Court Opinion

ID: 2798680
Source: CourtListenerOpinion
Date Created: 2015-05-05 18:01:54.275995+00
Date Added: 2024-06-11T11:27:20.688902
License: Public Domain

Case: 14-13131     Date Filed: 05/05/2015   Page: 1 of 13

                                                                         [PUBLISH]

               IN THE UNITED STATES COURT OF APPEALS

                        FOR THE ELEVENTH CIRCUIT
                          ________________________

                                 No. 14-13131
                           ________________________

                       D.C. Docket No. 1:04-cv-03294-CAP

FEDERAL TRADE COMMISSION,

                                                                 Plaintiff-Appellee,

CERTUSBANK, N.A.,

                                                                            Plaintiff,

versus

NATIONAL UROLOGICAL GROUP, INC., et al.,
d.b.a. Warner Laboratories,

                                                                          Defendants,

HI-TECH PHARMACEUTICALS, INC.,
Corporation,
JARED WHEAT,
individually and as officer of the corporation,
STEPHEN SMITH,
individually and as officer of National Urological
Group, Inc. and National Institute for Clinical
Weight Loss, Inc.,
M.D. TERRILL MARK WRIGHT,
Individually,
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                                                                     Defendants-Appellants.

                               ________________________

                     Appeals from the United States District Court
                         for the Northern District of Georgia
                            ________________________

                                        (May 5, 2015)

Before TJOFLAT, WILLIAM PRYOR, and BARKSDALE, ∗ Circuit Judges.

WILLIAM PRYOR, Circuit Judge:

       In this appeal, we must decide whether the district court abused its discretion

when it held Hi-Tech Pharmaceuticals, Inc., Jared Wheat, Stephen Smith, and Dr.

Terrill Mark Wright in contempt for violating injunctions that prohibit them from

making any representation about weight-loss products unless they “possess[] and

rel[y] upon competent and reliable scientific evidence that substantiates the

representation.” Hi-Tech, Wheat, Smith, and Wright submitted evidence to support

the challenged representations and an expert declaration that the representations

were substantiated by “competent and reliable scientific evidence.” But the district

court refused to consider the evidence. The district court ruled that because it had

required Hi-Tech, Wheat, Smith, and Wright to produce clinical trials to

substantiate different representations about different weight-loss products in an

∗
 Honorable Rhesa H. Barksdale, United States Circuit Judge for the Fifth Circuit, sitting by
designation.
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earlier stage of this litigation, they were collaterally estopped from presenting new

kinds of evidence to satisfy the standard of “competent and reliable scientific

evidence” and instead had to produce clinical trials to substantiate the challenged

representations. After Hi-Tech, Wheat, Smith, and Wright failed to produce

clinical trials to substantiate their representations, the district court held them in

contempt. Because the district court misapplied the doctrine of collateral estoppel,

we vacate and remand.

                                  I. BACKGROUND

      We divide our discussion of the background in two parts. First, we discuss

the initial litigation between the Federal Trade Commission and Hi-Tech, Wheat,

Smith, and Wright. Second, we discuss the contempt proceedings that gave rise to

this appeal.

                                   A. Initial Litigation.

      In 2004, the Commission filed a complaint against Hi-Tech, Hi-Tech’s Chief

Executive Officer, Wheat, Hi-Tech’s Senior Vice President, Smith, and Wright for

violations of sections 5 and 12 of the Federal Trade Commission Act, 15 U.S.C.

§§ 45(a), 52. The Commission alleged that the defendants made unsubstantiated

representations about two weight-loss products, “Thermalean” and “Lipodrene.”

The Commission alleged that the defendants lacked adequate substantiation for

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their representations that Thermalean “is an effective treatment for obesity,” “is

equivalent or superior to the prescription weight loss drugs Xenical, Meridia, and

Fastin in providing weight loss benefits,” “causes rapid and substantial weight loss,

including as much as 30 pounds in 2 months,” and “causes users to lose 19% of

total body weight, lose 20-35% of abdominal fat, reduce their overall fat by 40-

70%, [and] decrease their stored fat by 300%,” and that Lipodrene “causes

substantial weight loss, including as much as 125 pounds” and “enables users to

lose up to 42% of total body fat and 19% of total body weight, and to increase their

metabolic rate by up to 50%.”

