USA v. Basic Research et al
MEMORANDUM DECISION denying Motion to Dismiss for Lack of Jurisdiction ; granting Motion to Consolidate Cases into case 2:09cv779 CW in Case 2:09cv779 CW. See Order for details. Signed by Judge Clark Waddoups on 5/20/2011. Signed by Judge Clark Waddoups on 5/20/2011. (jtj)
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
BASIC RESEARCH, LLC, et al.,
FEDERAL TRADE COMMISSION and
THE UNITED STATES OF AMERICA,
Case No. 2:09-cv-0779 CW
On June 19, 2006, the Federal Trade Commission (“FTC”) issued a Decision and Order that
reflected the terms of a settlement agreement between Basic Research1 and the FTC. Before Basic
Research can make representations about its products in advertisements, it must “possess and rely
upon a reasonable basis for the representation, which shall consist of competent and reliable
scientific evidence.”2 Basic Research contends it bargained for this “reasonable basis” standard and
that the FTC is now trying to eliminate that standard from the agreement by imposing extracontractual terms and conditions. Basic Research seeks a declaratory judgment asking the court to
“Basic Research” collectively refers to Plaintiffs Basic Research, LLC and its affiliates
Sovage Dermalogic Laboratories, LLC, The Carter-Reed Company, LLC, and Dynakor Pharmacal,
LLC, as well as A.G. Waterhouse, LLC, Dennis Gay, and Mitchell K. Friedlander.
FTC Order, 4 (Dkt. No. 1, Ex. A).
determine the meaning of the “reasonable basis” standard. The FTC contends the court must dismiss
the case because the court lacks jurisdiction to hear Basic Research’s Complaint and Basic
Research’s Complaint impinges upon an enforcement action that the FTC has brought against Basic
Research. In contrast, Basic Research contends its Complaint and the FTC’s enforcement action
should be consolidated. The FTC opposes consolidation. For the reasons stated below, the court
denies the FTC’s motion to dismiss and grants Basic Research’s motion to consolidate.
Basic Research manufactures, distributes, and sells dietary supplements called Akävar™
(“Akavar”) and Relacore™ (“Relacore”). Akavar is “a supplement containing a patented herbal
combination of Yerbe Mate, Guarana and Damiana (‘YGD’),” which purportedly caused “significant
weight loss among test subjects who took the YGD combination [fifteen] minutes before main meals
and who were specifically instructed not to change their diet or exercise routines.”4 Relacore is a
supplement designed to reduce stress-related belly fat when used in conjunction with diet and
A function of the FTC is to ensure truth-in advertising. This means the “advertising must
be truthful and not misleading,” and that “before disseminating an ad, advertisers must have
Because the court is addressing a motion to dismiss, it generally accepts for purposes of
this motion that the facts alleged in Basic Research’s Complaint are true. Basic Research attached
exhibits to its Complaint, which the court may consider as part of the Complaint. To the extent there
are any inconsistencies between the Complaint and the attached documents, the documents speak
for themselves and the court cites the facts stated in those documents.
Pls.’ Compl. for Declaratory Relief, 24, ¶ 86 (Dkt. No. 1).
adequate substantiation for all objective product claims.”6 The FTC contends that Basic Research’s
advertising claims for Akavar and Relacore are misleading and unsubstantiated. Basic Research
asserts, however, that the FTC is using an improper standard for its evaluations and that the court
must look to previous litigation between the parties to determine the proper standard.
The previous litigation involved two separate proceedings.
In June 2004, the FTC
commenced an administrative action (“Administrative Action”) against some of the plaintiffs in this
action.7 In that proceeding, the FTC alleged that Basic Research’s advertisements for dietary
supplements contained unsubstantiated claims and false representations.8 The dietary supplements
in that action did not involve Akavar or Relacore. Shortly thereafter, however, the FTC also sent
a notice to The Carter-Reed Company (“Carter-Reed”), which does sell Relacore.9 The notice stated
that Carter-Reed’s advertising claims for Relacore appeared to be unsubstantiated. The notice
advised Carter-Reed that if the claims were unsubstantiated, it “should discontinue these claims
See FTC, Bureau of Consumer Protection, Dietary Supplements: An Advertising Guide
for Industry, § II, at 3 (Apr. 2001) (available at http://business.ftc.gov/documents/bus09-dietarysupplements-advertising-guide-industry).
The Administrative Action asserted claims against Basic Research, LLC; A.G.
Waterhouse, L.L.C.; Sovage Dermalogic Laboratories, L.L.C.; Dennis Gay; Mitchell K. Friedlander,
and other related entities. It did not specifically assert claims against The Carter-Reed Company,
LLC and Dynakor Pharmacal, LLC. For ease of reference, however, the court also refers to the
parties involved in the Administrative Action as “Basic Research.”
Defs.’ Mot. to Dismiss, 2 (Dkt. No. 9).
Carter-Reed is an affiliate of Basic Research. Pls.’ Compl. for Declaratory Relief, 5, ¶ 8
(Dkt. No. 1).
immediately.”10 In response, Carter-Reed filed a complaint against the FTC in December 2004 to
enjoin the FTC from interfering with Carter-Reed’s purported constitutionally-protected commercial
In both the Administrative Action and the Carter-Reed Action, the FTC asserted that the
standard for substantiation was “competent and reliable scientific evidence.”12 Basic Research
alleged that the “competent and reliable scientific evidence” standard had no specific definition or
meaning and was vague and subjective because the “FTC refused to identify any specific type, level,
quantity or quality of ‘scientific evidence’ that” would be sufficient to meet the standard.13
After two years of litigation, both actions were ultimately resolved by agreement “in
accordance with the Commission’s Rule governing consent order procedures” (the “Agreement”).14
The Agreement contemplated that it would be submitted to the Commission for incorporation into
an order. In so doing, the Agreement specified the administrative “complaint may be used in
construing the terms of the order. No agreement, understanding, representation, or interpretation
not contained in the order or in the agreement may be used to vary or contradict the terms of the
order.”15 On June 19, 2006, the FTC did, in fact, issue a Decision and Order (the “Order”) that
Mot. to Dismiss, 2 (Dkt. No. 11 in Case No. 2:04-cv-1142) (emphasis omitted).
