United States of America v. McAdam et al

Filing 47

FINDINGS AND RECOMMENDATIONS Signed by Magistrate Carolyn S Ostby on 11/12/2013. IT IS RECOMMENDED that 18 Motion for a Judgment of Civil Contempt against McAdam be GRANTED, 19 Motion for Liquidated Damages be GRANTED, 45 Motion for Attorneys Fees & Costs be GRANTED, and 46 Motion to Vacate Fines be DENIED (See order for specifics.) (CLR) Copies mailed to Toby McAdam and Greta Armstrong. Modified on 11/12/2013 to edit text for clarification (CAA, ). Modified on 11/13/2013 to change to written opinion. (NOB)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION
UNITED STATES OF
AMERICA,
Plaintiff,
vs.

CV 10-128-BLG-SEH-CSO

FINDINGS AND
RECOMMENDATIONS OF
UNITED STATES MAGISTRATE
JUDGE

TOBY CARL MCADAM and
GRETA S. ARMSTRONG,
Individuals, d/b/a RISINGSUN
HEALTH,
Defendants.
I.

Introduction
This case was closed in 2010 after the parties stipulated to entry

of a Consent Decree, which Judge Cebull signed on November 4, 2010.
ECF 5.1 Generally, the Consent Decree required McAdam to bring
himself into compliance with the Federal Food, Drug, and Cosmetic
Act, 21 U.S.C. §§ 301-397 (the “Act”). The Court “retain[ed] jurisdiction
[] for the purpose of enforcing or modifying [the Consent] Decree and

“ECF” refers to the document as numbered in the Court’s Electronic
Case Files. See The Bluebook, A Uniform System of Citation, § 10.8.3.
1

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for the purpose of granting such additional relief as may be necessary
or appropriate.” ECF 5 at 18.
In February 2013, the United States filed the following
documents: (1) “Petition for an Order to Show Cause Why Defendant
Toby McAdam Should Not be Held in Civil Contempt” (ECF 18) and (2)
“Motion for Liquidated Damages” (ECF 19). After the Court granted
McAdam extensions of time to respond (see ECF 21, 28, 31), it held a
hearing on these motions on September 25, 2013. Despite adequate
notice of the hearing, McAdam failed to appear. The United States
presented the testimony of Lisa Altha, FDA Compliance Officer,
regarding the FDA investigations of McAdam’s activities.
On September 25, 2013, the Court issued a Show Cause Order,
giving McAdam another opportunity to appear and show cause why he
should not be held in contempt and sanctioned for violating the Consent
Decree. ECF 34. This show-cause hearing was held on October 21,
2013. The Court heard testimony from McAdam and further testimony
from Lisa Althar. In addition, the United States was given time to file
its “Motion for Attorney Fees” (ECF 45). McAdam responded with a
“Motion to Vacate Fines and Response” (ECF 46).
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Having considered the oral testimony, written motions, and
arguments of the parties, the Court enters the following Findings and
Recommendations.
II.

Background Facts
A.

Events Leading to Consent Decree

In 2006, the Food and Drug Administration (“FDA”) issued
Defendant Greta Armstrong a Warning Letter that Risingsun was
advertising unapproved cancer remedies on the websites
www.risingsunhealth.com and www.bloodrootproducts.com, and
warned her that selling unapproved products for use in the cure,
mitigation, treatment, and prevention of disease violated the Act. The
FDA also advised that the products advertised on the website were
misbranded under the Act and did not contain adequate directions for
usage. McAdam then informed the FDA by telephone that he was the
owner of Risingsun and he would remove the offending drug claims
from the websites. McAdam sent a letter to the FDA shortly thereafter
confirming that he would remove the offending drug claims.
The following year, in November 2007, FDA investigators
inspected Risingsun and discovered that McAdam’s violations of the Act
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continued. McAdam wrote two more letters promising that he would
cease illegal activity. Despite this, on April 4 and 10, 2009, FDA
investigators noted that Risingsun’s websites and many of their
product labels still contained illegal drug claims that its products could
cure, mitigate, treat, or prevent disease.
In May and June 2010, the FDA made numerous undercover
purchases of Risingsun’s products and found that McAdam continued to
sell illegal unapproved new drugs which the FDA had previously
informed McAdam were in violation of 21 U.S.C. §§ 352(f)(1) and
355(a). These purchases were shipped from Montana to undercover
investigators located in Maryland, Arizona, and Washington State.
On October 13, 2010, the United States filed its Complaint herein
invoking the injunction provisions of the Act, 21 U.S.C. § 332(a). The
Complaint alleged, among other things, that McAdam regularly sold
unapproved drugs in interstate commerce to treat serious diseases such
as cancer, anemia, asthma, ADD/ADHD, arthritis, epilepsy, and
intestinal parasites. These drugs were alleged to be “new drugs,” as
defined by 21 U.S.C. § 321(p)(1), in that they were not generally
recognized, among experts qualified by scientific training and
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experience to evaluate the safety and effectiveness of drugs, as safe and
effective for use under the conditions prescribed, recommended, or
suggested in their labeling. See ECF 1. The Complaint also alleged:
(1) that McAdam violated 21 U.S.C. § 331(d) by introducing or
delivering for introduction into interstate commerce such
unapproved drugs in violation of 21 U.S.C. § 355;
(2) that McAdam sold new animal drugs, as defined by 21 U.S.C. §
321(v)(1), that were unapproved by the FDA, and which were
“unsafe” within the meaning of 21 U.S.C. § 360b(a), and
“adulterated” within the meaning of 21 U.S.C. § 351(a)(5); and
(3) that McAdam’s drug products were “misbranded” within the
meaning of 21 U.S.C. § 353(b)(1) because they were prescription
drugs, the distribution of which without a prescription resulted in
the drug being “misbranded” while held for sale, and within the
meaning of 21 U.S.C. § 352(f)(1), because the labeling failed to
bear adequate directions for use.
B.

