Fed. Trade Comm'n v. Direct Mktg. Concepts Inc.
| Decision Date | 21 October 2010 |
| Docket Number | No. 09-2172.,09-2172. |
| Parties | FEDERAL TRADE COMMISSION, Plaintiff, Appellee, v. DIRECT MARKETING CONCEPTS, INC., d/b/a Today's Health and Direct Fulfillment; ITV Direct, Inc., d/b/a Direct Fulfillment; Donald W. Barrett; Robert A. Maihos; BP International, Inc., Defendants, Appellants, Healthy Solutions, LLC, d/b/a Direct Business Concepts; Health Solutions, Inc.; Alejandro Guerrero, d/b/a Alex Guerrero; Michael Howell; Greg Geremesz; Triad ML Marketing, Inc.; King Media, Inc.; Allen Stern; Lisa Stern; Steven Ritchey, Defendants. |
| Court | U.S. Court of Appeals — First Circuit |
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Peter S. Brooks, with whom Susan W. Gelwick, Christopher F. Robertson, and Seyfarth Shaw LLP were on brief, for appellants.
Lawrence DeMille-Wagman, Assistant General Counsel for Litigation, Federal Trade Commission, with whom Willard K. Tom, General Counsel, and John F. Daly, Deputy General Counsel for Litigation, were on brief, for appellee.
Before BOUDIN, DYK, * and THOMPSON, Circuit Judges.
The Defendants in this case made millions off infomercials shilling purported panaceas, products that they claimed cured literally every disease, from cancer to Parkinson's to obesity. Having been ordered to restore these millions to the customers they deceived, the Defendants now raise a multitude of challenges to two decisions of the district court: first, the court's grant of summary judgment in favor of the plaintiff Federal Trade Commission (FTC), finding the Defendants liable for deceptive advertising; and second, the court's determination of damages after a bench trial on that issue. Despite the volume of the Defendants' arguments, we find no more substance in them than the district court found in their infomercials. We therefore affirm the district court in toto.
For purposes of introduction, a fairly simple recitation of only the uncontested facts will suffice. Greater detail will follow as necessary in the discussion section.
The Defendants on appeal are Direct Marketing Concepts, Inc. (DMC), ITV Direct, Inc. (ITV), Donald Barrett, Robert Maihos, and BP International (BP). 1 Barrett and Maihos co-own ITV and DMC, both Massachusetts corporations; generally, ITV produces infomercials, and DMC distributes the infomercials, answers calls, and processes orders. BP is a holding corporation to which Barrett eventually (and secretly) transferred some of DMC's assets.
Beginning in late 2001, DMC, Barrett, and Maihos became involved in marketing the product Coral Calcium by producing and distributing an infomercial promoting that product. These Defendants then processed calls and sold Coral Calcium to consumers.
The infomercial for Coral Calcium relied on the purported expertise of Robert Barefoot. In the infomercial, Barefoot asserted a number of claims regarding coral-derived calcium 2 and its supposed biological and medical properties. Barefoot claimed that all diseases are caused by a condition called acidosis:
Are you getting the minerals? And if you're not, you will become acidic and you will get one of the major diseases. You can have heart disease, cancer, lupus, fibromyalgia, multiple sclerosis. Name the disease, they're all caused by acidosis.
Barefoot then claimed that calcium derived from Okinawan coral cures these diseases:
[W]e've been studying the coral calcium and I can tell you there are tens of millions of people, millions of testimonials. I've had 1,000 people tell me how they've cured their cancer. I've witnessed people get out of wheelchairs with multiple sclerosis just by getting on the coral.
Barefoot asserted that coral-derived calcium was an effective cure for these diseases because it renders the body more alkaline, thereby curing acidosis:
Barefoot: By the time the average American is 35, he has more calcium going out of his body and into the body and that's when it starts. By the time he's 60, 98 percent are totally calcium deficient and that's why we have people over 60 with heart disease, you know, Lupus, Parkinson's. All these diseases are caused by acidosis.
...
Trudeau (host 3 ): Pain, talk about pain. Read in your book if a person has pain, muscle pain, joint pain-
Barefoot: Yes, yes.
Trudeau:-they take calcium-
Barefoot: Yes.
Trudeau:-their body turns from acid to alkaline, pain goes away.
Barefoot: That's exactly-
Trudeau: Is that common?
Barefoot: Yes, yes, very common.