      In 2008, the district court granted summary judgment in favor of the

Commission. The district court concluded that the defendants had violated the

Trade Commission Act because they had not substantiated their representations

with clinical trials of the weight-loss products instead of ingredients in the

products. The district court entered a final judgment and permanent injunction

against Hi-Tech, Wheat, and Smith, and a separate final judgment and permanent

injunction against Wright based on his unsubstantiated endorsements of the

products.

      The injunctions prohibited the defendants from making any representation

that a weight-loss product “causes rapid or substantial loss of weight or fat” or

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“affects human metabolism, appetite, or body fat,” unless the defendants “possess[]

and rel[y] upon competent and reliable scientific evidence that substantiates the

representation.” The injunctions defined “competent and reliable scientific

evidence” to mean “tests, analyses, research, studies, or other evidence based on

the expertise of professionals in the relevant area, that has been conducted and

evaluated in an objective manner by persons qualified to do so, using procedures

generally accepted in the profession to yield accurate and reliable results.” The

injunctions did not mention any requirement to produce clinical trials to

substantiate weight-loss representations.

                               B. Contempt Proceedings.

      After Hi-Tech, Wheat, Smith, and Wright continued to promote weight-loss

products, the Commission moved the district court in 2011 to order Hi-Tech,

Wheat, and Smith to show cause why they should not be held in contempt for

making unsubstantiated representations about four products, “Fastin,” “Stimerex-

ES,” “Benzedrine,” and a reformulated version of “Lipodrene.” The Commission

alleged that Hi-Tech, Wheat, and Smith lacked adequate substantiation for the

following representations:

      The “World’s Most Advanced Weight Loss Aid Ever Developed!” . . .
      (Fastin print ad);

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“[A] Truly Extraordinary Weight Loss Product . . . Fastin is unlike
anything you have ever tried before and will help you lose weight.”
. . . (Fastin print ad);

A “Revolutionary Diet Aid Taking the Market by Storm!” . . . (Fastin
product page, www.hitechpharma.com);

“[A] pharmaceutical-grade dietary supplement indicated for weight
loss in extremely overweight individuals.” . . . (Fastin product
packaging); . . .

An “EXTREMELY POTENT DIET AID! DO NOT CONSUME
UNLESS RAPID . . . WEIGHT LOSS [IS] YOUR DESIRED
RESULT.” . . . (Fastin product packaging) . . .

“[I]s a revolutionary weight loss formula scientifically engineered to
help people lose weight and feel great!”. . . (Lipodrene print ad);

 Is “the benchmark standard for the weight loss industry.” . . .
(Lipodrene product page, www.hitechpharma.com);

“[I]s the Gold Standard in the weight loss industry for one simple
Reason . . . It Works!”. . . ;

“[W]ill cause rapid . . . weight loss with usage.” . . . (Lipodrene
product packaging); . . .

“The World’s Most Advanced Weight Loss Aid Ever Developed!”
[Lipodrene product packaging] . . .

Is an “Extreme Fat Burner.” . . . (Fastin print ad);

Is a “Novel Fat Burner.” . . . [Fastin print ad];

“[I]s the Gold Standard by which all Fat Burners should be judged.”
. . . [Fastin print ad];

Is a “Rapid Fat Burner.” . . . (Fastin product packaging); . . .
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Is a “Rapid Fat Loss Catalyst.” . . . (Fastin product packaging) . . .

