Circuit Judges.

Opinion by Judge Watford

SUMMARY*

Restitution

The panel affirmed in part, and vacated in part, the district

court’s order finding that Commerce Planet, Inc. violated § 5

of the Federal Trade Commission (“FTC”) Act; holding

Charles Gugliuzza, the former President of Commerce Planet,

Inc., personally liable for the company’s unlawful conduct;

and ordering him to pay $18.2 million in restitution.

The panel held that the district court had the authority to

award restitution under § 13(b) of the FTC Act. The panel

rejected Gugliuzza’s contention that any such award must be

limited to the unjust gains each defendant personally

received. The panel held that because joint and several

liability was permissible, restitution awards need not be

limited to the funds each defendant personally received from

the wrongful conduct. The panel noted that the judgment

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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FTC V. COMMERCE PLANET, INC. 3

against Gugliuzza did not actually hold him jointly and

severallyliable forCommercePlanet’s restitution obligations,

and this appeared to be an oversight by the district court

which the panel did not have the power to correct. The panel

vacated the judgment and remanded. The panel concluded

that on remand the district court may reinstate the $18.2

million restitution award if it holds Gugliuzza jointly and

severally liable; otherwise the award must be limited to the

unjust gains Gugliuzza himself received.

The panel held that the district court did not abuse its

discretion in calculating the amount of the restitution award. 

The panel held that the district court properly followed, and

applied, the two-step burden-shifting framework for

calculating restitution awards under § 13(b) of the FTC Act,

which other circuits have adopted and which the panel

adopted as the law of this circuit. Under the first step, the

FTC bore the burden of proving that the amount it sought in

restitution reasonably approximated the defendant’s unjust

gains; and at the second step, the burden shifted to the

defendant to show that the FTC’s figures overstated the

amount of the defendant’s unjust gains. The panel concluded

that the FTC met its burden at the first step, having proved

that all of the revenues represented presumptively unjust

gains; and Gugliuzza failed to meet his burden at step two to

show that the FTC’s figure overstated Commerce Planet’s

restitution obligations.

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4 FTC V. COMMERCE PLANET, INC.

COUNSEL

Erwin Chemerinsky (argued), University of California,

Irvine, School of Law, Irvine, California; Theodore J.

Boutrous Jr., M. Sean Royall, and Blaine H. Evanson,

Gibson, Dunn & Crutcher LLP, Los Angeles, California;

Michael V Schafler and Jeffrey M. Chemerinsky, Caldwell

Leslie &Proctor, PC, Los Angeles, California, for DefendantAppellant.

Michele Arington (argued), Attorney, Jonathan E.

Nuechterlein, General Counsel, John F. Daly, DeputyGeneral

Counsel for Litigation, Office of the General Counsel,

Federal Trade Commission, Washington, D.C.; Eric D.

Edmondson, David M. Newman, Kerry O’Brien, and Evan

Rose, Federal Trade Commission, San Francisco, California,

for Plaintiff-Appellee.

OPINION

WATFORD, Circuit Judge:

The Federal Trade Commission (FTC) sued Commerce

Planet, Inc., and three of its top officers for violating § 5(a) of

the FTC Act, which prohibits unfair or deceptive business

practices. 15 U.S.C. § 45(a). The company and two of the

individual defendants settled with the FTC. The remaining

defendant, appellant Charles Gugliuzza, elected to stand trial. 

After a 16-day bench trial, the district court found that

Commerce Planet had violated § 5(a) and held Gugliuzza, the

company’s former president, personally liable for the

company’s unlawful conduct. The court permanently

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FTC V. COMMERCE PLANET, INC. 5

enjoined Gugliuzza from engaging in similar misconduct and

ordered him to pay $18.2 million in restitution.

In a memorandum disposition filed together with this

opinion, we reject Gugliuzza’s challenges to the district

court’s liability ruling. We address here his arguments

contesting the validity of the restitution award.1

I

The FTC brought suit to enjoin Commerce Planet’s

deceptive marketing of a product called “OnlineSupplier.” 

The company touted OnlineSupplier as a website-hosting

service that would enable consumers to make money by

selling products online. The company charged a membership

fee for the service that ranged over time from $29.95 to

$59.95 per month.

 

1

 We have jurisdiction over this appeal despite the fact that Gugliuzza

filed his notice of appeal shortly after filing a Chapter 7 bankruptcy

petition. The filing of a bankruptcy petition triggers an automatic stay,

which generally prohibits “the commencement or continuation” of a

preexisting judicial action against the debtor, even when the debtor

himself continues the case by filing a notice of appeal. 11 U.S.C.

