Facts

Between 1997 and 2003, defendants Cytodyne Technologies Inc. (now known as Nutraquest, Inc.) and its president Robert Chinery, marketed Xenadine RFA-1, a dietary supplement that contained ephedra, as a weight-loss product. The defendants marketed this dietary supplement as being "a revolutionary thermogenic diet supplement clinically proven to increase fat-loss by an astounding seventeen times more than diet and exercise alone," as "clinically proven to increase fat loss by an unprecedented 1,700 percent", and as being "the only diet supplement in the world clinically proven to increase fat loss by an extraordinary 38.6 times more than diet and exercise alone."

A 2002 study linked ephedrine to 155 deaths caused by heart problems and strokes. The next year, the California Legislature enacted Health & Safety Code Section 110423.100, prohibiting the sale or distribution of any diet supplement containing ephedrine in the state.

PLAINTIFF'S CONTENTIONS:
In 2003, the People of the State of California sued defendants for false advertising and unfair competition in violation of Business and Professions Code Sections 17200 and 17500. The People argued that advertising statements for Xenadine RFA-1 were false or misleading, and that the diet drug was ineffective and dangerous.

Further, the People argued that far from being merely complicit in this wrongdoing, Chinery was its architect and engineer. Chinery personally drafted, approved, or was otherwise heavily involved in creating Cytodyne’s ad copy. It was Chinery who decided where, when and in which media RFA-1 ads would be disseminated. He alone approved every significant aspect of Cytodyne’s efforts to promote RFA-1 as "clinically proven" to be "safe" and "effective."

DEFENDANTS' CONTENTIONS:
The defendants maintained that all the advertising statements were factual and denied that Xenadine RFA-1 was dangerous. Nutraquest filed for bankruptcy in 2003.

Damages

The People sought the maximum statutory penalties against defendants: $2,500 for each false advertisement, and $2,500 for each act of unfair competition. The People also sought injunctive relief, prohibiting all of these illegal acts, and restitution for the victims of defendants' illegal conduct.

Result

The People and defendants settled the case for $1 million against Chinery. The settlement consists of $600,000 in statutory penalties and $400,000 in costs. The People also obtained against both defendants an extensive prohibitory and mandatory injunction.