UNITED STATES DISTRICT COURT LABS NUTRACEUTICAL USA, … · Roca Labs Nutraceutical USA, Inc....

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA

TAMPA DIVISION FEDERAL TRADE COMMISSION,

Plaintiff,

v. Case No.: 8:15-cv-02231-MSS-TBM

ROCA LABS, INC., a corporation; ROCA LABS NUTRACEUTICAL USA, INC., a corporation; MUST CURE OBESITY, CO., a corporation; JURAVIN, INCORPORATED, a corporation; ZERO CALORIE LABS, INC., a corporation; DON JURAVIN, Individually and as an officer of Roca Labs, Inc., Roca Labs Nutraceutical USA, Inc., Must Cure Obesity, Co., and Juravin, Incorporated; and GEORGE C. WHITING, Individually and as an officer of Roca Labs, Inc., Roca Labs Nutraceutical USA, Inc., and Zero Calorie Labs, Inc.,

Defendants. _____________________________________/

DEFENDANTS’ MEMORANDUM IN OPPOSITION TO PLAINTIFF’S AMENDED MOTION FOR SUMMARY JUDGMENT

AGAINST ALL DEFENDANTS

[RESPONSE TO DISPOSITIVE MOTION]

Case 8:15-cv-02231-MSS-CPT Document 221 Filed 05/29/18 of 48 PageID 10425

TABLE OF CONTENTS

I. INTRODUCTION……………………………………………………………...………....1

II. FACTS…………………………………………………………………………………….2

A. Background……………………………………………………………………......2

B. The Regimen and Defendants’ Claims…………………………………………....2

C. Endorsements……………………………………………………………………...4

D. Privacy Policy…………………………………………………………………......4

E. Pricing…………………………………………………………………………......5

F. Non-Disparagement……………………………………………………………….6

G. Consumer Harm…………………………………………………………………...6

III. LEGAL STANDARD…………………………………………………………………......7

IV. ARGUMENT……………………………………………………………………………...8

A. Substantiation: Whether Defendants’ Weight Loss and Success Rate Claims are

False and Deceptive (Counts I and II).................................................................................8

1. Dr. Heymsfield’s Report………………………………………………......8

2. Dr. Heymsfield’s

Deposition……………………………………………..10

3. FTC Guidance on Substantiation………………………………………...12

4. Numerous Federal Courts have Rejected the Assertion that RCT’s are

necessary to meet the “competent and reliable scientific evidence”

standard…………………………………………………………………..14

5. Defendant’s Substantiation Evidence…………………………………....18


B. “Gag Clauses” (Count III).....................................................................................20

1. Plaintiff Has Not Shown Defendants Violated 15 U.S.C. § 45(a) -- Unfair

Practices………………………………………………………………….21

2. Plaintiff Provides No Evidence of Tangible Consumer Harm…………...21

3. Plaintiff Failed to Accurately Conduct the Cost-Benefit Analysis Required

by § 5(n)’s “Countervailing Benefits” Prong…………………………….24

4. The FTC Could Not Impose Its Novel Interpretation of § 5(n) on

Defendants, who Lacked Fair Notice of Those Interpretations Under the

Due Process Clause……………………………………………………....25

C. Endorsements: Genuine Issues of Material Fact Exist as to Whether Defendants’

Representations and Omissions about gastricbypass.me and Testimonialists are

Deceptive (Counts IV and V)................................................................................26

D. Privacy Policy: Genuine Issues of Material Fact Exist as to Whether Defendants’

Privacy Promises are Deceptive (Count VI)..........................................................29

E. Price Point: Genuine Issues of Material Fact Exist As To Whether Defendants’

Representation That Consumers Agree to Pay “Full Price” for Breach of Terms

Were Deceptive (Count VII)..................................................................................32

F. Disgorgement Is An Inappropriate Remedy In The Instant Case………………..35

1. Section 13(b) Does Not Authorize Disgorgement……………………….35

2. Congress Clearly Intended to Limit the FTC’s Powers

Under § 13(b).............................................................................................36


3. Caselaw, and FTC personnel, indicate that disgorgement is appropriate

only in cases of actual consumer injury, or the product at issue has no

inherent value whatsoever………………………………………………..37

4. Defendants Offer An Alternative Disgorgement Calculation…………....41

G. Because the FTC Can No Longer Have Reason to Believe that the Defendants are

Violating, or are about to Violate the FTC Act, Subject Matter Jurisdiction Does

Not Exist Under Section 13(b), and the Amended Complaint Must Be

Dismissed………………………………………………………………………...41

V. CONCLUSION…………………………………………………………………………..43


I. INTRODUCTION

Defendant Don Juravin (“Juravin”), the inventor of the Gastric Bypass Alternative, is a

small business owner who has helped tens of thousands of morbidly obese customers lose

weight. Dkt. 167, Attachments 1-5. When the Plaintiff brought suit against him and his

companies for alleged violations of the FTC Act (without first affording him the opportunity to

remedy any violative practices through a curative device routinely offered to others, such as a

cease and desist letter), Juravin agreed to a temporary injunction, in an effort to demonstrate his

good-faith desire to settle this matter amicably. In the nearly three (3) years since then, not once

has the FTC sought to invoke this Court’s contempt powers for any purported violations of the

preliminary injunction, related to the Defendants’ marketing practices. Despite these facts, the

FTC seeks total disgorgement against Juravin in an amount greater than twenty-five million

dollars ($25,000,000.00), an “equitable” remedy that the United State Supreme Court has

suggested is a penalty, and that other courts have classified as “economic obliteration.” The

Plaintiff attempts this maneuver through a variety of suspect tactics, including an ex post facto

application of the law, and expert testimony that lays at the Defendants’ feet a burden of

substantiation far greater than what the law allows. Even more troublesome is that does so within

a political climate in which the Plaintiff’s own commissioners have stated such practices reach

beyond the FTC’s mission, resulting in precisely what the FTC is supposed to prevent: consumer

harm. Nevertheless, a careful review of the record and the law, as discussed below, demonstrates

that multiple genuine issues of material fact exist that must compel this Court to deny Plaintiff's

Amended Motion for Summary Judgment against All Defendants (the “Motion”).

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II. FACTS

A. Background

Since approximately 2010, Defendant Juravin has been involved in the manufacturing,

marketing, and selling of the Gastric Bypass Alternative (“GBA”). PX7-4(419:17-19);

PX7-8(425:7-16; 426:2-428:25); PX7-9(429:1-431:20). Defendants Roca Labs, Inc. (“RLI”),

Roca Labs Nutraceutical USA, Inc. (“RLN”), Juravin, Inc., and Must Cure Obesity Co.

(“MCO”), are all Florida corporations that Juravin has utilized, at some point, to market and sell

the GBA. PX7-4(419:17-19); PX7-8(425:7-16; 426:2-428:25); PX7-14(476:12-477:4);

PX6-10(55:12-19). Zero Calorie Labs, Inc. (“ZCL”) was a Florida corporation used by RLI to

pay its independent contractors; at no time did it it market or sell GBA. PX7-4(418:23-419:10).

Defendant George Whiting (“Whiting”) was the owner and president of RLI, RLN, and ZCL.

PX6-10(55:12-19); Juravin Verification ¶ 6. Whiting has had no involvement in MCO or JI. 1

Juravin Verification ¶ 7. Juravin ran the day to day operations of all corporate defendants,

including the marketing and selling of GBA, and Whiting had no involvement in same.

PX7-4(419:17-19); PX7-8(425:7-16; 426:2-428:25); PX7-9(429:1-431:20); Juravin Verification

¶ 8.

B. The Regimen and Defendants’ Claims

The GBA was invented by Juravin out of his desire to find a cure for obesity.

PX6-18(10:4-5). Juravin Verification ¶ 9. The GBA consists of a formula that is a proprietary

blend of fibers, Anti-Cravings (a product which contains Beta Glucan and Fibersol-2), and user

support through various mediums, including the instructions and rules for the formula, online

1 A copy of the Verification of Don Juravin Pursuant to 28 U.S.C. § 1746 is attached hereto as Exhibit 1.

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and telephone coaching, and a Facebook “boot camp” group run by Juravin that currently has

approximately seventy thousand members (collectively, “the Regimen”). Dkt. No. 166 ¶ 7;

Juravin Verification ¶ 10. Defendants marketed the Regimen solely online to morbidly obese

people who needed to lose more than 100 pounds and for whom bariatric surgery was an option

to treat their obesity. Dkt. No. 166 ¶ 9; Juravin Verification ¶ 11.

The average GBA customer has 130 pounds of excess weight. Juravin Verification ¶ 12.

Thousands of users of the Regimen have had success with losing a substantial amount of weight

in a short period of time. PX10-25(149:15-17; 150:1-25); Juravin Verification ¶ 13.

Defendants utilize a health questionnaire to carefully screen potential purchasers for

indicators that they will be successful with the Regimen should they choose to purchase it.

Juravin Verification ¶ 14; PX6-49(154:14-156:9); PX6-821. Defendants will refuse to sell to a

potential purchaser should their questionnaire reveal they are not likely to be a successful user.

Juravin Verification ¶ 15; PX6-49(154:17-155:17). Additionally, the support component of the

Regimen is key to its success. Juravin Verification ¶ 16. In fact, Plaintiff’s expert, Dr. Steven

Heymsfield, testified that the components of the Roca Labs Regimen, a 1,200 calorie a day diet,

plus exercise, plus a behavior modification portion, including coaching, would result in weight

loss with compliant users. Heymsfield Deposition, p.90, l: 21- p.91, 1. 5.

While Plaintiff has asserted a definite timeline of 2010-2015 that all the representations

in its Amended Complaint were present online, Juravin was constantly making substantive

changes to all Defendants’ websites, social media pages, and other online advertising. Juravin

Verification ¶¶17-18; PX10-27(158:7-13).

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C. Endorsements

Defendants utilized video testimonials from its customers in its online advertising.

PX10-6(28:11-14). It also hired its customers who had achieved a healthy weight via the

Regimen as “success coaches.” PX10-25(149:15-18). One such individual was Sharon Hensley,

aka “Roxie.” PX10-24(147:17-5); PX12-7(32:17-25), PX12-8(33:1-3). Although Ms. Hensley

was an independent contractor for Defendants at the time she made her testimonial video, she

was a customer and successful user of the Regimen before she began working with Defendants,

losing approximately 70-80 pounds in the first three months of using it. Hensley deposition, p.

