Supreme Court denies Hi-Tech’s petition in fight with FTC over $40 million in sanctions

For 20 years, the Federal Trade Commission has been battling Hi-Tech Pharmaceuticals, a Georgia-based manufacturer of dietary supplement products.

Earlier this month, the fight reached a crescendo when the U.S. Supreme Court declined to review Hi-Tech’s appeal of a lower court decision denying its request for relief from $40 million in sanctions imposed against the company and two other defendants, including Hi-Tech’s owner Jared Wheat.

On June 3, the nation’s highest court denied Hi-Tech’s petition for a writ of certiorari, meaning it will not take up the case.

The Federal Trade Commission (FTC or Commission), which as of last year had collected about $2.3 million of the $40 million in sanctions, declined to comment on the Supreme Court’s decision. Hi-Tech had no immediate comment either.

The conflict began in 2004 when the Commission filed an enforcement action, contending Hi-Tech’s advertising of dietary supplements violated the FTC Act. Four years later, a district court granted summary judgment for the Commission, ordering the defendants “jointly and severally” to disgorge to consumers Hi-Tech’s gross receipts from selling the products, or over $15 million.

The district court also entered a permanent injunction against the defendants, barring them from making unsubstantiated advertising claims about supplements.

11th Circuit appeal

An appeals court last year denied Hi-Tech’s request for relief from $40 million in sanctions imposed in 2017, following a court ruling that Hi-Tech and others violated the 2008 injunction. According to the Commission, the violation of the injunction related to a national marketing campaign introduced in 2009 that made unsubstantiated weight-loss claims about four of Hi-Tech’s products. The sanctions were imposed against Wheat, Hi-Tech and its sales executive Stephen Smith.

Hi-Tech moved for relief from the $40 million contempt judgment, following a 2021 ruling by the U.S. Supreme Court known as AMG Capital Mgmt. LLC v. FTC. In that case, the Supreme Court found that under section 13(b) of the FTC Act — which grants the Commission the right to seek a permanent injunction in district court — the agency is not authorized to seek equitable monetary relief, such as disgorgement or restitution.

Since the government could not seek equitable monetary damages directly under section 13(b), Hi-Tech argued, the district court had no authority to order monetary relief indirectly as a contempt sanction for violating the injunction.

In a 16-page opinion published in August 2023, the U.S. Court of Appeals for the Eleventh Circuit was not persuaded.

“We reject the defendants’ argument that the district court lacked the authority to enter the contempt judgment post-AMG,” Circuit Judge Jill Pryor wrote on behalf of the three-judge appellate panel. “Regardless of the decision’s effect on the district court’s authority to award the $16 million in equitable monetary remedies, the court retained the authority to enter prospective injunctive relief under §13(b), as it had done in the original FTC action. And after the defendants violated the injunction, the court had the inherent power to vindicate its own authority by imposing the $40 million contempt judgment.”

Petition for writ of certiorari

In the petition filed in December 2023 with the U.S. Supreme Court, Hi-Tech framed one of the issues as follows: “Can a fundamental change in decisional law independently support relief from a judgment under [Federal] Rule [of Civil Procedure] 60(b)(6)?”

“Dicta from this Court strongly suggest that a clear, authoritative change in decisional law — like AMG Capital’s ruling — can by itself constitute an extraordinary circumstance warranting relief from judgment under Rule 60(b)(6),” Hi-Tech wrote in the petition through its counsel. “Some circuits agree with these dicta, and some disagree. The Court should grant review and hold that a fundamental change in decisional law can independently constitute an extraordinary circumstance warranting relief under Rule 60(b)(6).”

In its response brief filed in April, the Commission urged the Supreme Court to reject the petition for a writ of certiorari.

“As the court of appeals correctly recognized, this Court’s decision in AMG does not cast doubt on district courts’ authority to impose compensatory contempt sanctions against defendants who violate injunctions lawfully entered under Section 13(b) of the FTC Act,” FTC lawyers wrote. “The decision below flowed directly from this Court’s longstanding precedent on contempt remedies.”

Quoting a 1966 decision by the Supreme Court, Shillitani v. United States, FTC lawyers added, “District courts have ‘inherent power to enforce compliance with their lawful orders through civil contempt.’”