A “Novel Fat Burner that Helps Melt Away Pounds.” . . . (Lipodrene
print ad);

“[A] Fat Assassin unlike any other ‘Fat Burner.’” . . . [Lipodrene print
ad];

“[T]he best fat-burner [sic] in existence.” . . . [Lipodrene print ad];

“[T]he ‘Gold Standard’ by which all fat loss products are judged.” . . .
(Print ad for multiple Hi-Tech products including Lipodrene);

“Hi-Tech’s Flagship Fat Loss Product with 25 mg Ephedra Extract –
Annihilate    Fat.”   .   .    .   (Lipodrene    product    page,
www.hitechpharma.com) . . .

“[T]he right move to strip away fat.” . . . [Lipodrene product page];
...

“The Strongest Fat Burner/Energizer Ever Produced.” . . .
(Benzedrine print ad); . . .

“[T]he most potent Fat Burner/Energizer known to man.” [Benzedrine
print ad] . . .

Has “Unmatched Anorectic Activity to Manage Caloric Intake.” . . .
(Benzedrine product page, www.hitechpharma.com); . . .

Is “the first anorectic supplement ever produced.” . . . (Benzedrine
product packaging) . . .

“[U]ndeniably the most powerful, fat loss . . . formula ever created.” .
. . (Print ad for multiple Hi-Tech products including Stimerex-ES);

“[T]he Strongest Fat Burner/Energizer to ever hit the market!” . . .
(Stimerex-ES print ad); . . .
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       “The Ultimate Fat Burner Ever Created.” . . . (Stimerex-ES product
      page, www.hitechpharma.com) . . .

      “Curbs the Appetite!” . . . [Fastin ad] . . .

      “Increases the metabolic rate, promoting thermogenesis (The Burning
      of Stored Body Fat).” . . . [Fastin ad]; . . .

      “[H]as both immediate and delayed release profiles for appetite
      suppression, energy and weight loss.” [Fastin ad] . . .

       Has “Unmatched Anorectic Activity to Manage Caloric Intake.” . . .
      (Benzedrine product page, www.hitechpharma.com); and

      Is “the first anorectic supplement ever produced.” . . . (Benzedrine
      product packaging).

The Commission also moved to hold Wright in contempt for his endorsement of

Fastin.

      In response, the defendants submitted evidence to support their

representations and an expert’s declaration that the representations were

substantiated by “competent and reliable scientific evidence,” but the district court

refused to consider the defendants’ evidence. The district court explained, based on

the “law of the case,” that “[t]he only evidence that will be relevant to show

whether the defendants ‘possess[ed] and rel[ied] upon competent and reliable

scientific evidence’ to substantiate any representation is the kind of evidence . . .

previously adopted by the court.” In an earlier stage of the litigation, the district

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court ruled that “some form of clinical trial must have been conducted on the

product itself or an exact duplicate of the product to substantiate the defendants’

claims regarding the overall product.” Because the defendants had not produced

clinical trials on the four products at issue in the contempt proceedings, the district

court granted the motion to show cause. The district court later clarified that it

based its ruling that only clinical trials could establish “competent and reliable

scientific evidence” on the doctrine of collateral estoppel, instead of the “law of the

case.”

         After Hi-Tech, Wheat, Smith, and Wright failed to produce clinical trials on

the weight-loss products, the district court held them in contempt for violating the

injunctions. The district court held Hi-Tech, Wheat, and Smith jointly and

severally liable for approximately $40 million in sanctions, which equaled Hi-

Tech’s gross receipts for the four products during the relevant time period. The

district court also held Wright liable for $120,000, which reflected the sum Hi-

Tech paid him for endorsing Fastin during the relevant time period.

                            II. STANDARD OF REVIEW

         We review a sanction for civil contempt for abuse of discretion. McGregor

v. Chierico, 206 F.3d 1378, 1383 (11th Cir. 2000). “A district court abuses its

discretion if it applies an incorrect legal standard, applies the law in an

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unreasonable or incorrect manner, follows improper procedures in making a

determination, or makes findings of fact that are clearly erroneous.” Citizens for

Police Accountability Political Comm. v. Browning, 572 F.3d 1213, 1216–17 (11th

Cir. 2009).

