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

Filing 99

OPINION & ORDER granting in part and denying in part 86 Motion to Strike eight affirmative defenses from defendants' answers: Plaintiffs' motion to strike defendants' affirmative defenses (Dkt. No. 86) is granted in part and denied in part. The motion to strike the defenses of failure to state a claim (Defendants' First Defenses), laches and waiver (Quincy's Second and Underwood's Third Defenses), validity of the FTC quorum (Quincy's Fifth and Underwood 9;s Sixth Defenses), primary jurisdiction of the FDA (Defendants' Thirteenth Defenses), and the right to raise additional defenses (Quincy's Seventeenth Defense and Underwood's Preamble to Defenses) is granted. The motion to strike the defenses of protected commercial speech (Quincy's Sixth and Underwood's Seventh Defenses), good faith (Defendants' Tenth Defenses), and NYGBL claims (Defendants' Fifteenth Defenses) is denied. Defendants' request for leave to file an amended answer with additional factual allegations is denied because amendment of the stricken defenses would be futile. (Signed by Judge Louis L. Stanton on 3/2/2020) (ml)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
FEDERAL TRADE COMMISSION and
PEOPLE OF THE STATE OF NEW YORK,
by Letitia A. James, Attorney
General of the State of New York,

17 Civ. 124

(LLS)

Plaintiffs,
OPINION & ORDER

- against QUINCY BIOSCIENCE HOLDING COMPANY,
INC., QUINCY BIOSCIENCE, LLC,
PREVAGEN, INC. d/b/a Sugar River
Supplements, QUINCY BIOSCIENCE
MANUFACTURING, LLC, and MARK
UNDERWOOD,

Defendants.
Plaintiffs Federal Trade Commission ("FTC")

and the People

of the State of New York brought this action alleging violations
of the FTC Act and New York law for deceptive advertising of a
dietary supplement
memory.

("Prevagen") purporting to improve one's

Plaintiffs move to strike eight affirmative defenses

from defendants' answers.

For the following reasons, the motion

is granted in part and denied in part.
BACKGROUND

Defendants Quincy Bioscience, LLC, Prevagen, Inc., and
Quincy Bioscience Manufacturing, LLC are wholly-owned
subsidiaries of defendant Quincy Bioscience Holding Company,
Inc.

(collectively "Quincy").

Defendant Mark Underwood is the

President and a co-founder of Quincy.

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Plaintiffs brought this action alleging that defendants'
advertisements falsely misrepresent that Prevagen improves
memory and provides other cognitive benefits such as healthy
brain function,

a sharper mind, and clearer thinking.

On April 6, 2017, Defendants moved to dismiss the complaint
on the following grounds:

(1) the complaint fails adequately to

allege that the advertisements' representations violate sections
5(a) and 12 of the FTC Act,

15 U.S.C.

§§

45(a) and 52;

(2) the

complaint fails adequately to allege that the representations
violate section 63(12) of the New York Executive Law and
sections 349 and 350 of the New York General Business 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 Mark Underwood and Michael Beaman;
and (6) the complaint fails adequately to allege a claim for
individual liability against Underwood and Beaman.
On September 28, 2017, the court dismissed the complaint
for failure to state a claim under the FTC Act, declined to
exercise supplemental jurisdiction over the New York law claims,
and did not address defendants' other arguments.

On April 15,

2019, the Second Circuit vacated that ruling and remanded to
this court, stating "We note that Defendants-Appellees have
raised several grounds for affirmance that the district court

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did not consider.

We express no opinion on these arguments, and

the district court may consider them in the first instance on
remand."
On July 24, 2019, the court ruled on the remaining issues
of the FTC quorum, personal jurisdiction, and individual
liability of Underwood and Beaman.

