NOT FOR PUBLICATION FILED

UNITED STATES COURT OF APPEALS APR 9 2024

FOR THE NINTH CIRCUIT MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

FEDERAL TRADE COMMISSION, No. 22-55446 Plaintiff-Appellee, D.C. No. 8:20-cv-01431-PSG-KES v.

MEMORANDUM*

QYK BRANDS LLC, DBA Glowyy;

DRJSNATURAL LLC; RAKESH

TAMMABATTULA, individually and as an officer of QYK Brands LLC, DRJSNATURAL LLC, EASII, Inc., and Theo Pharmaceuticals, Inc; JACQUELINE THAO NGUYEN, individually and as officer of QYK Brands LLC, DRJSNATURAL LLC and Theo Pharmaceuticals, Inc; EASII, INC.;

THEO PHARMACEUTICALS, INC.,

Defendants-Appellants.

Appeal from the United States District Court for the Central District of California Philip S. Gutierrez, Chief District Judge, Presiding Argued and Submitted September 18, 2023 San Francisco, California

Before: W. FLETCHER, RAWLINSON, and COLLINS, Circuit Judges. Concurrence by Judge Rawlinson.

Defendants QYK Brands LLC; DRJSNATURAL LLC; EASII, Inc.; Theo

Pharmaceuticals, Inc.; Jacqueline Nguyen; and Rakesh Tammabattula appeal from

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. the district court’s grant of summary judgment to the Federal Trade Commission

(“FTC”) and from the district court’s ensuing final judgment awarding injunctive

and monetary relief. We have jurisdiction under 28 U.S.C. § 1291, and we affirm

in part and vacate and remand in part.

1. The FTC’s operative complaint asserted four causes of action:

(1) a claim brought under § 19(a)(1) of the FTC Act, 15 U.S.C. § 57b(a)(1),

alleging that Defendants had violated the FTC’s “Mail, Internet, or Telephone

Order Merchandise” Rule (“MITOR”), 16 C.F.R. § 435.2; see also 15 U.S.C.

§ 57a(a)(1)(B) (authorizing the FTC to issue rules specifically defining particular

acts as unfair acts within the meaning of § 5(a)); id. § 57b(a)(1) (authorizing the

FTC to bring a civil action against any person who violates such a rule);

(2) a claim brought under § 13(b) of the FTC Act, 15 U.S.C. § 53(b),

alleging that Defendants had made deceptive shipping claims in violation of § 5(a)

of the FTC Act, 15 U.S.C. § 45(a);

(3) a further § 13(b) claim alleging that Defendants had violated § 5(a), as

well as § 12 of the FTC Act, 15 U.S.C. § 52, by making deceptive claims that one

of their products (“Basic Immune IGG”) could “effectively treat, prevent

transmission of, or reduce the risk of contracting COVID-19”; and

(4) an additional § 13(b) claim alleging that Defendants had violated § 5(a)

and § 12 by making false claims that Basic Immune IGG had been “clinically

2 proven and FDA-approved to treat, prevent transmission of, or reduce the risk of

contracting COVID-19.” The district court granted summary judgment to the FTC

on each of these claims, concluding that the undisputed facts established as a

matter of law that Defendants committed the alleged violations. Reviewing de

novo, see Donell v. Kowell, 533 F.3d 762, 769 (9th Cir. 2008), we affirm that

ruling.

a. With respect to the alleged MITOR violation, Defendants contend that

the district court erroneously “applied MITOR as a strict liability rule” and thereby

failed to take account of the Covid pandemic’s disruptive effect on Defendants’

ability to fulfill their offered shipping times. We reject this contention.

Nothing in MITOR required Defendants to commit to delivery within the

short time frames that they represented, which included 3–5 days, 5–7 days, and 7–

10 days. MITOR states that it is unlawful to solicit an order “unless, at the time of

the solicitation, the seller has a reasonable basis to expect that it will be able to ship

any ordered merchandise to the buyer . . . [w]ithin that time clearly and

conspicuously stated in any such solicitation” or, “[i]f no time is clearly and

conspicuously stated, within thirty (30) days after receipt of a properly completed

order from the buyer.” See 16 C.F.R. § 435.2(a)(1) (emphasis added). Undisputed

evidence shows that Defendants lacked a reasonable basis to expect that they

would be able to satisfy their advertised shipping-time claims. At the time that

3 they were continuing to post hand-sanitizer advertisements that said, “In Stock &

Ships Today,” Defendants had limited inventory and were aware of shipping

issues, and yet they processed orders for nearly 150,000 bottles in two weeks.

Defendants admit that Tammabattula “became aware of the ‘full gravity of the

situation’” regarding shipping delays by March 12 or 13, 2020, and that

Tammabattula thereafter knew that they “could not keep up with demand.”

Defendants plainly had no reasonable basis to expect that they could meet the

shipping times they continued to advertise, and they thereby violated MITOR.

And, for the same reason, they also made deceptive shipping claims in violation of

§ 5 of the FTC Act.