Pls.’ Compl. for Declaratory Relief, 16, ¶ 58.
See id. at 16–17, ¶¶ 59–61.
See id. at 15–17, ¶¶ 49–62.
Agreement Containing Consent Order, 1 (unsigned copy may be located at
Id. at 2, ¶ 6.
largely incorporates the terms of the Agreement.16 Basic Research contends the Agreement
constitutes an enforceable contract where the parties bargained for the terms and exchanged valuable
In particular, Basic Research and the FTC agreed, among other things, that when Basic
Research makes representations about its products, it must “possess and rely upon a reasonable basis
for the representation, which shall consist of competent and reliable scientific evidence.”18 The
Agreement and Order both define “competent and reliable scientific evidence” as follows:
Competent and reliable scientific evidence shall mean tests, analyses,
research, studies, or other evidence based on the expertise of
professionals in the relevant area, that has been conducted and
evaluated in an objective manner by persons qualified to do so, using
procedures generally accepted in the profession to yield accurate and
Basic Research alleges that under the Agreement and Order the FTC must accept evidence that
meets the “reasonable basis standard” defined in the documents and that the FTC is not free “to
impose additional extracontractual requirements and obligations that were not negotiated and agreed
upon by the parties.”20 Basic Research asserts that it demanded this fixed, definite standard to
prevent the FTC from imposing on a case-by-case basis its subjective view of what constituted
See Decision & Order (Dkt. No. 1, Ex. A).
Although Basic Research refers to the Agreement in its Compliant, it cites to the Order
rather than the Agreement. The relevant terms, however, are the same in the Agreement and the
Agreement, at 3, §§ I–II; see also FTC Order, 4–5, §§ I–II (Dkt. No. 1, Ex A).
Agreement, at 4, ¶ 2; FTC Order, at 4, ¶ 2.
Pls.’ Compl. for Declaratory Relief, 20, ¶ 72 (Dkt. No. 1).
“competent and reliable scientific evidence.”21
In exchange for this set standard, although Carter-Reed was not named in the Administrative
Action, Basic Research agreed it would have Carter-Reed dismiss its complaint against the FTC.
Basic Research further agreed (1) to pay the FTC three million dollars and (2) to waive its damage
claims it had against the FTC and members of the FTC’s staff.22 Basic Research and Carter-Reed
fulfilled each of these obligations.
Section XII of the Agreement and Order requires Basic Research to file periodic compliance
reports with the FTC that “set forth in detail the manner and form in which [Basic Research has]
complied with this order.”23 Consequently, Basic Research filed a report on or about September 28,
2006. In the report, Basic Research provided its substantiation for the weight loss and fat loss
claims it made in its Akavar and Relacore advertisements.24
In a November 2, 2007 letter (“November 2 Letter”), the FTC informed Basic Research that
it had concluded Plaintiffs were in violation of the Agreement.25 In this letter, the FTC stated that
Id. at 20–21, ¶ 73.
Agreement, supra note 14, at 1, 3. Basic Research’s damage claims related to the FTC’s
violation of a protective order entered in the Administrative Action and violation of related federal
statutes. Pl.’s Compl for Declaratory Relief, 19–20, ¶ 70 (Dkt. No. 1). The purported violations
occurred when the FTC published on the Internet Basic Research’s confidential financial and trade
secret information, which publication was prohibited by the terms of the protective order and federal
FTC Order, at 8, § XII (Dkt. No. 1, Ex. A).
Pls.’ Compl. for Declaratory Relief, 25, ¶ 90 (Dkt. No. 1).
Id. at 37, ¶ 143; Nov. 2 Letter, 1 (Dkt. No. 1, Ex. C).
certain of Basic Research’s advertising claims were not substantiated.26 Although Basic Research
provided evidence from an “Andersen/Fogh study” to show its Akavar claims were supported, the
FTC concluded it was not competent and reliable scientific evidence.27 Among other complaints,
the FTC stated the following in the November 2 Letter:
Explanation of Violation: Advertisements for Akavar represent that
users can eat all they want and still lose weight, which conveys the
implied claim that users can eat unlimited amounts of food and still
lose weight. The Anderson/Fogh study does not constitute competent
and reliable scientific evidence that users taking Akavar can eat
unlimited amounts of food and still lose weight . . . .28
The FTC then stated if Plaintiffs
could substantiate a claim that the product reduces appetite, a claim
that people using the product can eat what they want would not
necessarily violate the Order so long as the advertising discloses
clearly and conspicuously that users will not want to eat as much
food as before they started using the product.29
Although Basic Research believed the materials it had submitted met the “reasonable basis”
standard, it nevertheless submitted additional materials to substantiate its advertising claims. On
December 17, 2007, Basic Research’s “counsel, in-house compliance officer and [Mr.] Friedlander
traveled to Washington, D.C., to meet with James Kohm, Associate Director of the Enforcement
Division, Bureau of Consumer Protection at the FTC, and members of his staff.”30 During the
Nov. 2 Letter, 2 (Dkt. No. 1, Ex. C).
Id. at 3.
Id. at 4.
Pls.’ Compl. for Declaratory Relief, 40, ¶ 154 (Dkt. No. 1).
meeting, Mr. Kohm stated that Basic Research could assert “Eat All You Want And Still Lose
Weight” in the Akavar advertisements as long as Basic Research clearly stated “that consumers
taking Akavar can ‘eat all they want and still lose weight’ because they will want to eat less.”31
After the meeting, Basic Research incorporated the following language into is advertisement:
“Losing weight is all about reducing caloric intake, and Akavar is a new-generation calorierestricting compound that lets you eat all you want . . . because you want to eat less.”32 The
italicized language was highlighted in a prominent box on the top of the page.
