Opinion ID: 177675
Heading Depth: 1
Heading Rank: 4

Heading: Gross receipts are an appropriate basis for calculating damages.

Text: Turning now to the issue of damages, the Defendants begin by arguing that damages for deceptive advertising are limited to actual profits, not gross receipts. If this were so, then at least part of the district court's damages award would be erroneous. However, the law allows for broad discretion in fashioning a remedy for deceptive advertising; many cases uphold rescission (effectively, restoring the parties to pre-sale status) or restitution (under these facts, the same) as appropriate remedies. See Trudeau, 579 F.3d at 771 (noting that [c]onsumer loss is a common measure for civil sanctions in contempt proceedings and direct FTC actions and listing cases). Thus, consumer loss, as represented by the Defendants' gross receipts, would appear to be an appropriate measure of damages. Nevertheless, the Defendants ask us to rely on FTC v. Verity Int'l, Ltd., 443 F.3d 48 (2d Cir.2006), for the proposition that the FTC's remedy is limited to the Defendants' profits rather than their gross receipts. Verity 's limited rule does not apply here. In Verity, a series of unrelated, non-party middlemen partook of the proceeds from the defendants' scheme before the defendants themselves got a bite. See 443 F.3d at 53 (describing the relationship as a multitiered, cascading-payment structure). The court found this payment structure highly relevant to the issue of damages, noting that in many cases in which the FTC seeks restitution, the defendant's gain will be equal to the consumer's loss but casting Verity 's facts as an exception limited to the situation when some middleman not party to the lawsuit takes some of the consumer's money before it reaches a defendant's hands. Id. at 68 (emphasis added); see also Trudeau, 579 F.3d at 772 (describing Verity as holding only that certain circumstances require courts to limit disgorgement to the defendant's profits). Here, the Defendants seek to inflate Verity 's exception so that it overshadows the rule. We are not persuaded. Because this set of facts lacks the non-party middleman that gave rise to the exception in Verity, we will follow the general rule. Here, the Defendants on appeal took in proceeds directly, except for roughly one year when fellow defendant (but non-appellant) Triad processed Coral Calcium orders. The FTC introduced ample evidence of the overall proceeds from Coral Calcium during this period; however, the parties' financial records were in such disarray that the actual split among the parties could not be determined. [12] The Defendants on appeal now claim that Triad siphoned off the vast majority of the proceeds, leaving them holding an empty bag, but we cannot tell whether this is the case. Because every entity that had received consumer money was a defendant, the district court held that gross receipts were an appropriate measure of damages; because records were unclear as to how much consumer money each defendant received, the district court evenly split the total receipts between DMC and Triad for the time period when Triad acted as a middleman. This was consistent with Verity and within the bounds of the district court's discretion in fashioning an equitable remedy. See Freecom, 401 F.3d at 1202 n. 6 (noting that the FTC Act's grant of authority to provide injunctive relief carries with it the full range of equitable remedies, including the power to grant consumer redress). Thus, the district court committed no error in resting its damages determination on the Defendants' gross receipts rather than their net profits, and we will proceed to review the court's calculation of what those gross receipts actually were. To determine the appropriate amount of damages in deceptive advertising cases, courts apply a burden-shifting scheme. First, the FTC must provide the court with a reasonable approximation of damages. [13] See FTC v. Febre, 128 F.3d 530, 535 (7th Cir.1997). Both gross receipts and net customer loss are appropriate measures. See id. ; Freecom, 401 F.3d at 1206. Once a reasonable approximation of damages has been provided, the defendant has an opportunity to demonstrate that the figures are inaccurate. See Febre, 128 F.3d at 535. Any fuzzy figures due to a defendant's uncertain bookkeeping cannot carry a defendant's burden to show inaccuracy. See id. The district court and all parties find a rare point of agreement in the notion that this exercise may be broken down into three constituent time periodsJanuary 2002 to February 2003, March 2003 to July 2003, and August 2003 to June 2004each of which we will address in turn.