## Facts

- The FTC challenged advertising for Enforma’s weight-loss system, consisting of two dietary supplements marketed as “Fat Trapper” and “Exercise in a Bottle.”
- Modern Interactive Technology and its principals produced two 30-minute infomercials promoting the Enforma system.
- Enforma retained Steven Patrick Garvey, through Garvey Management Group, to appear in the infomercials and act as a spokesperson, using scripts and materials supplied by Enforma.
- The FTC alleged the infomercials conveyed deceptive claims, including substantial weight loss without diet or exercise.
- In an earlier enforcement action, the FTC obtained a stipulated final judgment against Enforma based on similar allegations; the Modern Interactive defendants were not parties to that case.
- In the later suit, the district court (1) granted summary judgment to the Modern Interactive defendants on res judicata grounds and (2) after a bench trial entered judgment for Garvey and his company, finding Garvey lacked the knowledge required for FTC Act liability and that his endorsement reflected good-faith opinion and experience.

## Issues

1. Whether the FTC’s earlier stipulated judgment against Enforma barred the later FTC action against the infomercial producer defendants under res judicata (claim preclusion).
2. Whether Garvey was liable under § 5 of the FTC Act as a participant in deceptive advertising based on direct participation or authority to control combined with knowledge, reckless indifference, or deliberate avoidance of the truth.
3. Whether Garvey was liable under § 5 as an endorser whose testimonial statements were deceptive because they were not his honest opinions/experiences or lacked a reasonable basis.

## Decision

- Reversed the summary judgment for the Modern Interactive defendants; claim preclusion did not bar the FTC’s action against them.
- Affirmed the judgment for Garvey and Garvey Management Group after the bench trial.
- Remanded for further proceedings against the Modern Interactive defendants.

## Legal Principles

- Claim preclusion requires, among other elements, the same parties or their privies; a prior judgment against one actor does not bar later enforcement against different actors absent privity.
- In government enforcement matters, claim-preclusion principles are applied with caution where the government proceeds against different participants in separate actions.
- Individual liability under § 5 may be imposed for deceptive practices when a person directly participates in, or has authority to control, the practices and has the required mental state (knowledge, reckless indifference, or deliberate avoidance of the truth).
- Endorser liability under § 5 turns on whether testimonial statements reflect the endorser’s honest opinions, findings, beliefs, or experiences and whether the endorser had a reasonable basis for the implied claims.
- Good-faith reliance on company-provided materials and personal experience, without proof of awareness of probable falsity or intentional avoidance, can defeat participant and endorser theories on the record presented.

## Conclusion

The Ninth Circuit held that the FTC’s earlier stipulated judgment against the product marketer did not preclude a later FTC action against nonparty infomercial producers for the same advertising campaign, but it affirmed a defense judgment for the celebrity spokesperson because the FTC failed to show he knew the claims were false, was recklessly indifferent, or gave endorsements inconsistent with his good-faith beliefs and experiences.


Fed. Trade Comm'n v. Garvey, 383 F.3d 891 (9th Cir. 2004)