In a February 20, 2008 letter, among other things, the FTC informed Basic Research that the
new language was insufficient because the advertisement’s headline was much more “prominent and
dramatic” than the font in the box and the modified language in the box was not physically close
enough to the headline.33 The modified language was seven lines-down from the headline on a fullpage, two-column advertisement.34 Additionally, while the modified language was in a smaller font
than the headline, its font was larger than other language outside of the box.35
The FTC also
contended again that the Andersen/Fogh study did not support Basic Research’s advertising claims
for Akavar. Basic Research therefore submitted more material to the FTC to substantiate its
Id. at 40, ¶ 155.
Akavar Advertisement (layout Jan. 1, 2008) (Dkt. No. 1, Ex. D) (omission in original)
February 20, 2008 Letter, 2 (Dkt. No. ,1 Ex. E).
Akavar Advertisement (Dkt. No. 1, Ex. D).
claims.36 On March 14, 2008, Basic Research’ counsel and Mr. Friedlander again met with Mr.
Kohm and FTC staff attorneys.37 During the meeting, the FTC admitted that the Andersen/Fogh
study actually did “provide some evidence of an appetite suppressing effect.”38 Contrary to prior
representations, however, the FTC said even if Basic Research clearly and conspicuously stated in
its advertisements “that you eat all you want because you want to eat less,” it would be insufficient.39
Now Basic Research’s statements about appetite suppression had to be “qualified” by also
describing “the limited scientific basis for this effect.”40 Because Basis Research’s modified
advertisements did not contain this qualified language, the FTC informed Basic Research its claims
still violated the Agreement.
Consequently, during this same meeting, the FTC threatened “that it would initiate an
enforcement action against [Basic Research] if [it] did not immediately pull all advertising for
Akavar and run only advertisements containing ‘qualified’ weight loss claims.”41 Basic Research
asserts, again in an effort to avoid litigation with the FTC, that it immediately pulled all of its
Akavar television and print advertising that did not have firm commitments.42
Basic Research then revised its Akavar advertisement a second time. It removed “Eat All
Pls.’ Compl. for Declaratory Relief, 43, ¶ 164 (Dkt. No. 1).
Id. at 43, ¶ 165.
FTC Letter (Mar. 21, 2008) (Dkt. No. 1, Ex. G).
Pls.’ Compl. for Declaratory Relief, 44, ¶ 170 (Dkt. No. 1).
Id. at 45, ¶ 173.
You Want And Still Lose Weight” as the headline for the advertisement and moved it to the headline
of a small box (2 inch x 1 inch) on the page .43 Basic Research also incorporated language that
informed consumers that Akavar had “created a firestorm of controversy” because some experts
believed the weight-loss claims were “fully substantiated” and others experts thought the claims “go
much too far” and have “express[ed] complete outrage.”44 Basic Research submitted the revised
advertisement to the FTC on March 25, 2008.45
On March 27, 2008, counsel for the parties again met.46 During this meeting, the FTC
informed Basis Research that “just meeting the letter of the standard” stated in the Agreement was
not enough.47 Basic Research had to make more qualifying statements in its advertisements such
that consumers would understand the supporting scientific evidence for the product was “somewhere
in between no support and the gold standard.”48 The FTC further informed Basic Research that the
Agreement’s reasonable basis standard was “fluid” and changed “depending on what the scientific
evidence is—it’s always different.”49 Additionally, the FTC informed Basic Research that it had to
remove the small box from the advertisement.50 Finally, the FTC informed Basic Research that it
Second Revised Akavar Advertisement (Dkt. No. 1, Ex. H).
Pls.’ Compl. for Declaratory Relief, 47, ¶ 180 (Dkt. No. 1).
Id. at 47, ¶ 181.
Id. at 47, ¶ 183 (quotations omitted).
Id. at 48, ¶¶ 184, 186.
Id. at 48, ¶ 189 (quotations omitted).
Id. at 49, ¶ 193.
believed Basic Research had acted in bad faith by making a limited placement of the revised
advertisement before it had been approved by the FTC.51
Accordingly, Basic Research revised its Akavar advertisement a third time. It removed the
small box, included more detail about a study, and added specific comments that had been made to
controvert the validity of the study.52 It then included the following language at the bottom of the
first column, “And then there’s the ad’s provocative “Eat All You Want and Still Lose Weight
Headline.”53 It next quotes from the FTC’s own website about what is permissible to state in the
advertisement.54 Basic Research placed the third revised advertisement in two publications to meet
an advertising deadline.55 It then sent the revised advertisement to the FTC on April 15, 2008 and
the parties met again on April 16, 2008.56
In the meeting, the FTC informed Basic Research that it had acted in bad faith because it had
placed the third revised advertisement without first obtaining FTC’s approval.57 The FTC also
informed Basic Research that the third revised advertisement still violated the Agreement because
it had determined that Basic Research could not state anywhere in the advertisement, under any
Id. at 50, ¶ 195.
Third Revised Akavar Advertisement (Dkt. No. 1, Ex. J).
Pls.’ Compl. for Declaratory Relief, 52, ¶ 204 (Dkt. No. 1).
Id. at 52, ¶¶ 205–06.
Id. at 53, ¶ 208.
circumstances, “eat all you want and still lose weight.”58 The FTC further informed Basic Research
that it did not sufficiently “qualify” its weight loss claims and the scientific evidence in support of
those claims.59 Instead, Basic Research had to convey that the science was uncertain, even though
the study that Basic Research relied upon was a double-blind, peer-reviewed study.60
The FTC also has noted problems with Basic Research’s advertising claims for Relacore.
Basic Research contends that Relacore elevates a person’s mood and reduces cortisol, which in turn,
helps reduce stress-induced belly fat. Basic Research ran its Relacore advertisement for two years
without complaint from the FTC.61 When the FTC started questioning the Akavar advertisements,
however, it also informed Basic Research that its Relacore advertisements lacked substantiation.
