United States of America Department of Justice v. Daniel Chapter One

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
________________________________
)
UNITED STATES OF AMERICA )
DEPARTMENT OF JUSTICE, )
)
Plaintiff, )
) Civil Action No. 10-1362 (EGS)
v. )
)
DANIEL CHAPTER ONE, et al., )
)
Defendants. )
)
MEMORANDUM OPINION
This case involved certain dietary supplements that
defendants claimed could treat, cure, or prevent cancer, inhibit
tumors, and ameliorate the adverse effects of radiation and
chemotherapy. Plaintiff United States of America Department of
Justice (“United States” or the “government”) brought this
action against Daniel Chapter One and James Feijo (the
“defendants”) under Sections 5(l), 13(b), and 16(a) of the
Federal Trade Commission Act, 15 U.S.C. §§ 45(l), 53(b), and
56(a), alleging that the defendants violated a final cease and
desist order of the Federal Trade Commission (“FTC” or the
“Commission”). On September 30, 2011, the United States filed a
motion for summary judgment on liability. On September 24,
2012, the Court granted the United States’ motion, concluding
that “there is no genuine issue as to any material fact and the
United States is entitled to judgment as a matter of law on
liability.” See United States v. Daniel Chapter One, 896 F.
Supp. 2d 1, 17 (D.D.C. 2012).
Pending before the Court is the United States’ motion for
entry of final judgment. The United States requests that the
Court enter a final order that includes injunctive relief,
equitable monetary relief in the amount of $1,345,832.43 and a
civil penalty award of $3,528,000. Upon consideration of the
motion, the response and reply thereto, supplemental briefing by
the parties, the applicable law, and the entire record in this
case, the Court GRANTS the United States’ motion.
I. Background
Defendant Daniel Chapter One is incorporated under the laws
of the State of Washington, with its principal place of business
in Portsmouth, Rhode Island. Id. at 2. Defendant James Feijo
is the sole member and overseer of Daniel Chapter One. Id. The
defendants advertise and sell dietary supplements, including
BioShark, 7 Herb Formula, GDU, and BioMixx (the “Products”),
which they claim can treat, cure, or prevent cancer. Id.
On September 18, 2008, the FTC initiated an administrative
proceeding alleging that the defendants’ marketing of the
Products constituted deceptive acts and practices in violation
of Sections 5(a) and 12 of the Federal Trade Commission Act (the
“FTC Act”), 15 U.S.C. §§ 45(a) and 52. Id. at 2-3. Following a
2
trial, an administrative law judge concluded that the defendants
had violated the FTC Act by making unsubstantiated claims that
the Products prevented, treated, or cured tumors or cancer. Id.
Defendants appealed this decision to the Commission, and on
December 24, 2009, the Commission upheld the decision and issued
a Final Order to cease and desist certain practices. Id.
On January 25, 2010, the FTC issued a Modified Final Order
(“FTC Order”). Id. at 3. Part II of the FTC Order prohibits
the defendants (referred to in the FTC Order as “Respondents”)
from making “any representation, in any manner, expressly or by
implication, including through the use of product or program
names or endorsements”1 that any product marketed by the
defendants:
[P]revents, 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;
1
The FTC Order states that the term “endorsement” shall be
defined as in 16 C.F.R. § 255.0(b), which states that “an
endorsement means any advertising message . . . that consumers
are likely to believe reflects the opinions, beliefs, findings,
or experiences of a party other than the sponsoring advertiser,
even if the views expressed by that party are identical to those
of the sponsoring advertiser.” 16 C.F.R. § 255.0(b).
3
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.
Id. 3-4. In addition, Part V.B of the FTC Order requires that:
Within 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 . . . to
all persons [who purchased the Products between January 1,
2005 and the date of the order.]
Id. The notice, which is attached to the FTC Order, informs
consumers of the FTC’s conclusion that the defendants’
advertising claims were deceptive because they were not
substantiated by competent and reliable scientific evidence. Id.
Defendants filed an appeal with the United States Court of
Appeals for the District of Columbia Circuit, contesting the
legality and constitutionality of the FTC Order. See Petition
for Review, Daniel Chapter One v. FTC, No. 10-1064 (D.C. Cir.
Mar. 17, 2010). Defendants also applied to the FTC for a stay
of the FTC Order pending the outcome of their appeal, but their
request was denied. Daniel Chapter One, 896 F. Supp. 2d at 3-4.
Defendants then filed with the D.C. Circuit an emergency motion
for a stay of the FTC Order. This motion was denied on April 1,
2010. See Per Curiam Order Denying Emergency Motion to Stay
Case, Daniel Chapter One, No. 10-1064 (D.C. Cir. Apr. 1, 2010).
Because the defendants failed to obtain a stay, the FTC Order
4
became effective on April 2, 2010. See Daniel Chapter One, 896
F. Supp. 2d at 3-4; 15 U.S.C. § 45(g)(2).
On August 13, 2010, the United States filed its complaint
in this Court seeking civil penalties and other injunctive
relief pursuant to Sections 5(l), 13(b), and 16(a) of the FTC
Act. Simultaneous therewith, the United States filed a motion
for a preliminary injunction seeking an order enjoining the
defendants from violating the FTC Order. Daniel Chapter One,
896 F. Supp. 2d at 3-4. The Court denied the United States’
motion for a preliminary injunction without prejudice on
September 14, 2010, finding that the Court lacked jurisdiction
to enforce the FTC Order while defendants’ appeal challenging
the legality of the FTC Order was pending before the D.C.
Circuit. See Order, Sept. 14, 2010, ECF No. 11.2 The FTC then
filed an emergency motion for an order of enforcement pendente
lite with the D.C. Circuit. The D.C. Circuit granted the United
States’ motion on November 22, 2010. See Per Curiam Order,
Daniel Chapter One, 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
2
The Court also denied the defendants’ motion to dismiss,
concluding that the United States’ penalty suit was properly
before the Court. See 15 U.S.C. § 45(l); see also United States
v. Standard Educ. Soc’y, 55 F. Supp. 189, 193 (N.D. Ill. 1943).
5
Chapter One and James Feijo.”). Defendants then filed a motion
with the D.C. Circuit seeking a stay of the enforcement of Part
V.B of the FTC Order. The D.C. Circuit rejected this request on
December 7, 2010. See Per Curiam Order, Daniel Chapter One, No.
10-1064 (D.C. Cir. Dec. 7, 2010).
On December 10, 2010, the D.C. Circuit denied the
defendants’ petition for review of the FTC Order, concluding
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.” Daniel Chapter One
v. FTC, 405 F. App’x 505, 505-06 (D.C. Cir. 2010) (emphasis
added). Defendants then filed a petition for a writ of
certiorari, which was denied on May 23, 2011. See Daniel
Chapter One v. FTC, No. 10-1292, 131 S. Ct. 2917 (2011).
Following issuance of the D.C. Circuit’s mandate, the
United States renewed its motion for a preliminary injunction in
this Court. On June 22, 2011, the Court granted the United
States’ motion for preliminary injunction and enjoined the
defendants from violating the FTC Order. See Order and
Memorandum Opinion, ECF Nos. 31 and 32.
