Court Opinion

ID: 2661711
Source: CourtListenerOpinion
Date Created: 2014-04-03 11:15:01.566769+00
Date Added: 2024-06-11T13:01:02.772973
License: Public Domain

UNITED STATES DISTRICT COURT
                  FOR THE DISTRICT OF COLUMBIA

____________________________
                             )
POM WONDERFUL LLC,           )
                             )
     Plaintiff,              )
                             )
     v.                      )     Civil Action No. 10-1539 (RWR)
                             )
THE FEDERAL TRADE            )
COMMISSION,                  )
                             )
     Defendant.              )
____________________________ )

                       MEMORANDUM OPINION

     Plaintiff POM Wonderful LLC (“POM”), the largest processor

and distributor of pomegranate products in the United States,

brings an action against the Federal Trade Commission (“FTC”)

under the Declaratory Judgment Act, 28 U.S.C. § 2201, seeking a

declaratory judgment that the FTC’s allegedly new rule governing

disease claims in food advertising exceeds the FTC’s statutory

authority, violates POM’s rights under the First and Fifth

Amendments of the U.S. Constitution, violates the rulemaking

procedures of the FTC and the Administrative Procedure Act

(“APA”), and is arbitrary and capricious.   The FTC has moved

under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) to

dismiss the complaint, arguing that the case is moot, POM lacks

standing to bring a declaratory judgment action, POM is

attempting to preclude an enforcement action, and POM fails to

state a claim upon which relief can be granted.   The FTC further
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argues that the court should decline to exercise jurisdiction to

hear this declaratory judgment action.     Because circumstances

weigh in favor of the court declining to exercise its

discretionary jurisdiction under the Declaratory Judgment Act,

the case will be dismissed.

                              BACKGROUND

     In July 2010, the FTC entered written agreements with two

companies whose advertisements overstated their products’ effect

on disease prevention, mitigation, and treatment.    See Stipulated

Final J. and Order for Permanent Inj. and Other Equitable Relief,

FTC v. Iovate Health Scis. USA, Inc., et al. (“Iovate”), No. 10-

cv-587 (W.D.N.Y. July 29, 2010); Agreement Containing Consent

Order, In the Matter of Nestlé HealthCare Nutrition, Inc.

(“Nestlé”), No. 092-3087 (F.T.C. July 14, 2010).     Both agreements

required the companies to root their future health claims in

“competent and reliable scientific evidence . . . consist[ing] of

at least two adequate and well-controlled human clinical studies

of the [product.]”   See Iovate at 7; Nestlé at 4.    (See also

Compl. ¶¶ 6, 28.)    The Nestlé agreement also provided that all

disease-based representations be pre-approved by the Food and

Drug Administration (“FDA”).    Nestlé at 3.   (See also Compl.

¶ 27.)

     According to POM, these new standards departed from “over

twenty . . . years of FTC food advertising rules and

regulations[.]”   (Compl. ¶¶ 5, 25; see also id. ¶ 28.)    POM
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alleged that the FTC had never before “requir[ed] prior FDA

approval” irrespective of whether the claims “are true or

supported by competent, reliable scientific evidence[.]”    (Id.

¶ 25(2).)   Neither had the FTC earlier implemented a heightened

standard for scientific studies.   (Id. ¶ 25(1).)    Rather than

codifying the new requirements in formal regulations, the FTC

allegedly expressed its intention to “universally apply[]” them

against the food and dietary supplement industry as an

enforcement mechanism for deceptive advertising.    (Compl. ¶¶ 5,

23-24.)   POM alleges that the requirements do not merely

“interpret[] . . . present standards or rules.”     (Id. ¶ 25(1).)

Instead, they “constitute a final agency action within the

meaning of” the APA.   (Id. ¶¶ 35, 42, 48, 54.)