In the November 2 Letter, the FTC acknowledged that “although some studies suggest that elevated
cortisol levels are associated with abdominal fat, a cause and effect relationship has not be
established conclusively.”62 Consequently, the FTC concluded that Basic Research’s claim was
merely theoretical and unsupported by competent and reliable scientific evidence.63 Basic Research
Id. at 53, ¶ 210.
Id. at 53, ¶¶ 211–12.
Id. at 29, 54, ¶¶ 111, 215.
Id. at 56, ¶ 227.
Nov. 2 Letter, 6 (Dkt. No. 1, Ex. C) (emphasis added).
Id. at 5–6.
therefore provided more substantiation materials.64 The FTC found that lacking as well.65
Basic Research alleges that the FTC disapproves of its Relacore advertisement because it
believes the advertisement states that Relacore reduces belly fat.66 Although Basic Research
advertises Relacore as the “most popular ‘Belly Fat’ pill,”67 it asserts the advertisement does not
convey what the FTC says it does. Rather, Basic Research believes “the advertisement makes the
claim that dieting can be stressful, stress increases cortisol, cortisol increases belly fat, Relacore
reduces stress, and Relacore, when taken in conjunction with diet and exercise, can help reduce
stress-induced belly fat.”68 The FTC disagreed and informed Basic Research it had to terminate the
Relacore advertisement.69 Basic Research alleges the FTC’s position concerning the Akavar and
Relacore advertisements is troubling and breaches the Agreement because it imposes a vague,
undefined standard about what constitutes competent and reliable scientific evidence.70
Proposed Consent Decree
In October 2008, the FTC informed Basic Research that it intended to bring a contempt
See FTC Letter (May 12, 2008) (Dkt. No. 1 Ex. K) (referencing additional studies that
Basic Research had submitted).
See Pls.’ Compl. for Declaratory Relief, 55, ¶ 224 (Dkt. No. 1).
See Relacore Advertisement (Mar. 18, 2008) (Dkt. No. 1, Ex. I).
Pls.’ Compl. for Declaratory Relief, 55, ¶ 225.
Id. at 55, ¶ 221.
Id. at 35, ¶ 135.
action because Basic Research’s Relacore advertisements had violated the Agreement.71 The FTC
demanded information not only about Basic Research’s United States marketing and sales, but about
all of its international marketing and sales as well.72 The FTC further informed Basic Research,
however, that if it would sign a new consent agreement, it could avoid the contempt action.
Basic Research contends the FTC attempted to use the proposed consent decree to remove
benefits the Agreement afforded Basic Research. As stated above, the Agreement precludes Basic
Research from making advertising claims unless it possesses and relies “upon a reasonable basis for
the representation, which shall consist of competent and reliable scientific evidence.”73 In contrast,
the proposed consent decree states Basic Research is precluded from making advertising claims
unless Basic Research possesses and relies “upon competent and reliable scientific evidence that
substantiates the representation.”74 Although both documents contain the same definition of
“competent and reliable scientific evidence,” Basic Research contends the FTC has attempted to
nullify the reasonable basis standard that Basic Research bargained for under the Agreement.
To avoid litigation, Basic Research met with the FTC again on November 6, 2008.75 Mr.
Kohm acknowledged that the parties had a fundamental disagreement regarding what evidence met
the reasonable basis standard.76 Mr. Kohm elaborated that Basic Research’s evidence did not meet
Id. at 56, ¶ 226.
FTC Letter, 1–2 (Oct. 24, 2008) (Dkt. No. 1, Ex. L).
Agreement, supra note 14, at 3, §§ I–II.
Proposed Consent Decree, 5, § III (Dkt. No. 1, Ex. L).
Pls.’ Compl. for Declaratory Relief, 56, ¶ 229 (Dkt. No. 1).
Id. at 56–57, ¶ 230.
the reasonable basis standard because the FTC had an expert who disagreed with some of the stated
conclusions.77 The FTC then reaffirmed that unless Basic Research signed the proposed consent
decree, it would initiate an enforcement action against Basic Research.78 Rather than sign the
proposed consent decree, Basic Research expended significant resources to obtain even more
scientific evidence to substantiate its advertising claims, including evidence from professors and a
medical director in the relevant field.79
Despite this additional information, the FTC concluded that Basic Research was still in
violation of the Agreement due to its Akavar and Relacore advertising claims. Basic Research and
the FTC continued to meet several times throughout the summer of 2009.80 During such meetings,
the FTC raised new and varied concerns about Basic Research’s evidence.81 Basic Research
contends that it has presented its position to no avail at “every level of the FTC from the compliance
staff, to the Bureau Director, to the Commission itself.”82
Accordingly, Basic Research contends that there is a present existing dispute between the
FTC and Basic Research about the meaning of the Agreement that cannot be resolved absent judicial
intervention.83 It therefore filed a complaint against the FTC on August 31, 2009. In the Complaint,
Id. at 57, ¶¶ 231–32.
Id. at 57, ¶ 233.
Id. at 57–62, ¶¶ 234–43.
See id. at 62–65, ¶¶ 244–66.
Id. at 64, ¶ 259.
Id. at 64–65, ¶ 259.
Basic Research seeks: (1) “the interpretation and meaning of the reasonable basis standard;” (2) “a
judicial declaration that the FTC is legally bound by the definition set forth in the Agreement and
that the FTC may not unilaterally alter that definition;” and (3) “a declaration that the FTC’s
attempts to demand that [Basic Research] satisfy extracontractual requirements violate the
Agreement and are invalid.”84 That Complaint presently is before this court.85
Subsequently, on October 29, 2009, the FTC filed a related action (the “‘972 Case”) against
Basic Research seeking to obtain monetary civil penalties and injunctive relief from Basic Research
for alleged violations of the Agreement.86 Although the proposed consent decree only addressed
problems with Relacore advertisements, the ‘972 Case involves both Akavar and Relacore
advertising claims.87 On November 6, 2009, Basic Research filed a Motion to Consolidate the ‘972
Case into this action because both cases “involve the interpretation and enforcement of [the
Agreement].”88 In the interim, the FTC filed a motion to dismiss (“Motion to Dismiss”) Basic
Research’s Complaint.89 The FTC contends the court must dismiss this case because (1) Basic
Research does not allege a valid basis for jurisdiction, and (2) it usurps the FTC’s enforcement
powers.90 This decision addresses these two motions.
