Federal Trade Commission et al v. Quincy Bioscience Holding Company, Inc. et al

Filing 45

OPINION AND ORDER granting 33 Motion to Dismiss; granting 36 Motion to Dismiss: The motions to dismiss (Dkt. Nos. 33, 36) are granted as to the federal law claims, and plaintiffs' state law claims are dismissed without prejudice. (Signed by Judge Louis L. Stanton on 9/28/2017) (ml)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

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DATF. ~'IU :~

FEDERAL TRADE COMMISSION and
THE PEOPLE OF THE STATE OF NEW YORK,
by Eric T. Schneiderman, Attorney
Genera1 of the State of New York,

Plaintiffs,

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17 Civ. 124 (LLS)
OPINION & ORDER

- against QUINCY BIOSCIENCE HOLDING COMPANY,
INC., a corporation;
QUINCY BIOSCIENCE, LLC, a 1imited
1iabi1ity company;
PREVAGEN, INC., a corporation d/b/a/
Sugar River Supp1ements;
QUINCY BIOSCIENCE MANUFACTURING,
LLC, a 1imited 1iabi1ity company;
MARK UNDERWOOD, individua11y and as
an officer of Quincy Bioscience
Ho1ding Company, Inc., Quincy
Bioscience, LLC, and Prevagen, Inc.;
and
MICHAEL BEAMAN, individua11y and as
an officer of Quincy Bioscience
Ho1ding Company, Inc., Quincy
Bioscience, LLC, and Prevagen, Inc.

Defendants.
Plaintiffs Federal Trade Commission ("FTC") and the People
of the State of New York, by Eric T. Schneiderman, Attorney
General of the State of New York, seek injunctive and other
equitable relief for alleged violations of federal and state
deceptive advertising laws. All defendants move to dismiss the
complaint for failure to state a claim upon which relief can

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be granted. The two individual defendants,
and Michael Beaman,

Mark Underwood

also move to dismiss for lack of

personal jurisdiction.
BACKGROUND
Defendant Quincy Bioscience Holding Company, Inc.
("Quincy")
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is a Wisconsin based corporation. Compl.

9. Defendants Quincy Bioscience, LLC,

Quincy Bioscience Manufacturing,

LLC,

Prevagen,

( Dkt. No. 1)
Inc.,

and

also Wisconsin based

companies, are wholly owned subsidiaries of Quincy.

Id.

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10-12. Quincy and its subsidiaries operated as a common
enterprise in engaging in the conduct alleged in the complaint.
Id.

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17.
Underwood and Beaman are Quincy's co-founders and its two

largest shareholders; Underwood owns 33% and Beaman owns 22% of
its stock. Id.

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13, 15. Underwood is Quincy's president and

Beaman is its chief executive officer and former president.
Id. Each is also a director of Quincy Bioscience, LLC,
Prevagen,

Inc.,

and Quincy Bioscience Manufacturing,

LLC,

and an officer of Quincy Bioscience, LLC and Prevagen,
Id.

Inc.

The complaint alleges that "acting alone or in concert

with others," Underwood and Beaman "formulated, directed,
controlled, had the authority to control, or participated in the
acts and practices of Quincy Bioscience Holding Company, Inc.,
Quincy Bioscience, LLC, and Prevagen, Inc., including the acts

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and practices set forth in this Complaint." Id.

14, 16.

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Defendants manufacture and sell a dietary supplement known
as Prevagen. Id.

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21. Prevagen's active ingredient, apoaequorin

(pronounced: a-poe-e-kwor-in), is a dietary protein originally
derived from the jellyfish Aequorea victoria. Id.

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19. Prevagen

is sold in Regular Strength, Extra Strength, and Prevagen
Professional, containing respectively 10, 20, or 40 milligrams
of apoaequorin. Id. Prevagen is sold directly to consumers
through defendants' websites, and indirectly through a host of
pharmacies and retail establishments. Id.

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21. Between 2007 and

mid-2015, sales of Prevagen in the United States totaled $165
million. Id.
Defendants advertise Prevagen on their websites, through
infomercials, short-form television commercials, social media,
newspapers, and magazines. Id.

