Fifth Circuit Adopts Presumption of Consumer Reliance and Re-draws the Limits of FTC Monetary Redress – A Commentary on FTC v. ZAAPPAAZ

Introduction

In FTC v. ZAAPPAAZ, L.L.C., No. 24-20234 (5th Cir. June 16 2025), the United States Court of Appeals for the Fifth Circuit confronted a pandemic-era deception case involving an online retailer’s failed promises of same-day shipment of personal protective equipment (“PPE”). Beyond the colorful facts—broken “GUARANTEED TO SHIP TODAY” advertisements during the COVID-19 crisis—the decision is significant for two doctrinal moves:

1. It formally adopts, for the first time in the Fifth Circuit, a rebuttable presumption that consumers relied on widely disseminated misrepresentations in actions brought under § 19 of the FTC Act (15 U.S.C. § 57b(b)).
2. It cabins the scope of monetary redress available under § 57b(b), vacating a portion of the award that gave every lateness-affected customer a full refund, and reminding district courts that redress must be no more than “necessary” and cannot tip into “exemplary or punitive” damages.

The appellant, ZAAPPAAZ and its founder Azim Makanojiya (“Zaappaaz”), challenged both liability and the $37.5 million damages figure imposed by the district court after a bench trial. The Fifth Circuit affirmed $12.24 million for undelivered/unrefunded orders, but vacated and remanded $25.3 million awarded to customers who received their orders late. Judge Haynes penned the majority opinion; Judge Engelhardt issued a partial dissent focusing on the procedural use of Rule 56(g).

Summary of the Judgment

• Presumption of Reliance: Aligning itself with six sister circuits, the court held that once the FTC shows (1) material misrepresentations, (2) wide dissemination, and (3) resulting purchases, it enjoys a presumption that consumers relied on the misstatements. The defendant can rebut by affirmative proof of non-reliance.
• $12.24 million award affirmed: Undisputed summary-judgment evidence showed Zaappaaz collected this amount on PPE orders never delivered nor refunded. The court found no genuine dispute of fact and therefore upheld the Rule 56(g) order deeming that figure established.
• $25.3 million award vacated: Full refunds to customers who received products late were not “necessary to redress injury.” The district court’s analogy to FTC v. Figgie International, Inc. (where the entire product was worthless) was misplaced; lateness is not equivalent to selling “rhinestones as diamonds.” Remand is required for a tailored remedy (perhaps partial refunds, shipping-price reimbursement, or other equitable relief).
• Procedural holdings: Rule 56(g) can be reviewed de novo when the underlying issue is whether a fact was genuinely disputed; district courts retain “enhanced leeway” before a bench trial. The dissent argued this leeway was abused.

Analysis

1. Precedents Cited

• FTC v. American Screening, LLC, 105 F.4th 1098 (8th Cir. 2024) – adopted the presumption of reliance under § 57b(b). Heavily relied upon by the majority.
• FTC v. Figgie International, Inc., 994 F.2d 595 (9th Cir. 1993) – allows full refunds when a product’s substantive qualities were misrepresented. Cited by the district court but distinguished on appeal.
• FTC v. BlueHippo Funding, LLC, 762 F.3d 238 (2d Cir. 2014); E.M.A. Nationwide, Inc., 767 F.3d 611 (6th Cir. 2014); Trudeau, Kuykendall, McGregor – additional circuits recognizing the reliance presumption.
• AMG Capital Management, LLC v. FTC, 593 U.S. 67 (2021) – removed monetary relief under § 13(b) but left § 57b(b) intact; the majority uses AMG to illustrate that Rare Coin’s presumption survives.
• Federal Rule of Civil Procedure 56(g) – permits a court to deem facts established when “not genuinely in dispute.” Controlling procedural authority (Fleming v. Bayou Steel, 83 F.4th 278 (5th Cir. 2023)) grants district courts “enhanced leeway” before bench trials.

2. Legal Reasoning of the Court

a) Adoption of the Presumption of Reliance. The court reasoned that consumer deception cases frequently involve thousands of purchasers; requiring the FTC to elicit individual testimony would cripple enforcement. It embraced the three-prong test from American Screening:

1. Misrepresentation or omission is of a type on which reasonable purchasers would rely.
2. The misstatement was widely disseminated (mass advertising, emails, website banners).
3. Purchasers actually bought the product.