§ 362(a)(1); Parker v. Bain, 68 F.3d 1131, 1135–36 (9th Cir. 1995). 

However, the automatic stay does not prevent the commencement or

continuation of an action by a governmental unit such as the FTC to

enforce its police or regulatory power, 11 U.S.C. § 362(b)(4), which the

action against Gugliuzza clearly is. See City & County of San Francisco

v. PG & E Corp., 433 F.3d 1115, 1123–26 (9th Cir. 2006). Gugliuzza’s

bankruptcy filing would stay any effort by the FTC to enforce the

judgment in this case, see 11 U.S.C. § 362(a)(2), but it does not preclude

us from reviewing the propriety of the district court’s entry of judgment,

see NLRB v. Continental Hagen Corp., 932 F.2d 828, 834–35 (9th Cir.

1991).

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6 FTC V. COMMERCE PLANET, INC.

Commerce Planet sold OnlineSupplier through its

website. The landing page for the website, however, said

nothing about OnlineSupplier. What consumers saw instead

was an offer for a free “Online Auction Starter Kit” that

explained how they could sell products on eBay. To obtain

the starter kit, consumers needed to enter their shipping

address and a valid credit card number to pay for shipping

and handling ($1.95 for standard delivery, $7.95 for

expedited delivery). Buried in the fine print for this

transaction was an advisement stating that, by ordering the

free starter kit, consumers were also agreeing to purchase

OnlineSupplier through what is known as a “negative

option.” Here, that meant consumers received

OnlineSupplier at no charge during a 14-day trial period, but

if they failed to take affirmative steps to cancel within that

period the company automatically charged their credit cards

for the recurring monthly membership fee. Many consumers

did not realize that by ordering the free starter kit they had

also agreed to purchase OnlineSupplier. They first learned of

that fact when the monthly charges for the service began

showing up on their credit card bills.

The district court found that Commerce Planet’s failure to

adequately disclose the negative option constituted an unfair

and deceptive practice that violated § 5(a) of the FTC Act. In

addition, the court held Gugliuzza personally liable for the

company’s unlawful conduct during the two-and-a-half-year

period he exercised operational control over the company,

first as a consultant and then as the company’s president. 

Throughout that period Gugliuzza oversaw and directed the

marketing of OnlineSupplier, which included reviewing and

approving the manner in which the negative option was

disclosed to consumers.

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FTC V. COMMERCE PLANET, INC. 7

In addition to enjoining future unlawful conduct, the

district court ordered Gugliuzza to pay $18.2 million in

restitution. The court arrived at that figure by determining

that Commerce Planet’s net revenues from the sale of

OnlineSupplier during the relevant period totaled $36.4

million. The court credited Gugliuzza’s assertion that it

would be unfair to assume that all consumers who purchased

OnlineSupplier were deceived by the company’s inadequate

disclosure of the negative option. But because Gugliuzza

failed to offer any reliable method of determining how many

consumers were not deceived, the court relied on testimony

from one of the FTC’s experts, who opined that “most”

consumers would have been deceived by the manner in which

the negative option was disclosed. Based on that testimony,

the court estimated as a “conservative floor” that at least half

the consumers who purchased OnlineSupplier were deceived

by Commerce Planet’s marketing practices. The court

therefore reduced the restitution award to $18.2 million, onehalf of the net revenues Commerce Planet received from the

sale of OnlineSupplier during the relevant period.

II

Gugliuzza challenges the validity of the restitution award

on two fronts. First, he contends that the district court either

lacked the authority to award restitution at all or at the very

least had to limit the award to the unjust gains he personally

received, which in this case totaled roughly $3 million. 

Second, Gugliuzza argues that even if he can be held liable

for restitution exceeding his own unjust gains, the district

court’s $18.2 million award is nonetheless arbitrary and must

be reduced.

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8 FTC V. COMMERCE PLANET, INC.

A

The district court had the authority to award restitution

under § 13(b) of the FTC Act. Section 13(b) provides in

relevant part that “in proper cases the Commission may seek,

and after proper proof, the court may issue, a permanent

injunction.” 15 U.S.C. § 53(b). Although this provision

mentions only injunctive relief, we have held that it also

empowers district courts to grant “any ancillary relief

necessary to accomplish complete justice,” including

restitution. FTC v. Pantron I Corp., 33 F.3d 1088, 1102 (9th

Cir. 1994) (quoting FTC v. H.N. Singer, Inc., 668 F.2d 1107,

1113 (9th Cir. 1982)).