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22. Their advertising includes

representations that "Prevagen improves memory," that it "has
been clinically shown to improve memory," that "A landmark
double-blind and placebo controlled trial demonstrated Prevagen
improved short-term memory, learning, and delayed recall over 90
days," that Prevagen "Helps with memory problems associated with
aging," that "Prevagen is clinically shown to help with mild
memory problems associated with aging," and that Prevagen can
support "healthier brain function, a sharper mind and clearer
thinking." Id.

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27, Exs. A-F

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Those representations rely primarily on the results of the
Madison Memory Study. Id.

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2S. "The Madison Memory Study was a

randomized, double-blind, placebo-controlled study designed to
examine the effect of apoaequorin on cognitive function in older
adults." Graham Decl.

(Dkt. No. 35) Ex. 1 at 2; see Compl.

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2S.

The study involved 21S adults between the ages of 40 and 91.
Graham Decl. Ex. 1 at 4; see Compl.

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2S. "The primary objective

of the Madison Memory Study was to determine whether Prevagen®
with apoaequorin (10 mg)

improves quantitative measures of

cognitive function in community dwelling, older adults." Graham
Decl. Ex. 1 at 1.
Because Prevagen is intended for healthy, non-demented
individuals, its examiners used the ADS screening tool 1 to
differentiate between adults facing normal cognitive aging and
those with early signs of dementia. Id. at 2. Participants were
assigned ADS scores of 0 through S, with an ADS score of 2 used
to differentiate between those who are cognitively normal or
very mildly impaired (with scores of 0-2) and those with higher
levels of impairment (with scores of 3-S). Id. According to the
examiners, "results from the ADS 0-1 and ADS 0-2 subgroups are
the most relevant to the efficacy of the product." Id.

1 "The ADS is a brief, sensitive measure that reliably differentiates between
nondemented and demented individuals." James E. Galvin, MD, MPH, et al., The
ADS: a brief informant interview to detect dementia, 65 Neurology 559, 559
(American Academy of Neurology) Aug. 23, 2005, available at
https://www.ncbi.nlm.nih.gov/pubmed/16116116 (last accessed Sept. 2S, 2017).

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Participants were divided into two groups: the experimental
group received Prevagen, and the control group received a
placebo.

Id.; see Compl.

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2S. Both groups were instructed to

take one capsule per day. Graham Decl. Ex. 1 at 2. At various
intervals during the trial

(days 0, S, 30,

60, and 90),

participants were assessed on a variety of cognitive skills
using nine quantitative computerized cognitive tasks.z Id. at 24; see Compl.

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2S. No statistically significant results were

observed for the study population as a whole on any of the
cognitive tasks. Graham Decl. Ex. 1 at 5; Compl.

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28. However,

statistically significant results were observed between the
experimental and control groups among the ADS 0-1 and ADS 0-2
subgroups. Graham Decl. Ex. 1 at 5-9; see Compl.

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29.

Participants in the ADS 0-1 subgroup who received Prevagen
showed statistically significant improvements over those who
received the placebo in three of the nine tasks
memory, psychomotor function,

and visual learning), and showed a

trend toward significance in two more tasks

2

(measuring

(measuring verbal

The nine cognitive measurement tests were , Graham Decl Ex 1 at 2 , Table 1·
Tasks
Cognitive Domain Measured
International Shopping List (ISL)
Verbal Learning
Memory
International Shopping List - Delayed
Recall (ISRL)
Groton Maze Learning (GML)
Executive Function
Groton Maze Learning - Delayed Recall (GMR)
Memory
Detection (DET)
Psychomotor Function
Identification (ION)
Attention
One Card Learning (OCL)
Visual Learning
One Back (ONB)
Working Memory
Working Memory
Two BacK. (TWOB)

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learning and executive function). Graham Decl. Ex. 1 at 6-9.
Participants in the ADS 0-2 subgroup who received Prevagen
showed statistically significant improvements over those who
received the placebo in three of the nine tasks

(measuring

executive function, attention, and visual learning), and showed
a trend toward significance in one more task (measuring memory) .
Id. Based on those findings, the study concluded that "Prevagen
demonstrated the ability to improve aspects of cognitive
function in older participants with either normal cognitive
aging or very mild impairment, as determined by ADS screening."
Id. at 9.
Plaintiffs take issue with the study's conclusion. They
allege that "the researchers conducted more than 30 post hoc
analyses of the results looking at data broken down by several
variations of smaller subgroups for each of the nine
computerized cognitive tasks," and that post hoc subgroup
analysis "greatly increases the probability that the
statistically significant improvements shown are by chance
alone." Compl.