30, l. 13-18; p. 31, l. 23-25; p. 32, l. 4-10, 21-25; p. 33, l. 1. In other words, her experience with

the GBA, and the success she had from using it, occurred as a result of an arm’s-length

transaction between her and the Defendants. Only later did she then became a “success coach”

for Roca Labs in April 2013. Id. at p. 35, l. 12-18.

Ms. Hensley made her testimonial video during her time as a success coach, but her

words reflected her personal experience with the Regimen prior to joining the Defendants. Id. at

p. 40, l. 21-25; p. 41, l. 1-10; p. 42, l. 20-25; p. 43, l. 1-4; p. 49, l. 23-25; p. 50, l. 1-5. Other

customers who did video testimonials were also speaking from their own experiences and using

their own words. Id. at p. 164, l. 13-23; PX10-9 (59:23-60:12).

D. Privacy Policy

Defendants only released personal information of consumers when it was necessary to

defend or prosecute their rights regarding a disputed credit card charge or another breach of their

terms and conditions. Juravin Verification ¶ 19. As of 2014, the customer health questionnaire

stated, “[t]his information will be kept confidential and will NOT be shared,” immediately after

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which Defendants placed a link to their privacy policy. PX6-829; Dkt. No. 167-10, p. 154, l. 14 -

p. 155, l. 25.

Defendants’ Terms and Conditions stated, “your information will not be shared or sold

for as long as you do not breach the Terms and we will have to use the information provided.”

PX6-344. The Terms and Conditions explicitly and repeatedly warned potential customers that

there were no refunds and that Defendants may “institute legal or collection proceedings” for

chargebacks and for violations of its non-disparagement clause or to protect its legal rights.

PX6-350-351, 353, 362, 367, 369, 370, and 383. Defendants’ detailed privacy policy included

specific language regarding children’s privacy, the use of cookies and pixel tags, and information

that would be disclosed under certain circumstances. PX6-367-371.

E. Pricing

While the set price of the Regimen was $1580, Defendants regularly offered the Roca

Labs package for a reduced price of $480 with certain conditions. Dkt. No. 6-2, PageID 190,

248. Defendants informed potential customers of the set price of $1580 and conditions to qualify

for a reduced price point in the Terms and Conditions on its website. PX6-319, PX6-320. At the

bottom of the purchase selection screen and above the “Submit” button on Defendants’ website

was an unchecked box next to the statement, “I have checked and do not have any medical

reason that can prevent me from using the Gastric Bypass Alternative procedure and I have read

and agree to the terms, privacy and money back reward / return policy.” Dkt. 6-3, PageID 339

¶8, PageID 361 – 364; PX6-48(152:14-17; 160:18–161:4; 161:15-162:5); PX6- 819;

PX7-26(584:6-585:5). The “Terms and Conditions,” were fully available by a hyperlink at the

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bottom of each webpage. Dkt. No. 2, (Part II, pages 12,16,22,25,32, 36,46, 48, 56; Part I, pages

3,10, 12, 16, 22, 26, 29, 34, 37, 47).

F. Non-Disparagement

While Defendants had a non-disparagement clause in their terms and conditions, and did

in fact attempt several times to pursue their rights pursuant to this clause, all cases were either

voluntarily dismissed or allowed to be dismissed due to lack of prosecution. Juravin Verification

¶ 20. At no time did Defendants receive any settlement or favorable verdict or judgment in any

case involving the non-disparagement clause. Juravin Verification ¶ 21.

G. Consumer Harm

Only 0.3% of the purchasers of the Regimen contested the charge with their credit card

company because the Regimen was “not as described.” Juravin Verification ¶ 22. Only

approximately thirty (30) users, out of an overall population greater than eighty thousand

(80,000) users have complained on Defendants’ social media pages that the Regimen does not

work. Juravin Verification ¶ 23. Conversely, thousands of users have posted glowing, reviews of

the Regimen, in their own words and based on their personal experiences, on Juravin’s Facebook

“Bootcamp.” Juravin Verification ¶ 24; Dkt. No. 167, attachments 1-5. Defendants have over

80,000 users of the Regimen, yet after nearly three (3) years of litigation, Plaintiff has produced

only found eight (8) customers who have claimed they were deceived by Defendants’

representations regarding the Regimen. Juravin Verification ¶ 23; PX14, PX15, PX16, PX17,

PX18(1), PX18(2), PX19, and PX20.

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III. LEGAL STANDARD

The Court may grant summary judgment when the movant can show there is no genuine

issue as to any material fact and that it is entitled to judgment as a matter of law. Fed.R.Civ.P.

56(c). Which facts are material depends on the substantive law applicable to the case. Anderson

v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The moving party bears the burden of showing

no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

Plaintiff has not met this burden. If the non-movant’s response consists of nothing “more than a

repetition of his conclusional allegations,” summary judgment is not only proper, but required.

Morris v. Ross, 663 F.2d 1032, 1034 (11th Cir. 1981), cert. denied, 456 U.S. 1010 (1982).

Once the moving party has met its burden, the burden shifts to the nonmoving party to

designate specific facts showing that there is a genuine issue for trial." Id. at 324 (internal

quotation marks omitted). There is a genuine issue if the combined body of evidence, viewed in

the light most favorable to the nonmoving party, would allow a reasonable jury to find in favor

of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91

L. Ed. 2d 202 (1986). In other words, the relevant inquiry is "whether the evidence presents a

sufficient disagreement to require submission to a jury or whether it is so one-sided that one

party must prevail as a matter of law." Id. at 251-52. When, as here, a district court is presented

cross motions for summary judgment on the same issues, "[t]he court must rule on each party's

motion on an individual and separate basis, determining, for each side, whether a judgment may

be entered in accordance with the Rule 56 standard." 10A Charles Alan Wright, Arthur R. Miller

& Mary Kay Kane, Federal Practice and Procedure § 2720, at 335-36 (3d ed. 1998) (footnote

omitted).

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IV. ARGUMENT

A. Substantiation: Disputed Material Facts Exist as to Whether Defendants’ Weight Loss and Success Rate Claims are False and Deceptive (Counts I and II).

Genuine issues of material fact exist regarding whether or not the Defendants have met

the competent and reliable scientific evidence standard for substantiating claims made by

Defendants about the Roca Labs Products. Accordingly, the Plaintiff’s Motion must be denied.

The FTC takes issue with five claims made by the Defendants in the marketing of the

Roca Labs products:

● That use of Roca Labs products, including Roca Labs Formula and Roca Labs Anti-Cravings, enables consumers to reduce food intake by fifty percent and to lose substantial amounts of weight quickly, including as much as 21 pounds in one month, and as much as 100 pounds in seven to ten months;

● That ninety percent of people who use Roca Labs products will lose substantial amounts of weight;

● That consumers who use Roca Labs Formula and Roca Labs Anti-Cravings can achieve results comparable or superior to bariatric surgery in providing weight loss benefits;

● That use of Roca Labs Formula and Roca Labs Anti-Cravings, is safe and effective for weight loss in children as young as six years old; and

● That use of Roca Labs Formula and Roca Labs Anti-Cravings is scientifically proven to have a ninety-percent success rate in forcing users to eat half their usual food intake and cause substantial weight loss.

PX3, p. 11, ¶ 11.

1. Dr. Heymsfield’s Report

In support of the claims made, the Defendants submitted various review articles that

summarized and referenced scientific literature available regarding each of the active ingredients

contained in the Roca Labs products. Id., p. 8-10, ¶ 8(i), (j). These articles included: “Effect of

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Glucomannan on Obese Patients: a Clinical Study” by Walsh; “Beta Glucan: Health Benefits in

Obesity and Metabolic Syndrome” by El Khoury; and “Glucomannan and Obesity: A Critical

Review” by Keithley. Id., p. 23-24, 26. Each of these articles support the Defendants’

weight-loss claims that the individual ingredients contained within the Roca Labs Products help

users lose weight, through the ingestion of these dietary fibers. However, Dr. Heymsfield

discounted these works primarily based upon his mistaken belief that a randomized, controlled

test (“RCT”) is required to prove the efficacy of a weight loss product. Id., p. 13-15.

Furthermore, he opined that because the Defendants do not possess RCT’s conducted on the

Roca Labs Products, the Defendants did not (and could not) support their efficacy claims with

competent, reliable scientific evidence. Id., p. 13. Specifically, Dr. Heymsfield’s report states as

follows:

In order to establish proof of weight loss claims about a particular product or method, experts in the field of obesity treatment and weight loss would require well-designed and properly conducted clinical trials. Such a trial should be placebo-controlled and double-blind (neither the participants nor the testers should be aware which people are assigned to which group). Trial participants should be randomly assigned to placebo and active groups, but the two groups should not differ greatly at baseline in terms of starting weight, age, or gender distribution.

Id. The lack of RCT’s served as the primary basis for denying the scientific value of all the

supporting evidence submitted by Roca Labs. For example, Dr. Heymsfield interpreted the

results of the clinical trial Roca Labs conducted on its products to be insufficient to support a

finding of significant weight loss, but, the primary thrust of his criticism was that “the trial

design and implementation was so flawed that any findings would have to be viewed as highly

suspect.” Id., p. 16-17. As noted above, Dr. Heymsfield offered similar criticisms of the

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scientific substantiation provided by the defense for the individual ingredients in the regimen.

Id., p. 24-25

(critical of sample size, duration, and methodology of Walsh study on Glucomannan); Id., p. 26

(critical of methodology of underlying trials cited in review articles); Id., p. 27-28 (same,

regarding combining glucomannan/guar gum substance); Id., p. 34-35 (discussing studies of

individual Roca Labs product ingredients, and stating that “Many of these studies were flawed,

calling even these results into question”); Id., p. 35-36 (discussing the Roca Labs “rules” and

criticising the data due to the absence of any clinical trials regarding such rules); Id., p. 36 (“I am

unaware of any studies on the percentage of Roca Labs users who lose weight, whether

substantial or otherwise”); Id., p. 39 (“Neither the Roca Labs website, nor Dr. Finesmith, has

specifically cited any clinical trials in which any of the Roca Labs ingredients has been tested for

safety and efficacy on children).

