FEDERAL TRADE COMMISSION, Plaintiff-Appellee, CERTUSBANK, N.A., Plaintiff,
NATIONAL UROLOGICAL GROUP, INC., et al., d.b.a. Warner Laboratories, Defendants, HI-TECH PHARMACEUTICALS, INC., Corporation, JARED WHEAT, individually and as officer of the corporation, STEPHEN SMITH, individually and as officer of National Urological Group, Inc. and National Institute for Clinical Weight Loss, Inc., M.D. TERRILL MARK WRIGHT, Individually, Defendants-Appellants
Appeals from the United States District Court for the Northern District of Georgia. D.C. Docket No. 1:04-cv-03294-CAP.
For Federal Trade Commission, Plaintiff - Appellee: Leslie Rice Melman, Amanda C. Basta, Amanda C. Basta, Mary Lucile Johnson, William E. Kovacic, Edwin Rodriguez, Federal Trade Commission Office of General Counsel, Washington, DC; Stephen Christopher Dowdell, U.S. Department of Justice, Washington, DC; Cindy A. Liebes, Federal Trade Commission, Atlanta, GA; Lawrence R. Sommerfeld, Sally Yates, U.S. Attorney's Office, Atlanta, GA.
For HI-TECH PHARMACEUTICALS, INC., Corporations, Defendant - Appellant: Merritt Ellen McAlister, David M. Barnes, King & Spalding, LLP, Atlanta, GA; Charles Ronald Bridgers, Edmund J. Novotny Jr., DeLong Caldwell Bridgers & Fitzpatrick, LLC, Atlanta, GA; Timothy M. Fulmer, Natter & Fulmer, PC, Birmingham, AL; Arthur W. Leach, Attorney at Law, Alpharetta, GA; Jack Wenik, Sills Cummis Zuckerman Radin, Newark, NJ.
For JARED WHEAT, individually and as officers of the corportation, Defendant - Appellant: Merritt Ellen McAlister, King & Spalding, LLP, Atlanta, GA; Lamar Clint Crosby, Baker Donelson Bearman Caldwell & Berkowitz, PC, Atlanta, GA; Kimberly Alice Dymecki, Law Office of Kimberly Alice Dymecki, Atlanta, GA; Arthur W. Leach, Attorney at Law, Alpharetta, GA; Edmund J. Novotny Jr., DeLong Caldwell Bridgers & Fitzpatrick, LLC, Atlanta, GA; J. Stephen Salter, Attorney at Law, Birmingham, AL; Jack Wenik, Sills Cummis Zuckerman Radin, Newark, NJ.
For STEPHEN SMITH, individually and as officers of National Urological Group, Inc., and National Institute for Clinical Weight Loss, Inc., Defendant - Appellant: E. Vaughn Dunnigan, E. Vaughn Dunnigan, PC, Atlanta, GA; Steve Murrin, Murrin Wallace & Associates, Rosewell, GA.
For TERRILL MARK WRIGHT, individually, Defendant - Appellant: Bruce Steven Harvey, Law Office of Bruce Harvey, Atlanta, GA.
Before TJOFLAT, WILLIAM PRYOR, and BARKSDALE,[*] Circuit Judges.
WILLIAM PRYOR, Circuit Judge:
In this appeal, we must decide whether the district court abused its discretion when it held Hi-Tech Pharmaceuticals, Inc., Jared Wheat, Stephen Smith, and Dr. Terrill Mark Wright in contempt for violating injunctions that prohibit them from making any representation about weight-loss products unless they " possess and rel[y] upon competent and reliable scientific evidence that substantiates the representation." Hi-Tech, Wheat, Smith, and Wright submitted evidence to support the challenged representations and an expert declaration that the representations were substantiated by " competent and reliable scientific evidence." But the district court refused to consider the evidence. The district court ruled that because it had required Hi-Tech, Wheat, Smith, and Wright to produce clinical trials to substantiate different representations about different weight-loss products in an earlier stage of this litigation, they were collaterally estopped from presenting new kinds of evidence to satisfy the standard of " competent and reliable scientific evidence" and instead had to produce clinical trials to
substantiate the challenged representations. After Hi-Tech, Wheat, Smith, and Wright failed to produce clinical trials to substantiate their representations, the district court held them in contempt. Because the district court misapplied the doctrine of collateral estoppel, we vacate and remand.
We divide our discussion of the background in two parts. First, we discuss the initial litigation between the Federal Trade Commission and Hi-Tech, Wheat, Smith, and Wright. Second, we discuss the contempt proceedings that gave rise to this appeal.
A. Initial Litigation.
In 2004, the Commission filed a complaint against Hi-Tech, Hi-Tech's Chief Executive Officer, Wheat, Hi-Tech's Senior Vice President, Smith, and Wright for violations of sections 5 and 12 of the Federal Trade Commission Act, 15 U.S.C. § § 45(a), 52. The Commission alleged that the defendants made unsubstantiated representations about two weight-loss products, " Thermalean" and " Lipodrene." The Commission alleged that the defendants lacked adequate substantiation for their representations that Thermalean " is an effective treatment for obesity," " is equivalent or superior to the prescription weight loss drugs Xenical, Meridia, and Fastin in providing weight loss benefits," " causes rapid and substantial weight loss, including as much as 30 pounds in 2 months," and " causes users to lose 19% of total body weight, lose 20-35% of abdominal fat, reduce their overall fat by 40-70%, [and] decrease their stored fat by 300%," and that Lipodrene " causes substantial weight loss, including as much as 125 pounds" and " enables users to lose up to 42% of total body fat and 19% of total body weight, and to increase their metabolic rate by up to 50%."
In 2008, the district court granted summary judgment in favor of the Commission. The district court concluded that the defendants had violated the Trade Commission Act because they had not substantiated their representations with clinical trials of the weight-loss products instead of ingredients in the products. The district court entered a final judgment and permanent injunction against Hi-Tech, Wheat, and Smith, and a separate final judgment and permanent injunction against Wright based on his unsubstantiated endorsements of the products.
The injunctions prohibited the defendants from making any representation that a weight-loss product " causes rapid or substantial loss of weight or fat" or " affects human metabolism, appetite, or body fat," unless the defendants " possess and rel[y] upon competent and reliable scientific evidence that substantiates the representation." The injunctions defined " competent and reliable scientific evidence" to mean " tests, analyses, research, studies, or other evidence based on the expertise of professionals in the relevant area, that has been conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the profession to yield accurate and reliable results." The injunctions did not mention any requirement to produce clinical trials to substantiate weight-loss representations.
B. Contempt Proceedings.
After Hi-Tech, Wheat, Smith, and Wright continued to promote weight-loss products, the Commission moved the district court in 2011 to order Hi-Tech, Wheat, and Smith to show cause why they should not be held in contempt for making unsubstantiated representations about four
products, " Fastin," " Stimerex-ES," " Benzedrine," and a reformulated version of " Lipodrene." The Commission alleged that Hi-Tech, Wheat, and Smith lacked adequate substantiation for the following ...