A federal appeals court Tuesday threw out a judge’s ruling that required Norcross dietary supplement CEO Jared Wheat and his company to pay $40 million for making false product claims.
In wiping out the massive judgment, the 11th Circuit Court of Appeals handed Wheat and his firm, Hi-Tech Pharmaceuticals Inc., a rare win in a civil court battle with the Federal Trade Commission that dates to 2004.
The three-judge panel said Wheat and Hi-Tech were improperly limited in the evidence they could present in contempt proceedings in front of U.S. District Judge Charles A. Pannell Jr. last year. The ruling vacated a contempt order against Wheat and Hi-Tech and required that Pannell reconsider the evidence from all parties.
“This is a clean slate for the company,” said Atlanta attorney Merritt E. McAlister, who argued the case for Hi-Tech. “We go back to step one.”
In a statement to the Atlanta Journal-Constitution, the FTC said it is reviewing the decision and “will take appropriate action” in the district court.
Tuesday’s decision was the latest twist in a case in which the FTC has sought to penalize Wheat and Hi-Tech for making bogus representations about their weight-loss products.
The FTC obtained a $15.9 million judgment against Hi-Tech in 2008. The amount became $40 million when Pannell imposed contempt sanctions against Wheat and the company last May for violating injunctions prohibiting them from making certain product claims.
Pannell also required a recall of Hi-Tech products, and Wheat and an associate, Stephen Smith, spent more than two months in federal prison last fall for failing to properly execute it.
Although the recall has been completed, making that part of the contempt order moot, Wheat and Hi-Tech were still on the hook for the $40 million — one of the largest obtained by the FTC against a supplement manufacturer — until the appeals court ruling.
The decision stated that Pannell erred in expecting Wheat and Hi-Tech to substantiate their product claims with clinical trials during the contempt proceeding. That was the standard when the initial injunction was imposed, but it should not have been used in considering contempt, the panel wrote.
As a result, the judges said, the matter is remanded to the district court, which must determine the admissibility of any evidence offered by the FTC and Wheat and Hi-Tech.
Wheat said he was “elated” by the ruling, although he noted that it came too late to prevent him from spending time in prison.
“Unfortunately, I can’t get those 60 days of my life back,” he said.
Wheat has a long history of being investigated by federal authorities, including a 2008 conviction for selling unapproved drugs that sent him to prison for two years and a series of actions by the Food and Drug Administration for using banned ingredients.
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