Simeon Management Corp. v. F. T. C.

• Decision Date: 18 July 1978
• Docket Number: No. 76-2543,76-2543
• Citation: 579 F.2d 1137
• Parties: , 1978-2 Trade Cases 62,282 SIMEON MANAGEMENT CORPORATION et al., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1137

579 F.2d 1137

49 A.L.R.Fed. 1, 1978-2 Trade Cases 62,282

SIMEON MANAGEMENT CORPORATION et al., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.

No. 76-2543.

United States Court of Appeals, Ninth Circuit.

July 18, 1978.

Jerry S. Phillips (argued) of Grayson & Gross, Inc., Los Angeles, Cal., for petitioners.

David Fitzgerald (argued), Washington, D. C., for respondent.

On Petition to Review an Order of the Federal Trade Commission.

Before WRIGHT and TANG, Circuit Judges, and BURNS, ^* District Judge.

BURNS, District Judge:

Petitioners ask the court to set aside a cease and desist order of the Federal Trade Commission (FTC or Commission) requiring them to make certain disclosures in their advertising. The Commission entered the order pursuant to its finding that, without such information, the advertisements were deceptive, unfair and false, in violation of sections 5 ¹ and 12 ² of the Federal Trade Commission Act (FTCA), 15 U.S.C. §§ 45, 52 (1976). Simeon Management Corp., et al., 87 F.T.C. 1184, 1229 (1976).

We have jurisdiction under 15 U.S.C. §§ 45(c), (d). We decline to set aside or modify the order.

Petitioners are corporations and individuals engaged in the business of setting up, operating and promoting weight reduction clinics. They provide management and support services to the licensed physicians and nurses who administer the treatments offered by the clinics.

The clinics utilize the "Simeons" method for weight reduction. After an initial physical examination by a licensed physician, the patients are put on a four to six week treatment program which generally includes a 500 calorie per day diet, daily medical counseling and daily injections of human chorionic gonadotropin (HCG).

HCG is a prescription drug derived from the urine of pregnant women. The Federal Drug Administration (FDA) has declared that HCG is a new drug and has approved it for some uses, ³ but not for use in the treatment of obesity. 39 Fed.Reg. 42397-403 (1974). FDA found that there is no substantial evidence that HCG is safe or effective for such use. 39 Fed.Reg. at 42397.

As one of the principal means of promoting the business of their weight reduction clinics, petitioners place advertisements in newspapers, magazines and on television. These advertisements represent that the treatment program utilized at the clinics is safe, effective and medically approved. Representative samples of the advertisements include:

1. Medically supervised weight loss. Lose weight safely, quickly and effortlessly through our proven weight reduction program developed by Medical Doctors and supervised by our Physicians and Nurses. Simeon Weight Clinics, its Doctors, Nurses and professionally trained staff, bring you a quick and safe way to melt away unwanted pounds. R. 6.

2. Serious weight loss is a doctor's business and the doctors and nurses at over 100 Simeons Weight Clinics are helping thousands of men and women lose unwanted pounds and inches quickly, privately and without strenuous exercise. Your weight loss, like your health, is a medical matter which belongs in the hands of a physician. R. 105.

3. Simeons takes the gamble out of reducing with medically supervised weight loss, Lose weight now . . . quickly . . . safely. R. 108.

The advertisements do not mention HCG or that injection of a drug may be part of the treatment program.

Petitioners' clinics were registered under the Knox-Mills Health Plan Act, 1965 Cal.Stats., c. 880, p. 2482, § 1 (repealed 1976). Pursuant to that Act, their advertisements were reviewed by the California Attorney General's Office prior to dissemination.

On October 15, 1974, the Commission commenced administrative proceedings against the petitioners by issuing a complaint. The complaint alleged that the petitioners' advertisements were deceptive, unfair and false because they failed to disclose that the treatments offered involved injection of HCG and that HCG was not approved by the FDA as safe and effective for use in weight control. Simeon, supra, 87 F.T.C. at 1193. It also alleged that the advertisements were unfair because they promoted a "costly" treatment involving the use of a drug which had not been approved by the FDA as safe and effective for such use. Id. The notice of contemplated relief accompanying the complaint indicated that the Commission might order petitioners to cease and desist advertising any weight reduction program involving the use of HCG or any other drug which is required to be and has not been approved by the FDA as safe and effective for such use. See Id. at 1224.