2. Dr. Heymsfield’s Deposition

In his deposition, Dr. Heymsfield’s testimony indicated, again, that his primary criticism 2

of the Roca Labs claims was the lack of RCT’s to substantiate such claims, notwithstanding his

admission that creating an RCT for morbidly obese individuals presents unique and extremely

difficult challenges that are difficult to overcome:

● “There are -- there are a number of papers that have been written about the

difficult in doing double-blind trials in morbidly obese patients[...]” Heymsfield Deposition, p.

41, ll. 3-5.

● “Sometimes, if you have a patient who weighs 500 pounds, it can be very difficult

for them to get to the testing center, to be accommodated by the furniture in the facility. So -- so

2 A copy of the Deposition of Dr. Heymsfield is attached hereto as Exhibit 2.

10


you run into barriers like that, and these patients who are morbidly obese can be quite ill. So it --

there -- it’s a difficult population to study.” Id., p. 41, ll. 9-15.

● And -- and just to give you an idea of what I’m, you know, kind of thinking of, if

you’ve got, say, a diabetic person who’s morbidly obese and -- and you're studying a supplement

that is designed, you know, for weight loss, is there -- you know, is there a special consideration

for -- for those types of things? Well, as I mentioned, ideally, you avoid patients who have

conditions like that, but if you do, then the need would be there for someone who is truly a

medical monitor to manage the patients. Either their primary care physician or their

endocrinologist or the study physician would need -- need to be able to -- for example, if you

have a diabetic patient who’s losing weight, their insulin and medication requirements are going

to change as they lose weight and their help improves, and there’s a risk that they could have

problems from those medications. Id., p. 43, l. 23 - p. 44, l. 16.

However, in a series of questions, Dr. Heymsfield did agree with the general proposition

that the composition of the Roca Labs products would cause someone to lose weight:

● Q: And so would you agree that a combination of -- of behavior modification

programs such as a coaching program or a support group, plus a mechanism to…

achieve satiety through use of a low-calorie food or supplement would assist in

helping people achieve weight loss?

A: Yes.

● Q: So the Roca Labs formula is primarily a -- a blend of -- of dietary fibers,

correct?

A: That’s my understanding in terms of the weight. Id., p. 51, l. 13-16.

● Q: And would you agree that, you know, ingesting dietary fibers also has the

effect of making a person feel -- have a sensation of fullness?

A: Yes. That’s true. They are known for that. Id., p. 52, l. 8-12.

● Q: Okay. And so when you -- would you agree that, when you -- when a person

feels full, they are less likely to feel hungry, is that correct?

A: I think that is correct.

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Q: So would it follow then, if someone is less hungry, they would have less desire

to eat?

A: That’s correct.

Q: And, if they have less desire to eat, it’s more likely they will, in fact, eat less,

is that correct?

A: Correct.

Q:And when they eat less, that makes it more likely that they will be able to

create the calorie deficit necessary to lose weight?

A: Yes. Id., p. 55, ll. 3-17

Additionally, in another series of questions, Dr. Heymsfield admitted that a coaching

component helps with weight loss, but was unaware that such a component existed as part of the

Roca Labs regimen. Id., p. 58, l. 17 - p. 59, l. 9. This deposition testimony is telling, in that it

establishes that while Dr. Heymsfield agreed that the general makeup of the Roca Labs products

and the regimen as a whole would promote weight loss, he was critical of the substantiation of

these claims, because such substantiation did not include RCT’s: in sum, this was the almost

singular thrust of both his report and his deposition. What Dr. Heymsfield did not realize,

however, is that both the law and FTC guidance hold otherwise, as discussed below.

3. FTC Guidance on Substantiation

Congress passed the Dietary Supplement Health & Education Act of 1994 (“DSHEA”),

with the goal of ensuring that “[dietary] supplements can be marketed and sold without following

the stringent requirements imposed on drugs.” U.S. v. Bayer Corporation, 2015 WL 5822595, *3

(D. N.J. September 24, 2015). For dietary supplements, the DSHEA provides that claims related

to these products must only be “truthful and not misleading.” 21 U.S.C. § 343(r)(6)(B) (2015).

However, the DSHEA does not define what is “truthful and not misleading.” As such, on April 2,

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2001, the FTC published guidance on the issue, establishing the “competent and reliable

scientific evidence” (“CRSE”) standard employed today by both the courts and the FTC. Federal

Trade Commission, Dietary Supplement: An Advertising Guide for Industry (2001) (the “FTC

Guidance”). The FTC Guidance “provides additional scientific and medical guidance regarding 3

the evidence necessary to meet the ‘competent and reliable scientific evidence’ standard” applied

for purposes of the FTC Act. Bayer, 2015 WL 5822595 at *3.

The Court in Bayer provides an informative summary of the CRSE standard:

First, the FTC Guidance makes clear that this standard is not the drug

standard. Randomized clinical trials are not required. Instead, ‘competent and

reliable scientific evidence’ is a “flexible” standard, and “there is no fixed

formula the number or type of studies required.” Although “well-controlled

human clinical studies are the most reliable form of evidence,” they are not

necessary, and “results obtained in animal and in vitro studies will also be

examined, particularly where they are widely considered to be acceptable

substitutes for human research or where human research is infeasible.” “Research

explaining the biological mechanism underlying the claimed effect” will also be

considered. “Epidemiologic evidence may be an acceptable substitute for clinical

data” in some circumstances.

Second, the FTC Guidance states that one should look to “the totality of

the evidence… The surrounding body of evidence will have a significant impact

3 Available at https://www.ftc.gov/system/files/documents/plain-language/bus09-dietary-supplements-advertising-guide-industry.pdf (last viewed May 29, 2018)

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https://www.ftc.gov/system/files/documents/plain-language/bus09-dietary-supplements-advertising-guide-industry.pdf

https://www.ftc.gov/system/files/documents/plain-language/bus09-dietary-supplements-advertising-guide-industry.pdf

both on what type, amount and quality of evidence is required to substantiate a

claim and on how that claim is presented.

Third, studies on the precise formula used in the advertised product are

not required. Rather, it can be “appropriate to extrapolate from the research to the

claimed effect,” even if there “are significant discrepancies between the research

conditions and the real life use being promoted.”

Bayer, 2015 WL 5822595 at *3-4 (emphasis added). Moreover, the FTC Guidance concedes that

“[t]here is no fixed formula for the number or type of studies required or for more specific

parameters like sample size and study duration.” FTC Guidance, p. 9 (emphasis added). Put

another way, while the presence of RCT’s would almost certainly meet the competent and

reliable scientific evidence standard, the absence of such RCT’s does not mean that competent

and reliable scientific evidence on a product’s efficacy does not exist.

4. Numerous federal courts have rejected the assertion that RCT’s are necessary to meet the “competent and reliable scientific evidence” standard.

In line with the FTC Guidance discussed above, multiple courts (including the Eleventh

Circuit Court of Appeals) have rejected a per se requirement that RCT’s are required in order for

a dietary supplement to meet the CRSE standard. Pom Wonderful, LLC v. FTC, 777 F.3d 478,

502 (D.C. Cir. 2015) (rejecting the requirement of two RCT’s as “an across-the-board

requirement for any disease claim”); Bayer, 2015 WL 5822595 at *15; FTC v. Garden of Life,

Inc., 845 F. Supp. 2d 1328, 1334-35 (S.D. Fla. 2012), vacated in part on other grounds, 516 Fed.

Appx. 852 (11th Cir. 2013); Basic Research, LLC v. FTC, Case No. 2:09-cv-0779, Dkt. 127, pp.

26-27 (D. Utah November 25, 2014) (By demanding “gold standard” clinical trials, which

“exceed[] the requirements of the [consent decree],” the FTC failed to meet the “expectation of

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reasonableness.”); FTC v. QT, Inc., 512 F.3d 858, 861 (7th Cir. 2008) (“Nothing in the Federal

Trade Commission Act, the foundation of this litigation, requires placebo-controlled,

double-blind studies… Placebo-controlled, double-blind testing is not a legal requirement for

consumer products”). FTC Commissioner Maureen K. Ohlhausen explained the rationale for not

requiring RCT’s in dietary supplements:

the burden for substantiation for health- or disease-related claims about a safe product, such as a food, for example, should be lower than the burdens imposed on drugs and biologics because consumers face lower risks when consuming the safe product… The FDA designates most food ingredients as GRAS (generally recognized as safe). 21 C.F.R. § 170.30. Vitamins and minerals are treated as foods by the FDA and are also GRAS. As a result, food ingredients, vitamins, and minerals can be combined and sold to the public without direct evidence on the particular combination realized in the new product. Many products are made up of several common generic ingredients, for which there is little financial incentive to test individually or to retest in each particular combination.

Federal Trade Commission v. Sensa Products, LLC, Separate Statement of Commissioner

Maureen K. Ohlhausen Dissenting in Part and Concurring in Part, at 1-2 (January 7, 2014)

(internal citations omitted). Commissioner Ohlhausen also explained the rationale for a lower

level of substantiation from a policy perspective:

We can find a different type of failure to link harm and remedy in some relatively recent advertising substantiation cases. In these cases, the FTC required substantiation standards more strict than necessary, thereby potentially banning truthful claims and thus harming consumers. For example… I dissented in part from the FTC’s decision against POM Wonderful. I argued that by requiring two randomized controlled trials where one would suffice, the FTC order would prohibit some truthful advertising. The D.C. Circuit agreed with me, overturning the two-RCT requirement.

Such hawkish FTC advertising substantiation enforcement actions “overprotect” consumers by depriving them of useful information. Although well intentioned, this overreach ultimately harms consumers. By requiring appropriate levels of substantiation for advertising claims, the FTC can protect consumers from deceptive advertising, yet still ensure that consumers get the information they need to make purchasing decisions. Such an approach will maximize the free flow of truthful information vital to a free society and a free market.

