F.T.C. v. Garvey
| Decision Date | 01 September 2004 |
| Docket Number | No. 03-55179.,03-55179. |
| Parties | FEDERAL TRADE COMMISSION, Plaintiff-Appellant, v. Steven Patrick GARVEY, aka Steve Garvey; Garvey Management Group, Inc.; Lark Kendall, aka Kendall Carson; Mark Levine, individually and as an Officer and Director of Modern Interactive Technology, Inc.; David Richmond, individually and as an Officer and Director of Modern Interactive Technology, Inc.; Modern Interactive Technology, Inc., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
John F. Daly, Deputy General Counsel for Litigation, (argued), and Melvin H. Orlans, Special Litigation Counsel, (brief) Federal Trade Commission, Washington, DC, for the appellant.
Edward F. Glynn, Jr., Washington, DC, for the appellees.
Appeal from the United States District Court for the Central District of California; Gary A. Feess, District Judge, Presiding. D.C. No. CV-00-09358-GAF.
Before PREGERSON, McKEOWN, and BYBEE, Circuit Judges.
The Federal Trade Commission ("FTC") appeals a ruling on summary judgment that its suit against Mark Levine, David Richmond, and Modern Interactive Technology, Inc. (collectively, the "Modern Interactive defendants") is barred by res judicata. The FTC also appeals the ruling, following a bench trial, that Steven Patrick Garvey and Garvey Management Group, Inc. (collectively, the "Garvey defendants") relied on adequate substantiation and therefore are not liable for Garvey's advertising claims for the weight loss product at issue in this case.
For the reasons discussed below, we reverse in part and affirm in part.
This lawsuit arises out of the marketing of a weight loss system sold by Enforma Natural Products, Inc. ("Enforma").1 Enforma created and marketed two dietary supplements, "Fat Trapper" (or "Fat Trapper Plus") and "Exercise in a Bottle." Together, these two products constitute the "Enforma System." The Fat Trapper product contains chitosan and is a mixture of the shells of certain seafood. It allegedly " surrounds the fat in the food you eat and entraps it," preventing fat absorption. Exercise in a Bottle contains pyruvate, which is found naturally in the body, and allegedly helps enhance one's metabolism.
Modern Interactive Technology, Inc., is a video production company that specializes in producing television infomercials. David Richmond and Mark Levine are the Chief Executive Officer and the President, respectively, of Media Interactive Technology, Inc., and each owns fifty percent of the company. In conjunction with the marketing of its products, Enforma retained Modern Media, a subsidiary of Media Interactive Technology, Inc., to prepare two thirty-minute infomercials.
Following the advice of Modern Media, Enforma hired Steven Patrick Garvey to star in the infomercials and to be a spokesperson for the Enforma System. Garvey is a retired first baseman for the Los Angeles Dodgers. Garvey entered into a memorandum agreement with Enforma in October 1998. That agreement was superseded by an Amended and Restated Agreement between Garvey Management Group, Inc., a Utah corporation that oversees various activities relating to Garvey's celebrity status, and Enforma. The Amended and Restated Agreement took effect January 1, 1999.
Three or four weeks before the filming of the first infomercial, Enforma's Executive Director of Marketing, Michael Ehrman, gave Garvey and his wife a supply of the Enforma System. Between that time and the time of filming, Garvey used the Enforma System and lost approximately eight pounds. Between the filming of the first infomercial and the date the infomercial was broadcast, Garvey's wife used the Enforma System and lost approximately twenty-seven pounds. At some point, Garvey also received two booklets produced by Enforma, which provided information about Fat Trapper and Exercise In A Bottle.
The infomercials were produced after a number of meetings between Enforma and Modern Media representatives. At these meetings, Enforma's President and Chief Executive Officer, Andrew Grey, and Mr. Ehrman explained their advertising concepts and claims to Levine. Levine was primarily responsible for drafting the scripts.
