Dismissal of case in Illinois allows company to fight in preferred venue
By: David Rauf
“Neora and Jeff Olson look forward to challenging the FTC’s overreach. As we said from the very beginning, we intend to defend ourselves and stand up for our industry with vigor.”
—Neora company statement
A federal judge has dismissed a lawsuit by Neora, in which the company asked for a ruling against the Federal Trade Commission (FTC) for trying to enact a pyramid scheme law that doesn’t exist. Neora claimed the act was outside the FTC’s statutory authority.
The ruling effectively ends an attempt by Neora to sue the FTC in Illinois federal court, which is part of the only appeals circuit in the country that has previously sided against the FTC’s authority to seek monetary relief under Section 13(b) of the FTC Act.
But the decision also highlights a new chapter in the Neora and FTC legal saga by wrapping months of speculation about where the cases will unfold. Up until recently, Neora and the FTC pursued bifurcated legal venues and jockeyed for leverage in the case via venue.
The FTC filed its case in New Jersey, while Neora strategically opted to file its counterclaim in an Illinois federal court. That’s where the Seventh Circuit Court of Appeals only has appellate jurisdiction, and that’s the same appeals court that handed the FTC a huge loss in 2019 when it removed the agency’s ability to claim restitution for victims in a potentially precedent-setting case.
Now, both the FTC’s complaint against Neora and any responsive actions the company plans to bring will be merged together as part of the same case handled by a federal judge in North Texas.
In a statement to Social Selling News, Neora says it is planning to file a counterclaim against the FTC in Texas.
“Neora and Jeff Olson look forward to challenging the FTC’s overreach,” the company states. “As we said from the very beginning, we intend to defend ourselves and stand up for our industry with vigor.”
The legal skirmish dates back to December 2019 when Neora preemptively filed a lawsuit against the FTC ahead of the regulator filing its own complaint in federal court.
For its part, the FTC has alleged that Neora “operates as an illegal pyramid scheme and falsely promises recruits they will achieve financial independence if they join the scheme.”
The FTC’s lawsuit also alleges that Neora misleads customers by promoting one of its supplements “as an antidote to concussions and chronic traumatic encephalopathy caused by repetitive brain trauma, as well as Alzheimer’s disease and Parkinson’s disease.”
In its lawsuit, Neora had claimed the FTC is retroactively trying to change the definition of a pyramid scheme under federal law. The lawsuit also asked for a judge to block the FTC from continuing what Neora described as intimidation tactics focused not only against the Texas-based company but on the entire direct selling channel, saying “no direct sales company is safe under the FTC’s new arbitrary retroactive standards.”
Neora also sought other judgments including a ruling that the FTC lacks authority under Section 13(b) to seek monetary relief. The FTC brought its case against Neora under section 13(b) of the FTC Act, a provision that the agency has used for decades to recoup monetary relief but is now the subject of review by the U.S. Supreme Court.
In July 2020, a federal judge in New Jersey ruled that the FTC’s lawsuit will be transferred to a courthouse in Texas, where Neora is based. That same judge also chided Neora in the ruling for rushing to file a lawsuit in Illinois before the FTC had submitted its complaint to a federal court, accusing the direct selling firm of venue shopping for a friendly jurisdiction. However, the issue of Neora’s lawsuit in Illinois remained pending, while the FTC argued in court filings that it should be tossed altogether.
Then on Aug. 31, U.S. District Court Judge Sara Ellis dismissed Neora’s lawsuit in Illinois, saying the company’ claims “are not ripe for judicial resolution.” The judge also noted in the ruling that Neora can defend itself in the enforcement action that is pending in a Texas federal court and raise the same arguments from its lawsuit in a counterclaim.
“Plaintiffs will have a direct opportunity to raise their arguments against the FTC in the enforcement action,” Ellis wrote in granting the FTC’s request to dismiss the Neora lawsuit in Illinois. “This opportunity is critical where Congress provided the FTC with a specific method by which to bring enforcement actions and Plaintiffs sought to circumvent such method by filing this Action.”
About two weeks after the federal court in New Jersey bounced the FTC’s lawsuit to Texas, Neora signaled that it was looking to consolidate the cases in its home state. An Aug. 14 court filing from Neora says: “In light of the NJ Opinion, Nerium proposed to the FTC that the parties agree to transfer this case to the Northern District of Texas as well, in order to consolidate all claims in the interest of efficiency. The FTC declined. Nerium intends to file a motion to transfer this case to the Northern District of Texas or, alternatively, voluntarily withdraw the Verified Complaint in this action.”
John E. Villafranco, an advertising law attorney who specializes in FTC cases for Kelley Drye & Warren LLP, says that Neora’s move to file its lawsuit first with the hopes that beating the FTC to the courthouse would eventually lead to the case being decided in the company’s preferred venue didn’t pan out.
“Turns out the best defense may not be a good offense, at least when litigating against the FTC,” he wrote in a statement. Villafranco says a key element in the Neora case—whether the FTC has the authority to recover ill-gotten gains under Section 13(b) of the FTC Act—remains an issue that will be decided by the Supreme Court during its coming term.
He says, “While the outcome is yet to be determined, the Court’s march toward textualism—with both liberal and conservative justices embracing textual positions—and its recent Liu precedent point to a significant limitation or complete elimination of 13(b) monetary remedies. If Section 13(b) monetary remedies disappear, the FTC will still be able to obtain monetary remedies under Section 19 of the FTC Act, but that is a cumbersome and time-consuming process. Absent a legislative fix, which is not currently on the Congressional agenda, the FTC could very well be without a critical enforcement tool.”
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