Consent Decree

The parties negotiated the Consent Decree. McAdam was
represented by counsel throughout those negotiations.
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The Consent Decree enjoins McAdam from introducing into
interstate commerce, holding for sale after shipment in interstate
commerce, and manufacturing, processing, packaging, labeling,
holding, selling, and distributing a broad range of products, including,
inter alia, (a) any topically-applied product for human or animal use
containing extracts or components of the Bloodroot or Graviola plants,
(b) any “new drug,” (c) any “new animal drug,” and (d) any dietary
supplement, unless and until (i) the FDA approves a new drug
application or abbreviated new drug application for the product
pursuant to 21 U.S.C. § 355, or (ii) the FDA approves an investigational
new drug application for the product pursuant to 21 U.S.C. § 355(i) and
21 C.F.R. § 312, or (iii) the FDA approves a new animal drug
application or abbreviated new animal drug application for the product
pursuant to 21 U.S.C. § 360b(b) or such product meets the
requirements for the investigational new animal drug exemption
pursuant to 21 U.S.C. § 360b(j).
Second, the Consent Decree requires that McAdam demonstrate
to the FDA that the new drug is the subject of a valid FDA approval
before manufacturing or distributing any new drug.
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Third, the Consent Decree requires McAdam to retain a labeling
expert.
Fourth, the Consent Decree generally enjoins McAdam from
introducing unapproved, misbranded, and/or adulterated human and
animal drugs into interstate commerce, or causing the adulteration or
misbranding of such products held for sale after shipment in interstate
commerce.
The Consent Decree also states that if McAdam violates the
Consent Decree, the Act, or the FDA’s regulations, the “FDA may, as
and when it deems necessary in its sole discretion, direct [McAdam], in
writing, and order [McAdam] to take appropriate corrective action. . . .”
ECF 5 at 13. Such corrective action may include an order to “[c]ease
manufacturing, processing, packaging, labeling, holding, selling, and/or
distributing any or all drugs and/or dietary supplements,” or “any other
corrective action(s) as FDA deems necessary to protect the public
health or to bring [McAdam] and [his] products into compliance with
the Act, applicable regulations, and this [Consent] Decree.” Id. at 1314.

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In addition, the Consent Decree orders that McAdam will pay
monetary damages if he violates the Consent Decree, attorney’s fees in
a contempt action, and the costs of “all FDA inspections, investigations,
supervision, reviews, examinations, and analyses specified in [the
Consent Decree] or that FDA deems necessary to evaluate [McAdam’s]
compliance” at the standard prevailing rates. Id. at 17-18.
The Consent Decree provides that “[a]ll decisions specified in this
[Consent] Decree shall be vested in the discretion of FDA and shall be
final and [McAdam] shall abide by the decisions of FDA.” Id. at 18. If
contested, the Consent Decree provides that the FDA’s decisions “shall
be reviewed by the Court under the arbitrary and capricious standard
set forth in 5 U.S.C. § 706(2)(A).” Id.
On February 14, 2012, McAdam filed a “Request to Set Aside
Consent Decree and Preliminary Injunction.” See ECF 8. McAdam’s
request alleged that he had been coerced and intimidated into signing
the Consent Decree, that he should not be required to hire a labeling
expert because “there is no criteria nor certification procedures for a
person to become a label specialist,” and that the Consent Decree

