United States of America Department of Justice v. Daniel Chapter One ( 2011 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
UNITED STATES OF AMERICA, )
)
Plaintiff, )
) Civil Action No. 10-1362 (EGS)
v. )
)
DANIEL CHAPTER ONE, )
)
and )
)
JAMES FEIJO, )
)
Defendants. )
)
MEMORANDUM OPINION
This action involves certain dietary supplements that
defendants claim can treat, cure, or prevent cancer, inhibit
tumors, and ameliorate the adverse effects of radiation and
chemotherapy. Pending before the Court is the government’s
motion for a preliminary injunction. In its motion, the
government asks the Court to preliminarily enjoin Daniel Chapter
One and James Feijo (the “defendants”) from violating the final
cease and desist order issued by the Federal Trade Commission
(the “FTC”) on January 25, 2010 regarding the marketing of these
dietary supplements (the “Modified Final Order”). Plaintiff
argues that emergency injunctive relief is necessary in order to
“prevent continuing harm to individuals suffering from cancer and
other tumors.” Pl.’s Mot. at 1. Upon consideration of the
motion, the response and reply thereto, the applicable law, and
the limited record currently before the Court, the Court hereby
GRANTS plaintiff’s motion.
I. BACKGROUND
This penalty suit arises from an FTC proceeding, in which
defendants were charged with violating §§ 5(a) and 12 of the FTC
Act by allegedly engaging in deceptive acts and practices with
regards to their marketing of certain dietary supplements. See
Compl. ¶ 7. Following a trial, an administrative law judge
concluded that defendants violated the FTC Act by making
unsubstantiated claims that four of the dietary supplements
marketed and sold by defendants – BioShark, 7 Herb Formula, GDU,
and BioMixx – prevented, treated, or cured tumors or cancer.
Compl. ¶ 7.1 This decision was appealed to the FTC, who
subsequently affirmed it. Compl. ¶ 7.
The FTC issued a Final Order to cease and desist practices
on December 24, 2009. Compl. ¶ 7. Soon thereafter, on January
25, 2010, the Commission issued a Modified Final Order, see Pl.’s
Ex. A, which made non-substantive modifications to clarify
required time periods in the Final Order. Compl. ¶ 7. Among
1
BioShark is a capsule whose primary ingredient is shark
cartilage. Compl. ¶ 10. 7 Herb Formula is a liquid tea
concentrate containing, among other things, rhubarb root, sheep
sorrel, Siberian ginseng, and cat’s claw. Compl. ¶ 10. GDU
capsules contain, among other things, bromelain, turmeric,
quercetin, feverfew, and boron. Compl. ¶ 10. BioMixx is a
powder that contains goldenseal, echinacea, and ginseng. Compl.
¶ 10. The prices of these supplements range from $31 to $72.
Compl. ¶ 10.
2
other things, the Modified Final Order prohibits defendants from
representing that BioShark, 7 Herb Formula, GDU, or BioMixx
(hereinafter, the “covered products”) prevent, treat, or cure any
type of tumor or cancer without possessing and relying upon
competent and reliable scientific evidence that substantiates the
representation. Compl. ¶ 8. The Modified Final Order also
requires defendants to send a letter to past purchasers of the
covered products informing them of the FTC’s conclusion that
defendants’ advertising claims were deceptive because they lacked
substantiation. Compl. ¶ 8. The Modified Final Order was served
on defendants on February 1, 2010. Compl. ¶ 7.
On February 25, 2010, defendants applied to the FTC for a
stay of the Modified Final Order. This request was denied on
March 23, 2010.
Defendants also filed an appeal with the United States Court
of Appeals for the District of Columbia Circuit contesting the
legality and constitutionality of the Modified Final Order.
Defendants argued, among other things, that the FTC’s Modified
Final Order violates defendants’ First Amendment rights and free
exercise of religion under the Religious Freedom Restoration Act
(“RFRA”). After their request for a stay of the Modified Final
Order was denied by the FTC, defendants filed an emergency motion
for a stay of the Modified Final Order with the D.C. Circuit.
3
This motion was denied on April 1, 2010. See Daniel Chapter One
v. FTC, No. 10-1064 (D.C. Cir. Apr. 1, 2010)
Because defendants failed to obtain a stay, the Modified
Final Order became effective on April 2, 2010. See Compl. ¶ 7;
see also 15 U.S.C. § 45(g)(2) (“An order of the Commission to
cease and desist shall become final . . . upon the sixtieth day
after such order is served, if a petition for review has been
duly filed; except that any such order may be stayed, in whole or
in part and subject to such conditions as may be appropriate by –
(A) the Commission; (B) an appropriate court of appeals of the
United States . . . ; or (C) the Supreme Court, if an applicable
petition for certiorari is pending.”).