Two or three days before the filming of the first infomercial, Garvey received a draft script. There had been as many as fifteen prior drafts that Garvey never saw. Garvey did not see a final version of the script until Grey rewrote it on the infomercial soundstage. Before filming began, Garvey made minor, non-substantive edits to the script to ensure that it matched his own speech patterns and vocabulary preferences.
The process leading up to the second infomercial was similar, although the second infomercial was less scripted than the first. Garvey did not receive the script until two days before filming; there were at least three versions of the script that Garvey did not see. Garvey made similar, non-substantive edits to the script for the second infomercial.
During both infomercials Garvey largely read from the prepared scripts. He and his co-host, Lark Kendall, ad libbed when conducting a demonstration of the Fat Trapper product, but even then, Levine, Richmond, and Grey provided them with a framework for their dialogue. In the infomercials, Garvey made a number of statements regarding the Enforma System, including:
• "Now, if you're tired of trying every new fad diet, if you're tired of trying to work a rigid exercise regime into your busy schedule, if you want to be able to enjoy all those delicious foods that you crave without the guilt while losing weight and keeping it off, call us now...."
•
•
• "The Enforma System has inspired so many to embrace a healthier, more active lifestyle, making good food choices, exercising more and everyone is here to celebrate a system that can end binge dieting forever, because with Enforma you trap the fat from food before it can go to your waistline."
•
•
The filming, editing, and graphics design for both infomercials were directed by Richmond. Grey or Ehrman oversaw these activities and approved the results on behalf of Enforma. Garvey was not present during the editing and graphic design stages of production. Together, the two infomercials were aired almost 48,000 times throughout the United States from December 1998 through May 2000.
After filming the two infomercials, Garvey made several radio and television appearances to promote the Enforma System. His statements at these appearances were based on script points and guidelines provided by Enforma.
From December 1998 to December 2000, Enforma's sales of Fat Trapper, Fat Trapper Plus, and Exercise in a Bottle exceeded $100 million.
The FTC began investigating claims made regarding the Enforma System in 1999. Settlement negotiations between Enforma, Grey, and Fred Zinos, Enforma's Vice President of Sales and Marketing, took place during the winter of 1999-2000 and went into the Spring of 2000.
On April 25, 2000, the FTC filed suit against Enforma, Grey, and Zinos ("the Enforma action"). The FTC's complaint alleged that the defendants, in marketing the Enforma System, undertook deceptive acts or practices and issued false and misleading advertising of a food, drug, device, service, or cosmetic in violation of Sections 5(a) and 12 of the Federal Trade Commission Act ("FTCA"), 15 U.S.C. §§ 45(a) and 52.2 In that action, the FTC sought an injunction to prevent further violations of the FTCA, equitable relief aimed at redressing consumers' injuries, and costs.
A proposed Stipulated Final Order settling the Enforma action as to Enforma and Grey (the "Enforma defendants") was filed along with the complaint, and it was entered by Judge J. Spencer Letts on May 11, 2000.3 This settlement prohibited Enforma and Grey from undertaking specific conduct, such as making certain representations about Enforma's products without reliable scientific support. The settlement also required Enforma and Grey to pay $10 million to the FTC.
In March 2000, the FTC served civil investigative demands on Levine and Garvey. The FTC filed a complaint against the Garvey defendants, the Modern Interactive defendants, and Lark Kendall on August 31, 2000.4 This complaint was similar to that filed in the Enforma action; it alleged that the defendants, in marketing the Enforma System, violated Sections 5(a) and 12 of the FTCA.
The district court granted summary judgment in favor of the Modern Interactive defendants. The court concluded that, in light of the settlement in the Enforma action, the claims against them were barred by res judicata. On September 19, 2001, the district court denied the FTC's motion to reconsider this ruling.
The district court held a three-day bench trial on the FTC's claims against the Garvey defendants. On November 25, 2002, the...
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