UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
|SAN ANTONIO DIVISION

STIPULATED ORDER FOR PRELIMINARY INJUNCTION
BETWEEN MARK NUTRITIONALS, INC. AND FEDERAL TRADE COMMISSION

Plaintiff, the Federal Trade Commission ("FTC" or "Commission"), filed a Complaint against Defendants Mark Nutritionals, Inc., Harry Siskind, and Edward G. D'Alessandro, Jr., pursuant to Section 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 53(b). Plaintiff FTC filed its Complaint to secure a permanent injunction, preliminary injunction, and other equitable relief, against Defendants for their alleged deceptive acts or practices and false advertisements for foods, drugs, devices, services or cosmetics in violation of Sections 5(a) and 12 of the FTC Act, 15 U.S.C. §§ 45(a) and 52.

Defendant Mark Nutritionals, Inc. denies all liability as alleged by the Commission and denies that it violated any law or regulation with respect to the advertising, promotion, sale, or distribution of its products. Nonetheless, the Commission and Mark Nutritionals, Inc., without Mark Nutritionals, Inc. admitting liability for any of the alleged violations referred to in the Complaint, have stipulated to the entry of the following Stipulated Order for Preliminary Injunction ("Order") against Mark Nutritionals, Inc. with the following terms:

1. This Court has jurisdiction over the subject matter of this case and jurisdiction over all parties. Venue in the Western District of Texas is proper.

2. The Complaint states a claim upon which relief can be granted, and the Commission has authority to seek the relief which is stipulated to in this Order.

3. On September 17, 2002, Defendant Mark Nutritionals, Inc. filed a voluntary petition for relief under the reorganization provisions of Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 101 et seq., in the United States Bankruptcy Court for the Western District of Texas, Case No. 02-54469-LMC (the "Corporate Bankruptcy Case"). The Commission's action against Defendant Mark Nutritionals, Inc. is not stayed by 11 U.S.C. § 362(a) because it is an exercise of the Commission's police or regulatory power as a governmental unit pursuant to 11 U.S.C. § 362(b)(4) and thus falls within an exception to the automatic stay.

4. In conjunction with the Corporate Bankruptcy Case, the Bankruptcy Court has approved the appointment of a Chief Executive Officer of Mark Nutritionals, Inc. Harry Siskind currently has no active role in the day-to-day management of Mark Nutritionals, Inc.

5. The activities of Mark Nutritionals, Inc. are in or affecting commerce, as defined in 15 U.S.C. § 44.

6. Entry of this Order is in the public interest.

For the purposes of this Order, the following definitions shall apply:

1. "Defendant" means Mark Nutritionals, Inc., and its successors, assigns, officers, directors, agents, servants, employees, and those persons in active concert or participation with them who receive actual notice of this Order by personal service or otherwise, whether acting directly or through any affiliate, corporation, partnership, subsidiary, division or other device.

2. "Competent and reliable scientific evidence" shall mean tests, analyses, research, studies, or other evidence based upon the expertise of professionals in the relevant area, that have been conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the profession to yield accurate and reliable results.

3. "Food" and "drug" shall mean "food" and "drug" as defined in Section 15 of the FTC Act, 15 U.S.C. § 55(b)-(c).

4. "Dietary supplement" shall mean a product, other than tobacco, intended to supplement the diet, that contains at least one or more of the following ingredients: A vitamin; a mineral; a herb or other botanical; an amino acid; a dietary substance for use to supplement the diet by increasing the total dietary intake; or a concentrate, metabolite, constituent, extract, or combination of any of the previously mentioned ingredients.

5. "Weight loss product" shall mean any food, drug, dietary supplement, product, program, or service designed or used to prevent weight gain or to produce weight loss, reduction or elimination of fat, slimming, change in body composition, or caloric deficit in a user of such food, drug, dietary supplement, product, program, or service.

6. "Evening Weight Loss Formula" is a liquid product sold by Defendant, the active ingredients of which have changed over time. The product's active ingredients currently include stevia, conjugated linoleic acid, and "proprietary blends" of chromium (as chromium picolinate, chromium polynicotinate, and chromium cruciferate), aloe vera gel, hydrolyzed collagen, chicory, plant teas, and amino acids (L-lysine, L-ornithine, L-arginine, L-carnitine, L-glycine and trimethylglycine).