On August 13, 2010, the government filed a complaint in this
Court seeking civil penalties and other injunctive relief
pursuant to §§ 5(l), 13(b), and 16(a) of the FTC Act.
Simultaneous therewith, the government also filed a motion for a
preliminary injunction seeking an order enjoining defendants from
violating the Modified Final Order. The Court denied this
request without prejudice on September 14, 2010, finding that the
Court lacked jurisdiction to enforce the Modified Final Order
while defendants’ action challenging the legality of the Modified
Final Order was pending before the D.C. Circuit. See Order at
Docket No. 11; see also 15 U.S.C. § 45(d) (“Upon the filing of
the record with it, the jurisdiction of the [circuit] court of
4
appeals of the United States to affirm, enforce, modify, or set
aside orders of the Commission shall be exclusive.”).2 The Court
then stayed this action pending resolution of defendants’ appeal
before the D.C. Circuit. See Order at Docket No. 11.
Following this Court’s denial of its motion for a
preliminary injunction, the government filed an emergency motion
for an order of enforcement pendente lite with the D.C. Circuit.
That court granted the government’s request on November 22, 2010.
See Daniel Chapter One v. FTC, No. 10-1064 (D.C. Cir. Nov. 22,
2010) (“Daniel Chapter One is hereby enjoined to obey forthwith
the modified final order of the Federal Trade Commission issued
January 25, 2010, in Docket No. 9329, In the Matter of Daniel
Chapter One and James Feijo.”). In addition, on December 7,
2010, the D.C. Circuit denied defendants’ request for a “partial
stay of enforcement order pendente lite pending final action by
2
The Court also denied defendants’ motion to dismiss,
concluding that the government’s penalty suit was properly before
the Court. See 15 U.S.C. § 45(l) (permitting the Attorney
General of the United States to file an action to recover civil
penalties against “[a]ny person, partnership, or corporation who
violates an order of the Commission after it has become final,
and while such order is in effect”); see also United States v.
Standard Educ. Soc’y, 55 F. Supp. 189, 193 (N.D. Ill. 1943) (“The
Circuit Court of Appeals is vested with exclusive jurisdiction to
enforce the Commission’s cease and desist orders under Section
5(d), but that court has no jurisdiction over penalty suits. . .
. Continuance of the enforcement proceedings in the Circuit Court
of Appeals appears to be no bar to the commencement of a penalty
suit, if, prior to the commencement of the suit, the Commission’s
order . . . has become final . . . .”).
5
this court and possible review by the U.S. Supreme Court.”
Daniel Chapter One v. FTC, No. 10-1064 (D.C. Cir. Dec. 7, 2010).
Shortly thereafter, on December 10, 2010, the D.C. Circuit
denied defendants’ petition for review of the Modified Final
Order. That court found, among other things, that “the
Commission properly exercised jurisdiction over [Daniel Chapter
One]” and that “[Daniel Chapter One]’s arguments based upon the
Constitution and the Religious Freedom Restoration Act are wholly
without merit.” See Daniel Chapter One v. FTC, 405 Fed. Appx.
505, 506 (D.C. Cir. 2010). Defendants then filed a petition for
writ of certiorari, which was denied on May 23, 2011. See Daniel
Chapter One v. FTC, 79 U.S.L.W. 3661 (U.S. May 23, 2011) (No. 10-
1292).
Following issuance of the D.C. Circuit’s mandate, plaintiff
filed a motion to lift the stay in this case. The Court granted
this motion on March 7, 2011. Plaintiff subsequently renewed its
request for a preliminary injunction.3 This motion is now ripe
for determination by the Court.4
3
After plaintiff filed its renewed motion for a preliminary
injunction, defendants filed a motion to stay proceedings. In
their motion, defendants sought, among other things, to have all
proceedings in this action stayed pending completion of a federal
criminal investigation of Mr. Feijo in the State of Rhode Island,
and disposition of any resulting indictments and prosecutions.
See Defs.’ Mot. to Stay at 1. The Court denied this motion
without prejudice during a hearing held on May 10, 2011.
4
Due to proceedings related to defendants’ motion to stay,
plaintiff’s motion for a preliminary injunction did not become
ripe until June 6, 2011.