Id. at 3.
See Complaint (Dkt. No. 1).
United States v. Basic Research, LLC, No. 2:09-cv-972 (D. Utah Oct. 29, 2009).
See Complaint (Dkt. No. 2 in Case No. 2:09-cv-972).
Pls.’ Mot. to Consolidate, 2 (Dkt. No. 10).
Defs.’ Mot. to Dismiss (Dkt. No. 8).
Id. at 1–2.
STANDARD OF REVIEW
Rule 12(b)(1) motions to dismiss generally take one of two forms: “a facial attack on the
complaint’s allegations” or “a party may go beyond allegations contained in the complaint and
challenge the facts upon which subject-matter jurisdiction depends.”91 Here, the FTC’s Motion to
Dismiss was a facial attack on Basic Research’s assertion of subject-matter jurisdiction in the
Complaint. “In reviewing a facial attack on the complaint a district court must accept the allegations
in the complaint as true.”92
Plaintiffs contend that this court “has subject-matter jurisdiction over this action pursuant
to 5 U.S.C. §§ 702 and 704, and 28 U.S.C. § 2201.”93 The FTC asserts Plaintiffs’ Complaint must
be dismissed because none of these statutes confer jurisdiction.94 While the court concurs these
statutes do not confer jurisdiction,95 this does not resolve the issue. “[A]ffirmative pleading of the
precise statutory basis for federal subject-matter jurisdiction is not required as long as a complaint
Holt v. United States, 46 F.3d 1000, 1002–03 (10th Cir. 1995) (citation omitted).
Id. at 1002 (citation omitted).
Pls.’ Compl. for Declaratory Relief, 5, ¶ 10 (Dkt. No. 1).
Defs.’ Mem. in Supp. of Mot. to Dismiss, 5 (Docket No. 9).
Albuquerque v. United States Dep’t of Interior, 379 F.3d 901, 906 (10th Cir. 2004) (citing
Califano v. Sanders, 430 U.S. 99, 105 (1977) (stating “the Administrative Procedure Act is not to
be interpreted as an implied grant of subject-matter jurisdiction to review agency actions)
(alterations omitted)); see e.g. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950)
(stating “The operation of the Declaratory Judgement Act is procedural only . . . . Congress enlarged
the range of remedies available in the federal courts but did not extend their jurisdiction.”).
alleges sufficient facts to establish jurisdiction.”96 Similarly, “jurisdiction may be established by
reading a complaint holistically, even though the jurisdiction asserted was expressly improper.”97
Here, Plaintiffs have alleged that “[t]he adjudication and interpretation of a consent
agreement with the FTC lies within the exclusive jurisdiction of the federal courts.”98 When an
action is founded on an agreement with a federal agency, it is “one arising under the Constitution
or laws of the United States within the jurisdiction conferred by 28 U.S.C. § 1331 on the federal
district courts.”99 Although Basic Research did not identify this precise statutory basis for
jurisdiction, its Complaint alleges sufficient facts to establish subject-matter jurisdiction under 28
U.S.C. § 1331.
THE ADMINISTRATIVE PROCEDURE ACT
Waiver of Sovereign Immunity
Although 28 U.S.C. § 1331 “grant[s] jurisdiction to federal courts over claims arising under
federal law,” it does not by itself “permit federal courts to hear claims against the United States.”100
The Administrative Procedures Acts (“APA”) “provides a mechanism for judicial review of
executive action by waiving sovereign immunity in cases in which plaintiffs sue the United States
LeBlanc v. Salem (In re Mailman Steam Carpet Cleaning Corp.), 196 F.3d 1, 5 (1st Cir.
1999) (citations omitted).
Id. at 6 (quotations and citation omitted).
Pls.’ Compl. for Declaratory Relief, 5, ¶ 12 (Docket No. 1).
Hamilton Stores, Inc. v. Hodel, 925 F.2d 1272, 1279 (10th Cir. 1991) (citations omitted)
(finding federal question jurisdiction where a plaintiff sought a declaratory judgment regarding its
contractual rights against a federal agency).
Jonathan R. Siegel, Suing the President: Nonstatutory Review Revisited, 97 Colum. L.
Rev. 1612, 1622 (Oct. 1997).
for relief other than money damages.”101 The scope of this waiver, however, is not unlimited.
Rather, the APA limits review to “[a]gency action made reviewable by statute and final agency
action for which there is no other adequate remedy in a court.”102 Thus, if a statute precludes
judicial review or the “agency action is committed to agency discretion by law,” the court cannot
Despite these limitations, the Supreme Court has declared the APA “must be given a
hospitable interpretation.”104 Consequently, “judicial review of a final agency action . . . will not
be cut off unless there is persuasive reason to believe that such was the purpose of Congress.”105
This means an agency must show by clear and convincing evidence that the legislature intended to
preclude judicial review of a particular agency action.106 Here, the FTC has not cited any statute that
precludes judicial review of this action. Nor has it shown by clear and convincing evidence that this
action is committed to agency discretion by law. Those limitations are therefore inapplicable. The
FTC does contend, however, that there has been no final agency action. For the reasons discussed
below, the court disagrees.
Final Agency Action
“For agency action to be ‘final,’ it: (1) ‘must mark the consummation of the agency’s
decision-making process’; and (2) ‘must be one by which rights or obligations have been
Id. at 1623.