15


Maureen K. Ohlhausen, Acting Chairman, Fed. Trade Comm’n, Opening Keynote at the

ABA 2017 Consumer Protection Conference (February 2, 2017). 4

Through Dr. Heymsfield, the FTC attempts to impose a significantly higher interpretation

of the CRSE standard upon the Defendants than what is actually required by the law. As

evidenced by the numerous citations to authority above, RCT’s are simply not required to meet

the CRSE standard, for the purpose of substantiating claims like the ones made by the

Defendants in the case at bar.

Bayer is particularly instructive on this point. In Bayer, the Defendant pharmaceutical 5

company had entered into a settlement with the U.S. government over purported violations of the

FTC act, relating to the company’s advertising of its dietary supplement products. Bayer, 2015

WL 5822595 at *1. As part of the settlement, the Defendant was prohibited from making

efficacy claims regarding the product unless the Defendant possessed “competent and reliable

scientific evidence to substantiate the representation.” Id.

In 2007, the U.S. government sought a contempt order against Bayer for violating the

settlement agreement. Id. The government contended that Bayer was in violation of the

settlement, because it made representations about the products in question without possessing

RCT’s. Id. at *9. Specifically, the government’s expert opined that efficacy claims should be

tested through an RCT with the following eight (8) specific requirements: (1) randomized; (2)

4 Available at https://www.ftc.gov/system/files/documents/public_statements/1069803/mko_aba_consumer_protection_conference.pdf (last accessed May 29, 2018) 5 Defendants acknowledge that Bayer is an “unpublished” or “not for publication” opinion, and therefore is not binding precedent on this Court. However, it still may be offered by litigants as persuasive authority. Fed. R. App. P. 32.1 (2018).

16


https://www.ftc.gov/system/files/documents/public_statements/1069803/mko_aba_consumer_protection_conference.pdf


placebo-controlled; (3) double-blind; (4) human clinical trial; (5) done in the target populations;

(6) with the specific product at issue; (7) using appropriate statistical methods; and (8) designed

with the desired outcome as the primary endpoint. Id. Additionally, the government never 6

provided its expert with a copy of the FTC Guidance, and he therefore had not read or considered

it in forming his opinion. Id. at 10. The Court held that, based upon the FTC Guidance,

“competent and reliable scientific evidence” does not require RCT’s:

As two other courts have held, competent and reliable scientific evidence does not require drug level clinical trials, and the Government cannot try to reinvent this standard through expert testimony. FTC v. Garden of Life, INc., 845 F. Supp. 2d 1328, 1334-35 (S.D. Fla. 2012) (When a consent decree speaks only of “competent and reliable scientific evidence,” the Government cannot redefine it though expert testimony and ‘require [the] court to read additional requirements into the Consent Decree.’), aff’d in part and vacated in part, 516 Fed. Appx. 852 (11th Cir. 2013); Basic Research, LLC v. FTC, No. 2:09-cv-0779 at 26-27 (D. Utah Nov. 25, 2014) (By demanding “gold-standard” clinical trials, which “exceed[] the requirements of the [consent decree],” the Government failed the “expectation of reasonableness.”).

Bayer, 2015 WL 5822595, *14. In the instant case, just as it did in Bayer, Garden of Life, and

Basic Research, the FTC attempts to use its expert to impose upon the Defendants a higher

burden than is permitted under the law. In Basic Research, the court held that the failure to apply

the proper standard in evaluating efficacy rendered the expert’s opinion neither “relevant nor

reliable.” Basic Research, Case No. 2:09-cv-0779, Dkt. 127, p. 27. Drawing all inferences in the

light most favorable to the Defendants, this Court must find that a genuine issue of material fact

exists as to whether the Defendants have provided competent and reliable scientific evidence to

6 Interestingly, Dr. Heymsfield’s study design is even more restrictive than the one discussed above in Bayer. In addition to the eight part requirement urged by the government in Bayer, Dr. Heymsfield included additional requirements, including a minimum number of participants, and a minimum length of time for the study. PX3, p. 13-14.

17


substantiate their claims, as Plaintiff’s expert applied the incorrect interpretation of the standard.

Accordingly, the Motion should be denied.

5. Defendant’s Substantiation Evidence

Because Dr. Heymsfield was not aware of all the components of the Roca Labs regimen,

admitted he was not an expert on dietary fibers, offered an incorrect interpretation of the CRSE

standard, and refused to concede the Roca Labs regimen could cause a user to lose weight (while

simultaneously admitting that each part of the regimen would, in fact, cause someone to lose

weight) his credibility is suspect at best. Accordingly, his opinion that the substantiation

evidence provided by the Defendants did not meet the CRSE, for purposes of the Plaintiff’s

motion, must be rejected by this Court as well.

As part of his work for the FTC, Heymsfield reviewed various “[m]aterials and articles

relating to individual ingredients in the Roca Labs produces and the ‘Gastric Bypass Alternative

Regimen’ that Roca Labs provided to the FTC[.]” PX3, p. 7-9. As discussed above, Dr.

Heymsfield’s critique of much of the substantiation data provided by the Defendants is based on

the failure to prove efficacy through RCT’s. Id., p. 16-17, 24-25, 26, 27-28, 34-35, 35-36, 39. In

light of the fact that Dr. Heymsfield has applied the incorrect interpretation of the CRSE

standard, his opinion regarding the Defendants’ substantiation evidence is equally suspect, a

genuine issue of material fact exists, and this Court should deny the FTC’s Motion for Summary

Judgment.

Due to Dr. Heymsfield applying the incorrect interpretation of the CRSE standard

(which, in and of itself, creates a genuine issue of material fact precluding summary judgment), it

18


logically follows that if the substantiation data could provide a basis for substantiating the claims

at issue, summary judgment is improper. The materials identified in paragraph 8(j) of Dr.

Heymsfield’s report contain scientific evidence specifically identifying the amount and

time-frame for losing weight with each of the Roca Labs Products’ ingredients. Furthermore,

these materials also provide evidence of substantiating the Defendants’ claims with regards to a

user’s stomach capacity, or satiety. See, for example, “Beta Glucan Effects on Weight

Reductions, Cravings and Diabetes in Gastric Bypass Alternative Regimen” (Beta Glucan 7

causes 2.2 pounds of weight loss per month, increases satiety (decreasing stomach capacity) and

decreases calorie intake in the subsequent meal); and “Xantham Effects on Weight Reductions,

Cravings and Diabetes in Gastric Bypass Alternative Regimen” (works synergistically with 8

Konjac for a combined weight loss effect greater than 6.5 pounds per month).

Defendants’ claim regarding results that are comparable or superior to bariatric surgery

are substantiated through the materials identified above, and also through the affidavit of Dr.

Marcus K. Free, M.D. In his affidavit, Dr. Free testified that, in his professional opinion, The

Gastric Bypass Alternative Regimen “does appear to be safer, more effective, and superior in

several ways to currently available bariatric surgical procedures.” Dkt. 201-1, ¶ 6; see also ¶¶

9-13.

With regards to the claims about a ninety percent success rate, Dr. Heymsfield testified

that he did not receive any information on the real experiences of actual Roca Labs users:

7 A copy of the Beta Glucan article is attached hereto as Exhibit 3. 8 A copy of the Xantham article is attached hereto as Exhibit 4.

19


Q: Okay. And I -- and I just want to be clear that -- that the FTC did not provide you

with any -- any documents or information regarding experiences with actual Roca

Labs users, correct?

A: Only in, again, what was provided to me which I have had -- I have some reports

of studies and so on, but beyond that, no. Absolutely nothing beyond that.

Heymsfield Deposition, p. 86, l. 20 - p. 87, l. 2. Accordingly, because the FTC failed to provide

him with any data on the experience of Roca Labs users, he is unable to demonstrate that such a

claim is false.

Finally, the substantiation evidence supplied by the Defendants provides scientific

evidence to conclude that the regimen is safe for use in children. Dr. Heymsfield did not contend

that any of the ingredients in the Roca Labs products were not safe for children. Moreover, each

of the ingredients in the products are classified as GRAS (Generally Recognized As Safe) by the

Food and Drug Administration. Accordingly, sufficient evidence provided by the Defendants 9

establishes, at a minimum, a genuine issue of material fact related to the substantiation claims of

the Plaintiff, and the Motion should be denied.

B. “Gag Clauses” (Count III) 10

At the time of the filing of the Complaint and Amended Complaint, there was no federal

law prohibiting the use of a non-disparagement clause in any contract. In fact, the Courts – both

state and federal –have supported non-disparagement clauses in contracts. There is no authority 11

9 https://www.accessdata.fda.gov/scripts/fdcc/?set=SCOGS 10 In addition to the arguments contained here, Defendants also incorporate by reference the arguments made in their April 26, 2018 Motion for Partial Summary Judgment as to Count III (Dkt. 212). 11 FreeLife Int’l, Inc. v. Am. Educ. Music Publications Inc., 2009 WL 3241795 (D.Ariz. 2009); Equal Employment Opportunity Commission v. Severn Trent Services, Inc., 358 F.3d 438 (7TH Cir. 2004); Patlovich v. Rudd, 949

20


https://www.accessdata.fda.gov/scripts/fdcc/?set=SCOGS

on this issue in the State of Florida.

1. Plaintiff has not shown Defendants violated 15 U.S.C. § 45(a) – unfair practices

Plaintiff argues Defendants engaged in “unfair practices” by having a non-disparagement

clause in their agreement with customers and by enforcing that agreement when it was breached.

In addition to Defendants’ arguments stated in their Motion for Partial Summary Judgment that

they have not violated 15 U.S.C. § 45(a) because only the recently signed Consumer Review

Fairness Act of 2016 actually applies to the non-disparagement clause in the contract, Plaintiff

has not met its summary judgment burden as to the elements of an unfair practice.

Section 5(n), sets forth the test for “unfair” practices. In it, Congress explicitly provided

the Commission “shall have no authority” to declare an act or practice “unfair” “unless the act

or practice [1] causes or is likely to cause substantial injury to consumers[,] [2] which is not

reasonably avoidable by consumers themselves[,] and [3] not outweighed by countervailing

benefits to consumers or to competition.” 15 U.S.C. § 45(n) (emphasis added). Plaintiff seeks to

have the Court eviscerate several of these critical limitations on its power.