6
II. STANDARD FOR PRELIMINARY INJUNCTIVE RELIEF
The FTC Act provides for an injunction “[u]pon a proper
showing that, weighing the equities and considering the
Commission’s likelihood of ultimate success, such action would be
in the public interest[.]” 15 U.S.C. § 53(b). This standard
departs from the traditional equity standard for preliminary
injunctive relief.5 See FTC v. H.J. Heinz Co., 246 F.3d 708, 714
(D.C. Cir. 2001) (explaining that “Congress determined that the
traditional standard was not appropriate for the implementation
of a Federal statute by an independent regulatory agency where
the standards of the public interest measure the propriety and
5
Generally, in deciding whether to grant interim injunctive
relief, the Court must evaluate whether: “(1) the plaintiff has a
substantial likelihood of success on the merits; (2) the
plaintiff would suffer irreparable injury were an injunction not
granted; (3) an injunction would substantially injure other
interested parties; and (4) the grant of an injunction would
further the public interest.” Ark. Dairy Coop. Ass'n v. United
States Dep't of Agric., 573 F.3d 815, 821 (D.C. Cir. 2009)
(citing Serono Labs., Inc. v. Shalala, 158 F.3d 1313, 1317-18
(D.C. Cir. 1998)). Although these four factors have typically
been evaluated on a “sliding scale” – whereby if the movant makes
an unusually strong showing on one of the factors, then it does
not necessarily have to make as strong a showing on another
factor, see Davis v. Pension Benefit Guar. Corp., 571 F.3d 1288,
1291-92 (D.C. Cir. 2009) – it is unclear whether this sliding-
scale approach is still controlling in light of the Supreme
Court's decision in Winter v. Natural Resources Defense Council,
129 S.Ct. 365, 374 (2008). See Sherley v. Sebelius, No. 10-5287,
2011 U.S. App. LEXIS 8686, at *10-12 (D.C. Cir. Apr. 29, 2011)
(discussing the circuit split on the issue of whether Winter
precludes continuing adherence to the sliding-scale approach,
then concluding that “[w]e need not wade into this circuit split
today because . . . in this case a preliminary injunction is not
appropriate even under the less demanding sliding-scale
analysis”).
7
the need for injunctive relief” (internal quotation marks
omitted)). “[T]o obtain a § 53(b) preliminary injunction, the
FTC need not show any irreparable harm, and the ‘private
equities’ alone cannot override the FTC’s showing of likelihood
of success.” FTC v. Whole Foods Mkt., 548 F.3d 1028, 1034-35
(D.C. Cir. 2008) (citing FTC v. Weyerhaeuser Co., 665 F.2d 1072,
1082 (D.C. Cir. 1981)). Instead, the court must balance the
likelihood of the FTC’s success against the equities, under a
sliding scale. Id. (citing cases).6
III. ANALYSIS
The government argues that a preliminary injunction is
warranted because it has a substantial likelihood of success on
the merits and the equities weigh strongly in favor of such
interim relief. Specifically, with regards to the likelihood of
success on the merits, the government asserts that “Defendants
have violated, and continue to violate, the Order in two ways.
First, they refuse to send a letter to purchasers of the
Products, that Part V.B of the Order required Defendants to send
nearly ten months ago.7 Second, the Defendants continue to make
6
Plaintiff alternatively argues that “an injunction would be
appropriate even if the Court were to apply the traditional four-
factor test when evaluating the Motion.” Pl.’s Mot. at 7. As
discussed herein, see n.10, this Court agrees.
7
Part V.B of the Modified Final Order states that “[w]ithin
forty-five (45) days after the final and effective date of this
order, Respondents shall send by first class mail, postage
prepaid, an exact copy of the notice attached as Attachment A to
all persons [who purchased the Products on or after January 1,
8
representations in violation of Part II of the Order, including
by soliciting and using endorsements to make these prohibited
claims.” Pl.’s Mot. at 9.8 Next, with regards to the equities,
2005].” See Pl.’s Ex. A at 3. Attachment A, in turn, contains
the following letter:
Dear [Recipient]:
Our records show that you bought [names of products] from our
website [name of website] or through a call center using our
toll-free number. We are writing to tell you that the Federal
Trade Commission (“FTC”) has found our advertising claims for
these products to be deceptive because they were not
substantiated by competent and reliable scientific evidence,
and the FTC has issued an Order prohibiting us from making
these claims in the future. The Order entered against us by
the FTC requires that we send you the following information
from the FTC about the scientific evidence on these products:
Competent and reliable scientific evidence does not
demonstrate that any of the ingredients in BioShark,
7 Herb Formula, GDU or BioMixx, are effective when
used for prevention, treatment or cure of cancer. It
is important that you talk to your doctor or health
care provider before using any herbal product in
order to ensure that all aspects of your medical
treatment work together. Some herbal products may
interfere or affect your cancer or other medical
treatment, may keep your medicines from doing what
they are supposed to do, or could be harmful when
taken with other medicines, or in high doses.