On July 29, 2011, the United States filed a motion for an
order to show cause why Daniel Chapter One, James Feijo, and
6
Patricia Feijo3 should not be held in contempt of the Court’s
June 22, 2011 Order. The Court subsequently ordered the
defendants to show cause why they should not be held in
contempt. The Court held a contempt hearing on May 9, 2012.
During that hearing, the United States presented evidence and
testimony regarding the defendants’ purported violations of the
FTC Order. After receiving evidence and hearing argument, the
Court found Daniel Chapter One, James Feijo, and Patricia Feijo
in civil contempt. Specifically, the Court concluded that James
Feijo, Patricia Feijo, and Daniel Chapter One (the “Contemnors”)
had continued to violate the FTC Order by (1) continuing to make
representations on their radio show that their products treat or
cure cancer without competent and reliable scientific evidence
3 Although Patricia Feijo is not a defendant in this action, the
United States argued that she was bound by the preliminary
injunction pursuant to Federal Rule of Civil Procedure 65(d)(2),
which provides that a preliminary injunction binds:
(A) the parties;
(B) the parties’ officers, agents, servants, employees,
and attorneys; and
(C) other persons who are in active concert or
participation with anyone described in Rule
65(d)(2)(A) or (B) as long as those individuals
“receive actual notice of it by personal service or
otherwise[.]”
Fed. R. Civ. P. 65(d)(2). The United States argued that
Patricia Feijo received actual notice of the Order and that she
was “in active concert or participation” with James Feijo and
Daniel Chapter One. Daniel Chapter One, 896 F. Supp. 2d at 5-6.
Defendants did not dispute that Patricia Feijo is an agent,
representative, or employee of Daniel Chapter One. Id.
7
to substantiate those representations, (2) encouraging potential
customers to visit websites containing Daniel Chapter One
publications that contain prohibited information and
endorsements of the prohibited supplements, (3) not removing
certain representations from the websites within their control,
which Contemnors conceded included www.danielchapterone.com,
www.dc1ministry.com, and www.dc1freedom.com, and (4) failing to
mail the required notice to all consumers who purchased the
Products between January 1, 2005, and April 2, 2010. Daniel
Chapter One, 896 F. Supp. 2d at 5-6. The Court allowed the
Contemnors two weeks to attempt to purge the contempt and
scheduled another hearing in order to determine whether or not
the contempt had been purged. Id.
On May 22, 2012, James Feijo submitted a certification of
compliance with the Court’s Order. In that certification, Mr.
Feijo stated that all notices had been sent out in compliance
with the Court’s Order; that prohibited representations had been
removed from www.dc1freedom.com, www.danielchapterone.com, the
dc1 online store, and www.dc1ministry.com; that Contemnors had
ceased answering health questions on their radio show or
inviting other callers to answer questions; and that Contemnors
were not mentioning other people’s websites containing Daniel
Chapter One information. See James Feijo’s Certification of
Compliance, ECF No. 51. At a subsequent hearing on May 23,
8
2012, the United States presented additional evidence that
Contemnors had not purged the contempt, but the Court gave
Contemnors until May 24, 2012 at 3:30 p.m. to make a showing to
the Court sufficient to demonstrate their compliance with the
Court’s Order. Daniel Chapter One, 896 F. Supp. 2d at 6-7. On
May 24, 2012, the defendants filed a supplemental certification
of compliance with the Court’s Order, and the United States
filed a notice of failure to purge. See Defs.’ Supplemental
Certification of Compliance with Order, ECF No. 52; Pl.’s Notice
of Failure to Purge, ECF No. 53. The Court determined that
Contemnors had taken sufficient actions to purge themselves of
contempt, and therefore the Court vacated its Contempt Order.
See Minute Order, May 24, 2012.
On September 30, 2011, the United States filed a motion for
summary judgment on liability. On September 24, 2012, the Court
granted the United States’ motion, concluding that “there is no
genuine issue as to any material fact and the United States is
entitled to judgment as a matter of law on liability as to
Counts I (Prohibited Representations) and II (Failure to Mail
Notice).” Daniel Chapter One, 896 F. Supp. 2d at 17. On
November 27, 2012, the Court granted the United States’ request
for limited discovery concerning the defendants’ ability to pay
a civil penalty under the FTC Act. See Minute Order, Nov. 27,
2012. Discovery closed on June 4, 2013.
9
On April 14, 2014, the United States filed the pending
motion for entry of final judgment. See Pl.’s Mot., ECF No. 68.
The United States requests that the Court enter a final order
that includes injunctive relief, equitable monetary relief in
the amount of $1,345,832.43 and a civil penalty award of
$3,528,000. On May 19, 2014, the defendants filed their
opposition.4 See Defs.’ Opp., ECF No. 70. On June 6, 2014, the
United States filed its reply. See Pl.’s Reply, ECF No. 72.
The United States’ motion is now ripe for determination by the
Court.
II. The FTC Act
The FTC Act authorizes district courts to award civil
penalties and to grant injunctions and other equitable relief
where an FTC order or consent decree has been violated. See 15
U.S.C. § 45 (“United States district courts are empowered to
grant mandatory injunctions and such other and further equitable
4 On January 22, 2013, the defendants filed a motion to stay the
proceedings pending completion of a federal criminal
investigation, and disposition of any resulting indictments and
prosecutions, of James Feijo and Daniel Chapter One in the State
of Rhode Island. See Defs.’ Mot. to Stay, ECF No. 22. The
Court denied the defendants’ motion to stay. See May 5, 2013
Minute Order. On May 20, 2014, the defendants file a renewed
motion to stay the proceedings pending the resolution of the
criminal proceedings in United States v. James Feijo, Patricia
Feijo and Daniel Chapter One in Case No. 1:14-cr-00048-M-LDA.
The Court denied the defendants’ renewed motion to stay. See
October 6, 2014 Minute Order. The Court also directed the
defendants to supplement their opposition to the United States’
motion for entry of final judgment. Id.
10
relief as they deem appropriate in the enforcement of such final
orders of the Commission.”); Id. (The district court is
authorized to impose civil penalties upon “[a]ny person,
partnership or corporation who violates an order of the
Commission”).
Although the FTC Act “does not expressly authorize a
district court to grant consumer redress (i.e., refund,
restitution, rescission, or other equitable monetary relief),
Section 13(b)’s grant of authority to provide injunctive relief
carries with it the full range of equitable remedies,” see FTC
v. Freecom Communications, Inc., 401 F.3d 1192, 1202 n.6 (10th
Cir. 2005), including disgorgement of profits. FTC v. Gem
Merch. Corp., 87 F.3d 466, 468 (11th Cir. 1996); see also CFTC
v. Wilshire Inv. Mgmt. Corp., 531 F.3d 1339, 1344 (11th Cir.
2008) (the FTC Act’s “grant of authority to issue an injunction
carried the full range of equitable remedies, among which ‘is
the power to grant restitution and disgorgement’” (internal
citations omitted)). “An order for disgorgement may be
considered an equitable adjunct to an injunction decree.” FTC
v. Bronson Partners, LLC, 654 F.3d 359, 365 (quoting Porter v.