2. Plaintiff provides no evidence of tangible consumer harm

In regard to Section 5(n)’s first prong, there is no evidence that the non-disparagement

clause, and the enforcement of same, caused any tangible consumer harm (meaning economic or

physical injury). To address this evidentiary gap, Plaintiff argues that the intangible harm of

unknown and unnamed potential consumers not being able to view all negative reviews, truthful

F.Supp. 585, 594-95 (N.D.Ill.1996); Eichelkraut v. Camp, 513 S.E.2d 267, 236 Ga. App. 721 (Ct.App.1999); Tenneco Inc. v. Enter. Prods. Co., 925 S.W.2d 640, 646 (Tex.1996); Trump v. Trump, 179 A.D.2d 201, 582 N.Y.S.2d 1008 (App. Div. 1992); Schaller v. Russak, No. 2:11-cv-59-FtM-38DNF (M.D. Fla. Oct. 11, 2013); Miles v. Northwestern Mut. Life Ins. Co., 677 F. Supp. 2d 1312 (M.D. Fla. 2009)

21


or not, is “substantial injury” under Section 5(n). Dkt. No. 210, pp.38-40. This is clearly not the

type of injury contemplated by Section 5(n).

First, the FTC’s interpretation of “substantial injury” contravenes the term’s plain

meaning. The plain meaning of “substantial injury,” as used by Congress when it enacted Section

5(n) in 1994, must be derived from the FTC’s then-operative definition of “substantial injury” as

set forth in the FTC’s prior policy statements to Congress on this very question. See United

States v. Myers, 972 F.2d 1566, 1572 (11th Cir. 1992) (“Congress is deemed to know the

executive and judicial gloss given to certain language and thus adopts the existing interpretation

unless it affirmatively acts to change the meaning.”). And the FTC’s pre-enactment policy

statements are crystal clear that, as of the enactment of Section 5(n), the FTC defined

“substantial injury” to require “tangible injury.”

Specifically, the FTC’s 1980 Policy Statement on Unfairness (the “Policy Statement”),

Letter from FTC to Senators Ford and Danforth (Dec. 17, 1980), appended to In re Int’l

Harvester Co., 104 F.T.C. 949, 1984 WL 565290, at *95 (1984), expressly stated in its

discussion of the meaning of the term “substantial injury” that “[e]motional impact and other

more subjective types of harm . . . will not ordinarily make a practice unfair,” Policy Statement,

1984 WL 565290, at *97, *104 n.16. Similarly, the FTC’s 1982 policy letter clearly stated that,

“as a general proposition substantial injury “does not cover subjective examples of harm.” Letter

from FTC Chairman J.C. Miller, III to Senators Packwood and Kasten (March 5, 1982) (“Policy

Letter”), reprinted in H.R. Rep. No. 156, pt. 1, 98th Cong., 1st Sess. 27, 32 (1983) (hereinafter

cited by reference to H.R. Rep. No. 156). Commissioner Olhausen testified in 2012, that in the

Policy Statement, the Commission “specifically advised Congress that absent deception, it will

22


not enforce Section 5 against alleged intangible harm.” Stmt. of Commissioner Maureen K.

Ohlhausen to Senate Committee on Commerce, Science & Transportation, 2012 WL 1612706

(May 9, 2012).

Second, if the statute’s plain meaning were not dispositive, the FTC’s interpretation of

“substantial injury” as including intangible injury is directly at odds with Section 5(n)’s

legislative history, which states in no uncertain terms that intangible injuries are not cognizable

as “substantial injury” under Section 5(n). See, e.g., S. Rep. 103-130, 1993 WL 322671, at *13

(1993) (“Emotional impact and more subjective types of harm alone are not intended to make an

injury unfair.”). Subsequent legislative enactments also make clear that “substantial injury” does

not include intangible injury. See F.T.C. v. Wyndham Worldwide Corp., 799 F.3d 236, 248 (3d

Cir. 2015) (noting that the Gramm-Leach-Bliley Act, which the FTC enforces, “relieves some of

the burdensome [Section 5(n)] requirements for declaring acts unfair” because it permits the FTC

to establish standards protecting not only against “substantial harm,” but also against

“inconvenience” to consumers).

Even if intangible harm could be “substantial injury” under Section 5(n), moreover, there

is no evidence that Defendants caused any such harm here. Plaintiff provides the Court with no

basis upon which to find that any consumer or potential consumer actually suffered any such

intangible harm as a result of the alleged chilling effect of the disparagement clause. Dkt. No.

167-11, p, 111, l. 22 p.112, l. 12. In fact, there is ample evidence that the disparagement clause

did not work, and as a result, there were, and still are, negative reviews posted online by

23


Defendants’ customers. Accordingly, even if intangible harm could qualify as substantial 12

injury, which it cannot, Plaintiff’s assertion that Defendants’ non-disparagement clause caused

substantial injury would still fail.

3. Plaintiff Failed to Accurately Conduct the Cost-Benefit Analysis Required by Section 5(n)’s “Countervailing Benefits” Prong

By barring the FTC from declaring a practice “unfair” where any substantial consumer

injury caused or likely to be caused by the practice is “outweighed by countervailing benefits to

consumers or to competition,” Section 5(n)’s“countervailing benefits” prong “informs parties

that the relevant inquiry [under that prong] is a cost-benefit analysis . . . that considers a number

of relevant factors, including the probability and expected size of reasonably unavoidable harms

to consumers given a certain level of cybersecurity and the costs to consumers that would arise

from investment in stronger cybersecurity.” Wyndham, 799 F.3d at 255. In applying this prong,

the FTC must also “take into account costs related to a prospective remedy, including but not

limited to direct costs to the parties.” Policy Letter at 32; see Policy Statement, 1984 WL

565290, at *97.

In this case, Section 5(n) requires the Court to compare (1) the sum of (a) the costs to

Defendants of false negative reviews and (b) the additional costs associated with Defendants’

compliance with any order forbidding the disparagement clause going forward (collectively, the

“Relevant Costs”), with (2) the magnitude of any substantial consumer injury caused or likely to

be caused by the disparagement clause and the attempts to enforce same (the “Relevant

12 Hence, Plaintiff’s argument that not seeing negative reviews of the Regimen is “not reasonably avoidable by consumers” also fails.

24


Benefits”). Plaintiff has made no attempt to make this analysis nor provided the Court with the

evidence it needs to make the analysis itself.

4. The FTC Could Not Impose Its Novel Interpretations of Section 5(n), on Defendants, who Lacked Fair Notice of Those Interpretations Under the Due Process Clause

Even if the FTC’s interpretations of its Section 5 authority are otherwise sound, the

Commission could not apply them to Defendants because between 2010 to September 2015—the

only relevant time period in this case—Defendants did not have fair notice the FTC would adopt

these interpretations in this case. “A fundamental principle in our legal system is that laws which

regulate persons or entities must give fair notice of conduct that is forbidden or required.” F.C.C.

v. Fox Television Stations, Inc., 132 S. Ct. 2307, 2317 (2012). The fair notice doctrine “prevents

. . . deference from validating the application of a regulation that fails to give fair warning of the

conduct it prohibits or requires.” Gates & Fox Co., Inc. v. O.S.H.R.C., 790 F.2d 154, 156 (D.C.

Cir. 1986).

Moreover, where a court defers to an agency interpretation of its governing statute or its

own regulation, and based on that interpretation the agency proposes to hold a party liable, the

Due Process Clause requires that the agency’s interpretation must have been knowable with

“ascertainable certainty” at the time the party committed the alleged violation. See Ga. Pac.

Corp. v. O.S.H.R.C., 25 F.3d 999, 1005–06 (11th Cir. 1994). This means that, “by reviewing the

regulations and other public statements issued by the agency, a regulated party acting in good

25


faith would be able to identify, with ‘ascertainable certainty,’ the standards with which the

agency expects parties to conform.” Howmet Corp. v. E.P.A., 614 F.3d 544, 553–54 (D.C. Cir.

2010).

Prior to the beginning of the relevant period in 2010 the FTC had never provided

Defendants with any ability to know with “ascertainable certainty” of the FTC’s interpretation

that intangible and even purported conceptual consumer injuries can constitute “substantial

injury.” See Ga. Pac., 25 F.3d at 1005–06; Gen. Elec. Co. v. E.P.A., 53 F.3d 1324, 1330 (D.C.

Cir. 1995); PMD Produce Brokerage Corp. v. U.S.D.A., 234 F.3d 48, 54 (D.C. Cir. 2000).

Indeed, as shown above, the FTC had consistently publicly stated the exact opposite.

C. Endorsements: Disputed Material Facts Exist as to Whether Defendants’ Representations and Omissions about gastricbypass.me and Testimonialists are Deceptive (Counts IV and V)

Plaintiff claims Defendants’ endorsements were deceptive and therefore violated Section

5(a) of the FTC Act, 15 U.S.C. § 45(a). Dkt. No. 210 pp. 8-9, 21, 32. The facts cited by Plaintiff

as evidence for this deception were Defendants’ information about bariatric surgery and

“alternatives to surgery”, use of testimonials, and omissions of disclosure on GastricBypass.me

site. Dkt. No. 210 pp. 8-9. Plaintiff claims Defendants violated section 5(a) of the FTC Act, 15

U.S.C. § 45(a) when they ran an “informational” website educating consumers about gastric

bypass surgery while promoting Roca Labs products, and using testimonials. Dkt. No. 210 pp.

21, 33.

Defendants were dedicated to educating people about negative effects of bariatric surgery

and “alternatives to surgery”. Defendants admit GastricBypass.me did not state it was affiliated

with RLI. There is a dispute of fact as to whether some of the “satisfied consumers” in the videos

26


were paid “independent contractors.” Roxie initially became acquainted with Roca Labs as a

customer, as evidenced in her deposition stating as follows:

Q. When did you first become acquainted with Roca Labs as a business or any of its products? A. It was in the summer of 2012. Q. Okay. And how did you become acquainted with Roca Labs? A. I was researching gastric bypass on the Internet, and it popped up and it looked interesting, so I checked it out, and I purchased as a customer.

“Roxie” later became a Success Coach, as evidenced in her deposition:

Q. Okay. How did you come to -- you later came to work with Roca Labs, that's correct? A. Yes. Q. How did that come about?

