Pom Wonderful LLC v. Federal Trade Commission

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).
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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
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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.)
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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 at79 (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