     POM alleges that by adopting these new rules, the FTC

violated statutory and constitutional law.   Thus, POM seeks

declaratory judgment that the FTC exceeded its statutory

authority under Sections 51 and 122 of the FTC Act by encroaching

1
  “The FTCA prohibits ‘[u]nfair methods of competition’ and
‘unfair or deceptive acts or practices in or affecting
commerce.’” United States v. Philip Morris Inc., 263 F. Supp. 2d
72, 78 (D.D.C. 2003) (quoting 15 U.S.C. § 45(a) ("Section 5")).
“False or deceptive advertising falls within the proscription of
Section 5.” Id. (quoting Giant Food, Inc. v. FTC, 322 F.2d 977,
981 (D.C. Cir. 1963)).
2
  “Section 12 of the FTCA, 15 U.S.C. § 52, bans false
advertising, defined as an advertisement which is ‘misleading in
a material respect.’” Career Coll. Ass'n v. Duncan, 796 F. Supp.
2d 108, 127 n.9 (D.D.C. 2011) (quoting 15 U.S.C. § 55(a)(1)).
“[A]n advertisement is false if it fails to disclose sufficient
facts to counter any false assumptions created by the
advertisement.” Id. (internal quotation marks and citation
omitted).
                               - 4 -

upon the FDA’s authority, see 15 U.S.C. §§ 45, 52, violated the

First and Fifth Amendments of the United States Constitution by

chilling free speech without due process, violated the FTC’s

rulemaking procedures under Section 18 of the FTC Act,3 15 U.S.C.

§ 57a, violated Section 553 of the APA, and adopted a rule that

is arbitrary capricious.4   (Compl. ¶¶ 8, 12, 29, 51-53.)

     On September 27, 2010, approximately two weeks after POM

filed the instant case, the FTC filed against POM an

administrative complaint alleging that “POM’s practices in

promoting pomegranate juice and pills constitute unfair or

deceptive acts or practices and false advertising in violation of

sections 5(a) and 12 of the FTC Act[.]”   (Def.’s Mem. in Supp. of

Mot. to Dismiss by FTC (“Def.’s Mem.”) to Dismiss at 5.)5    In the

3
  The FTC’s rulemaking process includes four steps. The agency
“must first publish a notice of proposed rulemaking stating with
particularity the reasons for the proposed rule and inviting
interested persons to submit written data, views, and arguments.”
Ass’n of Nat’l Advertisers, Inc. v. FTC, 617 F.2d 611, 614 (D.C.
Cir. 1979) (citing 15 U.S.C. § 57a(b)). Next, the FTC
“conduct[s] an informal hearing at which any interested person
can present his position[.]” Id. (citing 15 U.S.C. § 57a(c)).
“If the Commission determines that it must resolve disputed
issues of material fact necessary to fair decisionmaking on the
record as a whole, . . . interested persons [may] offer . . .
rebuttal submissions” or conduct “cross-examination of witnesses
as . . . appropriate and necessary[.]” Id. (citing 15 U.S.C.
§ 57a(c)). Any promulgated rule is ripe for judicial review.
Id.
4
  “Judicial review of an administrative agency’s decision is
authorized by the APA.” Mueller v. England, 404 F. Supp. 2d 51,
55 (D.D.C. 2005) (citing 5 U.S.C. §§ 701-706)). “Under the APA,
this Court may only set aside agency action that is ‘arbitrary,
capricious, an abuse of discretion or otherwise not in accordance
with law.’” Id. (citing 5 U.S.C. § 706(2)(A)).
5
   The FTC alleges that POM was aware of the impending
administrative action at the time POM filed the instant
                                - 5 -

enforcement action, the FTC is seeking an order that would forbid

POM from making certain claims about the health benefits of its

products unless “the representation is non-misleading” and the

FDA has approved the claims.   (Compl. at 21–22, In the Matter of

POM Wonderful, et al., No. 9344 (F.T.C. Sept. 27, 2010).)       The

proposed order would also limit the representations that POM can

make about its products and establish substantial future

oversight by the FTC.   (Id. at 22–25.)

     In POM’s answer to the FTC’s complaint, it asserted a number

of affirmative defenses.   POM argued that “[t]he FTC lacks

authority to impose all or part of the relief sought under the

FTC Act, the Administrative Procedure Act, and the First and

Fifth Amendments of the U.S. Constitution.”     (Answer at 7, In the

Matter of POM Wonderful, et al., No. 9344 (F.T.C. Oct. 18,

2010).)    It also alleged that the FTC has taken a new position in

the enforcement action against it “without adequate notice to the

public.”   (Id.)