The motion to dismiss the

complaint was granted with respect to Beaman's individual
liability, and denied in all other respects.
Quincy and Underwood filed their answers

(Dkt. Nos. 73, 74)

on August 7, 2019, asserting several affirmative defenses.
Plaintiffs move to strike eight defenses.
DISCUSSION

Under Fed. R. Civ. P. 12(f), "The court may strike from a
pleading an insufficient defense or any redundant, immaterial,
impertinent, or scandalous matter."
"In order to prevail on a motion to strike, a plaintiff
must show that:

(1) there is no question of fact which might

allow the defense to succeed;

(2) there is no question of law

which might allow the defense to succeed; and (3) the plaintiff
would be prejudiced by inclusion of the defense."

S.E.C. v.

Mccaskey, 56 F. Supp. 2d 323, 326 (S.D.N.Y. 1999).
Failure to State a Claim Upon Which Relief Can Be Granted
Defendants'

First Defenses are that the Complaint "fails to

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state a claim upon which relief can be granted." 1
In its April 15, 2019 Summary Order, the Second Circuit
held that "The FTC and New York have made plausible allegations
that Quincy's marketing campaign for Prevagen contained
deceptive representations," and "The FTC has stated a plausible
claim that Quincy's representations about Prevagen are
contradicted by the results of Quincy's clinical trial and are
thus materially deceptive in violation of the FTC Act and New
York General Business Law."
There is no need to litigate the same issue again, and the
motion to strike the defense that plaintiffs fail to state a
claim is granted.
Laches and Waiver
Quincy's Second and Underwood's Third Defenses state,
"Plaintiffs' claims for relief are barred, in whole or in part,
by the doctrines of laches and waiver."
"It is well settled that the United States is not bound by
state statutes of limitation or subject to the defense of laches
in enforcing its rights."
414, 416,

United States v. Summerlin, 310 U.S.

60 S. Ct. 1019, 1020 (1940).

The defense of "laches

is not available against the federal government when it
undertakes to enforce a public right or protect the public

Defendants explain that this and some other defenses were claimed only to
"preserve" them ( for appeal) .
That is entirely unnecessary.
Non-repetition
of a wrongly lost point is not a waiver of the right to assert it on appeal.

1

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interest."

United States v. Angell, 292 F.3d 333, 338

(2d Cir.

2002) .
Because the FTC brought this action to protect the public
interest, there is no question of law or fact that would allow
defendants to succeed on the defense of laches and waiver.
Plaintiffs would be prejudiced by having to spend time and
resources on litigating an invalid defense.

See F.T.C. v.

Consumer Health Benefits Ass'n, No. 10 Civ. 3551
13295634, at *6 (E.D.N.Y. Oct. 5, 2011)

(ILG), 2011 WL

("because laches is not

an available defense against the FTC in an enforcement action
such as this, there is no question of law or fact would allow
Leo to succeed on this defense"); F.T.C. v.

Instant Response

Sys., LLC, No. 13 Civ. 00976 (ILG), 2014 WL 558688, at *2
(E.D.N.Y. Feb. 11, 2014)

(granting motion to strike laches

defense because "The FTC is seeking to enforce laws that protect
the public and laches is not applicable."); F.T.C. v. Bronson
Partners, LLC, No. 3:04CV1866 (SRU), 2006 WL 197357, at *2
Conn. Jan. 25, 2006)

(D.

(striking waiver defense because

"The FTC's authority to bring an action under section 13(b) of
the FTC Act is not derived from the defendants' contracts with
individual consumers, and individual consumers' reliance on
misrepresentations is not required," and "The FTC may not waive
the requirement of an act of Congress.").

The motion to strike

the defense of laches and waiver is granted.

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Validity of FTC Quorum
Quincy's Fifth and Underwood's Sixth Defenses state, "The
FTC's filing of the Complaint constitutes an ultra vires act
because it lacked a valid quorum of Commissioners to authorize
its filing."
In its July 24, 2019 Opinion and Order, the court ruled
that the three-Commissioner quorum was valid, and that the FTC's
vote to bring this action was not ultra vires.
There is no need to litigate the same issue again, and the
motion to strike the defense that the FTC lacked a valid quorum
is granted.
Commercial Speech
Quincy's Sixth and Underwood's Seventh Defenses state, "The
advertising claims challenged by Plaintiffs in the Complaint are
protected by Quincy's right to commercial speech and are
therefore immune from any regulation by the Government."
But deceptive commercial speech has no constitutional
protection.
v.

