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Federal Trade Commission v. Ewing

United States District Court, D. Nevada

October 24, 2017

FEDERAL TRADE COMMISSION, Plaintiff,
v.
CRYSTAL A. EWING, et al., Defendants.

          ORDER PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT (ECF NO. 73)

          RICHARD F. BOULWARE, II UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION

         Before the Court is a Motion for Summary Judgment by the Federal Trade Commission (“the Commission”) and Proposed Order seeking equitable monetary and permanent injunctive relief. ECF No. 73. For the reasons discussed below, the Court GRANTS the Commission's motion and ENTERS the Amended Proposed Order. ECF Nos. 113, 114.

         II. BACKGROUND

         On May 1, 2014 the Commission brought this action under Section 13(b) of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 53(b), to obtain permanent injunctive relief, rescission of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief for Defendants' acts or practices in violation of Sections 5(a) and 12 of the FTC Act, 15 U.S.C. §§ 45(a) and 52, in connection with the advertising, marketing, and sale of purported weight-loss pills “Citra-Slim 4” and/or “W8-B-Gone” and/or “Quick & Easy.” ECF No. 1. The Commission filed an Amended Complaint on May 14, 2014. ECF No. 17. The advertisements made the following representations:

1. Defendants' Weight Loss Product would cause consumers to lose 20 pounds of fat in 16 days without diet or exercise;
2. “Sweden's Top Weight Loss Expert” conducted clinical research that supports these claims; and
3. Defendants provided a 100% nostrings- attached refund policy.

         On July 1, 2015 the Commission filed its Motion for Summary Judgment against Defendants Crystal Ewing, Classic Productions, Ricki Black, Health Nutrition Products, Howard Raff, David Raff, Shirley Murphy, and Ronald Boyde. ECF No. 73.

         On November 2, 2015, the following defendants entered a stipulation for final judgment: Crystal Ewing, Ricki Black, and Classic Productions, LLC. ECF Nos. 103, 104. The Court entered these judgments after receiving oral confirmation from the parties at the hearing on February 24, 2016. ECF No. 112.

         Therefore, the remaining defendants pertaining to the Commission's Motion (ECF No. 73) are: David and Howard Raff, Health Nutrition Products, Shirley Murphy, and Ronald Boyde.

         III. LEGAL STANDARD

         A. Summary Judgment

         Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); accord Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In ruling on a motion for summary judgment, the court views all facts and draws all inferences in the light most favorable to the nonmoving party. Johnson v. Poway Unified Sch. Dist., 658 F.3d 954, 960 (9th Cir. 2011).

         Where the party seeking summary judgment does not have the ultimate burden of persuasion at trial, it “has both the initial burden of production and the ultimate burden of persuasion on a motion for summary judgment.” Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Companies, Inc., 210 F.3d 1099, 1102 (9th Cir. 2000). “In order to carry its [initial] burden of production, the moving party must either produce evidence negating an essential element of the nonmoving party's claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial.” Id. If the movant has carried its initial burden, “the nonmoving party must produce evidence to support its claim or defense.” Id. at 1103. In doing so, the nonmoving party “must do more than simply show that there is some metaphysical doubt as to the material facts . . . . Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.” Scott v. Harris, 550 U.S. 372, 380 (2007) (alteration in original) (internal quotation marks omitted). However, the ultimate burden of persuasion on a motion for summary judgment rests with the moving party, who must convince the court that no genuine issue of material fact exists. Nissan Fire, 210 F.3d at 1102.

         With respect to motions for summary judgment under the FTC Act, “[o]nce the FTC has made a prima facie case for summary judgment, the defendant cannot rely on general denials but must demonstrate with evidence that is ‘significantly probative' or more than ‘merely colorable' that a genuine issue of material fact exists for trial.” F.T.C. v. Gill, 265 F.3d 944, 954 (9th Cir. 2001).

         A. Section 5(a) of the FTC Act

         “Section 5(a) of the Act declares unlawful ‘unfair or deceptive acts or practices in or affecting commerce' and empowers the Commission to prevent such acts or practices. 15 U.S.C. § 45(a)(1) & (2).” F.T.C. v. Pantron I Corp., 33 F.3d 1088, 1095 (9th Cir. 1994). “[A] practice falls within this prohibition (1) if it is likely to mislead consumers acting reasonably under the circumstances (2) in a way that is material.” F.T.C. v. Cyberspace.Com LLC, 453 F.3d 1196, 1199 (9th Cir. 2006) (internal citation omitted). Courts look to the overall impression conveyed by a representation, and not merely to literal truth. Id. at 1200.

         B. Section 12 of the FTC Act

         Section 12 of the FTC Act prohibits the dissemination of any false advertisement “for the purpose of inducing, or which is likely to induce, directly or indirectly, the purchase in or having an effect upon commerce, of food, drugs, devices, services, or cosmetics.” 15 U.S.C. § 52(a)(2).

