FTC wins summary judgment for violations of shipping Rule and Covid Consumer Protection Act

F.T.C. v. Romero, 2023 WL 2445339, No. 5:21-cv-343-BJD-PRL (M.D. Fla. Feb. 27, 2023)

The FTC still has some tools in its arsenal. Here, violations of the Trade Regulation Rule Concerning the Sale of Mail, Internet, or Telephone Order Merchandise (MITOR) and the COVID-19 Consumer Protection Act (along with other §5 violations) allow for summary judgment making defendant responsible for substantial penalties for falsely advertising personal protective equipment during the pandemic.

Romero operated a drop-shipping business. In March 2020 (I was going to say mid-March, but I recognize there’s a question about how long March 2020 actually was), he began marketing facemasks, including masks he described as “N95” and “Class N95.” Customers were provided “two shipping options: 1) ‘Fast Shipping (5-15 days)’; and 2) ‘Standard Shipping (3-5 weeks).’ ” However, when the pandemic began, Romero updated the policy: “As [a] consequence of the unprecedented novel coronavirus (COVID-19), we’re experiencing an unforeseen and unanticipated spike in the volume of orders which may affect our standard shipping/delivery times.” This was linked at the “My Cart” stage of the four-part checkout process, but it was not available once customers clicked the “CHECK OUT” button.

Over about a year, 104 orders were fulfilled late, 95 of which received no refunds or charge backs, while 219 facemask and facemask filter orders were unfulfilled and not refunded in full or charged back. Beginning in April 2020, customers began complaining about not receiving orders.

From March 19, 2020 through August 20, 2020, Romero sent a standard email to customers who ordered facemasks using the same language as in the updated store policy. However, this didn’t provide customers an option or avenue to either consent to a delay in shipping or to cancel their order for a prompt refund. This email was sent 9,619 times. If customers complained or inquired, Romero emailed, “Once orders have been placed, they’re immediately processed and therefore cannot be canceled. If customers contact us regarding cancellations after making a purchase, and the item/s purchased have not yet shipped, we can issue a refund in the form of store credit only.” This email was sent 868 times.

You will not be shocked to hear that Romero also lacked a reasonable basis to claim that the masks he was selling were N95s, even though he posted a “Certification of Registration” with the FDA’s logo on it connected to some of the facemasks he sold that were purportedly of “N95” quality. He also sent purported NIOSH certifications to customers.

MITOR prohibits a seller from soliciting any “order for the sale of merchandise to be ordered by [a] buyer ... via the Internet ... unless, at the time of the solicitation, the seller has a reasonable basis to expect that it will be able to ship any ordered merchandise to the buyer” either “[w]ithin that time clearly and conspicuously stated in any such solicitation; or [i]f no time is clearly and conspicuously stated, within thirty (30) days after receipt of a properly completed order from the buyer.” If “a seller is unable to ship merchandise within the” aforementioned time, then the seller must “clearly and conspicuously and without prior demand” allow the buyer to either “consent to a delay in shipping or to cancel the buyer’s order and receive a prompt refund.” If a “seller fails to offer th[is] option” to the buyer, then the seller must “deem [the] order cancelled and ... make a prompt refund to the buyer[.]” In addition, “the failure of a respondent-seller to have records or other documentary proof establishing its use of systems and procedures which assure compliance, in the ordinary course of business,” with these requirements “will create a rebuttable presumption that the seller failed to comply with said requirement.”

Findings: Romero didn’t have a reasonable basis for his shipping claims. He received many customer complaints and was aware that the manufacturers he used were struggling with product demand volume, but still continued to solicit and accept customer orders. Representations and purported guarantees from vendors on Aliexpress “do not coincide with or negate what Defendant actually knew.”

Romero also didn’t offer the refund-or-consent option to all necessary customers, nor deem orders cancelled and provide prompt refunds after failing to give the refund-or-consent option.

Thus, the FTC was entitled to Romero’s net revenues for violating the MITOR: $989,483.69.

The court also found violations of Sections 5 and 12 of the FTC Act with the shipping claims and N95-related claims (NIOSH/FDA certification, that the masks were proper N95 masks, and that they “had filtration efficiencies comparable to N95 respirators,” “had filtration efficiencies of greater than or equal to 95 percent,” and would “prevent viruses, including the CoV-2-virus, from passing through”). For shipping times, Romero lacked a reasonable basis for the representations, and they were presumptively material because they were express claims. Even without the presumptions, consumer complaints showed that shipping times were material.

N95-related claims were also made without a reasonable basis.  Romero argued that NIOSH itself did not know what an “N95” mask was in the beginning of the COVID-19 pandemic, but “this argument bolsters that Defendant himself could not have properly represented that the masks he sold on Trend Deploy were approved by NIOSH if, according to Defendant, such a certification did not exist.” This was deceptive and material, given the relationship to the pandemic, and customers repeatedly inquired about the quality.

Nor was the “Buyer Protection Guarantee” offered by Aliexpress enough for Romero to have reasonably believed his products were of proper quality. Although he didn’t seek approval from either NIOSH or the FDA, in response to customer questions, he sent customers copies of a purported NIOSH certification. Plus, Romero’s e-commerce domain host, Shopify, alerted him that his claims about the quality of his facemasks were unsubstantiated. Shopify ultimately prohibited him from using its serivces to process payments because of his unsubstantiated claims about the facemasks.

After the enactment of the COVID-19 Consumer Protection Act (CCPA) on Dec. 27, 2020, the FTC can go directly to court for penalties for Section 4 violations “associated with the treatment, cure, prevention, mitigation, or diagnosis of COVID-19.” Romero’s conduct violated the CCPA

Civil penalties: Civil penalties are available for any rule violation “with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule.” Romero testified that he became aware of the MITOR in November 2020, when the FTC informed him he was under investigation, but kept making representations about, and selling, his facemasks in violation of MITOR and Sections 5/12.

Although the maximum civil penalty was $43,280.00 per violation, the court only imposed $2,565.21, a trebling of the $854.07 he apparently earned from violative sales after that point; although the court doesn’t say so, the fact that it awarded substantial consumer redress probably bears on this.

The court also found that Romero should be enjoined. Romero also sells clothing through a separate company; during the pandemic, he explained that his advertising “pages ke[pt] getting banned because they have the same name,” and he noted that he had the ability “to change [his] domain and start from zero again ... so that [F]acebook [would] not block [Defendant] anymore[.]” And he was still violating the MITOR by misrepresenting shipping times and not allowing customers the opportunity the refund-or-consent option required under the MITOR. The “FTC has proven a ‘cognizable danger’ of a recurrent violation.” The FTC was directed to file a proposed order; the defendant “must expect some fencing in” “as long as the relief is reasonably related to the violations of the FTC Act which occurred, and is not too indefinite.”