Antitrust Law Daily Contempt finding, $40 million sanction against dietary supplement sellers affirmed
Wednesday, September 18, 2019

Contempt finding, $40 million sanction against dietary supplement sellers affirmed

By E. Darius Sturmer, J.D.

Makers and marketers of Fastin, Lipodrene, Benzedrine and Stimerex properly held in contempt for violating injunction prohibiting them from making false or unsubstantiated weight-loss claims about their products.

The U.S. Court of Appeals in Atlanta has upheld a federal district court judgment, ordering a dietary supplement manufacturer and several individuals to pay $40 million to the FTC for violating injunctions that prohibited them from marketing supplements as weight loss products without substantiation. The defendants had waived their challenge to the facial clarity of the injunctions entered against them in 2008, the appellate court decided, and the lower court committed no abuse of discretion in its October 2017 civil contempt ruling. Therefore, the district court’s order of contempt and entry of sanctions was affirmed (FTC v. National Urological Group, Inc., September 18, 2019, per curiam).

The underlying lawsuit centers on the defendants’ manufacture and marketing of dietary supplements Fastin, Lipodrene, Benzedrine, and Stimerex-ES. In 2004, the FTC filed a complaint against National Urological Group, Inc., and Hi-Tech Pharmaceuticals, Inc., and several individuals, including sole owner, President, Chief Executive Officer, Secretary, and Treasurer of Hi-Tech Jared Wheat; senior vice-president in charge of sales Sean Smith; and Dr. Mark Wright. The agency alleged that the defendants deceptively advertised the supplements by making false and unsubstantiated claims about their weight- and fat-loss benefits.

In 2008, final judgments and permanent injunctions were entered against the defendants, enjoining them from advertising--without "competent and reliable scientific evidence that substantiates the representation"--that any product: is an effective treatment for obesity; causes rapid or substantial loss of weight or fat; causes a specified loss of weight or fat; affects human metabolism, appetite, or body fat; is safe; has virtually no side effects; or is equivalent or superior to any drug that the Food and Drug Administration has approved for sale in the United States for the purpose of treating obesity or causing weight loss. Competent and reliable scientific evidence, it was noted, is "independent, well-designed, well-conducted, randomized, double blind, placebo-controlled clinical trials, given at the recommended dosage involving an appropriate sample population in which reliable data on appropriate end points are collected over an appropriate period of time … conducted on the product itself" (hereinafter "RCTs").

Five years later, the court found the defendants in civil contempt for violating the injunction relating to the advertising of dietary supplements and, in 2014, ordered compensatory sanctions of approximately $40 million and a product recall as an appropriate remedy for civil contempt. However, that contempt order was vacated on appeal by the 11th Circuit, finding that the doctrine of collateral estoppel was misapplied to deny the defendants the opportunity to offer evidence of substantiation to refute the contempt claims.

After conducting a bench trial on remand, the district court determined that the FTC had shown by clear and convincing evidence that the defendants lacked competent and reliable scientific evidence to substantiate their claims. The court consequently found the defendants in contempt and re-imposed the sanction of approximately $40 million on the defendants. The defendants filed appeals, primarily challenging the facial validity of the injunction, but alternatively arguing that the district court’s finding they lacked competent and reliable scientific evidence was clearly erroneous. Smith filed a separate appeal adopting both arguments and additionally contending that he lacked the ability to comply with the injunction.

Abuse of discretion. The district court did not abuse its discretion by holding the defendants in contempt, the appellate court said. To begin with, the defendants had waived any objection to the clarity of the injunction. Further, their contention that the "competent and reliable scientific evidence standard and its accompanying definition are unclear" was squarely foreclosed by Supreme Court precedent.

The appellate court cited McComb v. Jacksonville Paper Co., 336 U.S. 187 (1949), as an illustration of the "common-sense lesson that a defendant cannot defeat an injunction by employing the following formula: (1) staying silent about purported ambiguities; (2) deliberately engaging in activities that risk violating the injunction; and (3) pleading ignorance after those risky activities are indeed found to violate the injunction." Like the defendants in McComb, the appellate court continued, "[t]he defendants here were … not ‘unwitting victims of the law’ but were instead calculating actors who stayed silent concerning the purported ambiguity about which they now complain … [then] deliberately engaged in self-serving activities they knew seriously risked violating the injunction."

Lack-of-substantiation finding. In addition, the appellate court held, the defendants could not show that the district court clearly erred when it found that they lacked competent and reliable scientific evidence to substantiate the claims at issue. The district court’s finding that the defendants’ evidence did not amount to competent and reliable scientific evidence to substantiate the relevant claims was supported by the evidence. The court had detailed its extensive reasoning as to why the evidence was inadequate and why the protections offered by certain tests would be necessary for the claims at issue. It also had explained why not having specified properties would cause a study to be less reliable. Moreover, it had considered the credentials of the defendants’ experts, and in so doing, not only "found them lacking in many cases," but "illuminated disturbing facts about the credibility" of some of them. It should have "come as no surprise, then," that the court concluded the FTC had shown by clear and convincing evidence that the defendants’ collection of ingredient-specific studies and studies of other products did not constitute sufficient substantiation.

Ability to comply. Finally, the appellate court noted, Smith had the ability to comply with the injunction. It rejected Smith’s contention that never held a position with decision-making authority over Hi-Tech’s advertising, product labels, or product testing. In laying out the findings that supported holding him in contempt, the district court had explained how Smith took actions that were integral to Hi-Tech’s violation of the injunction. Smith’s liability stemmed from his decision to continue marketing and selling the products without regard to his responsibility to ensure that the products did not carry unsubstantiated claims, the court said, and he could have complied with the injunction simply by not participating in the infringing activities. "That he chose to continue facilitating those prohibited activities sufficiently supported the district court’s conclusion finding him liable," in the appellate court’s view.

The case is No. 17-15695.

Attorneys: Leslie Rice Melman for the FTC. David M. Barnes (Miller & Martin, PLLC); Russell Edward Blythe (King & Spalding, LLP); Charles Ronald Bridgers (DeLong Caldwell Bridgers Fitzpatrick & Benjamin, LLC); Timothy M. Fulmer (Natter & Fulmer, PC); and Melissa Lyn Jampol (Epstein Becker & Green, PC) for Defendants - Appellants.

Companies: National Urological Group, Inc.

MainStory: TopStory Advertising ConsumerProtection AlabamaNews FloridaNews GeorgiaNews FederalTradeCommissionNews

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