We grounded this holding on the Supreme Court’s

decision in Porter v. Warner Holding Co., 328 U.S. 395

(1946). That case involved an action brought by the

government under § 205(a) of the Emergency Price Control

Act of 1942. The government sued to enjoin the defendant

from charging excessive rents in violation of the Act and to

obtain restitution of the excess rents already collected. The

defendant argued that § 205(a) did not authorize an award of

restitution, as the statute spoke only of applications for “a

permanent or temporaryinjunction, restraining order, or other

order.” Id. at 397. The Court disagreed. It held that by

authorizing the issuance of injunctive relief, the statute

invoked the court’s equity jurisdiction, which carries with it

“all the inherent equitable powers of the District Court”

unless the Act provided otherwise. Id. at 398. Those

equitable powers are comprehensive. To ensure that

“complete rather than truncated justice” is done, a court

sitting in equity may “go beyond the matters immediately

underlying its equitable jurisdiction and decide whatever

other issues and give whatever other relief may be necessary

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FTC V. COMMERCE PLANET, INC. 9

under the circumstances.” Id. That is especially true in cases

involving the public interest, the Court held, such as actions

brought by the government to enforce a regulatory statute. In

those cases the court’s “equitable powers assume an even

broader and more flexible character than when only a private

controversy is at stake.” Id. Moreover, limitations on the

court’s equitable jurisdiction are not to be casually inferred. 

“Unless a statute in so many words, or by a necessary and

inescapable inference, restricts the court’s jurisdiction in

equity, the full scope of that jurisdiction is to be recognized

and applied.” Id.

In light of these principles, the Court had little difficulty

concluding that ordering a defendant to pay restitution fell

comfortably within the scope of the broad equitable authority

conferred by § 205(a). “Nothing is more clearly a part of the

subject matter of a suit for an injunction than the recovery of

that which has been illegally acquired and which has given

rise to the necessity for injunctive relief.” Id. at 399. Indeed,

ordering a defendant to return unjust gains, the Court noted,

is “within the highest tradition of a court of equity.” Id. at

402.

Under Porter and our cases applying it, district courts

have the power to order payment of restitution under § 13(b)

of the FTC Act. The equitable jurisdiction to enjoin future

violations of § 5(a) carries with it the inherent power to

deprive defendants of their unjust gains from past violations,

unless the Act restricts that authority. We see nothing in the

Act that does.

Gugliuzza contends that § 19(b) of the FTC Act, 15

U.S.C. § 57b(b), eliminates a court’s power to award

restitution under § 13(b), but we have refused to read § 19(b)

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10 FTC V. COMMERCE PLANET, INC.

in that manner.2 For one thing, § 19 itself states that the

“[r]emedies provided in this section are in addition to, and not

in lieu of, any other remedy or right of action provided by

State or Federal law.” 15 U.S.C. § 57b(e); see H.N. Singer,

668 F.2d at 1113. For another thing, the Court in Porter

rejected essentiallythe same argument Gugliuzza makes here. 

The defendant in that case argued that courts could not award

restitution under § 205(a) of the EmergencyPrice Control Act

because a separate provision of the Act—§ 205(e)—

authorized suits by the government to recover damages. The

Court held that, to the extent a court exercising its equitable

jurisdiction under § 205(a) might otherwise have been able to

award damages, “§ 205(e) supersedes that possibility and

provides an exclusive remedy relative to damages.” Porter,

328 U.S. at 401. However, § 205(e) in no way eliminated a

court’s power under § 205(a) to award restitution, a remedy

that “differs greatly” from the damages remedy available

under § 205(e). Id. at 402. We think the same can be said of

the relationship between §§ 13(b) and 19(b) of the FTC Act. 

While § 19(b) precludes a court from awarding damages

when proceeding under § 13(b), it does not eliminate the

court’s inherent equitable power to order payment of

restitution.

Gugliuzza also contends that, even if a court may award

restitution under § 13(b), any such award must be limited to

the unjust gains each defendant personally received. We find

no support in our case law for this proposition. Restitution

does involve the return to the plaintiff of gains a defendant

has unjustly received. Restatement (Third) of Restitution and

2 Section 19(b) authorizes a court to award, in actions brought to

enforce the FTC’s cease-and-desist orders, “the refund of money or return

of property [and] the payment of damages.” 15 U.S.C. § 57b(b).