F.T.C.,

As the Court of Appeals stated in Bristol-Myers Co.
738 F.2d 554, 562

(2d Cir. 1984),

Bristol argues that Part II violates the First Amendment in the
light of the protection due commercial speech. See Virginia
State Board of Pharmacy v. Virginia Citizens Consumer Council,
Inc., 425 U.S. 748, 96 S. Ct. 1817, 48 L.Ed.2d 346 (1976). See
also In re RMJ, 455 U.S. 191, 207, 102 S. Ct. 929, 939, 71
L.Ed.2d 64 (1982). But, as we have pointed out, deceptive
advertising enjoys no constitutional protection and it may be
regulated, Jay Norris, 598 F.2d at 1251-52; see In re RMJ, 455
U.S. at 203, 102 S. Ct. at 937.

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Since the purpose in the trial of this case is to determine
whether or not the advertisement is deceptive, the motion to
strike the defense is denied.
Good Faith
Defendants' Tenth Defenses state, "Defendants have acted in
good faith in all aspects of their marketing and advertising
practices, which prohibits Plaintiffs from obtaining any
injunctive relief."
Defendants acknowledge that good faith is not relevant in
determining whether they engaged in deceptive or fraudulent
conduct.
294, 301

See F.T.C. v. Pharmtech Research,
(O.D.C. 1983)

Inc., 576 F. Supp.

("The advertiser's good faith or absence

of intent to deceive is irrelevant.").
However, defendants' good faith is relevant to determining
whether plaintiffs are entitled to a permanent injunction, which
they seek.

Although defendants' good faith in conducting

clinical studies and advertising the results is not a defense to
liability, it may be a viable defense to the granting of an
injunction.

See Bronson Partners, 2006 WL 197357, at *l:

Courts have held that good faith is not a defense for a violation
of section 5 of the FTC A c t . ~ ' FTC v. World Travel Vacation
Brokers,
Inc., 861
F.2d
1020,
1029
(7th
Cir.
1988).
Nevertheless, if there has been a violation, the defendants'
intent is relevant to the court's determination of appropriate
relief. See FTC v. Medicor LLC, 2001 WL 765628, *2 (C.D. Cal.
June 26, 2001) (denying motion to strike because good faith is
relevant for determining whether to issue a permanent injunction
and whether to hold defendants individually liable).
Al though the defendants' first affirmative defense does not

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immunize them from liability,
it may be relevant to the
determination
of
appropriate
relief.
Thus,
I
deny
the FTC's motion to strike the defense of good faith.

See also F.T.C. v. Nat'l Urological Grp.,
3294-CAP, 2005 WL 8155166, at *12

Inc., No. 1:04-CV-

(N.D. Ga. June 24, 2005):

Should the court, however, determine that the defendants have
violated § 5 of the Act, the court would have the option of
granting permanent injunctive relief. 15 U.S.C. § 53(b) (2). As
noted earlier in this opinion, injunctive relief is proper only
when there exists some cognizable danger of recurrent violation.
See Evans, 775 F.2d at 1087; see also Citigroup, Inc., 2001 WL
1763439 at *3. To determine whether a violation is likely to
recur, the court may consider the deliberateness and seriousness
of the violation, as well as the violator's own history of unfair
advertising practices. Therefore, to the extent that good faith
is offered as an affirmative defense to the violation of§ 5 of
the Act, it should be stricken. See Hang-Ups Art Enterprises,
Inc., 1995 WL 914179, at *3, 1995 U.S. Dist. LEXIS 21444 at *10.
To the extent that the good faith is offered against the granting
of a permanent injunction against the defendants, it may be
viable and should not be stricken at this stage.