         Pursuant to 15 U.S.C. § 52(b), the dissemination of a false advertisement also constitutes a violation of 15 U.S.C. § 45, prohibiting unfair or deceptive acts or practices in or affecting commerce. The FTC Act defines “false advertisement” as one that is “misleading in a material respect, ” taking into account the representations the advertisement makes or suggests as well as any material facts which the advertisement fails to reveal. 15 U.S.C. § 55(a)(1). A claim that a product is effective is “false” under Section 12 of the FTC Act “if evidence developed under accepted standards of scientific research demonstrates that the product has no force beyond its placebo effect.” F.T.C. v. Pantron I Corp., 33 F.3d 1088, 1097 (9th Cir. 1994). In such a case, a claim that the product is effective constitutes a false advertisement “even though some consumers may experience positive results.” Id. at 1100. An advertisement is misleading “only if it fails to disclose facts necessary to dissipate false assumptions likely to arise in light of the representations actually made” by the advertisement. F.T.C. v. Simeon Mgmt. Corp., 532 F.2d 708, 716 (9th Cir. 1976).

         C. Individual Liability under the FTC Act

         Individuals are liable for injunctive relief for violations of the FTC Act if they directly participate in the deceptive acts or have the authority to control them. F.T.C. v. Publ'g Clearing House, Inc., 104 F.3d 1168, 1170 (9th Cir. 1997); F.T.C. v. Stefanchik, 559 F.3d 924, 931 (9th Cir. 2009). “Under the FTC Act, a principal is liable for the misrepresentations of his agent acting within the scope of the agent's actual or apparent authority.” Stefanchik, 559 F.3d at 930. In addition, an individual defendant's status as a corporate officer or “authority to sign documents on behalf of the corporation demonstrate [that defendant has] the requisite control over the corporation” for the purpose of establishing individual liability for a corporation's acts. Publ'g Clearing House, 104 F.3d at 1170-71.

         To subject an individual to monetary liability, there must be an additional showing: that the individual (1) had knowledge of the misrepresentations, (2) was recklessly indifferent to the truth or falsity of the misrepresentation, or (3) was aware of a high probability of fraud and intentionally avoided the truth. Publ'g Clearing House, 104 F.3d at 1171; Stefanchik, 559 F.3d at 931. “[T]he FTC is not required to show that a defendant intended to defraud consumers in order to hold that individual personally liable.” Publ'g Clearing House, 104 F.3d at 1171.

         IV. UNDISPUTED FACTS

         The Court focuses its discussion on Defendants David and Howard Raff, Health Nutrition Products, Shirley Murphy, and Ronald Boyde.

         A. General Background

         Beginning in 2007, Defendants advertised, marketed, and sold one identical weight-loss pill under three names: Citra-Slim 4, W8-B-Gone, and Quick & Easy (the “Subject Products”). These products had the same formulation and identical instructions for use.

         B. Ronald Boyde and Shirley Murphy

         Shirley Murphy and Ronald Boyde were employees of the company Classic Productions, LLC (“Classic”). Beginning in 2007, Classic, together with Global Access Management Systems, Inc. (“GAM”) began marketing the pill Citra-Slim 4.

         The mailer touted the pill's “Amazing RAPID FAT meltdown diet program” and claimed users could lose 16 pounds in 20 days without changing their diet or exercise routine. The mailer prominently featured “Sweden's top weight loss” doctor who cited extensive clinical testing.

         In 2010, Boyde and Murphy started a new company, Omni Processing Center (“Omni”). Omni handled customer service, order fulfillment, and refunds for the pills W8-B-Gone and Quick & Easy, which featured the same claims as the pill Citra-Slim 4.

         a. Murphy

         Both as the office manager of Classic, and later, as an owner of Omni, Murphy performed the full range of customer service activities, including taking orders for the products, and responding directly to complaints and requests for refunds.

         In some cases, she repeated and reinforced the claims in the advertising by urging people seeking refunds to continue to take the product to see if they might lose weight.

         Murphy received and responded to complaints filed with the Better Business Bureau (BBB). The complaining consumers attached exemplars of the deceptive marketing, and complained about the products' efficacy and wanted refunds.

         She dealt directly with consumers who complained about the fact that they had made multiple refund requests and had received nothing.

         Murphy delayed refunds and lied about protocols for processing refunds. Only Murphy decided whether, and when to issue a refund. Murphy entered telephone orders for the products using the W8-B-Gone website, where claims were also logged. Murphy did not possess any substantiation related to the claims made for the products.

         b. Boyde

         Boyde, a longtime employee of Classic, was a 50% owner and secretary of Omni. He set up and had signatory power over Omni's accounts with Wells Fargo. This included an account that received payments from HNP, including refund allowances, and payments to cover the cost of Omni's services. Boyde was the signatory on Omni's Refund Account. As the signatory for Omni's Refund Account, Boyde was aware of the multiple requests for refunds that had been made by unsatisfied consumers, i.e., consumers who had purchased the products and had failed to lose the promised weight.

         Boyde had access to the Atlantis database in which Murphy recorded her notes of calls with consumers complaining about the products and the refund delays.

         C. Health ...


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