A. After the first three months, I was -- I ran out of my formula, probably four months, and I called in to do a reorder. I then received an e-mail from Sharon King wanting to know about my success, how I was doing, and how much weight I had lost. And then she asked if I would be interested in becoming a success coach in 2013, around April.

Dkt. 210, PX12-7(30:9-18), pg. 8(32:17-25); (33:1-3), pg. 8-9. While her video was recorded

subsequent to her employment, the account of her success related to results acquired prior to

becoming an employee of the Defendants.

Plaintiff claims Defendants ran a fake “informational” website, purporting to educate

consumer while promoting Roca Labs products is vague, violates due process, and fails to

explain how such conduct violates the law. Information found on Defendants’ site aided to

informing customers regarding potentially serious, life-changing, body altering decisions, such

as gastric bypass surgery.

27


The FTC Guidelines state, “[a]dvertisers are subject to liability for ... failing to disclose

material connections between themselves and their endorsers,” 16 C.F.R. § 255.1(d), and “a

connection between the endorser and the seller of the advertised product that might materially

affect the weight or credibility of the endorsement (i.e., the connection is not reasonably

expected by the audience) ... must be fully disclosed.” Id. § 255.5 (emphasis added).

The sole case cited by Plaintiff in its Motion regarding this issue, Federal Trade

Commission v. Standard Education Soc., 302 U.S. 112, 118 (1937), is not on point with the

instant matter. In Standard Education Soc., the Supreme Court did not overturn the

Commission’s findings of fact that the testimonials in question had not been given by the person

to whom the company accredited them. Id. The case does not address the issue of failure to

disclose the relationship between the individuals giving the testimonials and the company. Id.

Outside of conclusory allegations that Defendants violated the FTC Guidelines, Plaintiff

has not alleged any facts nor cited any authority that plausibly raises an inference that the

non-disclosure of the relationships between Defendants and gastricbypass.me and between

Defendants the individuals who gave video testimonials might materially affect the weight or

credibility of the endorsement. Nor has Plaintiff has offered any evidence showing the

endorsements have caused or will likely cause substantial injury to consumers as required by the

FTC Act. Additionally, Plaintiff cannot show any harm came as a result of Defendants sharing

28


information about bariatric surgery while promoting Roca Labs products or as a result or

Defendants’ use of their endorsements on their websites, social media, or other locations on the

Internet. In fact, Plaintiff does not even attempt to allege any consumer harm was caused as a

result of the endorsements.

Based on the foregoing, Plaintiff has not met its burden to show there are no issues of

material fact relating to Defendants’ endorsements and its alleged misrepresentation of same and

its Motion for Summary Judgment with respect to Counts IV and V should be denied.

D. Privacy Policy: Genuine Issues of Material Fact Exist as to Whether Defendants’ Privacy Promises are Deceptive (Count VI)

Plaintiff claims Defendants’ privacy promises were deceptive and therefore violated

Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). Dkt. No. 210 pp. 11-12, 23-24, 35. The facts

cited by Plaintiff as evidence for this deception were Defendants’ use of information provided by

customers in a pre-purchase qualification form completed by potential Regimen users. Dkt. No.

210 pp. 11-12. Plaintiff claims Defendants violated section 5(a) of the FTC Act, 15 U.S.C. §

45(a) when they used certain information in the forms of four customers in litigation and other

customers in defending chargeback disputes with their credit card companies. Dkt. No. 210 pp.

23-24, 35.

Defendants admit certain information about certain customers that was found in the

qualification form was included in complaints filed in Florida state court against four customers

and in communications with credit card companies in order to defend against payment disputes

made by certain customers. There is no evidence in the record that Defendants disclosed

29


information that was not otherwise publicly available, nor is there evidence that Defendants

disclosed information about customers other than as required to protect their own legal rights in

litigation and/or disputes with credit card companies that were initiated by customers. There is

no evidence that Defendants sold private health information to third party vendors nor that it

publicly disseminated any information other than in court documents. In fact, Plaintiff is not

even accusing Defendants of engaging in such activities. Dkt. No. 210, pp. 9-11, 21-22, 33.

Further, even if the Court finds the privacy promise was deceptive, Plaintiff has offered

no evidence showing the privacy promise has caused or will likely cause substantial injury to

consumers as required by the FTC Act, nor can it. As noted by the FTC in congressional

testimony:

In the early 2000s, the FTC de-emphasized its fair information practices approach as the primary means of addressing privacy issues, and shifted its focus to a “harm-based approach” for protecting consumer privacy. The approach was designed to target harmful uses of information – those presenting risks to physical security or economic injury, or causing unwarranted intrusions in our daily lives – rather than imposing costly notice and choice for all uses of information. The Commission’s privacy agenda began to focus primarily on: (1) data security enforcement; (2) identity theft; (3) children’s privacy; and (4) protecting consumers from spam, spyware, and telemarketing.

Prepared Statement of the Federal Trade Commission on Consumer Privacy Before the

Committee on Commerce, Science, and Transportation, United States Senate, Washington, D.C.,

July 27, 2010, p. 5.

Until this case, the FTC has been focused on privacy as it relates to data security

breaches, identity theft, children’s privacy, and “unwanted intrusions” (spam, telemarketing

calls, etc.). Id. at pp.6-13. It appears Defendants are the first and only entities against which 13

13 The FTC has taken action against companies for: failing to disclose they were selling/sharing consumer’s information to third parties (see e.g., In the Matter of Geocities, FTC Docket No. C-3850, 1999; In the Matter of Facebook, Inc., FTC Docket No. C-4365, 2012); misrepresenting the anonymity of financial information collected

30


Plaintiff has ever pursued a privacy policy violation in which the only instances of disclosure

occurred in court filings, or in defending a credit card chargeback initiated by the customer.

The customer questionnaire cited by Plaintiff in its Motion stated, “[t]his information will

be kept confidential and will NOT be shared,” immediately after which Defendants placed a link

to their privacy policy. PX6-829. Don Juravin testified that this was in place at some point in

2014. Dkt. No. 167-10, p. 154, l. 14 - p.155, l. 25. Throughout 2014, Defendants’ Terms and

Conditions stated, “your information will not be shared or sold for as long as you do not breach

the Terms and we will have to use the information provided.” PX6-344 (emphasis added). The

Terms and Conditions explicitly and repeatedly warned potential customers that there were no

refunds and that Defendants may “institute legal or collection proceedings” for chargebacks and

for violations of its non-disparagement clause or to protect its legal rights. PX6-350-351, 353,

362, 367, 369, 370, and 383. Moreover, Defendants had a much more detailed privacy policy

than Plaintiff would have the Court believe, including specific language regarding children’s

privacy, the use of cookies and pixel tags, on its website, and information that would be

disclosed under certain circumstances. PX6-367-371. Additionally, Plaintiff cannot show any

harm came as a result of Defendants sharing information necessary to protect its legal rights. It

from minors (see e.g., In the Matter of Liberty Financial Companies, Inc., FTC Docket No. C-3891, 1999); misrepresenting the level of online security and encryption used to protect consumers’ private information (see e.g., FTC v. Rennert, Sandra L., et al., (D. Nev. Case No. 00-cv-0861-JBR); using information collected from millions high school students to market services to those students (see e.g., In the Matter of The National Research Center For College and University Admissions, Inc., and Don M. Munce, FTC Docket No, C-4071, 2003); participating in identity theft scams (FTC v. Hill, SD Texas Case No. 03-cv-5337); placing tracking software on consumers’ computers without disclosing same, (In the Matter of Sears Holdings Management Corporation, a corporation, FTC Docket No. 4264, 2009); not taking appropriate steps to protect consumers’ private information (see e.g., In the Matter of CVS Caremark Corporation, a corporation, FTC Docket No., C-4259, 2009; In the Matter of Google, Inc., FTC Docket No., C-4336, 2011); collecting information from consumers without disclosing said information was being collected (see e.g., FTC v. Vizio, Inc. et al., Dist. NJ Case No. 17-cv-00758); publicly posting personal health information on the Internet without consent (In the Matter of Practice Fusion, Inc., FTC Docket No. C-4591, 2016), and publicly posting nude photos on the Internet without the subject’s consent (In the Matter of Craig Brittain, C-4564, 2016).

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does not even try to allege any harm was caused beyond the mere disclosure of the information

in court documents and to credit card companies. Based on the foregoing, Plaintiff has not met

its burden to show there are no issues of material fact relating to Defendants’ privacy policy and

its alleged misrepresentation of same and its Motion for Summary Judgment with respect to

Count VI should be DENIED.

E. Price Point: Genuine Issues of Material Fact Exist As To Whether Defendants’ Representation That Consumers Agree to Pay “Full Price” for Breach of Terms Were Deceptive (Count VII)

The FTC, in a classic “kitchen sink” litigation practice, includes an additional and

cursory argument that Defendants engaged in a deceptive pricing structure. Defendants are well

within their rights to market and discount their product in the highly competitive area of online

commerce. Plaintiff correctly states Defendants regularly offered the Roca Labs package for the

total price of $480 with certain conditions. Dkt. No. 210, pp. 12-13. Plaintiff also provides

numerous references to the record regarding search advertisements, display advertisements

served through Google and Bing, and advertisements on Facebook, all in order to set up the

invalid argument of deceptive pricing. Dkt. No. 210, pp. 12-13. Plaintiff attempts to vilify

Defendants’ reasonable marketing campaign with the pervasive nature of their online

advertisements.

The FTC essentially argues that there was a hidden pricepoint on the website which could

not possibly be unearthed. The following step in Plaintiff’s attempts to smear the Defendants’

mission to save the lives of obese persons, is to provide a negative discussion about the

clickwrap (emphasis added) feature of the website designed to efficiently allow customers to

affirmatively agree and accept the purchase qualifications and terms of the transaction. Plaintiff

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correctly states that the website includes at the bottom of the purchase selection screen and above

the, “Submit,” button was an unchecked box next to the statement, “I have checked and do not

have any medical reason that can prevent me from using the Gastric Bypass Alternative

procedure and I have read and agree to the terms, privacy and money back reward / return

policy.” Dkt. No. 210, p.13. Additionally, it is true that customers were not “forced” to read the

“Terms and Conditions,” which are fully available by a hyperlink at the bottom of each

webpage. Dkt. 2, Part II, pages 12,16,22,25,32, 36,46, 48, 56; Part I, pages 3,10, 12, 16, 22, 26,

29, 34, 37, 47. Defendants did not hide the “set price” of $1580, or the terms for which the

subsidized price of $480 could be achieved. On the contrary, access to the terms and conditions

were consistently and prodigiously provided by hyperlink throughout the online site.