Because the defense of good faith was timely filed,

there

is no prejudice to plaintiffs, and the motion to strike it is
denied.
Primary Jurisdiction of FDA
Defendants' Thirteenth Defenses state, "Plaintiffs' claims
fall within the primary jurisdiction of the Food and Drug
Administration."
Under a memorandum of understanding between the FTC and
FDA, "the FTC has generally taken the enforcement lead where the
false or misleading claims for dietary supplements appear
predominantly in advertising, and the FDA has generally taken
the lead where such claims are limited to labeling."

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Pls. Br.

at 10.

Because "This action is brought against Defendants in

connection with the labeling, advertising, marketing, promotion,
distribution, and sale of Prevagen," Compl.

~

2, defendants

argue that plaintiffs' claims are under the FDA's jurisdiction.
The FTC's authority to bring this action is not limited by
the FDA's jurisdiction over claims related to labeling.

In

response to an argument that "the FDA should be allowed
exclusive regulatory authority over the marketing and labelling
of OTC drugs while its review is pending," the D.C. Circuit
stated in Thompson Med. Co. v. F.T.C., 791 F.2d 189, 192-93
(D.C. Cir. 1986),
It strains credulity to argue that even the most blatantly false
or deceptive advertising of OTC drugs must be allowed so long
as the FDA is evaluating the efficacy of those drugs.
We find no evidence in the regulatory scheme that Congress has
fashioned for over-the-counter medications that the FTC is
indefinitely barred from all regulatory authority over drug
advertising while the FDA conducts its comprehensive review of
drug safety. Nowhere in the case law or in the FTC's grant of
authority is there even a hint that the FTC's jurisdiction is
so constricted. To the contrary, the cases recognize that ours
is an age of overlapping and concurring regulatory jurisdiction.
See Federal Trade Commission v.

Texaco,

Inc.,

555 F.2d 862,

881

(D.C. Cir.), cert. denied, 431 U.S. 974, 97 S. Ct. 2940, 53
L.Ed.2d 1072 (1977) ("this is an era of overlapping agency
In an
jurisdiction under different statutory mandates").
analogous context the Supreme Court held that the FTC's
jurisdiction is concurrent with that of the Attorney General to
file an antitrust suit. See Federal Trade Commission v. Cement
Institute, 333 U.S. 683, 694-95, 68 S. Ct. 793, 800-01, 92 L.Ed.
1010
(1948).
Other agencies and their mandates similarly
overlap; not even a faint clue exists that Congress desired
otherwise.
The FTC has substantial expertise in evaluating claims of drugs'
absolute and comparative efficacy, and in assessing whether

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advertisements are misleading or deceptive. See, e.g., WarnerLambert Co. v. Federal Trade Comm:._ssion, 5 62 F. 2d 7 4 9, 7 53-5 6
(D.C. Cir. 1977), cert. denied, 435 U.S. 950, 98 S. Ct. 1576,
55 L.Ed.2d 800 (1978); American Home Products Corp. v. Federal
Trade Commission, 695 F.2d 681, 691-93 (3d Cir. 1982). We see
no reason why the FTC should not be allowed to exercise that
expertise in the circumstances presented here.

The court in Thompson Med. also quo~ed Bristol-Myers Co. v.
F.T.C., 738 F.2d 554, 559 (2d Cir. 1984), which stated,
Insofar as FDA requirements and regulations are concerned, they
simply do not govern this case. Not only is a different
regulatory scheme involved, but generally speaking the FDA is
concerned only with evaluating absolute safety and efficacy, and
not with the questions of comparative safety and efficacy that
arise in OTC drug advertising.

Given the two agencies' "overlapping and concurring
regulatory jurisdiction," the FDA's supposed "primary
jurisdiction" is not a viable defense to plaintiffs' claims.
The motion to strike it is granted.
NYGBL Claims
Defendants'

Fifteenth Defenses state, "The alleged conduct

complained of in the Complaint involves transactions or acts
that took place outside of New York.