7. The terms "endorsement" and "endorser" shall mean as defined in 16 C.F.R. § 255.0(b).

8. "Person" shall mean a natural person, organization, or other legal entity, including a partnership, corporation, proprietorship, association, cooperative, or any other group acting together as an entity.

9. The term "including" in this Order shall mean "without limitation."

10. The terms "and" and "or" in this Order shall be construed conjunctively or disjunctively as necessary to make the applicable phrase or sentence inclusive rather than exclusive.

11. A requirement that Defendant communicate with the Commission shall mean that the Defendant shall send the necessary information via first-class mail, costs prepaid, to the Regional Director, Federal Trade Commission, Southwest Region, 1999 Bryan Street, Suite 2150, Dallas, TX 75201. Attn: FTC v. Mark Nutritionals, Inc., et al. (W.D. Texas).

I. CONDUCT PROHIBITIONS

A. IT IS THEREFORE ORDERED that, in connection with the manufacturing, labeling, advertising, promotion, offering for sale, sale or distribution of Body Solutions Evening Weight Loss Formula, or any other weight loss product, in or affecting commerce, Defendant and its officers, directors, agents, servants, and employees, and all other persons or entities in active concert or participation with them who receive actual notice of this Order, by personal service or otherwise, whether acting directly or through any affiliate, corporation, partnership, subsidiary, division, or other device, are hereby preliminarily restrained and enjoined from making any representation, in any manner, expressly or by implication, including through the use of endorsements, that is false or misleading, including, but not limited to:

1. Such product will cause substantial weight loss, including as much as 20 to 40 pounds, without the need to diet or exercise;

 

2. Such product will cause substantial weight loss even if users eat substantial amounts of high calorie foods such as pizza, beer, tacos, nachos, cheese grits, and donuts; and

 

3. Such product will cause substantial long-term or permanent weight loss.

B. IT IS FURTHER ORDERED that, in connection with the manufacturing, labeling, advertising, promotion, offering for sale, sale or distribution of any weight loss product, in or affecting commerce, Defendant and its officers, directors, agents, servants, and employees, and all other persons or entities in active concert or participation with them who receive actual notice of this Order, by personal service or otherwise, whether acting directly or through any affiliate, corporation, partnership, subsidiary, division, or other device, are hereby preliminarily restrained and enjoined from employing the terms "Weight Loss" in the name of such product, or employing any other name that communicates the same or similar meaning for such product, unless, at the time such terms are used, Defendant possesses and relies upon competent and reliable scientific evidence that substantiates that such product will cause, or will assist in causing, clinically significant weight loss; provided, however, that nothing in this Paragraph B shall be construed to infringe upon Mark Nutritionals Inc.'s ability, as debtor-in-possession, pursuant to 11 U.S.C. §§ 363, 1106 and 1107, to dispose of the bankruptcy estate property existing on or before September 27, 2002.

C. IT IS FURTHER ORDERED that, in connection with the manufacturing, labeling, advertising, promotion, offering for sale, sale or distribution of any food, drug, dietary supplement, or other health-related product or service, in or affecting commerce, Defendant and its officers, directors, agents, servants, and employees, and all other persons or entities in active concert or participation with them who receive actual notice of this Order, by personal service or otherwise, whether acting directly or through any affiliate, corporation, partnership, subsidiary, division, or other device, are hereby preliminarily restrained and enjoined from making any representation, in any manner, expressly or by implication, including through the use of endorsements, about the safety, health benefits, performance, or efficacy of such product or service, unless, at the time the representation is made, Defendant possesses and relies upon competent and reliable scientific evidence that substantiates the representation.

D. IT IS FURTHER ORDERED that, in connection with the manufacturing, labeling, advertising, promotion, offering for sale, sale or distribution of any food, drug, dietary supplement, or other health-related product or service, in or affecting commerce, Defendant and its officers, directors, agents, servants, and employees, and all other persons or entities in active concert or participation with them who receive actual notice of this Order, by personal service or otherwise, whether acting directly or through any affiliate, corporation, partnership, subsidiary, division, or other device, are hereby preliminarily restrained and enjoined from misrepresenting in any manner, expressly or by implication, the existence, contents, validity, results, conclusions, or interpretations of any test, study, or research.