The FTC incorrectly contends that a customer’s first opportunity to know the set price of

$1580 and conditions to qualify for the subsidized price point is in the printed, “Terms and

Conditions,” included in the packaging of the delivered product. Dkt. No. 210, p. 13. Plaintiff’s

fatally flawed argument completely depends on the assumption that the customer did not click on

the hyperlink provided on the website and did read the printed materials in the shipment. Both

opportunities to learn of the “Terms and Conditions” are equally accessible and fare the same

chance of being ignored by the customer.

Various courts have previously decided multiple cases on clauses contained within a

“clickwrap” contract online. “Clickwrap” has been defined by the courts as an “agreement (that)

appears on an internet webpage and requires that a user consent to any terms or conditions by

clicking on a dialog box on the screen in order to proceed with the internet transaction.” Specht

v. Netscape Comms. Corp., 306 F.3d 17, 22 (2d. Cir. 2002). In addition, courts have also found

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that such agreements are enforceable by applying the traditional principles of contract law. See,

Specht, 306 F.3d at 28-30; Forrest v. Verizon Communications, Inc., 805 A.2d 1007, 1010 (D.C.

Cir. 2002); Barnett v. Network Solutions, Inc., 38 S.W.3d 200 (Tex. App. 2001); Caspi v.

Microsoft Network, L.L.C., 323 N.J. Super. 118, 125-26 (App. Div. 1999); John M. Norwood, A

Summary of Statutory and Case Law Associated with Contracting in the Electronic Universe, 4

DePaul Bus. & Comm. L.J. 415, 439-49 (2006) (discussing clickwrap cases); 1-2 Computer

Contracts §2.07 (2006) (analyzing clickwrap cases). Also, courts have found that failure to read

an enforceable clickwrap agreement will not excuse compliance with its terms. See, Specht, 306

F.3d at 30; Lazovick v. Sun Life Ins. Co. of Am., 586 F. Supp.918, 922 (E.D. Pa. 1984); Barnett,

38 S.W.3d at 204; Siedle v. Nat'l Assoc. of Sec. Dealers, Inc., 248 F. Supp. 2d 1140, 1143 (M.D.

Fla. 2002); Management Computer Controls, Inc. v. Charles Perry Constr., Inc., 743 So.2d 627

(Fla. 1st DCA 1999). Defendants mention multiple times on their website that the consumer is

required to read the “terms and conditions” prior to purchase. Dkt. 2, Part II, pages 11,12,16, 22,

32,34, 35, 36, 46, 47, 48 and 56. Defendants’ actions are in clear compliance of contract law as

stated in Feldman v. Google, Inc., 513 F. Supp. 2d 229, Dist. Court, ED Pennsylvania 2007,

citing Forrest v. Verizon Communications, Inc., 805 A.2d 1007, 1010-11 (D.C. Cir. 2002)

(holding that adequate notice was provided of clickwrap agreement terms where users had to

click “Accept” to agree to the terms in order to subscribe), Caspi v. Microsoft Network, L.L.C.,

323 N.J. Super. 118, 122, 125-27 (App. Div.1999) (finding that reasonable notice of the terms of

a clickwrap agreement was provided where the user had to click “I agree” before proceeding

with registration.). The record substantiates Defendants’ clear intention to establish a valid

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agreement and to provide sufficient notice to the customer of the set price of $1580, as well as

the conditions to receive the subsidized price of $480.

F. Disgorgement Is An Inappropriate Remedy In The Instant Case First and foremost, a review of the plain language of the FTC Act, as well as the Act’s

legislative history, indicate that the FTC’s attempt to secure disgorgement is not permitted under

the FTC Act. Second, even if the Act does permit the equitable remedy of disgorgement,

awarding such a remedy is appropriate only when the FTC can demonstrate concrete or actual

consumer injury.

1. Section 13(b) does not authorize disgorgement.

Even a cursory review of the FTC Act makes clear that 13(b) does not authorize

disgorgement. The plain text of Section 13(b) is clear, and speaks only of injunctive relief:

“[T]he Commission… may bring suit… to enjoin” any deceptive or unfair act or practice. 15

U.S.C. § 53(b)(2). Accordingly, Section 13(b) should not be construed to allow any monetary

damages, as the plain language of the FTC Act contemplates monetary relief only under Section

19, and affords purported violators with numerous additional safeguards as discussed below.

The legislative history is equally clear. The Senate committee, which added Section 13(b)

to the FTC Act, expressly attributed only two purposes to the injunction provision: (1) to correct

judicial reluctance to enter preliminary injunctive relief without maintaining control over the

timetable for permanent relief, and (2) to provide the FTC the ability to seek a permanent

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injunction in routine fraud cases. S. Rep. No. 93-151, at 30-31 (1973). Nowhere does the

legislative history indicate the availability of monetary relief under Section 13(b). The FTC itself

acknowledges that Section 13(b) “was expected to be used principally for obtaining preliminary

injunctions against corporate acquisitions.” FTC, A Brief Overview of the FTC’s Investigative

and Law Enforcement Authority (Revised, July 2008).

2. Congress Clearly Intended to Limit the FTC’s Powers Under Section 13(b)

The statutory scheme indicates that Congress had no intention of authorizing legal

remedies under Section 13(b). The limitations on the FTC’s powers under Section 13(b) is

especially clear when contrasted with the powers granted to the FTC under another section,

Section 19. See Magnuson-Moss Warranty-Federal Trade Commission Improvement Act, Pub.

L. No. 93-637, 88 Stat. 2183, 2193 (1975) (codified at 15 U.S.C. § 57b). In contrast with Section

13(b), which is limited to injunctive relief (and other ancillary relief), Section 19 expressly

allows for an award of consumer redress, including “rescission or reformation of contracts, the

refund of money or return of property, [or] the payment of damages.” 15 U.S.C. § 57b(b).

Congress, however, conditioned Section 19’s monetary remedies, on the FTC’s

compliance with specific pre-filing protections to defendants, including (1) the issuance of a

cease and desist order prohibiting the challenged conduct, (2) reliance on that order as the basis

for any civil action, and (3) a demonstration that “a reasonable man would have known under the

circumstances [that the challenged conduct] was dishonest or fraudulent.” 15 U.S.C. § 57b(a)(2).

Thus, Section 19 provides significantly greater procedural protections than Section 13(b). The

reasonable inference, based on the distinctions between Section 19 and Section 13(b), is that

Congress understood that before the FTC could collect money damages, as provided under

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Section 19, greater procedural protections needed to be met than were afforded under Section

13(b).

Congress’s enactment of Section 19 also illustrates that it recognized a need, after its

passage of Section 13(b), to provide a vehicle for obtaining complete monetary redress. “[O]ne

of the most basic interpretive canons [of statutory construction is] that a statute should be

construed so that effect is given to all its provisions, so that no part will be inoperative or

superfluous, void or insignificant.” Corley v. United States, 556 U.S. 303, 314-15 (2009)

(internal quotation marks and citation omitted). Interpreting Section 13(b) to allow damages,

legal restitution, would render superfluous Section 19’s explicit provision for monetary remedies

and the accompanying limits Congress imposed on their availability. Indeed, if money damages

are available under Section 13(b), it is unclear when the FTC would be ever instead choose to

use its Section 19 powers. Accordingly, disgorgement is not authorized under the Act, and this

Court should not award such relief.

3. Caselaw, as well as the views of FTC personnel, indicate that disgorgement is appropriate only when the FTC can demonstrate actual consumer injury, or the product at issue has no inherent value whatsoever.

However, even if the FTC Act does authorize the equitable remedy of disgorgement, it

does not follow that disgorgement is appropriate in all circumstances where a violation of the

Act occurs. As discussed above, seeking monetary relief under Section 19 of the Act carries with

it various procedural mechanisms designed to protect purported violators of the FTC Act.

Consequently, the FTC’s former policy statement regarding the use of disgorgement in anti-trust

actions makes sense in the context of advertising cases as well: “[T]he Commission believes that

the value of deterrence is reduced when the violator has no reasonable way of knowing in

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advance that its conduct is placing it in jeopardy of having to pay back all the potential gains.”

Policy Statement on Monetary Equitable Remedies -- Including in Particular Disgorgement and

Restitution -- In Federal Trade Commission Competition Cases Addressing Violations of the

FTC Act, the Clayton Act, or the Hart-Scott-Rodino Act (July 31, 2003). Accordingly, the

disincentive value of disgorgement as an equitable remedy is greatest “when the violator can

determine in advance that its conduct would probably be considered illegal.” Id. This rationale

articulates exactly why the FTC’s attempt to “equitably” disgorge more than twenty-five million

dollars ($25,000,000.00) from all but one of the Defendants in this case is not “equitable” at all.

The FTC seeks to impose a veritable “death penalty” against the Defendants for alleged

violations that ceased, in many instances, years ago.

Of course, attempting to empty the coffers of every purported offender of the Act, all in

the name of consumer redress, is a tempting course of action. As noted by FTC Commissioner

(and former Acting Chairman) Maureen K. Ohlhausen: “Disgorgement is a tool that affects the

behavior of those against whom it may be wielded. It also, however, affects the behavior of the

entity that wields this ‘immensely powerful antitrust weapon.’” FTC v. Cephalon, Inc., Separate

Statement of Commissioners Maureen K. Ohlhausen & Joshua D. Wright, at 3 (May 28, 2015)

(internal citations omitted). But that is precisely why the courts, including this one, should guard

against the government using such a debilitating practice as a matter of routine. Instead, as urged

by Commissioner Ohlhausen, “[t]he agency should focus on cases with objective, concrete harms

such as monetary injury and unwarranted health and safety risks. The agency should not focus on

speculative injury, or on subjective types of harm.” Maureen K. Ohlhausen, Acting Chairman,

Fed. Trade Comm’n, Opening Keynote at the ABA 2017 Consumer Protection Conference

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(February 2, 2017). In her February, 2017 remarks, Acting Chairman Ohlhausen discussed the 14

FTC’s overuse of pursuing disgorgement as a remedy, and the need to “reign in” that practice:

By focusing on practices that are actually harming or likely to harm consumers, the FTC can best use its limited resources. In the past, this self-restraint as been important to the FTC’s success in alleviating many different types of consumer harm without disputing innovation. Conversely, when the FTC has strayed from a focus on actual harm, it has struggled, both in influence and in the courts.