     The FTC moves to dismiss this action, in part, because this

court should exercise its discretion to decline to entertain

POM’s declaratory judgment action.      (Def.’s Mem. at 10.)   Relying

on Swish Marketing, Inc. v. FTC, 669 F. Supp. 2d 72 (D.D.C.

2009), the FTC argues that declaratory relief is not proper

because a declaratory judgment would not fully resolve the

controversy between the parties, POM’s claims raised in this

complaint.   (See Def.’s Mem. at 5.)
                                 - 6 -

complaint can be raised in the pending administrative action, and

POM’s complaint anticipates defenses.      (Id.)   POM counters that

Swish should be distinguished because the plaintiff in Swish was

atypical in that it had “already agreed to stop its allegedly

unlawful conduct.     Thus, the plaintiff’s liability to the

defendant as to future damages if any . . . [had] now been

frozen, so a prompt and speedy adjudication of [the plaintiff’s]

rights in order to protect it from acting at its peril or

avoiding damages in the future [was] unnecessary,” Swish Mktg.,

669 F. Supp. 2d at 77 (internal citations and quotation marks

omitted).   (Pl.’s Mem. of P. & A. in Opp’n to Def. FTC’s Mot. to

Dismiss at *9.)    POM also asserts that its complaint does not

attempt to adjudicate anticipatory defenses; instead, it “seeks

only to adjudicate whether the FTC is improperly applying a ‘new

standard.’”   (Id.)

                              DISCUSSION

     The Declaratory Judgment Act allows district courts to

“declare the rights and other legal relations of any interested

party seeking such declaration.”    28 U.S.C. § 2201.    However,

“[i]n the declaratory judgment context, the normal principle that

federal courts should adjudicate claims within their jurisdiction

yields to considerations of practicality and wise judicial

administration.”    Wilton v. Seven Falls Co., 515 U.S. 277, 288

(1995); see also Hanes Corp. v. Millard, 531 F.2d 585, 591 (D.C.

Cir. 1976), superseded by statute on other grounds, 35 U.S.C.
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§ 294, as recognized in Nat’l R.R. Passenger Corp. v. Consol.

Rail Corp., 892 F.2d 1066, 1072 (D.C. Cir. 1990).

     “There are no dispositive factors” a district court should

consider in determining whether it should entertain an action

brought under the Declaratory Judgment Act.   See Comm. on

Judiciary v. Miers, 558 F. Supp. 2d 53, 95 (D.D.C. 2008).

However, the D.C. Circuit has found to be useful considerations:

     whether [declaratory relief] would finally settle the
     controversy between the parties; whether other remedies are
     available or other proceedings pending; the convenience of
     the parties; the equity of the conduct of the declaratory
     judgment plaintiff; prevention of ‘procedural fencing’; the
     state of the record; the degree of adverseness between the
     parties; and the public importance of the question to be
     decided.

Hanes, 531 F.2d at 592 n.4; see also Swish Mktg, 669 F. Supp. 2d

at 76–77 (D.D.C. 2009).

     The balance of the relevant factors counsels against

exercising jurisdiction over this action.   Generally, in the

interest of judicial efficiency, courts decline to hear

declaratory judgment actions that would not fully resolve the

parties’ claims.   See Roth v. D.C. Courts, 160 F. Supp. 2d 104,

110 (D.D.C. 2001).   Here, if the court resolved the issues POM

raised in its declaratory judgment action, the parties would

still have to litigate whether POM’s health claims about its

products were false, misleading, and unsubstantiated in violation

of the FTC Act.
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     In addition, other overlapping proceedings are pending.     The