Warner Holding Co., 328 U.S. 395, 399 (1946)); see also Freecom
Communications, 401 F.3d at 1203 n.6 (“In cases where the FTC
seeks injunctive relief, courts deem any monetary relief sought
as incidental to injunctive relief.”).
11
In other words, a district court’s authority to award
monetary relief under Section 13(b) falls within its general
equitable jurisdiction to “decide all relevant matters in
dispute and to award complete relief.” Porter, 328 U.S. at 399;
see also FTC v. Cantkier, 767 F. Supp. 2d 147, 160 (D.D.C. 2011)
(“Every court that has considered the issue thus far appears to
have ruled that Section 13(b) does entitle the FTC to seek
equitable monetary relief, including courts in this district and
multiple Courts of Appeals.” (emphasis in original)); FTC v.
Mylan Labs, Inc., 62 F. Supp. 2d 25, 37 (D.D.C. 1999); FTC v.
Pantron I Corp., 33 F.3d 1088, 1102 (9th Cir. 1994); FTC v. Sec.
Rare Coin & Bullion Corp., 931 F.2d 1312, 1316 (8th Cir. 1991);
FTC v. Amy Travel Serv., Inc., 875 F.2d 564, 571-72 (7th Cir.
1989).
III. Analysis
The United States requests that the Court enter a final
order that includes injunctive relief, equitable monetary relief
in the amount of $1,345,832.43 and a civil penalty award of
$3,528,000. See Pl.’s Mot., ECF No. 68. The Court will address
each requested form of relief sought in turn.
A. A Permanent Injunction Is Necessary to Protect The
Public.
On June 22, 2011, the Court granted the United States’
motion for a preliminary injunction. The Court ordered the
12
following: “defendants are hereby enjoined to obey forthwith
the Modified Final Order of the Federal Trade Commission issued
on January 25, 2010, in Docket No. 9329, In the Matter of Daniel
Chapter One and James Feijo.” See United States v. Daniel
Chapter One, 793 F. Supp. 2d 157, 164 (D.D.C. 2011). In its
motion, the United States asserted that the permanent injunction
should encompass the preliminary injunction – which required the
defendants to comply with the FTC Order – with “additional
restrictions and requirements.” See Pl.’s Mot., ECF No. 68 at
5. Specifically, the United States argued that “there is an
overwhelming need to: (1) broaden coverage of the FTC Order
provisions to ban the defendants from selling any dietary
supplement and from marketing any product or service with
disease claims; and (2) enhance the compliance monitoring
provisions to help the FTC guard against order violations in the
future.” Id. In support of its motion, the government states
that the defendants’ “pervasive and flagrant order violations
evidence that the FTC Order did not achieve its purpose of
protecting the public and demonstrate that they likely will
repeat their fraudulent activities and victimize consumers
unless their practices are more significantly curtailed.” Id.
This Court is “empowered to grant mandatory injunctions and
such other and further equitable relief as [it] deem[s]
appropriate in the enforcement of such final orders of the
13
Commission.” 15 U.S.C. § 45(l). “A federal court has broad
power to restrain acts which are of the same type or class as
unlawful acts which the court has found to have been committed
or whose commission in the future, unless enjoined, may fairly
be anticipated from the defendant’s conduct in the past.”
Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100,
132 (1969); NLRB v. Express Publ’g Co., 312 U.S. 426, 435
(1941). The breadth of the injunction must depend upon the
circumstances of the particular case, “the purpose being to
prevent violations, the threat of which in the future is
indicated because of their similarity or relation to those
unlawful acts . . . found to have been committed . . . in the
past.” Express Publ’g, 312 U.S. at 436–37. Courts in equitable
actions may enjoin otherwise lawful conduct to ensure that the
final relief ordered is effective. See United States v. Loew’s,
Inc., 371 U.S. 38, 53 (1962) (“Some of the practices which the
government seeks to have enjoined with its requested
modifications are acts which may be entirely proper when viewed
alone. To ensure, however, that relief is effectual, otherwise
permissible practices connected with the acts found to be
illegal must sometimes be enjoined.”); EEOC v. Wilson Metal
Casket Co., 24 F.3d 836, 842 (6th Cir. 1994) (“The proper scope
of an injunction is to enjoin conduct which has been found to
have been pursued or is related to the proven unlawful
14
conduct.”); United States v. Holtzman, 762 F.2d 720, 726 (9th
Cir. 1985) (“A federal court’s equity jurisdiction affords it
the power to enjoin otherwise lawful activity when necessary and
appropriate in the public interest to correct or dissipate the
evil effects of past unlawful conduct.”); Kentucky Fried Chicken
Corp. v. Diversified Packaging Corp., 549 F.2d 368, 390 (5th
Cir. 1977) (“In fashioning relief against a party who has
transgressed the governing legal standards, a court of equity is
free to proscribe activities that, standing alone, would have
been unassailable.”).
A “court’s power to grant injunctive relief survives
discontinuance of the illegal conduct,” and because the “purpose
. . . is to prevent future violations,” injunctive relief is
appropriate when there is a “cognizable danger of recurrent
violation, something more than the mere possibility.” United
States, v. W.T. Grant Co., 345 U.S. 629, 633 (1953). Once a
violation is demonstrated, all that need be shown is that “there
is some reasonable likelihood of future violations,” and past
unlawful conduct is “highly suggestive of the likelihood of
future violations.” Commodity Futures Trading Comm’n v. Hunt,
591 F.2d 1211, 1220 (7th Cir. 1979).
In addition, courts can order broad “fencing in” injunctive
relief in actions brought under the FTC Act. See FTC v. Think
Achievement Corp., 144 F. Supp. 2d 1013, 1016 (N.D. Ind. 2000).
15
Indeed, the Supreme Court has held that, when entering orders,
the FTC “cannot be required to confine its road block to the
narrow lane the transgressor has traveled; it must be allowed
effectively to close all roads to the prohibited goal, so that
its order may not be bypassed with impunity.” FTC v. Ruberoid
Co., 343 U.S. 470, 473 (1952); see also FTC v. Colgate–Palmolive
Co., 380 U.S. 374, 395 (1965) (“The Commission is not limited to
prohibiting the illegal practice in the precise form in which it
is found to have existed in the past. Having been caught
violating the [FTC] Act, respondents must expect some fencing
in.”); FTC v. Nat’l Lead Co., 352 U.S. 419, 429 (1957).
Further, courts may order record-keeping and monitoring to
ensure compliance with a permanent injunction. See, e.g., FTC
v. SlimAmerica, Inc., 77 F. Supp. 2d 1263, 1276 (S.D. Fla. 1999)
(holding that record-keeping and monitoring provisions were
appropriate to permit the Commission to police the defendants’
compliance with the order); FTC v. U.S. Sales Corp., 785 F.
Supp. 737, 753–54 (N.D. Ill. 1992) (indicating that monitoring
by the Commission may be necessary to ensure adequate
compliance); FTC v. Sharp, 782 F. Supp. 1445, 1456–57 (D. Nev.
1991) (judgment included monitoring provisions).