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FTC V. COMMERCE PLANET, INC. 11

Unjust Enrichment § 1 cmt. a (2011). But the relevant

question in a case like this one—in which an individual

defendant violates the FTC Act by acting in concert with a

corporate entity—is whether the individual may be held

personally liable for restitution of the corporation’s unjust

gains. The answer is yes—provided the requirements for

imposing joint and several liability are satisfied, and here

they are.

We have established a two-pronged test for determining

when an individual may be held personally liable for

corporate violations of the FTC Act. That test requires the

FTC to prove that the individual: (1) participated directly in,

or had the authority to control, the unlawful acts or practices

at issue; and (2) had actual knowledge of the

misrepresentations involved, was recklessly indifferent to the

truth or falsity of the misrepresentations, or was aware of a

high probability of fraud and intentionally avoided learning

the truth. FTC v. Network Services Depot, Inc., 617 F.3d

1127, 1138–39 (9th Cir. 2010); FTC v. Stefanchik, 559 F.3d

924, 931 (9th Cir. 2009). The district court found that the

FTC’s proof satisfied both prongs of this test and, as

explained in the accompanying memorandum disposition,

those findings are adequately supported by the record.

If an individual may be held personally liable for

corporate violations of the FTC Act under this test, nothing

more need be shown to justify imposition of joint and several

liability for the corporation’s restitution obligations. 

Satisfaction of the test establishes the degree of collaboration

between co-defendants necessary to justify joint and several

liability in analogous contexts, such as actions brought by the

Securities and Exchange Commission (SEC) to obtain

disgorgement in securities fraud cases. See, e.g., SEC v. First

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12 FTC V. COMMERCE PLANET, INC.

Pacific Bancorp, 142 F.3d 1186, 1191–92 (9th Cir. 1998);

Hateley v. SEC, 8 F.3d 653, 656 (9th Cir. 1993). For that

reason, in actions brought by the FTC, we have repeatedly

held individuals jointly and severally liable for a

corporation’s restitution obligations without requiring an

evidentiary showing beyond the findings needed to satisfy the

two-pronged test described above. See Network Services

Depot, 617 F.3d at 1138–39; Stefanchik, 559 F.3d at 927,

930–32; FTC v. Publishing Clearing House, Inc., 104 F.3d

1168, 1170–71 (9th Cir. 1997); cf. FTC v. Gill, 265 F.3d 944,

954, 958–59 (9th Cir. 2001) (joint and several liability for

two individual co-defendants).

Notwithstanding the cases just cited, Gugliuzza contends

that a court exercising its inherent equitable powers under

§ 13(b) lacks authority to impose joint and several liability

because that is a form of liability only the law courts could

impose. Gugliuzza is wrong. Equity courts have long

exercised the power to impose joint and several liability, most

notably in cases involving breach of the duties imposed by

trust law. See, e.g., Jackson v. Smith, 254 U.S. 586, 589

(1921); Restatement of Trusts § 258 cmt. a (1935); 4 John

Norton Pomeroy, A Treatise on Equity Jurisprudence § 1081,

at 231–32 (5th ed. 1941). We therefore see no basis for

holding that courts are categorically precluded from imposing

joint and several liability in actions brought under § 13(b).

Because joint and several liability is permissible,

restitution awards need not be limited to the funds each

defendant personally received from the wrongful conduct, as

Gugliuzza urges. Defendants held jointly and severally liable

for payment of restitution are liable for the unjust gains the

defendants collectively received, even if that amount exceeds

(as it usually will) what any one defendant pocketed from the

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FTC V. COMMERCE PLANET, INC. 13

unlawful scheme. Indeed, we have previously upheld joint

and several liability for payment of restitution even though

the award exceeded the unjust gains any individual defendant

personally received. See Network Services Depot, 617 F.3d

at 1137–38; Stefanchik, 559 F.3d at 931–32; Gill, 265 F.3d at

954, 959. The same is true in disgorgement actions brought

by the SEC, cases in which courts also exercise the broad

equitable powers described in Porter. There, too, courts have

upheld disgorgement orders imposed jointly and severally

that exceeded the unjust gains any one defendant personally

received. See, e.g., SEC v. Platforms Wireless International

Corp., 617 F.3d 1072, 1098 (9th Cir. 2010); SEC v. Clark,

915 F.2d 439, 453–54 (9th Cir. 1990).

Gugliuzza’s argument against joint and several liability

rests primarily on Great-West Life & Annuity Insurance Co.

v. Knudson, 534 U.S. 204 (2002), but we do not think that

decision has any bearing on the analysis here. In Great-West,

the Court interpreted the meaning of the phrase “other

appropriate equitable relief” in § 502(a)(3) of the Employee

Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.