It is also important that you talk to your doctor or
health care provider before you decide to take any
herbal product instead of taking cancer treatments
that have been scientifically proven to be safe and
effective in humans.
Sincerely,
Pl.’s Ex. A at 7.
8
Part II of the Modified Final Order states that: “IT IS
HEREBY ORDERED that Respondents, directly or through any
corporation, partnership, subsidiary, division, trade name, or
9
the government asserts that “[t]he very real, imminent, and
substantial harms that cancer patients face as a result of
Defendants’ misleading claims outweigh any equities that
Defendants may claim support their position.” Pl.’s Mot. at 21.
Relatedly, the government asserts that the issuance of emergency
injunctive relief is in the public interest, arguing, among other
things, that “there is great public interest in preventing the
harm that arises when those who have been previously deceived by
Defendants’ representations do not receive corrective information
and continue to use the unproven products Defendants market.”
Pl.’s Mot. at 22.
other device, in connection with the manufacturing, labeling,
advertising, promotion, offering for sale, sale, or distribution
of BioShark, 7 Herb Formula, GDU, and BioMixx, or any
substantially similar health-related program, service, or
product, or any other Covered Product or Service, in or affecting
commerce, shall not make any representation, in any manner,
expressly or by implication, including through the use of product
or program names or endorsements, that such health-related
program, service, product, or Covered Product or Service
prevents, treats, or cures or assists in the prevention,
treatment, or cure of any type of tumor or cancer, including but
not limited to representations that:
1. BioShark inhibits tumor growth;
2. BioShark is effective in the treatment of cancer;
3. 7 Herb Formula is effective in the treatment or cure of
cancer;
4. 7 Herb Formula inhibits tumor formation;
5. GDU eliminates tumors;
6. GDU is effective in the treatment of cancer;
7. BioMixx is effective in the treatment of cancer; or
8. BioMixx heals the destructive effects of radiation or
chemotherapy;
unless the representation is true, non-misleading, and, at the
time it is made, Respondents possess and rely upon competent and
reliable scientific evidence that substantiates the
representation.” Pl.’s Ex. A at 2.
10
Defendants do not object to or otherwise respond to any of
these arguments. Instead, the only argument raised in
defendants’ 3-page opposition brief is the contention that it is
“inappropriate” for this Court to issue a preliminary injunction
in light of the government’s failure to seek an enforcement order
from the D.C. Circuit. See Defs.’ Opp’n at 1 (“The FTC had the
opportunity in the Court of Appeals to seek the same enforcement
orders it now seeks in this Court. . . . [T]he FTC did not seek a
permanent order against DCO or James Feijo which was within the
statutory power of the Court of Appeals to issue. In light of
the FTC’s failure to seek those orders before that court of
competent jurisdiction, wherein an action was pending and
adjudicated, it is inappropriate for the FTC to ask this Court to
now issue the orders.”). The Court finds this argument
unpersuasive.
As noted by the government, the FTC Act expressly provides
district courts with the authority to “grant mandatory
injunctions and such other and further equitable relief as they
deem appropriate in the enforcement of such final orders of the
Commission.” Pl.’s Reply at 4-5 (quoting 15 U.S.C. § 45(l)).
The order at issue in this case became final on April 2, 2010,
and appellate review is now complete. This Court, therefore, is
the appropriate forum for the government to seek emergency
11
injunctive relief in support of its enforcement action for civil
penalties.
Accordingly, in the absence of any other objection from
defendants, the Court concludes that interim injunctive relief is
warranted. As discussed briefly below, the Court finds that the
government is substantially likely to succeed on the merits, and
that the balance of equities support granting an interim
injunction.