In deciding whether to issue an injunction in light of past
violations, courts consider “the totality of the circumstances
surrounding the defendant[s] and [their] violations[,]”
16
including: (1) the degree of scienter involved; (2) whether the
infraction was isolated or recurrent; (3) whether the defendants
recognize “the wrongful nature of [their] conduct;” (4) “the
sincerity of [the defendants] assurance against future
violations[;]” (5) the degree of consumer harm caused by the
defendants; and (6) “whether defendants are positioned to commit
future violations[.]” SEC v. Murphy, 626 F.2d 633, 655 (9th
Cir. 1980); FTC v. Medical Billers Network, Inc., 543 F. Supp.
2d 283, 323 (S.D.N.Y. 2008).
The record in this case is crystal clear: From April 2,
2010, when the FTC Order went into effect, until May 24, 2012,
when the defendants came into compliance with the FTC Order, the
defendants intentionally and knowingly violated the FTC Order.
From November 22, 2010, when the D.C. Circuit issued an Order
enjoining the defendants to “obey forthwith the modified final
order,” until May 24, 2012, the defendants intentionally and
knowingly violated the D.C. Circuit’s Order. See Per Curiam
Order, Daniel Chapter One, No. 10-1064 (D.C. Cir. Nov. 22,
2010). From June 22, 2011, when this Court issued a preliminary
injunction, until May 24, 2012, the defendants intentionally and
knowingly violated this Court’s preliminary injunction. See
Order and Memorandum Opinion, ECF Nos. 31 and 32. The
defendants were well aware of what they were required to do to
comply with the various orders, yet deliberately chose to
17
continuously ignore and violate all orders. The record is
replete with evidence that the defendants – during the relevant
dates noted above – among other things, continued to make
representations on their radio show that their products treat or
cure cancer without competent and reliable scientific evidence
to substantiate those representations and encouraged potential
customers to visit websites containing Daniel Chapter One
publications that contain prohibited information and
endorsements of the prohibited supplements. See Daniel Chapter
One, 896 F. Supp. 2d at 17.
Rather than grapple with the mountain of precedent cited by
the United States or the factual record in this case, the
defendants, in a very cursory response – which cites no
authority – asserted that the United States has not proffered
any evidence that the defendants “have engaged in improper
activities since the Court found they were in compliance with
the FTC Order on May 24, 2012.” See Defs.’ Opp., ECF No. 70 at
2. It is well established, however, that current compliance
does not preclude the entry of a permanent injunction, and a
permanent injunction is justified if “there exists some
cognizable danger of recurrent violation” or “some reasonable
likelihood of future violations.” W.T. Grant Co., 345 U.S. at
633; Hunt, 591 F.2d at 1220 (internal citations omitted); see
also Am. Bar Ass’n v. FTC, 636 F.3d 641, 648 (D.C. Cir. 2011)
18
(“[A] defendant’s voluntary cessation of allegedly illegal
conduct does not deprive [a court] of power to hear and
determine the case.”).
Considering the fact that preliminary injunctive relief has
already been ordered against the defendants in this case, the
Court now determines, based on the factual record, that a
permanent injunction is necessary and appropriate to protect
consumers. The Court concludes that – in order to protect the
public – the permanent injunction should encompass the
preliminary injunction with the modifications suggested by the
United States. Specifically, the permanent injunction will ban
the defendants from selling any dietary supplement and from
making disease claims. Additionally, the permanent injunction
will enhance the United States’ monitoring authority. See e.g.,
FTC v. Gill, 265 F.3d 944, 957-58 (9th Cir. 2001) (affirming the
district court’s order prohibiting defendant from engaging in
the credit repair business).
Defendants’ pattern of deceiving consumers in complete
disregard of orders from the FTC, this Court and the D.C.
Circuit raises serious concerns that the defendants would
inflict further injury on consumers in the future without these
modifications. Further, the defendants have made widely-
disseminated efficacy claims for a multitude of products without
possessing reliable scientific evidence to substantiate those
19
representations. Undoubtedly, the defendants’ dietary
supplement marketing involves deliberate, deceptive strategies
that are easily adaptable or transferable to other products, and
the evidence in this case shows that – in addition to their
claims that the Products cure cancer – the defendants also make
health-related representations about their other products. See
e.g., http://dc1store.com/products/apple-pectin-50-off (“This
gentle and nourishing fiber also helps support healthy
cholesterol levels and a healthy heart and gallbladder.” (last
visited March 12, 2015));
http://dc1store.com/products/carniplex-60-cap-2-or-more
(“Carniplex can help support healthy liver, heart, and blood
triglyceride levels. It may assist in fat loss and muscle
health, and enhance the effectiveness of antioxidants C and E.”
(last visited March 12, 2015)).
In order to ensure enforcement of this Memorandum Opinion,
and the accompanying Order, the Court adopts the enhanced
compliance monitoring provisions recommended by the United
States, which would require the defendants to: dispose of
customer information, acknowledge receipt of the Final Order in
this case and distribute it to certain company representatives,
provide a written report on their business activities and
periodic updates such as change of address notifications,
maintain specified records in future businesses and produce
20
information to the Commission upon request about their
compliance. Stringent compliance monitoring provisions are
appropriate to ensure the defendants’ compliance in the future.
FTC v. Neiswonger, 494 F. Supp. 2d 1067, 1084 (E.D. Mo. 2007)
(adopting enhanced compliance monitoring provisions in response
to FTC defendant’s order violations); see also Think Achievement
Corp., 144 F. Supp. 2d at 1018; FTC v. U.S. Sales Corp., 785 F.
Supp. 737, 753 (N.D. Ill. 1992); FTC v. Sharp, 782 F. Supp.
1445, 1456-57 (D. Nev. 1991). The requested provisions will
provide an oversight mechanism to better ensure that the
defendants do not engage in future recidivism.
B. Equitable Monetary Relief Is Appropriate In This Case.
The defendants challenge this Court’s authority to award a
money judgment under Section 13(b) of the FTC Act. Because the
Court concludes that Section 13(b) permits a district court to
order ancillary equitable relief, including monetary relief, and
that such relief may be calculated on the basis of proceeds that
the defendants received from their unlawful activity, the Court
will award equitable monetary relief in the amount of
$1,345,832.43.
1. Ancillary Remedies Under Section 13(b) of the FTC Act
Section 13(b) of the FTC Act provides: “in proper cases the
[FTC] may seek, and after proper proof, the court may issue, a
permanent injunction.” 15 U.S.C. § 53(b). While the
21
provision’s express text refers only to injunctive relief,
courts have consistently held that “the unqualified grant of
statutory authority to issue an injunction under [S]ection 13(b)
carries with it the full range of equitable remedies, including
the power to grant consumer redress and compel disgorgement of
profits.” Gem Merch. Corp., 87 F.3d at 468; see also Bronson,
654 F.3d at 365; Pantron I Corp., 33 F.3d at 1102; FTC v. Sec.
Rare Coin & Bullion Corp., 931 F.2d at 1316; Freecom
Communications, 401 F.3d at 1202 n.6; Amy Travel Serv., Inc.,
875 F.2d at 571-72; FTC v. Sw. Sunsites, Inc., 665 F.2d 711,
718–19 (5th Cir. 1982); Cantkier, 767 F. Supp. 2d at 160; FTC v.