IT IS FURTHER ORDERED that:

A. Nothing in this Order shall prohibit Defendant from making any representation for any product that is specifically permitted in the labeling for such product by regulations promulgated by the Food and Drug Administration pursuant to the Nutrition Labeling and Education Act of 1990.

B. Nothing in this Order shall prohibit Defendant from making any representation for any drug that is permitted in the labeling for such drug under any tentative final or final standard promulgated by the Food and Drug Administration or under any new drug application approved by the Food and Drug Administration.

III. NOTIFICATION AND MONITORING OF ENDORSERS

IT IS FURTHER ORDERED that:

A. Defendant and its officers, directors, agents, servants, and employees, and all other persons or entities in active concert or participation with them who receive actual notice of this Order, by personal service or otherwise, whether acting directly or through any affiliate, corporation, partnership, subsidiary, division, or other device, shall not authorize any endorser to make any representation prohibited by this Order.

B. Within thirty (30) days after entry of this Order, Defendant shall send by first class mail a notice, in the form shown on Appendix A, to each current endorser of its products, as of the date of entry of this Order. The mailing shall not include any other documents. Defendant shall, within forty-five (45) days from the date of entry of this Order, provide Plaintiff with a sworn statement describing the manner in which it has complied with this provision of the Order, which statement shall include the names and addresses of each person and entity that received a copy of the Order. Defendant shall require each endorser to execute and return the original of the letter as a condition of remaining an endorser for Defendant.

C. Defendant shall also send by first class mail a notice, in the form shown on Appendix A, to each prospective endorser who has not previously received the notice. Such notice shall be sent to the prospective endorser before said person makes any public endorsement of Defendant's products. Defendant shall require each prospective endorser to execute and return the original of the letter as a condition of becoming an endorser.

D. Defendant shall maintain, and upon request, make available to the Commission for inspection and copying, all letters executed by endorsers and returned to Defendant.

E. Defendant shall apprise authorized endorsers of claims that are authorized by Defendant for weight loss products manufactured, labeled, advertised, promoted, offered for sale, sold, or distributed by Defendant, and shall require such endorsers to provide Defendant with true and correct copies or transcriptions of any representation that the endorsers make about such products, not later than seven business days after such representations are made. On the basis of such copies or transcriptions, or on reliable information otherwise made known to them, Defendant shall terminate any authorized endorser who has knowingly made any representation about any weight loss product that is prohibited by Part I of this Order. Defendant may take 30 days after receipt to review and evaluate information concerning representations made by the Defendant's authorized endorsers, but nothing herein shall preclude the Defendant from terminating such endorsers before or after the conclusion of such thirty day review, nor shall any provision of this Agreement otherwise condition the right of Defendant to terminate a relationship with any of Defendant's authorized endorsers, including termination for other than knowingly making representations prohibited by Part I of this Order.

IT IS FURTHER ORDERED that Defendant shall in accordance with applicable laws:

A. Take reasonable steps sufficient to monitor and ensure that all employees and agents engaged in advertising, promotion, sales, order verification, or customer service functions comply with this Order. Such steps shall include adequate monitoring of all advertisements, promotions, sales presentations, and other oral and written communication with customers regarding any food, drug, dietary supplement, or other health-related product or service. Defendant, at a minimum, shall:

1. Conduct periodic monitoring of representations concerning any weight loss product, and any other covered product or service, made by persons engaged in sales or other customer service functions, including representations made orally or through electronic communications on behalf of Defendant; and

 

2. Conduct periodic monitoring of representations made about any weight loss product, and any other covered product or service, on all Internet websites operated and maintained by Defendant or the agents of Defendant.

B. Terminate any employee or agent who knowingly engages in any conduct prohibited by this Order; provided, nothing herein shall limit the right of Defendant to take disciplinary action against any of Defendant's employees or agents, including but not limited to, termination for other than knowing violations of conduct prohibited by this Order.