                                 III. DISCUSSION

      The district court abused its discretion when it held the defendants in

contempt. The district court misapplied the doctrine of collateral estoppel when it

refused to consider the defendants’ evidence of substantiation. Collateral estoppel

“bars successive litigation of an issue of fact or law actually litigated and resolved

in a valid court determination essential to the prior judgment, even if the issue

recurs in the context of a different claim.” Taylor v. Sturgell, 553 U.S. 880, 892,

128 S. Ct. 2161, 2171 (2008) (internal quotation marks and citation omitted). We

apply collateral estoppel only when four criteria are satisfied:

      (1) the issue at stake is identical to the one involved in the prior
      litigation; (2) the issue was actually litigated in the prior suit; (3) the
      determination of the issue in the prior litigation was a critical and
      necessary part of the judgment in that action; and (4) the party against
      whom the earlier decision is asserted had a full and fair opportunity to
      litigate the issue in the earlier proceeding.

Miller’s Ale House, Inc. v. Boynton Carolina Ale House, LLC, 702 F.3d 1312,

1318 (11th Cir. 2012). To establish that an issue is not identical to one resolved in

previous litigation, a party “need only point to one material differentiating fact that
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would alter the legal inquiry,” CSX Transp., Inc. v. Bhd. of Maint. of Way Emps.,

327 F.3d 1309, 1317 (11th Cir. 2003). The defendants can easily do so because the

level of substantiation the injunctions require for the representations at issue in the

contempt proceedings is not “identical” to any issue the district court decided in

the earlier litigation.

       The issue decided in the earlier litigation involved different representations,

different products, and the interpretation of a different legal standard from the issue

the district court prevented Hi-Tech, Wheat, Smith, and Wright from litigating in

the contempt proceedings. The district court previously ruled that Hi-Tech, Wheat,

Smith, and Wright needed to produce clinical trials that substantiated their

representations about Thermalean and an older version of Lipodrene under the

Trade Commission Act. In the contempt proceedings, by contrast, the district court

held that Hi-Tech, Wheat, Smith, and Wright were collaterally estopped from

litigating the level of substantiation the injunctions require for different

representations about Fastin, Stimerex-ES, Benzedrine, and the reformulated

Lipodrene.

       The differences between the issue decided in the previous litigation and the

issue the defendants were prevented from litigating in the contempt proceedings

“point to” at least “one material differentiating fact that would alter the legal

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inquiry,” id. at 1317. The district court explained in the previous litigation that the

“competent and reliable scientific evidence” standard imposed by the injunctions is

“context specific” and “permits different variations . . . depending on what

pertinent professionals would require for the particular claim made.” The district

court further explained that “the size, duration or protocol of a scientific study, the

number or type of scientific studies required to substantiate a claim, and the proper

mechanism for extrapolating results from studies will obviously vary from

circumstance to circumstance depending upon the expert evidence presented.” That

the representations at issue in the previous litigation involved different products,

referenced other weight-loss products by name, and were far more specific than

those at issue in the contempt proceedings accordingly “alter[s] the legal inquiry,”

id. The issue decided in the previous litigation is not “identical,” Miller’s Ale

House, Inc., 702 F.3d at 1318, to the issue the district court prevented the

defendants from litigating in the contempt proceedings. The district court erred

when it applied the doctrine of collateral estoppel.

      Hi-Tech, Wheat, Smith, and Wright also argue that the district court erred by

adopting a stricter standard for substantiation than the injunctions require and by

relying on evidence of privileged communications, but those questions are

premature. On remand, the district court must exercise its discretion to determine

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the admissibility of any evidence offered by the Commission and by the contempt

defendants and make findings about whether any evidence of substantiation, if

admissible, satisfies the standard of the injunctions for “competent and reliable

scientific evidence.” We hold only that the district court misapplied collateral

estoppel when it barred Hi-Tech, Wheat, Smith, and Wright from presenting

evidence to prove their compliance with the injunctions.

                                IV. CONCLUSION

      We VACATE the order holding Hi-Tech, Wheat, Smith, and Wright in

contempt and REMAND for further proceedings consistent with this opinion.

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