Friday, August 28, 2009

FTC and Trudeau split decision

Federal Trade Commission v. Trudeau, 2009 WL 2615822 (7th Cir.)

In a mixed ruling, the court of appeals upheld a contempt finding against Trudeau, the infomercial marketer, but remanded on the issue of sanctions. As the court stated, “For over a decade, Trudeau has promoted countless ‘cures’ for a host of human woes that he claims the government and corporations have kept hidden from the American public. Cancer, AIDS, severe pain, hair loss, slow reading, poor memory, debt, obesity--you name it, Trudeau has a ‘cure’ for it.” An FTC consent decree ultimately banned Trudeau from appearing in infomercials for any products, except for books, provided that he did not “misrepresent the content of the book.”

The FTC claimed that Trudeau’s infomercial for The Weight Loss Cure “They” Don’t Want You To Know About misled consumers “by describing a weight loss program that was ‘easy,’ ‘simple,’ and able to be completed at home, when in fact it was anything but. The program requires a diet of only 500 calories per day, injections of a prescription hormone not approved for weight loss, and dozens of dietary and lifestyle restrictions.” Though Trudeau claimed that the diet would enable consumers to eat anything they wanted, the diet in the book actually requires strict limits for the rest of the dieter’s life. The district court agreed with the FTC and ordered Trudeau to pay $37.6 million and banned him from appearing in any infomercials, even for books, for three years.

Trudeau has a history of misrepresentations, in which he persisted after multiple FTC actions, which was why the consent decree was so broad.

Trudeau argued that he was merely quoting from the book, which describes the diet as “easy to do,” and also states that dieters in the final phase can eat “anything you want, as much as you want, as often as you want.” But cherry-picking phrases didn’t accurately portray the overall content, and the consent order prohibited misrepresented misrepresenting content. Among many other things, the diet couldn’t, as advertised, be completed at home because of a requirement that dieters inject themselves with hGC (human choronic gonadotropin), a prescription medication not approved for dieting, and though he claimed “nothing is restricted” the diet had 50 restrictions, including eating only organic food and avoiding fast food/chain restaurants.

The FTC requested reimbursement for consumers, or at least disgorgement of profits from the books, and additional deterrent measures against future contempt. Trudeau disputed that consumers suffered any harm, and that anyway he should only be required to disgorge the money he received for appearing in the infomercials. Conveniently, that sum was zero because he’d sold his rights and agreed to do the infomercials for free, receiving only royalties from retail sales, which he argued couldn’t be tied to the infomercials “despite the big, gold sticker on the cover of the book which reads, ‘AS SEEN ON TV.’”

The district court found the FTC’s top figure too Draconian, but was far less impressed with Trudeau’s arguments. It ordered him to pay over $37.6 million and, given his prior willingness to flout court orders, determined that only a complete ban on infomercials for three years would achieve compliance.

The court of appeals upheld the contempt finding because there was no abuse of discretion. The requirements for contempt: clear and convincing evidence of significant violation of an express and unequivocal command of a court order. Cherry-picking phrases that actually appear in the book can still misrepresent its content. (See also: To Serve Man.) The consent decree wouldn’t be very much use if it merely prohibited misquotation. “Content” refers to substance—“essential meaning.” “When people buy books, they purchase the author’s ideas, as expressed through an amalgamation of many individual statements. They don’t purchase select quotes …. So it’s possible to accurately recount specific statements in isolation but still completely misrepresent the ‘content’ of the book by allowing consumers to infer that the quotations are indicative of the content, when in fact they are not.” And that’s just what Trudeau did:

[I]n the infomercials, Trudeau fails to mention a single aspect of his weight loss protocol. He never talks about the 500-calorie-per-day limitation, the colonics (or water enemas), the organ cleanses, the 100% organic diet (which the book even acknowledges is “next to impossible”), or any of the other dietary or lifestyle restrictions that the book says dieters “must” adhere to. … [D]ieters are left with either convincing their doctor to prescribe hCG off-label or traveling to a foreign country, as Trudeau did, to get the drug. But only after the infomercial viewer spends the money to buy the book does he or she learn any of this.

The court further noted that hCG risks serious adverse reactions, and that the infomercial says that no exercise is required while the book says it’s highly recommended, even during the phase where the dieter is supposed to be eating 500 calories a day.

Trudeau argued that “easy” was mere subjective opinion. In many circumstances, the court acknowledged, “easy” would be mere puffing. But bragging about the relative ease of a product is not per se puffery. Puffery’s safe harbor depends on lack of materiality: the fact that no reasonable person would rely on it. “Given the large number of weight loss programs on the market, we think a reasonable person would rely on statements about the relative ease of the program being marketed.” Subjective, comparative terms can still deceive. A program of drugs and a restricted and rigorous diet is not “easy” compared to any number of other available weight loss programs. Moreover, the puffery argument missed the point, which was about the overall message of the infomercials and not single quotes.

“Through a repetitive mosaic of vague, glowing statements, Trudeau creates an image of a safe, simple, inexpensive way to shed pounds without exercise or dietary restrictions.” But that’s not what’s in the book. He never mentions hCG injections, instead touting a “miracle all-natural substance” that is “easy to get”—“you can get it anywhere”—and that is the “[s]afest, most effective way to lose weight on Planet Earth.” The court was particularly troubled by the safety claims given the serious possible side effects, and of course hCG can “hardly [be picked up] at the corner store.” Worse, Trudeau reinforces the “easy” message with comments such as “this substance, combined with a few other little things in the protocol, triggers the hypothalamus gland” (emphasis added). Comment: I find it interesting that the court recognizes, however glancingly, that consumers can reasonably rely on vague and flattering statements, which is not something that puffery doctrine is willing to admit even though it's patently true.