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violates his rights to equal protection. On March 8, 2012, Judge Cebull
denied McAdam’s motion in full. See ECF 12.
On September 11, 2012, McAdam filed a motion entitled “Request
for Hearing to Compel [the Government] to Specify Criteria as to What
is Not a Medical Claim and to Clarify Criteria Standards Set for SoCalled Label Specialist and For this Court to Review and Determine If
[McAdam] Has Infect (sic) Complied With Decree.” See ECF 13. Judge
Cebull denied this “Request,” concluding that “[e]ach of the arguments
advanced in Defendant’s motion have already been rejected by this
Court.” ECF 16 at 1.
C.

Alleged Violations of Consent Decree

On September 15, 2011, the FDA notified McAdam that Risingun
was in violation in the Consent Decree and ordered McAdam to cease
operations until he could demonstrate compliance with the Consent
Decree. On February 14, 15, and 16, 2012, the FDA conducted an
inspection at Risingsun. The FDA’s inspection revealed that,
notwithstanding the FDA’s September 15, 2011 notification of noncompliance, McAdam continued to sell products in violation of the
Consent Decree.
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Following the February 2012 inspection, McAdam faxed to the
FDA a letter dated March 5, 2012, which indicated that he would soon
address the observed deficiencies. McAdam, however, did not follow up
on this assurance and did not submit a corrective action plan that was
later requested by the FDA. Furthermore, on March 29, 2012, the FDA
sent an invoice of $1,524.39, pursuant to Paragraph 12 of the Consent
Decree, to reimburse the Agency for the cost of the February 2012
inspection. McAdam did not pay this invoice.
The FDA sent McAdam another letter on April 20, 2012, notifying
him that he was continuing to violate the Consent Decree and pointing
out that the FDA had observed several additional violations of the
Consent Decree. McAdam did not respond. The FDA sent him yet
another letter on July 27, 2012, requesting that he pay liquidated
damages in the amount of $80,000 because of his clear and ongoing
violations of the Consent Decree and the Act. McAdam did not pay the
liquidated damages request.
On October 17, 2012, the FDA conducted an inspection of
Gesunheit! Nutrition Center in Bozeman, Montana, and found further
evidence that McAdam was in violation of the Consent Decree.
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On October 31, 2012, the FDA’s Office of the Chief Counsel
informed McAdam via letter that McAdam’s case had been referred
back to his office to consider whether to bring further court
proceedings, and that, in the absence of immediate compliance with the
Consent Decree, the FDA would refer this case back to the Department
of Justice to file a motion with the Court seeking an award of liquidated
damages under Paragraph 7 of the Consent Decree. In response,
McAdam filed a sworn affidavit dated November 8, 2012, stating that
he “will cease operations.” See ECF 17.
III. Standard of Review
Federal courts have inherent power to force entities to comply
with their lawful orders through actions for civil contempt. Spallone v.
United States, 493 U.S. 265, 276 (1990); Shillitani v. United States, 384
U.S. 364, 370 (1966). Federal courts have the authority to issue
contempt sanctions for violations of judicial orders, including consent
decrees. F.T.C. v. EDebitPay, LLC, 695 F.3d 938, 943 (9th Cir. 2012).
Sanctions for civil contempt may be imposed to coerce compliance with
a court order or to compensate the injured party for losses sustained.
Koninklijke Philips Elecs., N.V. v. KXD Tech., Inc., 539 F.3d 1039, 1044
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(9th Cir. 2008); Whittaker Corp. v. Execuair Corp., 953 F.2d 510, 517
(9th Cir.1992) (citing United States v. United Mine Workers of Am., 330
U.S. 258, 303-04 (1947)).
The Supreme Court has consistently recognized that a consent
decree entered by the court reflects “an agreement that the parties
desire and expect will be reflected in, and be enforceable as, a judicial
decree that is subject to the rules generally applicable to other
judgments and decrees.” Rufo v. Inmates of Suffolk Cnty Jail, 502 U.S.
367, 378 (1992). A party who fails to comply with the terms of a courtordered consent decree is subject to the court’s contempt power. See
Nehmer v. U.S. Dept. of Veterans Affairs, 494 F.3d 846, 860 (9th Cir.
2007) (“It is well established that the district court has the inherent
authority to enforce compliance with a consent decree that it has
entered in an order, to hold parties in contempt for violating the terms
therein . . . .” (citing Rufo, 502 U.S. at 381 & n.6)).
Civil contempt “consists of a party’s disobedience to a specific and
definite court order by failure to take all reasonable steps within the
party’s power to comply.” Reno Air Racing Ass’n v. McCord, 452 F.3d