5 U.S.C. § 704 (2006).
Id. § 701(a)(1)–(2).
Abbott Labs. v. Gardner, 387 U.S. 136, 141 (1967) (quotations and citations omitted).
Id. at 140 (citations omitted).
See id. at 141 (quotations and citation omitted).
determined, or from which legal consequences will flow.’”107 Here, the FTC commenced an
enforcement action against Basic Research in 2004 for alleged violations of the FTC’s substantiation
requirements.108 The parties disputed what constituted “competent and reliable scientific evidence.”
In 2006, the parties entered into a settlement agreement to resolve the issue, which is embodied in
the Order. Notably, the Agreement “was published and subject to public comment before being
adopted by the Commission” in its Order.109 Nothing in the Order indicates the decision is merely
preliminary or non-binding. Indeed, the decision indicates the opposite. It sets forth a final
determination of the FTC from which rights and obligations flow. Moreover, the FTC’s Complaint
that it filed in the enforcement action expressly acknowledges, “[p]ursuant to a settlement, the
Commission on June 19, 2006, issued a final order . . . against Defendants.”110 The court therefore
concludes that the Order constitutes a final agency action.
Since the Agreement was adopted, the parties have interpreted it differently. The FTC
contends that interpretations by low-level staff of the FTC do not constitute final agency action, and
therefore, the court has no authority to review them under the APA. This contention misses the
point. Basic Research is not asking the court to review the interpretations of low-level staff. It is
asking the court to declare the meaning of the Agreement itself. Because the Agreement is final and
binding, it is subject to review by the court under the APA.
Potash Ass’n of N.M. v. Unites States Dep’t of Interior, 367 Fed. Appx. 960, 963 (10th
Cir. 2010) (quoting Bennett v. Spear, 520 U.S. 154, 177–78 (1997)).
Pls.’ Compl. for Declaratory Relief, 15, ¶ 48 (Docket No. 1).
Id. at 7, ¶ 23; see also FTC Order, 2 (Dkt. No. 1, Ex. A).
Complaint, at 4, ¶ 11 (Dkt. No. 2 in Case No. 2:09-cv-972) (emphasis added).
The FTC next contends that Basic Research’s Complaint must be dismissed because its
claims are not ripe. “For a claim to be justiciable under Article III, it must present a live
controversy, ripe for determination, advanced in a clean-cut and concrete form.”111 “As applied to
review of agency actions, the ripeness doctrine has two underlying rationales.”112 First, it prevents
“courts from becoming entwined in ‘abstract disagreements over administrative policies.’”113
Second, it “protect[s] the agencies from judicial interference until an administrative decision has
been formalized and its effects felt in a concrete way by the challenging parties.’”114 To avoid
improper entanglement, the Supreme Court has delineated two factors for a court to consider when
determining “ripeness”: (1) “‘the fitness of the issues for judicial decision and  the hardship to
the parties of withholding court consideration.’”115
Fitness for Judicial Review
“An issue is fit for [judicial] review if the agency’s action presents a concrete and specific
legal issue that has a direct, immediate, and continuing impact on the [pleading] party.”116
“‘[A]gency action’ includes the whole or a part of an agency rule, order, license, sanction, relief, or
United States v. Wayne, 591 F.3d 1326, 1329 n.1 (10th Cir. 2010) (quotations, citation,
and alteration omitted).
Utah v. United States Dep’t of Interior, 535 F.3d 1184, 1191 (10th Cir. 2008).
Id. at 1191–92 (quoting Abbott Labs. v. Gardner, 387 U.S. 136, 148 (1967)).
Id. at 1192 (quoting Abbott Labs., 387 U.S. at 148–49).
A.O. Smith v. FTC, 417 F. Supp. 1068, 1082 (D. Del. 1976) (quoting Abbott Labs., 387
U.S. at 149).
Maine AFL-CIO v. Superintendent of Ins., 721 A.2d 633, 636 (Me. 1998) (citations and
the equivalent or denial thereof, or failure to act.”117 “‘[O]rder’ means the whole or a part of a final
disposition, whether affirmative, negative, injunctive, or declaratory in form, of an agency in a
matter other than rule making but including licensing.”118 “[A] pragmatic evaluation must be made
of whether the” administrative action is substantially final and whether the alleged harm inflicted
by the action “may not be prevented or significantly ameliorated by further administrative action.”119
A “baseline question is whether allowing more time for development of events would significantly
advance [the court’s] ability to deal with the legal issues presented or aid [the court] in their
Here, Plaintiffs’ Complaint is fit for judicial resolution at this time. The Agreement falls
within the scope of agency action in that it was approved and adopted by the FTC and reflected in
an order. It arose from a negotiated settlement between the parties and is the final disposition of the
dispute between the parties. No further administrative action will be taken with respect to the
Agreement other than enforcement of its terms. Moreover, no additional time is necessary for the
development of events to advance the court’s ability to interpret the Agreement. Indeed, the FTC
has now filed a second enforcement action against Basic Research, which alleges violation of the
Agreement. The Agreement is thus squarely before the court and fit for judicial review.
5 U.S.C. § 551(13) (2010).
Id. § 551(6).
See Gordon v. Rush, 792 N.E.2d 168, 172 (N.Y. 2003) (quotations, citation, and
See Doe v. Bush, 323 F.3d 133, 138 (1st Cir. 2003) (quotations, citations, and alteration
Hardship to the Parties for Withholding Review
“Under the second prong of the ripeness inquiry—the potential hardship of withholding
judicial resolution”—the court “examine[s] whether the challenged action creates a direct and
immediate dilemma for the parties.”121 A plaintiff will not suffer hardship from the court
withholding review if there are no immediate “sanctions for noncompliance, or if the potential
sanction is de minimis;” on the other hand, if the agency action “puts the complaining party on the
‘horns of a dilemma,’” the court should undertake review.122
In Abbott Laboratories, the Commissioner of Food and Drugs promulgated regulations that
were “designed to implement [a] statute,” which applied “to advertisements for prescription
drugs.”123 A number of drug manufacturers “challenged the regulations on the ground that the
Commissioner exceeded his authority under the statute” by requiring advertisements to state “the
established name of the particular drug involved every time its trade name is used anywhere in such
material.”124 For the drug manufacturers to comply with the regulations, they would have had to
reformat and reprint advertising materials at great expense. Yet, if they did not comply, they faced
“serious criminal and civil penalties for the unlawful distribution of ‘misbranded’ drugs.”125
Consequently, the drug manufacturers were placed on the “horns of a dilemma.”
