Facts

Jason and Eunjung Cardiff operated several companies including Redwood Scientific Technologies Inc., Identify LLC, Advanced Men's Institute Prolongz LLC, Run Away Products LLC and Carols Place Limited Partnership. These companies manufactured, formulated or were some way involved in advertising or selling certain dissolvable oral film strips that were sold as over-the-counter, homeopathic drugs. These products claimed to help consumers with certain health issues, for example: help stop smoking; assist weight loss; increase sexual endurance; treat disease. Also involved was Danielle Cadiz. The Federal Trade Commission filed complaint against the Cardiffs, Cadiz and the companies seeking a permanent injunction, restraining order, asset freeze and other equitable relief for violations of the Federal Trade Commission Act, Restore Online Shoppers' Confidence Act, Electronic Fund Transfer Act and Telemarketing and Consumer Fraud and Abuse Prevention Act. Because of the recent Supreme Court ruling in AMG v. FTC, the FTC was unable to pursue monetary relief for consumers under Section 13(b) of the FTC Act although the FTC alleged that it was entitled to damages under Section 19 of the Act.

PLAINTIFF'S CONTENTIONS: Plaintiff FTC contended that defendants, Cardiffs and others, engaged in unfair and deceptive practices in violation of several federal laws. Plainiff contended that defendants' health claims for their products were false and unsubstantiated. Moreover, customers purchasing their products online were not provided clear and conspicuous details of the auto-ship program, in contravention of ROSCA. Other actions in transgression of consumer laws included: enrolling consumers in auto-ship plans without their consent; failing to honor refund policies and guarantees; using fake testimonials; and making illegal robocalls. Finally, the FTC also argued that defendants made deceptive earnings claims as part of a multi-level marketing scheme.

DEFENDANTS' CONTENTIONS: Defendants, the Cardiffs and others denied all contentions. While there was a failure to test some of the Company's products, there was no fraud or injury to consumers, many of whom provided testimonials of favorable results in Redwood's smoking cessation product. Because the corporate defendants were in receivership, they were denied funds and unable to afford to conduct the clinical testing that they contend would have exonerated them.

Result

The court permanently enjoined defendants and their company from selling the products, including through multi-level marketing, robocalls or using negative-option marketing and generally required defendants to refrain from illegal deceptive actions and activities. The court did not ban Redwood or the defendants manufacturing and selling their thin-strip products so long as they conducted clinical tests prior to sale. Because the court denied all monetary claims, the corporate defendants were returned to their owners, the Cardiffs and shareholders of Redwood Scientific Technologies.

Other Information

Although consumers allegedly lost $18.2 million from defendants' operations, the Supreme Court ruling mentioned above limited the FTC's authority to seek equitable monetary relief based on Section 13(b) of the FTC Act. The court granted defendants' motion to exclude evidence of the $18.2 million damages under Section 19 of the Act, sanctioning the FTC because it failed to disclose damages under that rule. Consequently, there was no monetary award to alleged victims.