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1126, 1130 (9th Cir. 2006) (quoting In re Dual–Deck Video Cassette
Recorder Antitrust Litig., 10 F.3d 693, 695 (9th Cir. 1993)).
To justify civil contempt, the moving party must establish “(1)
that [the alleged contemnor] violated the court order, (2) beyond
substantial compliance, (3) not based on a good faith and reasonable
interpretation of the order, (4) by clear and convincing evidence.”
United States v. Bright, 596 F.3d 683, 694 (9th Cir. 2010) (quoting
Labor/Cmty. Strategy Ctr. v. L.A. Cnty Metro. Trans. Auth., 564 F.3d
1115, 1123 (9th Cir. 2009)); see also F.T.C. v. Affordable Media, 179
F.3d 1228, 1239 (9th Cir. 1999) (“The standard for finding a party in
civil contempt is well settled: The moving party has the burden of
showing by clear and convincing evidence that the contemnors violated
a specific and definite order of the court.”). If the moving party meets
this initial four-part test, the burden then shifts to the alleged
contemnor to demonstrate why it was unable to comply. Affordable
Media, LLC, 179 F.3d at 1239; Stone v. City & Cnty. of San Francisco,
968 F.2d 850, 856 n. 9 (9th Cir. 1992). In other words, the accused
party must “show [that it] took every reasonable step to comply.”
Stone, 968 F.2d at 856 n. 9 (citation omitted).
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IV.

Analysis
The Court finds that the United States has presented clear and

convincing evidence that McAdam has failed to comply with several
requirements of the Consent Decree.
First, McAdam has violated Paragraph 3.A.1, which prohibits the
sale of topically-applied products containing extracts or components of
the Bloodroot plant. See ECF 5 at 4. Second, McAdam has violated
Paragraphs 4 and 5 of the Consent Decree by continuing to sell
products that are intended to be used topically or ingested by humans,
without submitting certifications by an expert that the products comply
with the law. Id. at 6-10. Finally, McAdam has repeatedly failed to
comply with the FDA’s order, issued pursuant to Paragraph 10 of the
Consent Decree, that Risingsun cease manufacturing, processing,
packaging, labeling, holding, selling, and/or distributing all products
intended to be ingested by, or applied topically to, humans or animals,
including, without limitation, any drugs and/or dietary supplements.
Id. at 13-14.
The United States’ Exhibit A shows that on September 12, 2013,
McAdam was sharing information and advertising for the sale of his
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Bloodroot products on his Risingsun Herbal Health Facebook page,
including a link to the website where the Bloodroot products can be
purchased. Government’s Exhibit A at 2; Tr. 33.
McAdam’s own testimony and the exhibits he offered at the
hearing confirm his violations. McAdam testified that he had been
selling Black Salve in order to pay for his hip surgery. Tr. 29, 3-7; 31
16-19; 43, 4-7. McAdam’s Exhibit 1, entitled “Batch Record,” indicates
McAdam produced “Bloodroot Immune Capsules” on April 16, 2012.
McAdam also testified that he did not have proof that a labeling expert
had submitted proposed labels for FDA inspection. Tr. 45, 14-16.
McAdam’s conduct has demonstrated an attitude of defiance
toward the FDA and the Court’s order. By failing to comply with the
Consent Decree, McAdam continues to expose the public to unapproved
drugs that have not been demonstrated to be safe or effective, as well
as dietary supplements that are not manufactured in compliance with
the Current Good Manufacturing Practices (“cGMPs”) regulations. See
generally 21 C.F.R. Parts 210-211.
Further, the United States has devoted significant time and
resources negotiating the terms of the Consent Decree, investigating
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whether McAdam has complied with the Consent Decree, and
documenting McAdam’s non-compliance.
Civil sanctions are necessary to force McAdam to comply with the
Consent Decree and the FDA’s order. McAdam should be required to
immediately cease all manufacturing, processing, packaging, labeling,
holding, selling, and/or distributing all products intended to be ingested
by, or applied topically to, humans or animals, including, without
limitation, any drugs and/or dietary supplements. McAdam must
immediately shut down his website and the Risingsun Herbal Health
Facebook page, remove all products from Amazon.com, and remove any
related telephone listings from phone books. This must be done unless
and until the FDA in writing certifies compliance and permits McAdam
to resume operations.
V.