Swish Mktg, 2010 WL 653486, at *6-10 (N.D. Cal. Feb. 22, 2010);
FTC v. Davison Assocs., 431 F. Supp. 2d 548, 560 (W.D. Pa.
2006); FTC v. Five-Star Auto Club, Inc., 97 F. Supp. 2d 502, 533
(S.D.N.Y. 2000); FTC v. Mylan Labs, Inc. 62 F. Supp. 2d at 37;
FTC v. Minuteman Press, 53 F. Supp. 2d 248, 261-62 (E.D.N.Y.
1998). This Court joins with these courts and holds that
Section 13(b) of the FTC Act permits district courts to grant
ancillary equitable relief, including equitable monetary relief.
In Porter v. Warner Holding Co., 328 U.S. 395 (1946), the
Supreme Court held that the Emergency Price Control Act of 1942
– which permitted a federal administrator to seek a “permanent
or temporary injunction, restraining order, or other order” –
authorized the administrator to obtain not just injunctive
22
relief but also a money judgment. The Supreme Court provided
two independent reasons for its conclusion. First, the Supreme
Court explained:
[An order for disgorgement] may be considered an
equitable adjunct to an injunction decree. Nothing is
more clearly a part of the subject matter of a suit for
an injunction than the recovery of that which has been
illegally acquired and which has given rise to the
necessity for injunctive relief. . . . [W]here, as here,
the equitable jurisdiction of the court has properly
been invoked for injunctive purposes, the court has the
power to decide all relevant matters in dispute and to
award complete relief even though the decree includes
that which might be conferred by a court of law.
Id. at 399.5 Second, relying on the text of the Emergency
Price Control Act, the Supreme Court reasoned that a money
judgment could be an “other order” that is “appropriate and
necessary to enforce compliance with the act.” Id. at 400.
The Supreme Court subsequently made clear that the two
bases for its holding in Porter were indeed independent. In
Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288 (1960),
the Supreme Court concluded that a provision of the Fair Labor
Standards Act that authorized the district court to “restrain
violations of [the statute]” carried with it the power to award
5 Monetary damages were not traditionally available in equity
because “[m]oney damages are, of course, the classic form of
legal relief.” Mertens v. Hewitt Assocs., 508 U.S. 248, 255
(1993). The power of equitable courts to afford “complete
relief,” Porter, 328 U.S. at 399, meant, however, that equitable
courts could afford monetary relief when necessary to provide a
complete equitable remedy.
23
backpay to employees who had been wrongfully discharged. After
citing Porter’s holding that a district court empowered to
enjoin statutory violations may award such ancillary remedies as
necessary to afford complete relief, the Supreme Court went on
to note:
The applicability of this principle is not to be denied,
either because the Court there considered a wartime
statute, or because, having set forth the governing
inquiry, it went on to find in the language of the
statute affirmative confirmation of the power to order
reimbursement.
Id. at 291.
Like the provision at issue in Mitchell, Section 13(b)
contains no reference to “other orders.” Nonetheless, the
principle that “the comprehensiveness of [the district court’s]
equitable jurisdiction is not to be denied or limited in the
absence of a clear and valid legislative command,” Mitchell, 361
U.S. at 291 (quoting Porter, 328 U.S. at 398), applies with
equal force to actions under Section 13(b). By empowering
district courts to issue injunctive relief, Section 13(b)
invokes the equitable jurisdiction of the Court. A money
judgment is thus permitted as a form of ancillary relief because
– once its equitable jurisdiction has been invoked – “the court
24
has the power to decide all relevant matters in dispute and to
award complete relief.” Porter, 328 U.S. at 399.
Accordingly, Section 13(b) of the FTC Act permits this
Court to award not only injunctive relief but also ancillary
relief, including monetary relief. Bronson, 654 F.3d at 365.
2. Monetary Relief Under Section 13(b)
Equitable monetary relief is calculated using a “two-step
burden-shifting framework . . . [that] requires a court to look
first to the FTC to ‘show that its calculations reasonably
approximated the amount of the defendant[s’] unjust gains’ and
then shift the burden ‘to the defendants to show that those
figures were inaccurate.’” Id. at 364 (quoting FTC v. Verity
Int’l, Ltd., 443 F.3d 48, 67 (2d Cir. 2006)).
At the first step of the burden-shifting analysis, the
United States calculated the defendants’ unjust gains as
$1,345,832.43. This amount, the United States asserted, equals
the amount consumers spent on the Products between April 2,
2010, when the FTC Order went into effect, and May 24, 2012,
when the defendants purged itself of contempt. See Pl.’s Mot.,
ECF No. 68 at 9-10 (citing sales records provided by the
defendants).
At the second step of the burden-shifting analysis, the
defendants do not proffer any evidence to show that the United
States’ calculations were inaccurate. See Defs.’ Opp., ECF No.
25
70 at 2-3. Therefore, the defendants concede that the United
States’ calculation of their unjust gains is accurate. McGinnis
v. District of Columbia, 2014 WL 4243542, at *15 (D.D.C. Aug.
28, 2014) (when a party “fails to address [an argument] in its
[opposition] . . . the Court will deem it abandoned”).
Accordingly, the Court will award equitable monetary relief
in the amount of $1,345,832.43.
C. Civil Penalty
Under the FTC Act, the Court is authorized to impose civil
penalties upon “[a]ny person, partnership or corporation who
violates an order of the Commission[.]” 15 U.S.C. § 45(l). The
statute originally provided for “a civil penalty of not more
than $10,000 for each violation;” that sum, however, was
modified pursuant to the Federal Civil Penalties Inflation
Adjustment Act, and is now $16,000 per violation. 15 U.S.C. §
45(l); 28 U.S.C. § 2461; 16 C.F.R. § 1.98(d). The FCT Act
further provides that “[e]ach separate violation of such an
order shall be a separate offense[.]” 15 U.S.C. § 45(l). Here,
the defendants intentionally and knowingly violated the FTC
Order from April 2, 2010, when the FTC’s Order went into effect,
to May 24, 2012, when the defendants came into compliance.
During each of these 784 days, the defendants committed
multiple violations of the FTC Order. See generally Daniel
Chapter One, 896 F. Supp. 2d at 1-17. For example, the
26
defendants promoted the Products as cancer treatments in
multiple locations, including placing misrepresentations on
several websites under their control and on online forums. Id.
Further, the defendants represented to customers that the
Products treat and cure cancer on their radio show, and would
then post the shows online so that others could access the
information. Id. In addition, the defendants neglected to send
the required corrective notices to their prior customers. Id.
Each individual misrepresentation is a separate violation, and
every corrective notice they failed to send is a separate
violation. See, e.g., United States v. Nat’l Fin. Servs. Inc.,
98 F.3d 131, 141 (4th Cir. 1996) (finding that each letter sent
was a separate violation). This adds up to thousands of
violations and an enormous civil penalty sum.