With regards to the merits of this enforcement action, the
Court concludes that the government is likely to demonstrate that
defendants have violated the Modified Final Order.9 First, in
view of the fact that defendants admitted during the hearing held
on May 9, 2011 that they had not yet sent the letters required by
Part V.B of the Modified Final Order, the Court concludes that
the government is likely to establish that defendants violated
Part V.B of the Modified Final Order. See also Pl.’s Mot. at 9-
9
The FTC Act entrusts the administration of the Act to the
FTC as “a body of experts.” FTC v. Morton Salt Co., 334 U.S. 37,
54 (1948). “The enforcement responsibility of the courts, once a
Commission order has become final . . . is to adjudicate
questions concerning the order’s violation, not questions of fact
which support that valid order.” Id. (internal citations
omitted); see also United States v. H. M. Prince Textiles, Inc.,
262 F. Supp. 383, 388 (S.D.N.Y. 1966) (“[I]t is well settled that
a defendant cannot attack a final cease and desist order in a
subsequent enforcement proceeding.”). Accordingly, in
considering the government’s likelihood of success on the merits,
the Court need only determine whether defendants likely violated
the Modified Final Order. See H. M. Prince Textiles, Inc., 262
F. Supp. at 388 (explaining that in an action by the government
to recover civil penalties “[a]ll that the government need prove
is that a cease and desist order has in fact been violated”).
12
12 and the exhibits cited therein. In addition, and
substantially for the reasons set forth in the government’s
motion, the Court finds that the government is likely to
establish that defendants violated Part II of the Modified Final
Order by soliciting and using endorsements to make prohibited
representations regarding the covered products. See Pl.’s Mot.
at 12-21 and the exhibits cited therein (discussing defendants’
representations and endorsements on the Daniel Chapter One
Censored radio show as well as in various online forums and
websites).
The Court further finds that the equities weigh in favor of
emergency injunctive relief. Specifically, and in view of the
fact that plaintiff is likely to succeed on the merits, the Court
finds that there is no strong interest in not granting the
preliminary relief sought here. Indeed, the Court agrees that
“‘[t]here is no hardship to [defendants] in requiring them merely
to follow the law - to refrain from making misrepresentations to
consumers they contact.’” Pl.’s Mot. at 21 (quoting FTC v. City
West Advantage, Inc., No. 08-609, 2008 WL 2844696, at *6 (D. Nev.
July 22, 2008)). By contrast, the Court finds that there is a
significant public interest in preventing the harms that result
when (i) “consumers forego beneficial and effective therapy for
untested therapies such as those Defendants promote”;
(ii) “consumers risk their health to potential side effects and
13
harmful interactions between the Products and other therapies”;
and (iii) “those who have been previously deceived by Defendants’
representations do not receive corrective information and
continue to use the unproven Products Defendants market.” Pl.’s
Mot. at 22. This is particularly true in light of the fact that
defendants “target” their advertising messages to cancer patients
and their families. Pl.’s Mot. at 21-22. The equities,
therefore, weigh strongly in favor of protecting these vulnerable
consumers from defendants’ representations.10
10
Although the Court finds that the government does not need
to establish irreparable harm when seeking injunctive relief
under the FTC Act, see supra Section II, the Court nevertheless
agrees that consumers will suffer irreparable harm if injunctive
relief is not granted. As the government explains: “Defendants
have no competent and reliable scientific evidence that
substantiates their claims that the Products can prevent, treat,
or cure cancer, inhibit tumors, or ameliorate the adverse effects
of radiation and chemotherapy. . . . Irreparable harm arises if
consumers forego beneficial and effective therapy for untested
therapies such as those Defendants promote. Irreparable harm
arises when consumers risk their health to potential side effects
and harmful interactions between the Products and other
therapies. Irreparable harm arises when those who have been
previously deceived by Defendants’ representations do not receive
corrective information and continue to use the unproven Products
Defendants market. This harm is not theoretical. These
representations can be made and accessed at any time on these
websites and online forums. Defendants make these representations
on their radio show, which airs every Monday through Friday for
two hours each day. This irreparable harm is ongoing, and
imminent.” Pl.’s Mot. at 23-24. The Court therefore concludes
that interim injunctive relief would be appropriate even if the
traditional four-part equity standard applies, as plaintiff has
demonstrated, “by a clear showing,” that the requested relief is
warranted. Chaplaincy of Full Gospel Churches v. England, 454
F.3d 290, 297 (D.C. Cir. 2006).
14
IV. CONCLUSION
The Modified Final Order at issue in this case became final
on April 2, 2010. Defendants’ attempts to have the order set
aside have been rejected by both the D.C. Circuit and the United
States Supreme Court. Accordingly, having weighed the equities
and considered the plaintiff’s likelihood of success on the
merits, the Court concludes that it is in the public interest to
preliminarily enjoin defendants from violating the Modified Final
Order. Plaintiff’s motion for a preliminary injunction is
therefore GRANTED. A separate Order accompanies this Memorandum
Opinion.
SO ORDERED.
Signed: Emmet G. Sullivan
United States District Judge
June 22, 2011
15