Even assuming that part of the pitch was mere puffery, the infomercials are “loaded” with other patently false statements, such at the “at home”/“you don’t have to go to a clinic” claims. The book instructs that the injections have to be under a doctor’s supervision and that a licensed colon therapist must perform all colonics. Dieters would at least have to go to the doctor’s office.

Likewise, the “nothing is restricted claim” is false. The book does say that, but its very next statement—omitted from the infomercials—is “The only caveat is only eat 100% organic food.” And there’s more in the book: “No food produced by publicly traded companies. No fast food or food served in regional or national chain restaurants. No corn syrup. No artificial sweeteners. No trans fats. No MSG. No food prepared in a microwave. No farm-raised fish.” (Most nonfarmers would probably lose weight were they able to follow those rules—because they’d be starving. Also, what's up with publicly traded companies? Private holdings are less fattening?)

The quotations were deceptive, misleadingly incomplete. Without more details, consumers “are led to believe that Trudeau’s statements are more than just his beliefs; they appear as objective facts.” Plus, Trudeau also outright lied. For example, in one infomercial, he claimed that the regime described in the book was “not a diet, not an exercise program, not portion control, not calorie counting, ... no crazy potions, powder or pills....” But not a word was true. Among the book’s “MUST”s: “eat only 100% organic food, walk an hour a day, eat six meals per day, eat only 500 calories per day for up to 45 days, drink organic raw apple vinegar cider, and take probiotics, krill oil, Vitamin E, digestive enzymes, and Acetyl-L Carnitine.”

Trudeau did much worse than Lane-Labs in arguing that he diligently tried to adhere to the decree. He argued that the infomercials were no different from previous Natural Cures infomercials, to which the FTC had not objected and thus implicitly blessed, and also complained that the FTC never warned him before filing its contempt complaint, even though it had seen the infomercial 8 months earlier. The FTC’s lack of objection to Natural Cures infomercials was largely irrelevant, certainly not enough to trigger estoppel against the government. Trudeau’s reasonable reliance on his experience with Natural Cures ended when he began making false statements about Weight Loss Cures.

The 8-month delay between first airing and the contempt petition was also unimportant. The FTC knew about the infomercials by January 2007 but only got its copy of the book in March, perhaps because the book hadn’t yet been published when the infomercials started running. The enforcement division concluded its review in July, and then it took a couple of months for the bureaucracy to autorize the contempt action. That’s not prolonged and inexcusable, as required for laches against the government. And despite Trudeau’s careful framing of the issue, there was no evidence he provided the FTC with a manuscript or some other means to speed up the review process, nor that he stopped airing the infomercial after the contempt petition was filed.

The amount of the sanction had to be remanded, though. The final $37.6 million figure might ultimately be correct, but the district court didn’t provide enough information about how it was calculated, whether it will be returned to consumers, and what will happen to money left over after restitution. The court of appeals did reject Trudeau’s arguments that he was entitled to greater procedural protections, such as jury trial and a beyond-a-reasonable-doubt standard, for setting the award, because a compensatory award—such as the one the district court said it was making—is civil contempt, not criminal contempt. But this distinction makes it important to ensure that the award is in fact compensatory, thus the remand for improved detail.

Likewise, to ensure compensation, the court order should specify that the FTC “must use the funds to reimburse book purchasers.” Trudeau should be forced to put the money in escrow or in the court’s registry and allow the FTC to access and disperse those funds to reimburse consumers and to cover the costs of reimbursement. The court did reject Trudeau’s argument that any order should require excess money to be returned to Trudeau. Civil contempt sanctions can be based on unjust enrichment, even if that exceeds victims’ losses. But the court expressed no opinion on whether a return-to-contemnor provision would be appropriate.

Finally, the court agreed that the three-year ban on infomercial appearances was erroneous because it failed to give Trudeau an opportunity to purge his contempt by complying with the underlying order not to misrepresent his books. Civil contempt must either compensate those harmed by the contemnor’s violation or coerce the contemnor to stop the violation. Other sanctions are criminal and require criminal process. The infomercial ban is not compensatory, so it needs to be coercive, which the court found a closer question. Trudeau can’t produce deceptive infomercials if he can’t produce infomercials at all. But there must be an opportunity to purge the contempt, allowing the contemnor to perform some affirmative complying act. Here, Trudeau could have some sort of conversion experience about what “They” want you to know and he’d still be barred from infomercials.

The FTC argued that the infomercial ban was simply a modification of the earlier consent order, but the court never explicitly granted the FTC’s motion to modify, and treated the ban like a contempt sanction. If a modification was at issue, then the parties needed the opportunity to debate it. The district court, on remand, could modify the consent order, fashion a coercive remedy, or even impose a criminal sanction, provided it follows the proper procedures for its choice. (Hard to see how the contempt at issue in an infomercial ban could be purged—what would affirmative act could Trudeau take?)

(Side notes: (1) The distinctive, casual but professional 7th Circuit style is on display here in Judge Tinder’s opinion. I wish it would spread further. (2) “Contemnor” is such a great word. We’ve even had a Contemnor-in-Chief now.)

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