FTC filed an administrative complaint against POM two weeks after

POM filed its complaint for declaratory relief.   While the

administrative proceeding is not identical to POM’s current

action, that forum is “perfectly capable” of determining whether

the proposed order exceeds the bounds of the FTC Act, violates

the First and Fifth Amendments, and seeks to abrogate the FDA’s

power.   See Patton Boggs, LLP v. Chevron Corp., 791 F. Supp. 2d

13, 25 (D.D.C. 2011).   POM can raise and has raised in the FTC’s

parallel enforcement action several of the same arguments that it

is pursuing in this action.   The enforcement action may not fully

resolve POM’s claims that the FTC has violated the APA and its

own rulemaking procedures in adopting a new standard in the

Nestlé and Iovate consent orders and that its “new rule” is

arbitrary and capricious, but POM will have a full opportunity to

challenge any FTC final action against it upon the conclusion of

the administrative action with a fully developed administrative

record available.

     Another factor that weighs against exercising jurisdiction

is when “granting declaratory relief would require the resolution

of an anticipatory defense[.]”    Swish Mktg., 669 F. Supp. 2d at

79 (citing BASF Corp. v. Symington, 50 F.3d 555, 559 (8th Cir.

1995) (“[W]here a declaratory plaintiff raises chiefly an

affirmative defense, and it appears that granting relief could

effectively deny an allegedly injured party its otherwise
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legitimate choice of the forum and time for suit, no declaratory

judgment should issue.”)).   Hanes noted that “[t]he anticipation

of defenses is not ordinarily a proper use of the declaratory

judgment procedure.”   Hanes, 531 F.2d at 592–93.    To the extent

that POM is seeking, in the current action, to resolve a defense,

this court may decline to exercise jurisdiction to hear the

action.   See Swish Mktg., 669 F. Supp. 2d at 80 (quoting Black’s

Law Dictionary (8th ed. 2004)).

     In POM’s answer to the FTC’s administrative complaint, it

raised several affirmative defenses including that the FTC does

not have authority under the FTC Act, the APA, and the First and

the Fifth Amendments of the U.S. Constitution to seek the

proposed order and that the FTC is attempting to enforce a new

standard on POM “without adequate notice to the public.”     (Answer

at 7, In the Matter of POM Wonderful, et al., No. 9344 (F.T.C.

Oct. 18, 2010).)   In the instant action, POM is seeking a

declaratory judgment on both affirmative defenses.    At least two

of the four causes of action asserted in POM’s declaratory

judgment action are properly considered anticipatory defenses.

     These and other Hanes factors militate against this court

exercising its jurisdiction over POM’s complaint for declaratory

relief.   Courts should not allow parties to use the Declaratory

Judgment Act to engage in forum shopping.   “Thus, in examining

whether to resolve a declaratory judgment action, ‘[c]ourts take

a dim view of declaratory plaintiffs who file their suits mere
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days or weeks before the coercive suits filed by a ‘natural

plaintiff’ and who seem to have done so for the purpose of

acquiring a favorable forum.”    Swish Mktg., 669 F. Supp. 2d at 78

(quoting AmSouth Bank v. Dale, 386 F.3d 763, 788 (6th Cir.

2004)).   Here, the FTC asserts that when POM filed its

declaratory judgment action, it was aware that the FTC would soon

file an administrative complaint against it.   (Def.’s Mem. at 5.)

As POM does not dispute this allegation, POM’s conduct leaves the

disfavored appearance that POM hastily filed the instant case, in

part, to secure tactical leverage from proceedings in this forum.

Moreover, the administrative enforcement action has proceeded

through discovery and oral arguments were scheduled.   (See Order

Scheduling Oral Argument at 1, In re POM Wonderful LLC, et al.,

No. 9344 (F.T.C. June 21, 2012).)    Continuing this parallel

matter would not aid in the orderly progress of resolving the

parties’ disputes.   Yielding here while the administrative action

proceeds will not significantly prejudice POM.

                            CONCLUSION

     The relevant Hanes factors counsel against exercising

jurisdiction over POM’s declaratory action.    Therefore, the

defendant’s motion to dismiss will be granted.

     A separate Order accompanies this Memorandum Opinion.
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SIGNED this 30th day of September, 2012.

                                     /s/
                              RICHARD W. ROBERTS
                              United States District Judge