The Supreme Court concluded this dilemma was “sufficiently direct and immediate as to
Skull Valley Band of Goshute Indians v. Nielson, 376 F.3d 1223, 1237 (10th Cir. 2004)
(quotations and citation omitted).
A.O. Smith, 417 F. Supp. at 1082–83 (quotations and citation omitted).
Abbot Labs., 387 U.S. at 138.
Id. at 139.
Id. at 153.
render the issue appropriate for judicial review.”126 The regulations had “a direct effect on the dayto-day business of all prescription drug companies,” and were “clear-cut.”127 Moreover, they put
the drug manufacturers in the type of dilemma the Declaratory Judgment Act was designed to
ameliorate.128 Hence, the Court concluded that hardship would ensue if judicial review was
Like the drug manufacturers, Basic Research is on the horns of a dilemma. It either must
spend its time and resources altering its advertising materials to comply with the FTC’s
interpretation of the Agreement, or it must risk sanctions for continued use of advertisements that
it believes meet the “reasonable basis” standard of the Agreement. Indeed, absent judicial review,
the FTC can involve Basic Research in a never-ending cycle where it makes a demand for additional
substantiation, Basic Research complies, and then new demands are made based on the FTC’s
interpretation of the Agreement. By exercising judicial review of the Agreement, and declaring its
meaning, Basic Research will not be left to speculate about what is required.
INTERFERENCE WITH ENFORCEMENT ACTION VERSUS ENFORCEMENT OF
A CONSENT DECREE
Approximately two months after Basic Research filed its Complaint against the FTC, the
FTC initiated an enforcement action against Basic Research. The FTC contends Basic Research’s
Complaint must now be dismissed because it will interfere with the FTC’s enforcement action and
Id. at 152.
that action provides an adequate forum to address Basic Research’s claims.129 To support its
contention, the FTC cites to a line of cases following Ewing v. Mytinger & Casselberry, Inc.
In Ewing, food supplements were seized by the government on the basis that they were
misbranded “to the injury or damage of the purchaser or consumer.”130 The government then
instituted libel suits against the distributor. The trial court found, however, that the government had
not afforded the distributor a hearing on whether there was probable cause to seize the supplements
and it enjoined the government from proceeding in any action about the alleged misbranding. The
Supreme Court reversed the trial court’s ruling on the ground that it was improper for a trial court
to stay execution of seizure actions and halt an administrative proceeding while the court heard the
case because it precluded the government from protecting the public in a speedy fashion.131 Thus,
the Ewing line of cases preclude a court from enjoining enforcement actions, and on that basis are
distinguishable from this one because Basic Research does not seek to enjoin an enforcement action,
extend its scope, or dismiss it. Rather, Basic Research is seeking declaratory judgment about the
legal meaning of the Agreement, which can then be applied to the facts at issue in the enforcement
action. This case is therefore more in keeping with Abbot Laboratories than the earlier decided
The FTC also relies on Alpine Industries v. FTC for the proposition that once an enforcement
action is filed, it precludes judicial review. In Alpine, a consent decree also was at issue. Under the
See Defs.’ Mem. in Supp. of Mot. to Dismiss, 7–11 (Dkt. No. 9).
Ewing v. Mytinger & Casselberry, Inc., 339 U.S. 594, 596 (1950) (quotations and citation
See id. at 601–02.
consent decree, Alpine agreed that it would not make representations about its air cleaning products,
unless it “possessed and relied upon competent and reliable scientific evidence to substantiate the
representation.”132 Subsequently, the FTC determined that “Alpine’s substantiation did not meet the
‘competent and reliable scientific evidence’” standard, and it informed Alpine “it was
recommending . . . that an enforcement action be filed against Alpine.”133 In response, Alpine filed
a complaint asking the court to declare that it had provided adequate scientific substantiation in
accordance with the consent decree.134 The court held that if it “were to rule in such a manner, the
FTC would be precluded from commencing an enforcement action.”135
Alpine’s request to the court significantly differs from the instant action. Where Alpine
asked the court to declare that it had “provided adequate scientific substantiation,”136 it essentially
asked the court to declare whether it had met the applicable standard. Here, Basic Research is
asking the court to declare the standard under the Agreement, not to determine whether it has met
the standard.137 Declaring the standard does not impinge on the FTC’s enforcement action because
once the standard is declared, the FTC may still challenge whether Basic Research has “met the
Alpine Industries v. FTC, 40 F. Supp. 2d 938, 939 (E.D. Tenn. 1998).
Id. at 939–40.
Id. at 940.
Id. at 943.
Id. at 940.
Basic Research is seeking “the interpretation and meaning of the reasonable basis
standard set forth in the Agreement.” Pls.’ Compl. for Declaratory Relief, 3 (Docket No. 1).
Enforcement of a Consent Decree
While Ewing and Alpine focus on governmental enforcement actions, Basic Research
contends the issue before the court is not the government’s enforcement action but whether Basic
Research can bring an action against the FTC to enforce the consent decree. The court agrees.