Where the violation is a “continuing failure to obey or
neglect to obey a final order of the Commission, each day of
continuance of such failure or neglect shall be deemed a
separate offense.” 15 U.S.C. § 45. Under this provision, each
day that the defendants failed to comply with the FTC Order
should be deemed a separate violation. While the defendants
would certainly be liable for a much higher penalty amount if
the Court were to count each individual violation, the Court is
of the opinion that the “continuing failure” calculation is the
appropriate calculation in this case. At the statutory maximum
27
of $16,000 per violation, the defendants would be liable for a
civil penalty up to the amount of $12,544,000 for the 784 days
they failed to comply with the FTC Order.
While the defendants are subject to a $12,544,000 statutory
maximum civil penalty, which the defendants do not dispute, see
generally Defs.’ Opp., ECF No. 60, the Court determines the
appropriate civil penalty to be imposed by considering five
separate factors. See United States v. Danube Carpet Mills,
Inc., 737 F.2d 988, 993 (11th Cir. 1984); United States v.
Reader’s Digest Ass’n, 662 F.2d 955, 967 (3d Cir. 1981).
Specifically, courts consider: “(1) the good or bad faith of the
defendants; (2) the injury to the public; (3) the defendants’
ability to pay; (4) the desire to eliminate the benefits derived
by the violations; and (5) the necessity of vindicating the
authority of the FTC.” Danube Carpet Mills, Inc., 737 F.2d at
994. The United States asserted that, based upon an analysis of
these factors, a civil penalty award in the amount of $3,528,000
– a sum which equals a $4,500 penalty every day in which the
defendants failed to comply with the FTC Order – is appropriate.
See Pl.’s Mot., ECF No. 68 at 11-12. The Court agrees.
1. The Defendants Acted in Bad Faith.
There is no doubt that the defendants acted with “actual
knowledge” that their conduct was unlawful and violated orders
from the FTC, this Court and the D.C. Circuit. See 15 U.S.C. §
28
45. In other words, the defendants knew – at the time they
intentionally violated each order – that their conduct was
unlawful and yet continued to engage in that conduct. This is
bad faith.
The FTC Order became effective on April 2, 2010. Rather
than comply with the FTC Order, the defendants knowingly and
deliberately continued to represent on websites, online forums,
and their radio show that the Products would treat or cure
cancer. Defendants’ own statements demonstrate that their
conduct was willful and deliberate. For example, as previously
found by this Court,
[D]uring a radio show broadcast on June 23, 2011, the
Feijos took a call from an individual who identified
himself as Curtis, and who said that his daughter had
cancer. James Feijo advised Curtis to go online and
read the testimonies the Daniel Chapter One website to
learn more, and stated that they support “God’s way”
of treating cancer through the use of 7 Herb Formula,
BioShark, and GDU. In addition, James Feijo told
Curtis that “the government is trying to stop us from
helping you and your daughter . . . they want to not
let us tell you about 7 Herb Formula, BioShark, and
GDU, that God has given us to help people around the
world.” Patricia Feijo added:
[“W]e do care about your daughter . . . we just heard
from our lawyer that a judge ruled in favor of the
Trade Commission, and so, you know, basically we can
be fined out of existence tonight or, or, put into
prison, and we want people to know the reality that
we’re sitting here, willing to risk even our lives, to
serve the lord and to serve you, right, but the
situation is such that I would say get the product
while you can, even stock up while you can, and if one
day you won’t be able to get our products then just,
you know, try to continue to follow pretty much what
29
those products are, the herbs, the enzymes, because
that’s what we have seen work for many years.[”]
James Feijo then gave Curtis information on how to
order the products, and directed Curtis to the
healthfellowship.org website for more information. At
other times during this same show, James Feijo stated
that Daniel Chapter One’s products, including GDU,
were created and intended by God “for you, for your
health and healing, as a prevention, to mitigate, to
treat, to heal, to cure.” Patricia Feijo told
listeners that they did not share their experiences
with the products had used it for a while and saw that
it did indeed work, and then we began to share with
people, hey, this is what works for this and that.”
Patricia Feijo stated that the testimonies the Feijos
had received from their customers and placed on their
website and in their BioGuide were a sampling of their
customers’ experiences and that the results in the
testimonials were “very typical of what people
experience.” James and Patricia Feijo went on to
describe how 7-Herb Formula had cured a man who had
renal cancer.
Daniel Chapter One, 896 F. Supp. 2d at 11-12.
Additionally, the defendants knowingly and deliberately
ignored provisions in the FTC Order that required them to send a
corrective notice to past purchasers. Id. Moreover, the
defendants utterly failed to comply with the orders from the
D.C. Circuit (for over one year) and this Court (for about a
year) directing them to “obey forthwith” the FTC Order. The
defendants did not send the corrective notice until,
conveniently, five days before the contempt hearing in this
case. See Pl.’s Mot., ECF No. 68 at 13.
Further, the defendants’ own statements make it clear that
they knew what they were required to do, and that they were
30
deliberately not complying with the FTC Order. For example,
after the D.C. Circuit issued its decision denying the
defendants’ petition for review of the FTC Order, the defendants
posted the following message on their website:
Daniel Chapter One is being tortured right now for its
opinion – its knowledge – about healing that is different
from conventional medicine. Overseeer Jim Feijo has been
threatened with bankrupting fines and incarceration for
refusing to sign a government agency letter saying, in
essense, the earth is flat. Literally, the letter
denounces what Mr. Feijo knows to be true -- that Daniel
Chapter One natural products are safe and effective in
helping fight cancer and there is science supporting
efficacy of their various ingredients -- and states what
Mr Feijo and countless others know to be FALSE: that
conventional cancer treatment has been proven safe and
effective.
Pl.’s Mot., ECF No. 68 at Ex. D (typographic errors in
original).
In addition, the introduction to the Daniel Chapter One
Freedom website stated that:
They ordered that we sign a letter they wrote, a
deceptive letter saying that only conventional cancer
treatment has been proven safe and effective in humans,
and send it to thousands of people.
But Daniel Chapter One cannot bear false witness...
Id. (emphasis in original).
Certainly, the defendants engaged in multiple violations over
many years and their actions were intentional, willful and
deliberate. Indeed, the defendants failed to demonstrate any
intent to comply with the orders from the FTC, the D.C. Circuit or
31
this Court; the defendants only agreed to comply with the FTC Order
because they were facing significant civil contempt sanctions.
Accordingly, the defendants’ bad-faith violations of the
orders from the FTC, this Court and the D.C. Circuit warrant the
maximum civil penalty.6
2. Defendants Have Injured the Public.
The public harm in this case is significant and it occurred
in several ways. First, consumers who purchased the Products
suffered financial harm. Second, the defendants caused harm by
publicizing deceptive information about their products and by
failing to send the corrective notice to prior purchasers.
Third, the defendants injured the public when they instructed
6 The defendants’ argument that they engaged in “good faith” is
nothing short of ridiculous. See Defs.’ Opp., ECF No. 70 at 4.