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2 9. They conclude that "Given the sheer number

of comparisons run and the fact that they were post hoc, the few
positive findings on isolated tasks for small subgroups of the
study population do not provide reliable evidence of a treatment
effect." Id.
Plaintiffs also allege that defendants' marketing campaign,

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and their claims that Prevagen improves memory and cognition,
rely on the theory that apoaequorin enters the human brain to
supplement endogenous proteins that are lost during the natural
process of aging.

Id. ~ 31. The complaint says that defendants

have no studies showing that orally-administered apoaequorin can
cross the human blood-brain barrier. Id. According to the
complaint, studies conducted by defendants show that orallyadministered apoaequorin is rapidly digested in the stomach and
broken down into amino acids and small peptides like any other
dietary protein. Id.3
Plaintiffs allege that the representations that Prevagen
improves memory,

improves memory within 90 days, reduces memory

problems associated with aging, and provides other cognitive
benefits, including but not limited to healthy brain function, a
sharper mind, and cleared thinking, "are false or misleading, or
were not substantiated at the time the representations were
made," id. ~~ 36-37, and representations that Prevagen is
clinically shown to improve memory, to do so within 90 days, to
reduce memory problems associated with aging, and to provide
other cognitive benefits, including but not limited to, healthy
brain function,

a sharper mind, and clearer thinking, "are

This point, contradicted by canine studies whose relevance plaintiffs
challenge, loses force when applied to the results of the subgroup study
which make it clear that something caused a statistically significant
difference between those subjects who took Prevagen and those given a

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placebo.
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false," id.

']l']l

39-40.

Plaintiffs claim that in making those representations
defendants violate (1) section 5(a) of the FTC Act, 15 U.S.C. §
45(a), which prohibits "unfair or deceptive acts or practices in
or affecting commerce,"
§

(2)

section 12 of the FTC Act, 15 U.S.C.

52, which prohibits false advertising of food or drugs,

(3)

section 63(12) of the New York Executive Law, which allows the
Attorney General to apply for an order enjoining the continuance
of repeated or persistent fraudulent or illegal acts, including
misrepresentations, in the carrying on, conducting, or
transaction of business, and directing restitution and damages,
and (4)

sections 349 and 350 of the New York General Business

Law, which prohibit deceptive acts or practices and false
advertising "in the conduct of any business, trade, or commerce
or in the furnishing of any service in this state."
Defendants move to dismiss the complaint on the following
grounds:

(1) the complaint fails adequately to allege that the

representations in the marketing materials violate sections 5(a)
and 12 of the FTC Act;

(2) the complaint fails to allege that

the representations violate New York law;

(3) the relief sought

amounts to an unconstitutional restraint on commercial speech;
(4) the action was commenced ultra vires as the FTC lacked a
quorum to authorize it;

(5) the court lacks personal jurisdiction

over the individual defendants; and (6) the complaint fails

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adequately to allege that the individual defendants personally
participated in or had authority to control any unlawful conduct.
DISCUSSION
1. Failure to State a Claim upon Which Relief can be Granted

Legal Standard
"To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to 'state a claim
to relief that is plausible on its face.'" Ashcroft v. Iqbal,
556 U.S.

662,

678, 129 S. Ct. 1937, 1949 (2009), quoting Bell

Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974
(2007). "A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged." Id., citing Twombly, 550 U.S. at 556, 127
S. Ct. at 1965. "A pleading that offers 'labels and conclusions'
or 'a formulaic recitation of the elements of a cause of action
will not do.'" Id., quoting Twombly, 550 U.S. at 555, 127 S. Ct.
at 1965. "Nor does a complaint suffice if it tenders 'naked
assertion[s]' devoid of 'further factual enhancement.'" Id.,
quoting Twombly, 550 U.S. at 557, 127 S. Ct. at 1966 (brackets
in Iqbal).
"The plausibility standard is not akin to a "probability
requirement," but it asks for more than a sheer possibility that
a defendant has acted unlawfully. Where a complaint pleads facts