§ 1132(a)(3), a provision that authorizes suits by private

parties alleging violations of ERISA-imposed duties. The

Court held that a plaintiff may obtain an award of restitution

under that provision only if the plaintiff seeks “equitable”

rather than “legal” restitution. 534 U.S. at 213–14. 

“Equitable” restitution requires tracing the money or property

the plaintiff seeks to recover to identifiable assets in the

defendant’s possession (thus permitting imposition of a

constructive trust or equitable lien), whereas “legal”

restitution seeks imposition of “a merely personal liability

upon the defendant to pay a sum of money.” Id. at 213

(quoting Restatement of Restitution § 160 cmt. a (1936)).

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14 FTC V. COMMERCE PLANET, INC.

Gugliuzza concedes (correctly) that the tracing

requirements for “equitable” restitution do not apply in

§ 13(b) actions. See FTC v. Bronson Partners, LLC, 654 F.3d

359, 373–74 (2d Cir. 2011). Adopting those tracing

requirements would greatly hamper the FTC’s enforcement

efforts by, among other things, precluding restitution of any

funds the defendant has wrongfully obtained but already

managed to spend on non-traceable items. See Montanile v.

Board of Trustees of the National Elevator Industry Health

Benefit Plan, 136 S. Ct. 651, 657–62 (2016). We have never

applied that rule in § 13(b) cases.

Given Gugliuzza’s concession that tracing requirements

do not apply, it is far from clear what relevance he contends

Great-West has to this case. He appears to argue (contrary to

his concession) that courts proceeding under § 13(b) must

make the same “fine distinction” between legal and equitable

restitution required under ERISA § 502(a)(3). Great-West,

534 U.S. at 214. We take a different view.

The Court’s holding in Great-West relied heavily on

Mertens v. Hewitt Associates, 508 U.S. 248 (1993), where the

Court stated that the phrase “other appropriate equitable

relief” could be construed to mean one of two things: either

“whatever relief a court of equity is empowered to provide in

the particular case at issue,” or, more narrowly, only “those

categories of relief that were typically available in equity.” 

Id. at 256. The Court felt compelled to adopt the latter, more

narrow reading because it assumed that Congress intended

“equitable relief” as a limitation on the relief available under

§ 502(a)(3). Because equity courts could award all forms of

relief—whether legal or equitable—for breach of trust, the

Court thought reading the phrase “equitable relief” to mean

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FTC V. COMMERCE PLANET, INC. 15

whatever relief a court of equity could provide “would limit

the relief not at all.” Id. at 257.

The interpretive constraints facing the Court in GreatWest and Mertens are wholly absent here. We do not have

before us a statute that limits the court to providing “equitable

relief.” Section 13(b) invokes a court’s equity jurisdiction by

authorizing issuance of injunctive relief, so absent a clear

limitation expressed in the statute, Congress is deemed to

have authorized issuance of “whatever relief a court of equity

is empowered to provide in the particular case at issue.” 

Mertens, 508 U.S. at 256. That includes the power “to award

complete relief even though the decree includes that which

might be conferred by a court of law,” Porter, 328 U.S. at

399, such as monetary relief that would traditionally be

viewed as “legal.” 1 Dan B. Dobbs, Law of Remedies § 2.7,

at 180 (2d ed. 1993). Absent a clear textual basis for doing

so, reading into § 13(b) the remedial limitations imposed in

Great-West and Mertens would be particularly ill-advised,

given the admonition in Porter that a court’s inherent

equitable powers “assume an even broader and more flexible

character” when the government seeks to enforce a regulatory

statute like § 13(b), as opposed to “when only a private

controversy is at stake,” as is true under § 502(a)(3). Porter,

328 U.S. at 398.

Gugliuzza contends that if the district court may award

what amounts to “legal” restitution as defined in Great-West,

then the Seventh Amendment afforded him the right to have

his case tried to a jury. The Supreme Court has held that the

Seventh Amendment preserves the right to trial by jury in

statutory actions seeking traditional legal remedies, such as

compensatory damages or civil penalties. Tull v. United

States, 481 U.S. 412, 422–23 (1987); Curtis v. Loether, 415

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16 FTC V. COMMERCE PLANET, INC.