On December 10, 2010, the D.C. Circuit denied the defendants’
petition for review of the FTC Order, concluding 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.” Daniel Chapter One, 405 F. App’x at 505-
06. The defendants reason that, because of their “heartfelt
religious beliefs,” they could continue to advance their
position, which the D.C. Circuit held was “wholly without
merit,” in violation of the orders from the FTC, this Court and
the D.C. Circuit. The standard, however, is not whether the
defendants had a “heartfelt belief,” but whether the defendants
acted with “actual knowledge” that their conduct was unlawful;
as previously discussed, the facts in this case make clear that
the defendants had actual knowledge that their conduct was
unlawful yet continued to engage in that conduct. 15 U.S.C. §
45; see also POM Wonderful, LLC v. FTC, 777 F.3d 478, 498 (D.C.
Cir. 2015).
32
consumers to stop using conventional, proven treatments and
instead use the defendants’ products.
Injury to the public can be found when consumers have lost
money due to the defendants’ violative conduct. See, e.g.,
United States v. Prochnow, No. 07-10273, 2007 WL 3082139, at *4
(11th Cir. Oct. 22, 2007) (“[C]ustomers [of a magazine
telemarketer] were harmed by both the payments made for the
magazine packages and the frustration, inconvenience, and
expense involved in cancelling their subscription.”). The
financial harm is easily calculated in this case. As previously
discussed, the defendants collected $1,345,832.43 from the sale
of the Products between April 2, 2010, when the FTC’s Order went
into effect, and May 24, 2012, when the defendants stopped
violating the FTC Order.
In addition to the financial harm, injury to the public
occurred whenever the defendants’ deceptive and violative
materials reached the public. See Danube Carpet Mills, 737 F.2d
at 994; Reader’s Digest, 662 F.2d at 969. Contrary to the
defendants’ assertion, the United States does not need to
introduce “evidence of consumer confusion or deception” because
“(t)he principal purpose of a cease and desist order is to
prevent material having a capacity to confuse or deceive from
reaching the public . . . (t)hus, whenever such promotional
items reach the public, that in and of itself causes harm and
33
injury.” Reader’s Digest, 662 F.2d at 969 (internal citations
omitted). Undoubtedly, the defendants caused substantial public
harm by using deceptive promotional information on websites,
online forums, and their radio show. This injury to the public
was further exacerbated because the defendants refused to mail
the required notice informing consumers that the defendants’
advertising claims were found by the FTC to be deceptive; such
claims were not substantiated by competent and reliable
scientific evidence.
Finally, after the D.C. Circuit ordered the defendants to
“obey forthwith” the FTC Order, see Per Curiam Order, Daniel
Chapter One, No. 10-1064 (D.C. Cir. Nov. 22, 2010), the
defendants continued to advise people with cancer to stop
conventional medical treatment and take the defendants’ products
instead. For example, as previously found by this Court,
During a radio show broadcast on February 22, 2011,
Defendants accepted a call from a caller named Patricia,
who stated that her doctor had found a mass on her
breast. . . . James and Patricia Feijo instructed the
caller not to get a biopsy, and Patricia Feijo stated
that “if it is cancer, it can stir up the cells and can
get them to spread[.]” . . . Patricia Feijo told the
caller that she should take products “to treat it worst
case scenario.” . . . Defendants then asked someone to
call in to help answer the caller’s questions, and
accepted a call from a caller named Greg, who said that,
for “cancer . . . one thing I would add is BioShark to
34
that.” . . . Patricia Feijo confirmed this suggestion,
stating, “yeah, definitely.”
Daniel Chapter One, 896 F. Supp. 2d at 11-12. This demonstrates
the third way the public was harmed by the defendants’ conduct;
consumers suffered harm when they followed the defendants’
advice, stopping conventional proven treatments to use the
defendants’ products. Accordingly, the Court finds that this
factor weights strongly in favor of a substantial civil penalty.
3. A Civil Penalty Is Necessary to Eliminate Benefits
Derived by the Defendants.
The third factor courts consider when entering a civil
penalty is the need to eliminate any benefits a defendant
received from the violation, and this factor is completely
separate from any consumer redress or disgorgement ordered by
the Court. “Elimination of the benefits of noncompliance is an
essential element of the penalty, so that there is no incentive
to violate the law[.]” United States v. Mac’s Muffler Shop,
Inc., 1986 WL 15443, *10 (N.D. Ga. Nov. 5, 1986); see also
Reader’s Digest, 662 F.2d at 969. Indeed, because a civil
penalty should “be more than . . . an acceptable cost of doing
business,” the civil penalty should be higher than the amount
the defendants benefited and the amount of any consumer redress
35
award. FTC v. Onkyo U.S.A. Corp., No., 1995 WL 579811, at *4
n.6 (D.D.C. Aug. 21, 1995).
Defendants claim that if the Court imposes equitable
monetary relief, no civil penalty should be imposed. This
argument treats civil penalties and equitable monetary relief as
mutually exclusive remedies. This is simply not correct. See
Prochnow, 2007 WL 3082139, at *3 (affirming order of district
court assessing civil penalties and disgorgement); FTC v. PayDay
Fin. LLC, No., 2013 WL 5442387, at *17 (D.S.D. Sept. 30, 2013)
(imposing disgorgement remedy, and postponing a determination on
an appropriate civil penalty until after trial); FTC v.
Navestad, No., 2012 WL 1014818, at *9 (W.D.N.Y. Mar. 23, 2012)
(entering judgment that included $20,000,000 in civil penalties
and $1,105,078.96 as disgorgement). Therefore, the Court finds
that this factor weighs in favor of a substantial civil penalty.
4. A Civil Penalty Is Necessary to Vindicate the
Authority of the FTC.
“Since the Commission has no plenary power to enforce its
own orders, it must enlist the aid of the federal district
courts for that purpose. The penalty to be assessed must
therefore be a significant one.” FTC v. Consolidated Food
Corp., 396 F. Supp. 1353, 1357 (S.D.N.Y. 1975). Defendants’
conduct has implications beyond this case. As the court
described in Mac’s Muffler Shop, “[i]f the regulated community
36
perceives that violations of the law are treated lightly, the
government’s regulatory program is subverted.” Mac’s Muffler
Shop, Inc., 1986 WL 15443 at *10. If a penalty is “[t]o have
any deterrent effect, [it] must be large enough to be more than
just . . . an acceptable cost of doing business.” Onkyo U.S.A.
Corp., 1995 WL 579811, at *4 n.6. For the penalty award to
provide meaningful deterrence, it “‘should be large enough to
hurt, and to deter anyone in the future from showing as little
concern as [the defendants] did for the need to [comply].’”
United States v. Phelps Dodge Indus., 589 F. Supp. 1340, 1367
(S.D.N.Y. 1984) (quoting United States v. Swingline, Inc., 371
F. Supp. 37, 47 (E.D.N.Y. 1974)); United States v. ITT
Continental Banking Co., 420 U.S. 223, 231-33 (1975).
The defendants have flouted the authority of the FTC, this
Court and the D.C. Circuit by ignoring the FTC Order. Defendants
continued to represent the Products as a treatment for cancer
despite the FTC Order prohibiting them from doing so. Even
after receiving orders from this Court and the D.C. Circuit, the
defendants continued to make unsubstantiated claims that the
Products treat cancer. Defendants’ flagrant disregard for the
FTC’s authority merits a substantial penalty in order to
37
vindicate the United States’ authority and deter future
violations.
