Unreported / Non-Citable
Background
The United States sued NetLatitude, Inc. and related defendants, including Ace Business Solutions, LLC and Sandra Barnes (the Ace Defendants), alleging violations of the Telemarketing Sales Rule, 16 C.F.R. Part 310, including Count VI for charging or receiving a fee in advance of providing a debt relief service. The government sought civil penalties of $3,428,366.26, consumer redress of $2,885,805.30, and injunctive relief barring the Ace Defendants from offering debt relief services. The complaint included a jury demand under Rule 38 for all issues so triable.
On July 8, 2026, the court denied the government's motion for summary judgment against the Ace Defendants on Count VI. The Ace Defendants then moved to strike the government's jury demand as to their liability and the civil penalties requested on that count. The government opposed the motion, arguing it had a constitutional right to have a jury determine liability for civil penalties under the FTC Act, while conceding the court would set the penalty amount.
The Court’s Holding
The court first held that neither the FTC Act nor the Telemarketing Sales Rule explicitly provides a right to a jury trial, so the analysis turned to the Seventh Amendment. The parties agreed, and the court confirmed, that there is no jury right for suits under Section 13(b) of the FTC Act, which authorizes only equitable relief. Accordingly, the court struck the jury demand as to injunctive relief under Section 13(b). The government also conceded that the court, not a jury, would determine the amount of any civil penalty, consistent with Tull v. United States, so the jury demand was struck as to penalty amount as well.
The central dispute was whether the government retained a jury right on the Ace Defendants' liability for civil penalties under Section 5(m)(1)(A). Applying the two-step remedy-focused test from Tull and SEC v. Jarkesy, the court found the civil penalty provision legal in nature. The statute permits penalties up to $53,088 per violation and directs the court to consider culpability and prior conduct, which are punitive and deterrent factors rather than restorative ones. The court rejected the argument that fairness factors like ability to pay made the remedy equitable, and found the TSR claims analogous to common-law fraud because they target misrepresenting or concealing material facts.
Under Tull's second step, the court found the requested penalties—nearly $23 million—were not merely incidental to the modest equitable relief sought, particularly since many defendants had ceased business. The FTC Act also allows legal relief independent of injunctive relief, with no requirement that an injunction be obtained first. The court therefore denied the motion to strike as to liability on the TSR claims, while rejecting the Ace Defendants' efficiency argument for a single bench trial because constitutional guarantees outweigh expediency concerns.
Key Takeaways
- The Seventh Amendment preserves the government's right to a jury trial on a defendant's liability for civil penalties under Section 5(m)(1)(A) of the FTC Act because such penalties are legal, not equitable, remedies.
- There is no jury trial right for injunctive relief under Section 13(b) of the FTC Act, and the court rather than the jury determines the amount of civil penalties under Tull.
- A statutory penalty scheme that considers culpability and prior violations is punitive and deterrent in purpose, supporting a jury right on liability even when the statute also allows consideration of ability to pay.
- Claims under the Telemarketing Sales Rule that involve misrepresenting material facts to consumers are analogous to common-law fraud, reinforcing the legal nature of the action under Jarkesy.
- Efficiency concerns cannot justify consolidating liability and relief into a single bench trial when a party has a constitutional right to a jury determination of liability.
Why It Matters
This order adds to the growing body of district court decisions applying the Supreme Court's Jarkesy framework to preserve jury trial rights in government enforcement actions seeking civil penalties. By distinguishing the FTC Act's penalty provision from state statutes lacking culpability-based adjustments, the court provides a roadmap for analyzing when statutory penalties trigger Seventh Amendment protections.
The ruling has practical significance for FTC enforcement strategy: while the agency cannot obtain a jury for Section 13(b) injunctions or penalty amounts, it can secure jury findings on liability for rule violations, which may affect settlement dynamics and trial structure in consumer protection cases.