...Focusing on consumer injury is important when deciding what cases to bring. It is also important when determining what remedy to seek. In every consumer protection case we bring, we must ensure that we seek and obtain for consumers relief that is tied to consumer injury. Unfortunately, the FTC has deviated from this principle. In several recent cases, rather than seek to remedy consumer injury, the FTC has pursued disgorgement. That is, staff has sought a company’s total revenues as monetary relief, even though the behavior at issue was not fraudulent. This departs from prior Commission practice. It has subjected parties to threats of huge payments that are disproportionate to any consumer harm. The latest example is the Uber settlement, from which I dissented. As my dissent explains, the $20 million dollar monetary settlement was untethered from consumer harm. In fact, it was an order of magnitude higher than our best evidence of consumer harm. Such disproportionate settlements harm businesses without making consumers better off. Instead, remedies ought to be carefully calibrated to the harm consumers suffered. ...Across the FTC’s consumer protection mission, then, I will work to ensure that our enforcement actions target behaviors causing concrete consumer harm, and that our remedies are tied to consumer harm. That’s the best way to improve the lives of consumers.

Id. This Court, therefore, should focus on what actual or concrete harm (if any) exists to

consumers as a result of the complained-of conduct. Several Courts have wrestled with this very

issue. As the District Court in the Eastern District of New York observed:

14 Available at https://www.ftc.gov/system/files/documents/public_statements/1069803/mko_aba_consumer_protection_conference.pdf (last accessed May 29, 2018).

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The question of monetary relief is significantly more problematic than the other issues discussed thus far. Often, defendants facing such assessments are selling a fraudulent product… or blatantly misrepresenting the value of the product being sold… Here, in contrast, defendants are marketing a basically sound product, albeit in a manner which is violative of the FTC Act… Indeed, many franchisees have enjoyed significant success… The goal… should be to fashion appropriate redress, but mindful of the desirability of avoiding the economic obliteration of either defendant.

FTC v. Minuteman Press, 53 F. Supp. 2d 248, 261 (E.D. N.Y. 1998). Similarly, other courts have

awarded full disgorgement only upon a finding of actual consumer injury, or when the products

at issue were inherently worthless. FTC v. Inc21.com Corporation, 745 F. Supp. 2d 975, 1011

(N.D. Cal. 2010) (disgorgement appropriate only upon finding of actual consumer injury); FTC

v. Pantron I Corp., 33 F.3d 1088,1102 (9th Cir. 1994) (Imposing disgorgement when product has

no efficacy beyond placebo effect); FTC v. Bronson Partners LLC, 654 F.3d 359, 369 (2d. Cir.

2011) (“Because the tea and Bio-Slim Patch provided none of their advertised benefit to

consumers, none of Bronson’s gains from the sale of these products could be considered “just”).

In the case at bar, the Plaintiff would have this Court believe that the Roca Labs Products are of

no value to any consumers. It is, however, telling that the FTC, as a result of its own

investigation (and also piggybacking on the investigative efforts of others, such as the Better

Business Bureau), have produced only eight (8) Roca Labs users (out of eighty thousand) who

claim that they were deceived as a result of the Defendants’ marketing practices. PX14-20. On

the other hand, however, stand tens of thousands of satisfied Roca Labs customers who have had

success with the Roca Labs regimen, and losing substantial weight. See Dkt. 167, Attachments

1-5; see also PX10(2) p. 149, ll. 15-17; p. 150, ll. 1-25. Under the common-sense framework

urged by Commissioner Ohlhausen, disgorgement is not an “equitable” remedy in this case.

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4. Defendants Offer An Alternative Disgorgement Calculation

In the event that this Court does find in favor of the Plaintiff, and furthermore determines

that disgorgement is a proper remedy, the Defendants offer an alternative calculation for

disgorgement. The principles of equity cited above support the notion that the “revenues minus

refunds” metric of disgorgement urged by the Plaintiff is inappropriate when, as here, it would

result in the “economic obliteration” of a small business owner, such as Mr. Juravin. See FTC v.

Minuteman Press, 53 F. Supp. 2d at 261, and cases cited in section IV(f)(3) above. Instead,

Defendants submit that the following disgorgement formula would be far more equitable.

Defendants therefore propose that first, this Court take the number of complaints registered with

the Better Business Bureau that are based on the customer’s assertion that the product did not

work as advertised from March of 2011 (the time of the first complaint lodged with the BBB) to

the date of this filing, September 29, 2018. That number should then be multiplied by $350, the

average selling price of the Roca Labs Product during this time period. Finally, that number

should be multiplied by twenty-five (25) to account for customers that might feel the product did

not work as advertised, but who did not register a complaint with the BBB. Such an award would

spare the Defendants from “economic obliteration,” while at the same time, providing redress for

the alleged violations of the FTC Act.

G. Because the FTC Can No Longer Have Reason to Believe that the Defendants are Violating, or are about to Violate the FTC Act, Subject Matter Jurisdiction Does Not Exist Under Section 13(b), and the Amended Complaint Must Be Dismissed.

Recently, in FTC v. Shire ViroPharma, Inc., 2018 WL 1401329 (D. Del. March 20,

2018), the U.S. District Court for the District of Delaware held that if the FTC does not have

reason to believe either: that the Defendants are currently in violation of the FTC Act, or that

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such a violation is imminent, the court loses subject matter jurisdiction. Because such is the 15

case here, this Court must dismiss the Plaintiff’s Amended Complaint.

In Shire, the FTC brought suit in February of 2017, seeking a permanent injunction and

other equitable relief. Shire, 2018 WL 1401329, *1. However, the conduct complained of by the

FTC ceased in April of 2012, nearly five (5) years prior to filing suit. Id. Shire moved to dismiss

the complaint.

Shire’s argument first began with section 13(b) of the FTC Act, which establishes that the

FTC’s ability to seek permanent injunctive relief under section 13(b) of the act is contingent

upon the FTC having “reason to believe that any person, partnership, or corporation is violating,

or is about to violate, any provision of law enforced by the Federal Trade Commission…” 15

U.S.C. § 53(b) (2018) (emphasis added). Shire therefore argued that, because the conduct

complained of occurred nearly five (5) years before the FTC filed it’s complaint, there was no

ongoing or imminent violation of the FTC Act, and therefore no subject matter jurisdiction. Id.

Shire’s argument prevailed. After resolving an issue of statutory construction that is

irrelevant to the instant case, the Court held that “the FTC’s ability to seek a permanent

injunction in this case is dependent on its having reason to believe ViroPharma ‘is violating or is

about to violate’ a law enforced by the FTC, which is a prerequisite to the FTC’s ability to bring

suit in the first place.” Id. at *4.

In the case at bar, the record clearly establishes that the FTC no longer has reason to

believe that the Defendants are currently violating the FTC Act, or are about to do so. Since

October 29, 2015, a period of nearly three (3) years, the Defendants have operated under a

15 While Shire involved conduct that had stopped prior to filing suit, the analysis in Shire is nevertheless sound, and, by analogy, applicable to this case for the proposition that subject matter does not exist.

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preliminary injunction, one that is closely monitored by the FTC. That injunction prohibits future

violations of the FTC Act, and since that time, the FTC has never sought the aid of this Court’s

contempt powers to prohibit or change any of the Defendants’ marketing practices. This lack of

action by the FTC is particularly telling in light of the fact that, during the course of this

litigation, the Plaintiff has doggedly prosecuted purported violations of the injunction unrelated

to the Defendants’ marketing of the GBA Regimen. Surely, if Plaintiff believed Defendants were

continuing to engage in marketing practices that violate the Injunction, it would have brought the

matter to this Court’s attention. The only logical explanation for not doing so is that Defendants

are not marketing the GBA Regimen in such a way that violates the Injunction or the law.

Consequently, the Plaintiff cannot maintain that it has reason to believe the Defendants are

violating or are about to violate’ the FTC Act, and subject matter jurisdiction no longer exists. 16

V. CONCLUSION

Defendants respectfully request this Court to DENY Plaintiffs’ Amended Motion for

Summary Judgment and grant Defendants’ Motion for Partial Summary Judgment as to Count

Three of the Amended Complaint. Further, Defendants request that this Court award Defendants’

attorney fees and costs for their defense of Plaintiff’s Complaint, as well as provide any further

relief the Court deems necessary.

/s/ Andrew C. Hill ANDREW C. HILL Attorney for the Defendants Florida Bar # 0046755 6136 Cypress Hill Road Winter Garden, FL (813) 410-1648 [email protected] [email protected]

16 While Shire was decided via a 12(b)(6) motion to dismiss prior to the close of the pleadings, dismissal of this action is nevertheless procedurally proper. Fed. R. Civ. P. 12(h)(3): “If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action.”

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CERTIFICATE OF SERVICE

The undersigned counsel certifies that on May 29, 2018, the foregoing was electronically filed with the clerk of Court using the CM/ECF system, which will automatically send e-mail notification of such filing to the attorneys of record: Carl H. Settlemyer, III, Esquire Federal Trade Commission 600 Pennsylvania Avenue, N.W., CC-10528 Washington, D.C. 20580 Electronic Mail: [email protected] Attorney for the Plaintiff Paul B. Spelman, Esquire Federal Trade Commission 600 Pennsylvania Avenue, N.W., CC-10528 Washington, D.C. 20580 Electronic Mail: [email protected] Attorney for the Plaintiff

/s/ Andrew C. Hill ANDREW C. HILL

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UNITED STATES DISTRICT COURT LABS NUTRACEUTICAL USA, … · Roca Labs Nutraceutical USA, Inc....

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