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