ftc-logoIn this press release issued today, the FTC reports that marketers of Pedia Loss, a children’s weight-loss product, and Fabulously Feminine, a female libido enhancement product, have agreed to settle Federal Trade Commission charges that they made false and misleading claims about their products.

Under the proposed settlement, no fine has been levied. Rather, the settlement simply contains the typical requirements that in future the supplement marketer rely on competent and reliable scientific evidence to substantiate their claims, prohibits the making unsubstantiated benefits, performance, or efficacy claims for any dietary supplement, food, or drug, and prohibits misrepresenting any test or study.

While the FTC outcome is unremarkable, the “back story” here is very interesting, to say the least. The FTC case appears to have been merely a distraction for Mr. Chhabra who faced far more serious charges in an earlier filed criminal proceeding brought against him by the FDA.

In a press release dated Sept. 2, 2004, the FDA announced Vincent Chhabra, and several companies he controlled, pleaded guilty to multiple violations of the Federal Food, Drug and Cosmetic Act. In his plea, Chhabra “admitted to running a business that operated websites and toll-free numbers through which he unlawfully distributed and dispensed controlled substances. He and his conspirators illegally distributed and dispensed millions of pills, including phendimetrazine, a weight loss stimulant sold by its brand name Bontril. Other prescription drugs illegally distributed and dispensed included Viagra, Xenical, Propecia, and Celebrex.”

According to documents in the FTC file, Chhabra eventually was sentenced to 33 months in Federal prison.

The Chhabra case is also worthy of note because in the course of the FTC litigation the FTC subpoenaed the files of Chhabra’s regulatory attorneys, D.C. firm Arent Fox, in response to Chhabra’s claim that he relied upon his attorneys’ advice in making the claims being attacked by the FTC. Arent Fox moved to quash the subpoena on the basis of attorney-client privilege.

Under normal circumstances, one would expect that an attorney’s legal advice on claims and labeling would be protected by privilege. However, when a litigant raises the advice of counsel defense, the attorney-client privilege is waived. As the Administrative Law Judge stated:

The attorney-client privilege may be implicitly waived when advice of counsel is raised as a defense. United States v. Workman, 138 F.3d 1261, 1263 (8th Cir. 1998); Trans World Airlines, Inc. v. Hughes, 332 F.2d 602, 615 (2d Cir. 1964). The attorney-client privilege cannot be used as both a shield and a sword. Workman, 138 F.3d at 1264; United States v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir. 1991). “Where a party raises a claim which in fairness requires disclosure of the protected communication, the privilege may be implicitly waived.” Chevron Corp. v. Pennzoil Co., 974 F.2d 1156, 1162 (9th Cir. 1992).

In their Answer, Respondents state that they “relied on the advice of counsel” (Answer, 10, 16) in response to allegations that they “represented.. . that they possessed and relied upon a reasonable basis that substantiated the representations” made in the advertisements for PediaLoss and Fabulously Feminine (Complaint, 10, 16). In Respondents’ witness list, paragraph one states that “ representative of Arent Fox may be called to testify, without limitation, to Respondents’ claim that the challenged advertising was prepared and approved by Arent Fox.” Opposition, Ex. B at 1. Respondents will not be permitted to rely on the defense of advice of counsel and call a law firm representative to testify regarding the preparation and approval of the advertising without allowing Complaint Counsel appropriate discovery. By relying on advice of counsel as a defense, Respondents waived the attorney-client privilege.

The obvious lesson here for supplement makers is don’t expect to be able to point the finger at your lawyers and get away with it. While your lawyers have a duty to protect your confidences, if you try to use these same confidences as a defense you will probably end up waiving the privilege in the process.

In the Matter of Dynamic Health Of Florida, LLC, Chhabra Group, LLC, DBS Laboratories, LLC, limited liability companies; Vineet K. Chhabra, also known as Vincent K. Chhabra individually and as an officer of Dynamic Health of Florida, LLC, and Chhabra Group, LLC; and Jonathan Barash, individually and as an officer of DBS Laboratories, LLC, File No. 042-3002,
Docket No. 9317.

To view the entire FTC case file, click here.

About 

Joel B. Rothman represents clients in intellectual property infringement litigation involving patents, trademarks, copyrights, trade secrets, defamation, trade libel, unfair competition, unfair and deceptive trade practices, and commercial matters. Joel’s litigation practice also includes significant focus on electronic discovery issues such as e-discovery management and motion practice relating to e-discovery.

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