Once shown, the burden shifts to the defendant. Zaappaaz produced no evidence (e.g., affidavits or surveys) indicating that customers ignored or disbelieved the shipping guarantees. Accordingly, reliance and injury were presumed.

b) Statutory Boundaries of § 57b(b). Congress allowed federal courts to grant relief “necessary to redress injury,” and expressly forbade “exemplary or punitive damages.” The majority found that a full-refund approach—without proof that every late-delivered customer was harmed—overshot that boundary. Timeliness is important, especially during a pandemic, but it does not invariably obliterate the entire value of the PPE received.

c) Rule 56(g) and the $12.24 million “Undelivered” Segment. The district court, acting as finder of fact in a forthcoming bench trial, had discretion to weigh competing declarations. Zaappaaz’s late-filed spreadsheet lacked tracking data capable of verification; therefore, no genuine dispute existed. The majority upheld the district court’s choice to lock in that figure pre-trial.

3. Impact on Future Litigation and Regulatory Practice

• Enforcement Advantage for the FTC. By adopting the presumption of reliance, the Fifth Circuit removes a substantial evidentiary barrier in Texas, Louisiana, and Mississippi. The agency can now focus on proving that misrepresentations were material and pervasive, rather than collecting individual consumer affidavits.
• Sharper Constraints on “Full Refund” Theories. Although the presumption facilitates liability, remedies remain tethered to actual injury. Plaintiffs (both the FTC and private class actions invoking similar concepts) must connect the requested monetary figure to provable harm—especially where goods, albeit late, ultimately confer value.
• District-Court Procedure. The decision endorses aggressive use of Rule 56(g) to streamline trials but warns that record-support and clear explanation are essential. The partial dissent signals that future litigants will closely scrutinize any perceived inconsistencies between summary-judgment rulings and subsequent Rule 56(g) orders.
• Record-Keeping for E-Commerce Retailers. The opinion chastises Zaappaaz for missing tracking numbers and inadequate documentation, effectively weaponizing 16 C.F.R. Part 435 against sellers with poor logistics records. Retailers should expect FTC investigators to demand end-to-end shipment data.
• Post-AMG Landscape. Section 57b(b) is now the principal statutory tool for FTC monetary relief. The Fifth Circuit’s decision clarifies both its power (presumption) and its limits (redress only, no windfalls).

Complex Concepts Simplified

• Section 13(b) vs. Section 19 (15 U.S.C. §§ 53(b) & 57b(b))
  • § 13(b): authorizes injunctions but, after AMG Capital, no monetary relief.
  • § 19: allows “such relief as the court finds necessary to redress injury,” including refunds and disgorgement, but expressly disallows punitive damages. The present case proceeds under § 19.
• Rebuttable Presumption of Consumer Reliance
  A legal shortcut: once certain predicates are satisfied (material, widespread misrepresentation + purchase), courts assume each buyer relied on the lie. The defendant may rebut with affirmative evidence (e.g., surveys showing customers did not read the claim, individualized disclaimers, or other proof).
• Federal Rule of Civil Procedure 56(g)
  When a court denies full summary judgment but sees facts truly undisputed, it may “deem” them established to narrow the issues for trial—functioning like a partial, targeted summary judgment.
• “Necessary to Redress Injury” vs. “Punitive”
  Equitable monetary relief must correspond to the harm (e.g., lost money, overpayment). Anything designed to punish or deter beyond compensation crosses into punitive territory and is disallowed under § 57b(b).
• Law of the Case / “Law of Non-Contradiction”
  Judicial efficiency doctrine stating that once an issue is decided, it should generally govern later stages of the same case. The dissent argues the district court violated this principle by changing its view of the $12.24 million figure; the majority believes Rule 56(g) permits such revision before final judgment.

Conclusion

FTC v. ZAAPPAAZ simultaneously strengthens and disciplines FTC enforcement in the Fifth Circuit. By importing the presumption of consumer reliance, the court lowers the FTC’s litigation burden, bringing the circuit into harmony with most of the country. At the same time, it underscores that equitable monetary remedies must fit the injury and avoid punitive windfalls—particularly where the consumer ultimately receives some value. Businesses should heed the opinion’s twin lessons: (1) advertising promises, especially about shipping speed, are material and actionable, and (2) meticulous record-keeping is pivotal to rebutting presumptions and limiting liability. For practitioners, the case is a blueprint for structuring § 19 actions, negotiating settlement ranges tied to provable harm, and navigating Rule 56(g) strategically. Going forward, expect more FTC litigants to rely on the new presumption, but also expect courts to parse carefully whether requested restitution truly redresses—rather than exceeds—consumer injury.