5. The Defendants Are Able to Pay a Civil Penalty.
Courts look at a variety of data points when assessing a
defendant’s ability to pay. In Danube Carpet Mills, the
Eleventh Circuit affirmed the district court’s calculation of
ability to pay based on the defendant’s yearly profits and net
worth, including both liquid and illiquid assets. Danube Carpet
Mills, Inc., 737 F.2d at 994-95. However, other courts
considering this factor have looked beyond the funds and assets
currently in a defendant’s possession. For example, in United
States v. Lasseter, the district court imposed a civil penalty
award after finding that the defendant received a “significant
benefit” from the sale of his business, despite the defendant’s
assertion that he could not afford to pay a civil penalty
because he was in Chapter 7 Bankruptcy. United States v.
Lasseter, 2005 WL 1638735, at *6 (M.D. Tenn June 30, 2005).
On November 11, 2012, the Court granted the United States’
request for limited discovery concerning the defendants’ ability
to pay a civil penalty under the FTC Act. While the defendants
acknowledged possessing assets and funds totaling $2,001,959.73,
the United States argued that discovery revealed that the
defendants have dissipated approximately $2.7 million dollars of
proceeds and assets since commencement of the lawsuit. Pl.’s
38
Mot., ECF No. 10-24. Specifically, the United States, very
carefully, listed the defendants’ assets and dissipated funds,
which total $4,705.936.09. Id.
The United States requests that this Court consider both
the listed assets and the dissipated funds in determining
whether the defendants can pay a civil penalty. Id. The
defendants do not dispute that the discovery conducted in this
case supports the United States’ calculations. See generally
Defs.’ Opp., ECF No. 70. Further, the defendants fail to
respond to the United States’ argument that the Court should
consider both listed assets and dissipated funds in reaching a
determination on whether the defendants can pay a civil penalty.
Id. Thus, the defendants concede that the factual record, as
detailed in the United States’ motion, see Pl.’s Mot., ECF No.
19-24, including the United States’ calculation of total assets
and dissipated assets, is accurate and correct and that the
Court should include the defendants’ dissipated assets in
determining the defendants’ ability to pay a civil penalty.
McGinnis, 2014 WL 4243542 at *15. Even assuming, arguendo, that
the defendants did dispute the inclusion of their dissipated
assets in the overall calculation in determining the defendants’
ability to pay a civil penalty, the Court will not allow the
defendants to benefit from their blatant attempt to dissipate
their assets during this litigation. See SEC v. Metcalf, 2012
39
WL 5519358, at *8 (S.D.N.Y. Nov. 13, 2012) (discounting the
defendants’ claims of poverty where the defendant “knowing that
he faced the very real possibility of civil financial penalties,
chose to spend down his assets or failed to adjust his
lifestyle”). Accordingly, the Court finds that the defendants’
known assets and dissipated funds total $4,705,936.09.
Rather than dispute the factual record developed by the
United States, the defendants make the following blanket
statement, without providing any reliable evidence:
“Defendants’ financial resources have been dissipated by the
need to pay attorneys’ fees to defend against [criminal charges
filed against defendants].” See Defs’ Supp., ECF No. 77 at 1.
The defendants attempt to change previous discovery responses
concerning its ability to pay by attaching an affidavit signed
by Mr. Feijo. The defendants’ supplemental filing, among other
things, violates the “sham affidavit rule,” which precludes a
party from creating an issue of material fact by contradicting
prior sworn testimony “merely by pointing to a self-serving,
contradictory declaration[.]” Glass v. Lahood, 786 F. Supp. 2d
189, 216 (D.D.C. 2011) (citing Pyramid Sec. Ltd. v. IB
Resolution, Inc., 924 F.2d 1114, 1123 (D.C. Cir. 1991)). A
party must “‘offer persuasive reasons for believing the supposed
40
correction’ is more accurate than the prior testimony.” Galvin
v. Eli Lilly and Co., 488 F.3d 1026, 1030 (D.C. Cir. 2007)
(quoting Pyramid Sec. Ltd., 924 F.2d at 1123).
The defendants provide no evidence to support any statement
contained in the declaration, from the revised bank account
information, to the attorneys’ fees paid, to the transfer of
real property, to the value of their inventory. The defendants
could have easily provided evidentiary support. For example,
the defendants simply could have attached bank statements,
receipts from their attorneys, charitable gift receipts, or
other similar documents. Instead, the defendants have provided
absolutely no evidentiary support and have failed to “offer
persuasive reasons for believing the supposed correction is more
accurate than the prior testimony.” Galvin, 488 F.3d at 1030.
Therefore, the Court will not consider the defendants’
supplemental filing in determining the defendants’ ability to
pay a civil penalty. In any event, the Court finds that the
defendants’ arguments raised in their supplemental filing
unpersuasive because courts considering a defendant’s ability to
pay a civil penalty look beyond the funds and assets currently
in the defendant’s possession. See e.g., Lasseter, 2005 WL
41
1638735, at *6. Accordingly, the Court finds that this factor
weighs in favor of a substantial civil penalty.
*****
Based on a careful consideration of each factor, the Court
determines that a civil penalty in the amount of $3,528,000 is
appropriate in this case.
IV. The Court Will Not Consider the Defendants’ Cursory Eighth
Amendment Argument.
The defendants raised the following cursory argument:
“Defendants respectfully submit that imposing a civil penalty of
$3,528,000 would violate the Eight Amendment’s prohibition
against cruel and unusual punishment. See United States v.
Bajakajian, 524 U.S. 321, 336-37 (1998).” See Defs.’ Opp., ECF
No. 70 at 6. That is the extent of the defendants’ argument;
they do not articulate any basis to support their argument and
wholly fail to analyze Bajakajian. Specifically, the defendants
do not address whether a civil penalty under the FTC Act is
punitive or remedial in nature and whether, assuming the civil
penalty is punitive and thus subject to the Eighth Amendment,
the civil penalty requested by the United States in this case is
“grossly disproportional to the gravity of [the] offense.”
Bajakajian, 524 U.S. at 334. The Court gave the defendants
every opportunity to supplement their opposition. See October
6, 2014 Minute Order. Because the defendants raised this issue
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in “such a cursory fashion,” the Court declines to resolve it.
See Washington Legal Clinic for the Homeless v. Barry, 107 F.3d
32, 39 (D.C. Cir. 1997); Railway Labor Executives' Ass'n v.
United States R.R. Retirement Bd., 749 F.2d 856, 859 n.6 (D.C.
Cir. 1984) (declining to resolve issue “on the basis of briefing
which consisted of only three sentences . . . and no discussion
of the relevant statutory text, legislative history, or relevant
case law”).
V. Conclusion
For the foregoing reasons, the Court hereby GRANTS the
United States’ motion for entry of final judgment. An
appropriate Order accompanies this Memorandum Opinion.
SO ORDERED.
SIGNED: Emmet G. Sullivan
United States District Judge
March 31, 2015
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