Sunday, July 30, 2006

Another ruling Kevin Trudeau doesn't want you to know about

Trudeau v. Federal Trade Commission, 2006 WL 2087122 (D.C. Cir.)

Previous discussion here. Trudeau sued over an FTC press release reporting the settlement of a deceptive advertising case the FTC brought against him. He argued that the press release itself is false and misleading, and that the FTC’s publication of it exceeded the FTC’s statutory authority and violated his First Amendment rights in that it was a retaliation against him for criticizing the agency.

After going through a number of issues of interest to hard-core federal jurisdiction and administrative law types, the DC Circuit held that Trudeau failed to state a claim on which relief could be granted.

The relevant FTC actions against Trudeau concerned his infomercials for two products, “Coral Calcium Supreme” (for cancer, multiple sclerosis, lupus, heart disease, and high blood pressure) and “Biotape” (“space age mylar” that “connects the broken circuits in the body,” for permanent relief from back pain and pain from arthritis, sciatica, and migraines). The FTC filed a complaint against him in federal district court, which included a motion to hold Trudeau in contempt for violating a 1998 court order that prohibited him from making unsubstantiated claims about consumer products. The parties agreed to a stipulated preliminary injunction barring the challenged representations, but Trudeau started advertising Coral Calcium Supreme again and the court granted the FTC’s motion to hold him in contempt.

The parties agreed to a permanent injunction and final judgment that resolved all pending FTC complaints against Trudeau and permanently enjoined him from “producing, disseminating, [or] making … any representation in an infomercial aired or played on any television or radio media.” There is an exception for books, newsletters, or other informational publications as long as they don’t refer to products or services promoted by Trudeau, aren’t ads for products or services, and aren’t promoted in conjunction with any product or service related to the content of the publication. The infomercials can’t misrepresent the content of the informational work. As the Salon story discussed in my first post shows, this is a loophole large enough to drive a Wells Fargo truck through, and Trudeau has loaded that truck full of money.

Anyway, the final order also awarded judgment against Trudeau for $2 million in equitable relief, but stated that this should not be “deemed a payment of any fine, penalty or punitive assessment,” and further noted that Trudeau “expressly den[ies] any wrongdoing or liability,” and that “there have been no findings or admissions of wrongdoing or liability ... other than the finding against Kevin Trudeau for contempt.”

Five days after the final order was entered, the FTC posted a press release, Kevin Trudeau Banned from Infomercials. The release describes the general contours of the settlement and quotes Lydia Parnes, Acting Director of the FTC's Bureau of Consumer Protection, which states: “This ban is meant to shut down an infomercial empire that has misled American consumers for years.... Other habitual false advertisers should take a lesson; mend your ways or face serious consequences.” The release ends with a disclaimer that the final order is for settlement purposes only and doesn’t mean the defendants admitted violating the law.

Trudeau claimed that the FTC exceeded its statutory authority. 15 U.S.C. § 46(f) provides that the FTC “shall ... have power” to “make public from time to time such portions of the information obtained by it ... as are in the public interest,” but Trudeau claimed that the FTC’s intentional and deliberate misrepresentation of the nature of the stipulated order in the press release was contrary to the “public interest.” Moreover, Trudeau claimed that the press release was issued in retaliation for expressing his negative opinions about the FTC, violating his First Amendment rights by falsely characterizing the stipulated order as containing a finding of wrongdoing or liability on his part.

Assuming that Trudeau had a cause of action based on the FTC exceeding its statutory authority, the court found that an essential element common to the statutory and constitutional claims was that the press release was false or misleading. Trudeau lacks privacy interests in avoiding dissemination of truthful, nonmisleading information about a “public-record document regarding a commercial matter.” Thus, even though a truthful FTC press release may substantially tarnish his reputation, that outcome is justified in the name of consumer protection.

Trudeau argued that the falsity or misleadingness of the press release couldn’t be determined on a motion to dismiss, and that he was entitled to introduce empirical evidence of how an average consumer would perceive the release. The court responded that Trudeau’s citations to Lanham Act and Fair Credit Reporting Act cases were inapposite. If no reasonable person could find the press release misleading, it could decide the issue on a motion to dismiss. I have to say, that sounds an awful lot like the summary judgment standard.

I also find the court’s rejection of the Lanham Act standard interesting because, although the situation is somewhat unusual, Trudeau’s claim does deal with false and misleading speech in a First Amendment context. Even the D.C. Circuit in Pearson v. Shalala said the FDA could regulate commercial speech with empirical evidence of misleadingness. Why isn’t a private party alleging a First Amendment violation entitled to do what the government defending a speech regulation could do? One could draw relevant distinctions, but the court doesn’t do so.

Trudeau identified four false and misleading implications in the press release: (1) the release said Trudeau was banned entirely from infomercials; (2) the release implied that the settlement was a judicial finding that Trudeau was a habitual false advertiser; (3) the release implied the $2 million was a fine; and (4) there was no disclosure that the court hadn’t made a finding of false advertising.

(1) The release didn’t say Trudeau was completely banned; the first sentence mentions “truthful infomercials for informational publications” as an exception, as does the sixth paragraph. But Trudeau doesn’t like the word “ban,” which implies coercion. Yet the press release makes clear that Trudeau agreed to the settlement, and the meaning “ban” includes legal prohibitions, which are indeed coercive.

(2) The release made clear that an FTC official was offering the opinion that Trudeau’s infomercial empire had mislead American consumers for years, not that a court had so found.

(3) The release never calls the $2 million judgment a fine; it is indeed a judgment, even if reached voluntarily (something the release makes quite clear).

(4) Trudeau isn’t entitled to have the press release expressly state there’d been “no findings or admissions of wrongdoing or liability,” since no reasonable reader could construe the press release as suggesting there had been such a finding. In any event, the website contains a link to the final order, in bold at the top right corner, so any interested reader can take a look. “With the terms of the order just two mouseclicks away, any potential misreading of the release can easily be averted.” There’s a sentence that might be borrowed by many defendants! This particular link seems to meet the requirements suggested in the FTC’s Dot-Com Disclosures (obvious, appropriately labeled, near relevant information – though there’s no indication the FTC monitors click-through rates).

In the end, this isn’t a case where the text requires careful parsing to avoid deception. Rather, no reasonable person would misinterpret the press release as Trudeau suggests, so he fails to state a claim. It seems like Trudeau is just in this to harass the FTC; I’m glad the commission didn’t back down and change the information available on the website.

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