Barefoot went on to claim that coral-derived calcium is superior to other sources of calcium because it is 100% bioavailable, meaning that all coral-derived calcium that is ingested is also absorbed into the body. To bolster his claims, Barefoot noted that unspecified articles from the Journal of the American Medical Association and the New England Journal of Medicine “said that calcium supplements reverse cancer ... that's a quote.”
The infomercial directed potential customers to call an 800 number, on the other end of which DMC-employed telemarketers would follow a script directing them to tell potential customers that the product Coral Calcium would be 100% absorbed by their bodies and would combat degenerative diseases by rendering an acidic body more alkaline. Telemarketers were also directed to tell sick customers that they should take higher doses of Coral Calcium, up to three times the standard dose. During the relevant time period (from January 2002 to July 2003), the Coral Calcium infomercial generated $54,034,394.82 in sales, of which approximately $575,000 were transferred to Defendant BP.
As with Coral Calcium, the Defendants were involved collectively in the production and airing of an infomercial for the product “Supreme Greens,” also called “Supreme Greens with MSM.” ITV produced the infomercial, which Barrett hosted; DMC processed calls and orders under Maihos's direction.
The infomercial for Supreme Greens relied on the purported expertise of “Dr.” Alejandro Guerrero. 4 Like Barefoot, Guerrero claimed that many major diseases are caused by acidosis, and that these diseases can be prevented and cured by rendering the body more alkaline:
Barrett: Dr. Guerrero claims that most chronic degenerative diseases-such as cancer, arthritis, diabetes, even the number one killer out there, heart disease-can and are being cured....
Guerrero: So if we can change the body's fluids and tissues to a more alkaline base, now you have an environment that is no longer conducive for the proliferation or growth of a degenerative condition....
Barrett: ... If I alkalize my body, am I going to come up with one of these chronic degenerative diseases?
Guerrero: No.
Barrett: Such as cancer, arthritis-
Guerrero: No.... I'm very confident in saying that, primarily because of the clinical studies we've done. I've seen it in my-in my-clinical practice. I've seen it every day in my clinical practice.
Going beyond even Barefoot, Guerrero also claimed that Supreme Greens can cause weight loss by restoring alkalinity because “fat is your body's way of protecting itself from the acidic fluids.”
The infomercial directed potential customers to call an 800 number, on the other end of which DMC-employed telemarketers would follow a script directing them to ask potential customers about their health issues and then explain how Supreme Greens supposedly could address those issues. For example, if a customer said she had cancer, the telemarketer was supposed to respond that “cancer is acidosis of the body and Supreme Greens alkalizes the body, and that's what you need, so you really want to take this.” During the relevant time period (August 2003 to June 2004), Supreme Greens generated $14,683,436.24 in sales.
In June 2004, the FTC filed a complaint in the United States District Court for the District of Massachusetts against a number of parties, 5 alleging violations of the FTC Act, 15 U.S.C. §§ 45 and 52. The FTC sought both injunctive relief and monetary equitable relief in order to redress customers who had purchased Coral Calcium or Supreme Greens in reliance on the Defendants' allegedly deceptive infomercials. In July 2008, the district court granted summary judgment against the Defendants on the issue of liability, holding that the challenged infomercials were misleading as a matter of law. In August 2009, after a bench trial, the district court entered two Final Orders and Judgments permanently enjoining the Defendants from running their deceptive infomercials and ordering disgorgement from the Defendants (excluding BP) in the amount of $48,220,499.12 and from BP in the amount of $574,274.23. The Defendants now appeal.
The Defendants take a shotgun approach to their appeal, asserting that: (1) the district court applied an incorrect standard in finding them liable for deceptive advertising; (2) the record contained issues of fact as to whether they possessed sufficient substantiation for the claims asserted in the infomercials; (3) the claims made in the infomercials were mere puffery and were mollified by disclaimers, and therefore were not actionable; (4) Maihos is not individually liable as a matter of law; (5) the district court erred in calculating damages on the basis of the Defendants' gross receipts rather than net profits; (6) the district court erred in determining damages from January 2002 to February 2003; (7) the district court erred in determining damages from March 2003 to July 2003; and (8) the district court erred in determining damages from August 2003 to June 2004.
The FTC seeks to uphold the judgment of the district court in all respects, asserting that: (1) the district court applied a correct standard in finding the Defendants liable for deceptive advertising; (2) the record contained vast swaths of uncontradicted evidence supporting the Defendants' lack of adequate substantiation...
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