As a result, the claims

under New York General Business Law§§ 349 and 350 fail."
Plaintiffs argue that the court's July 24, 2019 Opinion and
Order rejected that defense when it found that there was
personal jurisdiction over Underwood and Beaman with respect to
both the FTC Act and New York law claims.

However, that ruling

was based on the FTC Act's authorization of nationwide service
and nationwide personal jurisdiction, and the finding that
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Underwood and Beaman had sufficient minimum contacts with the
United States.

The Opinion and Order did not address whether

defendants had sufficient contacts with New York, or whether any
deceptive conduct occurred in New York.
New York General Business Law ("NYGBL")

§§

349 and 350

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."

At this stage in this

case it is undetermined whether any deceptive conduct occurred
in New York; if not, the defense might prevail.
The facts will have to be ascertained in the resolution of
plaintiffs' own NYGBL claims, and the motion to strike the
defense that deceptive conduct only occurred outside New York is
denied.
Right to Raise Additional Defenses
Quincy's Seventeenth Defense a~d Underwood's Preamble to
Defenses reserve "the right to raise additional affirmative
and/or other defenses as may be established by discovery and
other evidence developed during the pendency of this action."
If defendants seek to raise other defenses during the
pendency of this action, they may do so "with the opposing
party's written consent or the court's leave" under Fed. R. Civ.
P.

15 (a) .

The motion to strike defendants'

reservation of an

untrammeled right to raise additional defenses is granted.

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See

Nat'l Urological Grp.,

2005 WL 8155166, at *12

(striking

"reservation of rights" defense because under Fed. R.

Civ.

P.

12(b), "absent permission of the court, the defendants are
required to assert every defense in their answer"); Cty.
Vanlines Inc. v.
157-58

Experian Info. Sols.,

(S.D.N.Y. 2002)

Inc.,

205 F.R.D.

148,

(alterations in original)

In Boss Prods. Corp. v. Tapco Int'l Corp., No. 00 Civ. 0689,
2001 WL 135819, at *3 (W.D.N.Y. Feb.16, 2001), the court struck
the defendant's affirmative defense that sought to reserve "the
right to add additional Affirmative Defenses as discovery
proceeds in this case." The court reasoned that "[i]f, by the
inclusion of such defense, defendant wishes to reserve the
unilateral right to add new and different affirmative defenses
as they become known to it at indeterminate times in the future,
any such addition would violate, inter alia, the fair notice
requirement of [Fed. R. Civ. P. 8] and circumvent [Fed. R. Civ.
P. 15.]" Id. We agree. Should any facts arise during discovery
that support any additional defenses, the proper avenue by which
defendant can and should proceed is detailed in FED. R. CIV. P.
15 (a).
Accordingly,
plaintiff's motion to strike defendant's
sixteenth affirmative defense is granted.

CONCLUSION
Plaintiffs' motion to strike defendants'
defenses

(Dkt. No.

86)

affirmative

is granted in part and denied in part.

The motion to strike the defenses of failure to state a claim

(Defendants'

First Defenses),

laches and waiver

(Quincy's Second

and Underwood's Third Defenses), validity of the FTC quorum
(Quincy's Fifth and Underwood's Sixth Defenses), primary
jurisdiction of the FDA (Defendants'

Thirteenth Defenses),

the right to raise additional defenses

(Quincy's Seventeenth

Defense and Underwood's Preamble to Defenses)

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and

is granted.

The

motion to strike the defenses of protected commercial speech
(Quincy's Sixth and Underwood's Seventh Defenses), good faith
(Defendants' Tenth Defenses), and NYGBL claims
Fifteenth Defenses)

(Defendants'

is denied.

Defendants' request for leave to file an amended answer
with additional factual allegations is denied because amendment
of the stricken defenses would be futile.
So ordered.
Dated:

New York, New York
March 1 , 2020

LOUIS L. STANTON
U.S.D.J.

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