Florida man held liable for false green coffee claims

FTC v. NPB Advertising, Inc., No. 14-cv-1155, 2016 WL
6493923 (M.D. Fla. Nov. 2, 2016)
The FTC sued Nicholas Congleton and others under Section 5
of the FTC Act for engaging in false or deceptive advertising. Congleton
received an email from a dietary-supplement manufacturer touting the efficacy
of “green-coffee extract” as a weight-loss aid. 
The e-mail linked to a three-minute clip from the television show “Dr.
Oz,” describing a study that allegedly “showed women and men who took green-coffee
extract lost an astounding amount of fat and weight, 17 pounds in 22 weeks by
doing absolutely nothing extra….” After watching the clip and searching the
Internet, Congleton, with co-defendants, founded a green-coffee extract
business.
The FTC showed that defendants made false efficacy claims, unsubstantiated
claims, and false establishment claims that were materially misleading.  Moreover, defendants prominently showed
testimonials on their website without disclosing the material fact that the
people shown were compensated for their testimonials. 
Defendants also published dailyconsumeralert.org, which had
a masthead for Women’s Health Journal, a navigation banner with several health-
or fitness-related categories, and the text “AS SEEN ON” next to the logos of
CBS, ABC, MSNBC, and CNN (“creating a false impression that these networks
reported favorably on Pure Green Coffee”). 
The court found that a viewer would see these as characteristic of a
bona fide news outlet. “The presence of the word ‘Advertorial’ in small font at
the top of the page fails to alter the overall impression.”  An article purportedly written by a Women’s
Health Journal columnist claimed to report on an objective test of the product’s
efficacy.  (Sample text: “[W]e here at
Consumer Lifestyles were a little skeptical of this Green Coffee Bean Extract.
Even after pouring through mountains of research. While I had an educated
opinion, I still had no personal proof that the Green Coffee Bean was worth the
time….”)  The court found that a
reasonable consumer would be materially misled by the website, even though
Congleton admitted that he and a co-defendant admitted that they just copied
the article from another website. 
Congleton was individually liable for the corporate
defendants’ false advertising.  The
standard first required the FTC to show that the corporations operated as a
“common enterprise,” which can happin if the structure, organization, and
pattern of a business venture reveal a “maze” of integrated corporate entities.  Here, the corporations operated under common
control, commingled funds, shared advertising, and retained the same employees,
so the standard was satisfied.
The FTC also had to show that Congleton knew of the
enterprise’s deceptive act and participated directly in, or had authority to
control, the act. Knowledge can include reckless indifference to the falsity of
the misrepresentation, even in the absence of intent to defraud.  That was present here: Congleton admited that
he knew the efficacy claims lacked a scientific basis. (E.g., “I don’t know
that there is a basis for [the claim of losing twenty pounds in four weeks.]”)  At a minimum, Congleton showed reckless
indifference to the truth or falsity of the claims. Although he based the
efficacy claims on the Dr. Oz. segment and the study reported therein, he said,
“I’m not a medical doctor. I don’t know exactly that I understood everything
that’s being said in here,” deferred blindly to Dr. Oz’s “expertise,” and
admittedly copyied unverified claims from competitors’ ads or websites.  This was not good faith. Congleton
participated directly in the deceptive advertising practices by running the ad
program, and he also controlled the business.
Congleton claimed First Amendment protection, but there is
no protection for false commercial statements of fact; here the claims were
specific, objective, and falsifiable.  “Because
Congleton knowingly misrepresented Pure Green Coffee’s efficacy, the First
Amendment offers Congleton no protection from civil liability.”  [Actually, even lack of knowledge doesn’t
defeat liability for misleading commercial speech.]  The FTC didn’t need to show that consumers
were actually misled, only that his representations were likely to mislead a reasonable
consumer.  An old DC Circuit case (Bork,
J.) says that the FTC should introduce “empirical evidence of consumer
perception” for an implied claim, but the claims here were both express and
facially false, and even for an implied claim, no survey data is required.
Congleton challenged the constitutionality of the FTC’s
presumption of materiality for express claims. Nope.
The court granted a permanent injunction against Congleton:
Because Congleton conducted a
deceptive advertising campaign for years, because Congleton knew of the
advertisements’ falsity, because Congleton failed to immediately discontinue
the deceptive advertising after learning of the FTC’s demand, because another
violation could seriously harm a consumer, because Congleton appears proficient
in internet-advertising techniques, and because the barriers to entry in the
dietary-supplement industry are low, the FTC proves a cognizable danger of a
prospective violation. A permanent injunction that bars Congleton from
conducting the same variety of deceptive advertising he undertook at Pure Green
Coffee is warranted.

Congleton was required to disgorge a bit over $29,000,000,
calculated by subtracting from the defendants’ $30 million in gross receipts customer
refunds and disgorgements by other defendants. Congleton argued that profit,
rather than net revenue, was the proper measure of disgorgement, but net revenue
appropriately measures a defendant’s unjust gain under section 13(b).  Congleton’s brother also had to disgorge
title to a property held in his name, but bought with money from a Pure Green
Coffee bank account; the brother was an appropriate relief defendant who had no
legitimate claim to defendants’ “ill-gotten” proceeds. 

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