In Armour & Co., the United States filed suit, alleging that actions taken by the defendant
had violated a consent decree. The Court therefore undertook the narrow question of whether the
consent decree had been violated.138 In doing so, the Court looked at the consent decree and
interpreted it as one would a contract due to the nature of a consent decree. Specially, the court
stated, “[c]onsent decrees are entered into by parties to a case after careful negotiation has produced
agreement on their precise terms.”139 Consequently, “the agreement reached normally embodies a
compromise; in exchange for the saving of cost and elimination of risk, the parties each give up
something they might have won had they proceeded with the litigation.”140
Once a decree is entered, “the decree itself cannot be said to have a purpose; rather the
parties have purposes, generally opposed to each other, and the resultant decree embodies as much
of those opposing purposes as the respective parties have the bargaining power and skill to
achieve.”141 The court then stated:
For these reasons, the scope of a consent decree must be discerned
within its four corners, and not by reference to what might satisfy the
purposes of one of the parties to it. Because the defendant has, by the
decree, waived his right to litigate the issues raised, a right
See United States v. Armour & Co., 402 U.S. 673, 674–75 (1971).
Id. at 681.
Id. at 681–82 (emphasis in original).
guaranteed to him by the Due Process Clause, the conditions upon
which he has given that waiver must be respected, and the instrument
must be construed as it is written, and not as it might have been
written had the [United States] established [its] factual claims and
legal theories in litigation.142
Inherent within this statement is the recognition that both parties to a consent decree are bound by
its terms and that the court may enforce its conditions against either party to the agreement.
This conclusion is supported by Elmo Division of Drive-X Co. v. Dixon. In that case, the
plaintiff had sued the FTC to enforce a consent agreement. Under the consent decree, the FTC had
to follow certain procedural requirements to institute another enforcement action against the
plaintiff.143 When it failed to follow those requirements, the plaintiff filed suit, seeking both
declaratory and injunctive relief.144 The circuit court concluded that the consent decree was equally
binding on the FTC.145 As a result, the FTC could be required to abide by its terms, and it was
inappropriate for the FTC to attempt to “unilaterally obliterate a part of the consideration—indeed
an important part—by which it secured [plaintiff’s] assent to be bound by [the consent] order.”146
Likewise, in Time Oil Co. v. Duncan, the parties had entered into “a Consent Order to settle
their pending disputes.”147 Each party gave consideration for the consent order.148 Subsequently,
Id. at 682 (emphasis added).
The Elmo Div. of Drive-X Co. Inc. v. Dixon, 348 F.2d 342, 343 (D.C. Cir. 1965).
Id. at 345.
Id. at 346.
Time Oil Co. v. Duncan, No. C80-877, 1981 WL 1261, at *1 (W.D. Wash. Feb. 13, 1981).
the Department of Energy (“DOE”) initiated an enforcement action against Time Oil.149 Time Oil
argued that the enforcement action breached the consent order.150 Accordingly, it filed an action to
estop the DOE from proceeding with its enforcement action.151 Despite such a potential outcome,
the court cited to a Supreme Court case indicating that a consent decree “should properly be
construed as a contract.”152 The court then concluded that “[i]nasmuch as Time Oil was thus bound
under the [consent decree], even so should DOE be held accountable. . . . The mere fact that DOE’s
breach may take the form of initiating administrative proceedings does not deprive the plaintiff of
his judicial remedy.”153 Thus, the court had subject-matter jurisdiction to enforce the consent order,
notwithstanding the impingement on the government’s enforcement action.
The same reasoning applies here. Basic Research and the FTC exchanged consideration to
be bound by the Agreement. The FTC intends for Basic Research to be bound by the Agreement,
as is shown by the fact that it has now filed an enforcement action against Basic Research for an
alleged breach of the Agreement. It therefore follows that the FTC likewise is bound by the
Agreement, and Basic Research did not have to wait for the FTC to bring an enforcement action
before it could assert its claims. Were that the case, the FTC could breach the Agreement without
concern and avoid liability merely by abstaining from bringing an enforcement action. The fact that
the FTC has now filed an enforcement action does not divest Basic Research of the right to enforce
Id. at *2.
Id. at *3 (citing United States v. ITT Cont’l Baking Co., 420 U.S. 223, 236–37 (1975)).
Id. (internal citation omitted).
the FTC’s obligations under the contract. The court therefore concludes that judicial review of the
consent decree is appropriate in this matter.
Basic Research contends that upon the denial of Defendant’s Motion to Dismiss, the cases
should immediately be consolidated into the first filed action in accordance with both the federal and
local rules. In its Motion to Dismiss, the FTC indicates that Basic Research should raise its
allegations in the enforcement action that the United States has filed. “The basic concept behind a
dismissal or transfer of these cases is to minimize the multiplicity of forums that must adjudicate
the issues.”154 Often courts who have faced this issue have opted to transfer pre-enforcement
litigation to the district where enforcement proceedings have been brought.155 Typically, however,
those cases involved multiple jurisdictions among plaintiffs and between the plaintiffs and
defendants.156 Here, not only did all of the plaintiffs file together in the District of Utah, but also,
the FTC filed its enforcement action, the ‘972 Case, in the District of Utah. Therefore, the necessity
does not exist to minimize the multiplicity of forums by consolidation into the enforcement action.
Moreover, Local Rule 42-1 indicates if a motion to consolidate is granted, the cases are
consolidated into the case with the lowest number (i.e. the case first filed).157 This court sees no
reason to ignore the local rule and because this case predates the ‘972 Case, the court grants Basic
Research’s’ Motion to Consolidate.
A.O. Smith, 417 F. Supp. at 1085.
See id. at 1085–86.
See e.g., General Elec. Co. v. FTC, 411 F. Supp. 1004, 1005, 1010 (N.D.N.Y. 1976); In
re FTC Corp. Patterns Report Litig, 432 F. Supp. 274, 279 (D.D.C. 1977).
For the reasons stated above the court ORDERS as follows:
Defendants’ motion to dismiss is DENIED.158
Plaintiffs’ motion to consolidate is GRANTED.159
DATED this 20th day of May, 2011.
BY THE COURT:
United States District Judge
Docket No. 8.
Docket No. 10.
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