An administrative law judge held adjudicative hearings, at which thirteen witnesses testified, ten on behalf of petitioners. The administrative law judge ruled that the petitioners' advertisement of a weight reduction treatment program which included injection of a prescription drug not approved by the FDA as safe and effective for such use without disclosing the lack of approval was deceptive, unfair and false advertising. Id. at 1223. He did not find that petitioners had acted unfairly by advertising a "costly" treatment program which involved use of a drug not approved by the FDA for such use. Rather than ordering petitioners to stop advertising altogether, the administrative law judge ordered them to make specified disclosures ⁴ in further advertising. Id. at 1224-6.

Both sides appealed from the initial decision to the Commission. After considering oral arguments, the whole record and the parties' briefs, the Commission ⁵ also concluded that petitioners' advertisements were deceptive, unfair and false because of the failure to disclose specified information. Id. at 1230-1.

The Commission issued a final cease and desist order requiring the petitioners to disclose in any advertisements for the clinics or the treatment program that:

1) the weight reduction treatments involve injection of a prescription drug ⁶ which has not been approved by the FDA as safe and effective in the treatment of obesity or weight control, and

2) there is no substantial evidence that the drug increases weight loss beyond that resulting from caloric restriction, that it causes a more attractive or "normal" distribution of fat, or that it decreases the hunger and discomfort associated with calorie-restrictive diets. Id. at 1236. ⁷

I.

Another phase of this case has been here before. Concurrently with the filing of the administrative complaint against the petitioners, the Commission sought a preliminary injunction pending the outcome of the agency proceedings in order to stop petitioners from advertising their weight control treatments as long as the treatments involved the use of HCG or any other drug which had not been approved by the FDA for such use. The district court denied the Commission's request for a preliminary injunction. On appeal, we affirmed. F.T.C. v. Simeon Management Corporation, 391 F.Supp. 697 (N.D.Cal.1975), Aff'd, 532 F.2d 708 (9th Cir. 1976).

The standard of review applicable at this stage of the proceedings is different from the standard applicable when the case was last before the court. When reviewing the district court's denial of the preliminary injunction, we pointed out that the denial would not be reversed unless the district court had based its decision upon an erroneous legal premise or had abused its discretion in balancing the equities and determining whether the FTC was Likely to succeed on the merits. Simeon, supra, 532 F.2d at 711, 713-4.

The case now comes to us after completion of the full panoply of agency procedure specified by statute. Further, the case comes to us from an agency charged with the regulation of advertising. As a result of such regulation, the FTC has accumulated much expertise. We are not to lightly set aside agency action based on the exercise of such accumulated expertise merely because, were we trying the matter anew, we might reach a different result. We are not to set aside the Commission's action unless it is apparent that it is unsupported by substantial evidence, 15 U.S.C. § 45(c); 5 U.S.C. § 706(2)(E), or is arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law. 5 U.S.C. § 706(2)(A). Feil v. F.T.C., 285 F.2d 879, 882-3 (9th Cir. 1960).

II.

Petitioners urge six separate contentions.

1) Petitioners contend that we should reverse because there has been no purchase of the drug in question, and thus section 12 of the FTCA is inapplicable. See note 2 Supra. This contention was rejected in the earlier injunction proceedings. See Simeon, supra, 532 F.2d at 711. We need not address it here because we hold that the FTC correctly found the advertisements in question to be "deceptive" within the meaning of the Act's section 5.

2) Petitioners contend that HCG is not a new drug within the meaning of the Federal Food, Drug and Cosmetic Act, 21 U.S.C. § 301 Et seq., as amended (Supp. V, 1975) (FDCA), and hence does not need FDA approval. They base this contention upon the fact that the FDA has approved HCG for some medical uses.

"The term 'new drug' means

(1) Any drug . . . the composition of which is such that such drug is Not generally recognized, among experts qualified by scientific training and experience to evaluate the safety and effectiveness of drugs, As safe and effective for use under the conditions prescribed, recommended, or suggested in the labeling thereof . . . ." 21 U.S.C. § 321(p)(1) (Emphasis added.)

A new drug may not be introduced into interstate commerce unless an application has been filed with and approved by the FDA. 21 U.S.C. § 355(a). The FDA cannot approve a new drug application unless it finds that there is substantial evidence that the drug is effective for the labeled use. 21 U.S.C. § 355(d). Further, a drug can be generally recognized as effective only if that expert consensus is based upon substantial evidence that the drug is effective for the labeled use. Weinberger v. Hynson, Westcott & Dunning...