IT IS FURTHER ORDERED that Defendant shall provide a copy of this Order to all of Defendant's principals, officers, directors, and managers, and to all of Defendant's employees, agents, and representatives having responsibilities with respect to the subject matter of this Order, and shall secure from each such person a signed and dated statement acknowledging receipt of the Order. Defendant shall, within forty-five (45) days from the date of entry of this Order, provide Plaintiff with a sworn statement describing the manner in which Defendant has complied with this provision of the Order, which statement shall include the names and addresses of each person and entity that received a copy of the Order.

VI. RESTRICTIONS ON DISSIPATION OF ASSETS

IT IS FURTHER ORDERED that, in the event of, and immediately upon, the entry of an order dismissing the Corporate Bankruptcy Case, the Defendant or any other corporation, partnership, or other entity, that is owned, controlled, managed, directly or indirectly, jointly, severally, or individually, or otherwise affiliated with or under the common control of Defendant, is preliminarily enjoined from directly or indirectly, selling, transferring, alienating, liquidating, encumbering, pledging, loaning, assigning, concealing, dissipating, converting, withdrawing or making any other disposition of funds, credit instruments or any real or personal property, or other assets, or any interest therein, wherever located, owned or controlled by or held for the benefit of, in whole or in part, or in the possession of Defendant, other than those transfers for actual, ordinary and necessary business expenses that Defendant will reasonably incur.

SO ORDERED:

DATED:

UNITED STATES DISTRICT JUDGE

APPENDIX A

FIRST CLASS MAIL

[To be printed on Mark Nutritionals, Inc. letterhead]

[date]

[endorser's address]

Dear [endorser's name]:

This letter is to inform you that Mark Nutritionals, Inc. recently agreed to a Preliminary Injunction as part of a civil dispute with the Federal Trade Commission regarding our advertising for Body Solutions Evening Weight Loss Formula. As a part of the agreement, we must make sure that representations made by endorsers of our weight loss products comply with the Stipulated Order for Preliminary Injunction ("Order"), which was entered by the United States District Court for the Western District of Texas on (date).

The FTC complaint alleges that we engaged in deceptive advertising of Body Solutions Evening Weight Loss Formula, and the Order imposes various requirements in connection with our advertising of Body Solutions Evening Weight Loss Formula and other products. According to the FTC complaint, our advertising claimed, expressly or by implication, that:

1. Body Solutions Evening Weight Loss Formula will cause substantial weight loss, including as much as 20 to 40 pounds, without the need to diet or exercise;

 

2. Body Solutions Evening Weight Loss Formula will cause substantial weight loss even if users eat substantial amounts of high calorie foods such as pizza, beer, tacos, nachos, cheese grits, and donuts;

 

3. Body Solutions Evening Weight Loss Formula will cause substantial long-term or permanent weight loss; and

 

4. Body Solutions Evening Weight Loss Formula is clinically proven to cause substantial weight loss, to burn a substantial amount of body fat, and to build a substantial amount of lean muscle mass, all without the need to diet or exercise.

The FTC complaint alleges that the first three claims are false and unsubstantiated and the fourth claim is false.

The Order specifically prohibits us, directly or through any endorser of our products, from making any of the challenged claims listed above. In addition, the Order prohibits us, directly or through any endorser of our products, from making a claim for any other food, drug, dietary supplement, or health-related product or service that we market unless there is competent and reliable scientific evidence to support the claim.

Although we disagree with the FTC's allegation that the above product claims are false and unsubstantiated, we have decided to suspend the challenged claims. Until we advise you otherwise, we ask you not to make any of these claims for our products in any endorsement you make.

We will apprise you of authorized claims for our weight loss products. In addition, you are now required to provide us with true and correct copies or transcriptions of any representation that you make about our weight loss products, not later than seven business days after these representations are made. You should not make any claims about our products that you know to be false or unsubstantiated. We do not want anyone making false claims about out products. Moreover, if you make false or unsubstantiated claims, we are required by the Order to stop using you as an endorser.

To continue to serve as an endorser of our products, you must sign, date, and return this letter to Mark Nutritionals Inc., at the above address, acknowledging your agreement to the terms set forth herein.

Thank you very much for your assistance,

[Defendant's signature]

The undersigned acknowledges receipt of this letter and hereby agrees to its terms and conditions.