Damages and Fees
Given McAdam’s repeated failures to comply with the terms of

the Consent Decree, despite repeated warnings from the FDA and
multiple opportunities to comply, the Court must consider the issues of
liquidated damages and attorney fees.
Paragraph 17 of the Consent Decree provides as follows:
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If Defendants fail to comply with any of the
provisions of this Decree, including any time frame
imposed by this Decree, then, on motion of the
Plaintiff, Defendants shall pay to the United States
of America: one thousand dollars ($1,000.00) in
liquidated damages, and an additional sum of one
thousand dollars ($1,000.00) in liquidated damages
for each day the violation of the Act, its
implementing regulations, and/or this Decree
continues.
Under this provision, the amount of liquidated damages imposed may
not exceed “eighty thousand dollars ($80,000) per defendant in any
calendar year.” ECF 5 at 17.
The United States has, as required by the Decree, “specif[ied] the
noncompliance giving rise to the motion.” See ECF 18, 19 and
attachments). The United States has demonstrated through an
affidavit (ECF 33) and in testimony at the hearing that McAdam has
been noncompliant with the Consent Decree since it was entered, and
has ignored the FDA’s order to cease operations dated September 15,
2011. McAdam’s testimony at the hearing confirmed his
noncompliance.
Although it argues that the Consent Decree may permit a request
for additional liquidated damages, the United States is seeking a total
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of eighty thousand dollars ($80,000.00) in such damages. McAdam
should be required to pay to the United States liquidated damages in
the amount of eighty thousand dollars ($80,000.00) pursuant to
Paragraph 17 of the Consent Decree. See ECF 5.
The United States also seeks an award of fees and costs as an
additional sanction related to McAdam’s conduct. ECF 45. In support
of this motion, the United States filed a declaration of Rodney
Veenstra, a Supervisory Budget Analyst, Budget Execution Branch of
the Civil Division, Department of Justice. ECF 45-1. Mr. Veenstra
calculates the DOJ attorney’s hourly rate as $149.34. Id. at 4-5. The
Court finds this rate to be reasonable. In addition, the United States
presents the Declaration of DOJ counsel David Sullivan, documenting
the expenditure of 228.65 hours between February 14, 2012, and
September 30, 2013. ECF 45-3 at 1-2. Although this would yield an
award of $34,146.59, the United States seeks only $3,584.16, or about
10 percent of the larger sum. Travel costs are documented to be
$1,352.32. Id. at 3.
In response to this request for fees and costs, McAdam primarily
presents arguments that Judge Cebull has heretofore rejected. See
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ECF 46. He cites no authority to support his remaining objections and,
even liberally construed, they are without merit.
VI.

Conclusion
Based upon the foregoing, IT IS RECOMMENDED that:
1.

Plaintiff’s Petition for a judgment of civil contempt against
McAdam for violations of the Consent Decree (ECF 18 at 4)
be GRANTED. McAdam should be required to immediately
cease all manufacturing, processing, packaging, labeling,
holding, selling, and/or distributing all products intended to
be ingested by, or applied topically to, humans or animals,
including, without limitation, any drugs and/or dietary
supplements. McAdam should be required to immediately
shut down his website and the Risingsun Herbal Health
Facebook page, remove all products from Amazon.com, and
remove any related telephone listings from phone books.
This should be done unless and until the FDA in writing
certifies compliance and permits the resumption of
operations.

2.

Plaintiff’s Motion for Liquidated Damages (ECF 19) be
GRANTED. McAdam should be directed to pay to the
United States liquidated damages in the amount of eighty
thousand dollars ($80,000.00) pursuant to Paragraph 17 of
the Consent Decree of Permanent Injunction. See ECF 5.

3.

The United States Motion for Attorney Fees and Costs (ECF
45) should be GRANTED, and the United States should be
awarded the total sum of $4,936.48.

4.

McAdam’s Motion to Vacate Fines (ECF 46) should be
DENIED.

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NOW, THEREFORE, IT IS ORDERED that the Clerk of Court
shall serve a copy of the Findings and Recommendations of United
States Magistrate Judge upon the parties. The parties are advised that
pursuant to 28 U.S.C. § 636, any objections to the Findings and
Recommendations must be filed with the Clerk of Court and copies
served on opposing counsel within fourteen (14) days after service
hereof, or objection is waived.
DATED this 12th day of November, 2013.

/s/ Carolyn S. Ostby
United States Magistrate Judge

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