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that are 'merely consistent with' a defendant's liability, it
'stops short of the line between possibility and plausibility of
"entitlement to relief.""' Id., quoting Twombly, 550 U.S. at
556-57, 127 S. Ct. at 1965-66.
Alleging a Violation of the FTC Act
To establish liability under section 5(a) of the FTC Act,
"the FTC must show three elements:

'[1] a representation,

omission, or practice, that [2] is likely to mislead consumers
acting reasonably under the circumstances, and [3], the
representation, omission, or practice is material.'" FTC v.
LeadClick Media, LLC, 838 F.3d 158, 168 (2d Cir. 2016), quoting
FTC v. Verity Int'l, Ltd., 443 F.3d 48, 63 (2d Cir. 2006).
Defendants do not challenge the complaint's sufficiency as
to the first and third elements. With respect to the second
element, however, they argue that aside from saying that the
representations are false or unsubstantiated, the complaint does
not allege facts from which it can be reasonably inferred that
the representations at issue are false or unsubstantiated.
It is common ground that the Madison Memory Study followed
normal well-accepted procedures, conducted a "gold standard"
double blind, placebo controlled human clinical study using
objective outcome measures of human cognitive function using 218
subjects, and that it failed to show a statistically significant
improvement in the experimental group over the placebo group as

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a whole. See, e.g., Compl.

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28. That confined plaintiffs'

attack to the studies of subgroups, and it is at that level that
the complaint fails to do more than point to possible sources of
error but cannot allege that any actual errors occurred. It
points to the conduct of more than 30 post hoc 4 analyses of
possible subgroups, most of whom showed no statistical
significance between the treatment and placebo groups, but did
show a statistically significant difference between the groups
in the AD 0-1 and AD 0-2 subgroups whose members displayed
improvement in memory after taking the supplement. That, of
course, is the study relied upon by defendants. Here,
plaintiffs' challenge never proceeds beyond the theoretical.
They say that findings based on post hoc exploratory analyses
have an increased risk of false positives, and increased
probability of results altered by chance alone, but neither
explain the nature of such risks nor show that they affected the
subgroups performance in any way or registered any false
positives. Nor do they give any reason to suspect that these
risks are so large in the abstract that they prevent any use of
the subgroup concept, which is widely used in the interpretation
of data in the dietary supplement field. Thus, the complaint
fails to show that reliance upon the subgroup data "is likely to

This term seems to be used to imply some deficiency in integrity, never
specified. It probably refers to no more than that the analytical work was
done after the information-gathering process was completed.

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mislead consumers acting reasonably under the circumstances," as
is necessary to state its claim. FTC v. LeadClick Media, LLC,
838 F.3d at 168.
All that is shown by the complaint is that there are
possibilities that the study's results do not support its
conclusion. It does not explain how the number of post hoc
comparisons run in this case makes the results as to the AD8 0-1
and AD8 0-2 subgroups unreliable, or that the statements touting
the study's results are false or unsubstantiated. That "stops
short of the line between possibility and plausibility of
'entitlement to relief.'" Iqbal, 556 U.S. at 678, 129 S. Ct. at
1949.
2. New York Law Claims

The federal law claims being dismissed, there is no
satisfactory basis for the exercise of supplemental jurisdiction
over the state law claims, and I decline to do so. 28 U.S.C. §
1367(c) (3)

(district court may decline supplemental jurisdiction

if it "has dismissed all claims over which it has original
jurisdiction"); Bridgeman Art Library, Ltd. v. Corel Corp., 25
F. Supp. 2d 421, 431 (S.D.N.Y. 1998)

("When, as here, the

federal claim is dismissed early in the litigation process,

'the

presumption to decline jurisdiction is strong.'"). The New York
State courts may find merit in the remaining claims under New
York statutes, which are best left to them.

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3. Defendants' Remaining Arguments

All claims being dismissed, there is no need to consider
the defendants'

remaining arguments, or the Underwood and Beaman

motion denying jurisdiction.
CONCLUSION

The motions to dismiss

(Dkt. Nos. 33, 36) are granted as to

the federal law claims, and plaintiffs' state law claims are
dismissed without prejudice.
So ordered.
Dated:

New York, New York
September 28, 2017

L.,.;, (,., J~~
LOUIS L. STANTON
U.S.D.J.

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