Hi-Tech Avoids FTC Contempt Charge, But Not The Judge

Hi-Tech Pharmaceuticals Inc. will present evidence that it is compliant with a Federal Trade Commission order against marketing weight loss supplements with unsubstantiated claims, but it will make its arguments to the same judge who previously found it in contempt.

In the U.S. District Court for the Northern Georgia District, Judge Charles Parnell Jr. on Nov. 4 rejected FTC’s motion for a summary judgment against Hi-Tech of contempt of a 2008 settlement, on a complaint FTC filed in 2004.

The US Court of Appeals for the 11th Circuit in May said the district court should allow the Norcross, Ga.-based firm to introduce evidence not allowed in 2014 when Parnell found the firm in violation of the 2008 settlement.

In his ruling, Parnell said with the circuit court vacating his previous order holding Hi-Tech in contempt, he “believes that judicial economy requires ruling on all remaining contempt allegations at the same time. This approach also avoids the problem of piecemeal litigation.”

In addition to a contempt charge linked to the settlement, Hi-Tech and its executives are accused of failing to comply with the judge’s May 2014 order to recall products and disgorge revenues (Also see "Hi-Tech Hunts Growth As FTC Picks Up Scent On Disputed Weight Loss Claims" - Pink Sheet, 31 Aug, 2015.).

While Hi-Tech succeeded in getting another chance to present evidence against FTC’s motion for contempt, the firm failed in its bid for Parnell to recuse himself from the proceedings.

The judge explained that Hi-Tech did “not charge the court with holding an actual bias toward them,” but argued that his decisions in the proceedings “create the appearance of bias.”

The recusal argument’s key points were that Parnell declined to consider Hi-Tech’s proffered expert evidence during the contempt proceedings; he questioned CEO Jared Wheat during a January 2014 sanctions hearing; and that his review of “ostensibly privileged attorney-client communications somehow jeopardized” his impartiality, according to the ruling.

Parnell described the motion as “an expression of the defendants’ dissatisfaction with the court’s earlier rulings, including and primarily the court’s decision to apply the doctrine of collateral estoppel, which precluded the consideration of certain evidence during the contempt proceedings” and his later decision to deny a request for an interlocutory appeal.

“For the purposes of recusal, however, judicial rulings – whether or not legally supportable – are not a valid basis for a bias or partiality motion,” Parnell said.

The judge denied Hi-Tech’s argument that he is biased by his consideration of emails between Wheat and his attorneys and a memo he received from them while he was in prison following a conviction on unrelated charges from a Drug Enforcement Administration investigation of online sales of adulterated drugs.

Hi-Tech is “essentially challenging the court’s ruling that the subject communications are not privileged. This holding was not disturbed on appeal, nor is it a valid basis for a bias or partiality motion,” the judge said.

Judges routinely review allegedly privileged materials to determine whether the materials are privileged without influencing their ability to impartially handle the remainder of a litigation. If the practice created bias, “each time a judge viewed materials claimed to be privileged, the judge would be forced to recuse,” Parnell said.

He added that “even if there was some blanket requirement of recusal every time a judge reviews ostensibly privileged materials (which, for reasons that are self-evident, there is not), the next judge to preside over this matter would review the exact same materials should they prove relevant.”