U.S. 189, 195–96 (1974). But the Court has consistently

stated that restitution is an equitable remedy for Seventh

Amendment purposes, without drawing any distinction

between the legal and equitable forms of that relief. See

Great-West, 534 U.S. at 229 (Ginsburg, J., dissenting). For

example, in Teamsters v. Terry, 494 U.S. 558 (1990), the

Court noted that “we have characterized damages as equitable

where they are restitutionary,” id. at 570 (emphasis added),

which strongly suggests that such an award is considered

equitable under the Seventh Amendment even if imposed as

a merely personal liability upon the defendant. That view

may need to be reconsidered in light of Great-West’s holding,

but we regard that as a matter the Supreme Court must

resolve. For now at least, so long as a court limits an award

under § 13(b) to restitutionary relief, the remedy is an

equitable one for Seventh Amendment purposes and thus

confers no right to a jury trial. See Bronson Partners, 654

F.3d at 374; FTC v. Verity International, Ltd., 443 F.3d 48,

66–67 (2d Cir. 2006).

Having said all this, we note that the judgment entered

against Gugliuzza does not actually hold him jointly and

severallyliable for Commerce Planet’srestitution obligations. 

The FTC asserts that it requested such relief below and that

the district court’s failure to provide it was a mere oversight. 

That seems plausible, since the district court otherwise had no

basis for ordering Gugliuzza to pay $18.2 million in

restitution. Nevertheless, if the failure to impose joint and

several liability was indeed an oversight, we have no power

to correct it ourselves. We must therefore vacate the

judgment. If on remand the district court decides, in the

exercise of its discretion, to hold Gugliuzza jointly and

severally liable with Commerce Planet, it may reinstate the

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FTC V. COMMERCE PLANET, INC. 17

$18.2 million restitution award. Otherwise, the award must

be limited to the unjust gains Gugliuzza himself received.3

B

Gugliuzza also contests the amount of the restitution

award, on the ground that the district court arbitrarily

determined that Commerce Planet’s unjust gainstotaled $18.2

million. The district court did not abuse its discretion in

calculating the amount of the award. The court followed, and

properlyapplied, the two-step burden-shifting framework that

other circuits have adopted for calculating restitution awards

under § 13(b). See, e.g., Bronson Partners, 654 F.3d at

368–69; FTC v. Kuykendall, 371 F.3d 745, 766 (10th Cir.

2004) (en banc); FTC v. Febre, 128 F.3d 530, 535 (7th Cir.

1997). We have not yet had occasion to adopt that

framework as the law of our circuit in § 13(b) cases, but we

do so now. Cf. Platforms Wireless, 617 F.3d at 1096

(adopting essentially the same burden-shifting framework for

SEC disgorgement cases).

Under the first step, the FTC bears the burden of proving

that the amount it seeks in restitution reasonably

approximates the defendant’s unjust gains, since the purpose

of such an award is “to prevent the defendant’s unjust

enrichment by recapturing the gains the defendant secured in

a transaction.” 1 Dobbs, Law of Remedies § 4.1(1), at 552. 

3 Commerce Planet and the other individual co-defendants settled with

the FTC before trial for a total of $522,000. The only argument Gugliuzza

makes with respect to the impact of these settlements is that any award

against him should be offset by what his co-defendants have already paid. 

We agree that the FTC is not entitled to a double recovery. On remand the

district court should ensure that Gugliuzza receives a credit for any sums

the FTC has collected from the other defendants.

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18 FTC V. COMMERCE PLANET, INC.

Unjust gains in a case like this one are measured by the

defendant’s net revenues (typically the amount consumers

paid for the product or service minus refunds and

chargebacks), not by the defendant’s net profits. Bronson

Partners, 654 F.3d at 374–75; accord FTC v. Washington

Data Resources, Inc., 704 F.3d 1323, 1327 (11th Cir. 2013)

(per curiam); Febre, 128 F.3d at 536. Nor are unjust gains

measured by the consumers’ total losses; that would amount

to an award of damages, a remedy available under § 19(b) but

precluded under § 13(b). See Porter, 328 U.S. at 401–02;

Bronson Partners, 654 F.3d at 366–68. In many cases,

however, the defendant’s unjust gain “will be equal to the

consumer’s loss because the consumer buys goods orservices

directly from the defendant.” Verity, 443 F.3d at 68. The

defendant’s unjust gains and consumers’ losses may diverge

in cases where “some middleman not party to the lawsuit

takes some of the consumer’s money before it reaches a

defendant’s hands.” Id. But that is not a concern in this case;

consumers purchased OnlineSupplier directly from

Commerce Planet.

If the FTC makes the required threshold showing, the

burden then shifts to the defendant to show that the FTC’s

figures overstate the amount of the defendant’s unjust gains. 

Any risk of uncertainty at this second step “fall[s] on the

wrongdoer whose illegal conduct created the uncertainty.” 

Bronson Partners, 654 F.3d at 368 (quoting Verity, 443 F.3d

at 69).

The FTC carried its initial burden at step one. It

presented undisputed evidence that Commerce Planet

received $36.4 million in net revenues from the sale of

OnlineSupplier during the relevant period. The FTC proved

that Commerce Planet made material misrepresentations—by

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FTC V. COMMERCE PLANET, INC. 19

not adequately disclosing the negative option—and that the

misrepresentations were widelydisseminated. As a result, the

FTC was entitled to a presumption that all consumers who

purchased OnlineSupplier did so in reliance on the

misrepresentations. See FTC v. Figgie International, Inc.,

994 F.2d 595, 605–06 (9th Cir. 1993) (per curiam). The FTC

having proved that all of the $36.4 million in net revenues

represented presumptively unjust gains, the burden shifted to

Gugliuzza to show that the FTC’s figure overstated

Commerce Planet’s restitution obligations.

Gugliuzza attempted to meet his burden by asserting that

not all of the consumers who purchased OnlineSupplier were

deceived by Commerce Planet’s misrepresentations. Had

Gugliuzza offered a reliable method of quantifying what

portion of the consumers who purchased OnlineSupplier did

so free from deception, he might well have succeeded in

showing that not all of the $36.4 million in revenues

represented unjust gains. But he failed to do so. He did

attempt to introduce the testimony of an expert, Dr. Kenneth

Deal, who opined, based on the results of a consumer survey

conducted by a third party, that not many of Commerce

Planet’s consumers were actually deceived. The district court

properly refused to consider that testimony because Dr. Deal

did not conduct the survey himself, and neither he nor

Gugliuzza could demonstrate that the survey was “conducted

according to accepted principles.” M2 Software, Inc. v.

Madacy Entertainment, 421 F.3d 1073, 1087 (9th Cir. 2005)

(internal quotation marks omitted); see Southland Sod Farms

v. Stover Seed Co., 108 F.3d 1134, 1142 (9th Cir. 1997).

Gugliuzza attempted to support his contention that not all

consumers were deceived by pointing out that 45% of

consumers cancelled within the trial period, which indicated

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20 FTC V. COMMERCE PLANET, INC.

that those consumers, at least, must have known about the

negative option. That fact, however, sheds no light on what

portion of the $36.4 million in net revenues represents unjust

gains. Consumers who cancelled within the trial period may

indeed not have been deceived, but the payments made by

those consumers were not included in the $36.4 million

figure. Consumers who cancelled during the trial period paid

only shipping and handling for the free starter kit, and those

fees were excluded when calculating the $36.4 million in net

revenues. The consumers who paid the monthly fees that

comprise the $36.4 million figure were those who did not

cancel during the trial period. They were presumptively

deceived and, absent a contrary showing by Gugliuzza, the

fees they paid to Commerce Planet were properly deemed

unjust gains.

Lastly, Gugliuzza challenges as arbitrary the district

court’s reliance on testimony from the FTC’s expert that

“most” consumers were deceived by Commerce Planet’s

misrepresentations. Gugliuzza has no basis to complain

about this aspect of the district court’s ruling. The court

relied on the testimony in question to reduce the award from

$36.4 million to $18.2 million. Given Gugliuzza’s failure to

produce any reliable evidence demonstrating what portion of

the $36.4 million in net revenues should not be deemed unjust

gains, the court could simply have awarded that amount and

been done with it. The district court did not abuse its

discretion when it instead decided to err on the side of caution

by slashing the otherwise-permissible award in half. Any

error in that regard could only have benefitted Gugliuzza.

AFFIRMED IN PART, VACATED IN PART, AND

REMANDED. 

No costs.

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