Moreover, if (as Defendants contend) post-order events make it impossible

to fulfill an order within the time stated, MITOR provides that the seller must

“offer to the buyer, clearly and conspicuously and without prior demand, an option

either to consent to a delay in shipping or to cancel the buyer’s order and receive a

prompt refund.” 16 C.F.R. § 435.2(b)(1); see also id. (stating that any such “offer

shall be made within a reasonable time after the seller first becomes aware of its

inability to ship within the applicable time set forth in paragraph (a)(1) of this

section”). MITOR thus has built into its structure an accommodation for

unforeseen disruptions. What MITOR does not allow is for sellers to do what

Defendants did here, which is to provide shipping estimates that, at the time those

4 estimates were made, Defendants had no reasonable basis to believe would be met.

Id. § 435.2(a)(1). In addition, Defendants undisputedly failed, in many cases, to

offer customers an actual opportunity to cancel the order and receive a refund. Id.

§ 435.2(b)(1). For example, Defendants informed some customers that orders

could not be canceled after the creation of a shipping label and that, if they desired

a refund, they would have to await their late shipment and then send it back to

Defendants.

b. With respect to the alleged false representations concerning Basic

Immune IGG, Defendants contend that there was a disputed issue of fact as to what

representations Nguyen made in an interview on a Vietnamese-language television

channel. Specifically, Defendants point to Nguyen’s declaration providing her

own English-language translation of the key statements she made in Vietnamese

during that interview, and Defendants argue that the district court improperly

resolved a resulting factual dispute as to the actual meaning of what she had said.

This contention fails. A declaration proffered in response to a summary judgment

motion “must . . . set out facts that would be admissible in evidence[] and show

that the . . . declarant is competent to testify on the matters stated.” FED. R. CIV. P.

56(c)(4). But as the district court noted, Nguyen’s declaration failed to provide

any foundation for concluding that she is “competen[t] to testify as a Vietnamese

to English translator.” This evidentiary ruling was not an abuse of discretion. See

5 Sandoval v. County of San Diego, 985 F.3d 657, 665 (9th Cir. 2021) (“Evidentiary

rulings made in the context of summary judgment motions are reviewed for abuse

of discretion.” (citation omitted)). With that contrary evidence properly excluded,

there was no genuine issue of material fact as to the English translation of the

statements made.

2. The district court ordered monetary relief in the form of consumer

refunds, invoking the authority conferred under § 19(b) of the FTC Act.

Specifically, the court ordered Defendants to pay over to the FTC $3,086,239.99,

which represented Defendants’ net revenue from hand sanitizer sales from March

to August 2020. Those funds were then to be used to provide full-price refunds to

consumers, but only if the consumer affirmatively submitted a “request for a

refund” within a 120-day period following notification of the refund program. At

the conclusion of the 120-day period, the FTC would then be required to

“determine the amount of unclaimed funds” left and then to “return to Defendants”

that amount, “less costs of administering the Redress Fund.” Defendants challenge

the scope of the monetary relief order, but we discern no abuse of discretion. See

FTC v. Figgie Int’l, Inc., 994 F.2d 595, 607 (9th Cir. 1993).

a. The undisputed facts concerning the unrealistic shipping representations

made by Defendants in their internet advertising over an extended period of time

are unquestionably sufficient to give rise to a presumption that consumer orders

6 placed during that time period were made in reliance on such material

representations and that consumers were injured by the shipping delays. Figgie,

994 F.2d at 605–06 (holding that, once the FTC “has proved that the defendant

made material misrepresentations, that they were widely disseminated, and that

consumers purchased the defendant’s product,” a “presumption of actual reliance

arises” and, if unrebutted, “injury to consumers has been established”).

Defendants have failed to put forward sufficient evidence to rebut this

presumption. Defendants posit that only 11% of their sales were attributable to the

“In Stock & Ships Today” Google advertising campaign, and they therefore

contend that the district court erred in applying the Figgie presumption to all

purchasers. But this argument overlooks the fact that this Google advertising

campaign was not the only time that Defendants made unrealistic claims about

delivery timeframes: although the precise time estimates varied, such claims were

also made on Defendants’ websites and a variety of other social media platforms.

Moreover, Defendants’ 11% figure is based on an unexplained estimate in a

declaration from Tammabattula that lacks adequate foundation. The FTC suggests

that the 11% figure “includes only those consumers who clicked on the [Google]

ad’s link to make their purchase,” but there is no basis in the record to conclude

that such click-throughs are the only purchases that were made in reliance on such

advertising.

7 Defendants also contend that some customers were satisfied with their hand

sanitizer, because “there were hundreds of repeat customers,” some percentage of

customers did receive products within the requisite timeframes, and some

customers even sent compliments. We conclude that any such issues were

adequately addressed by the district court’s requirement that monetary refunds

could only be provided under the court’s remedial order to those consumers who

affirmatively asked for one.

b. Defendants also argue that, even if the district court’s remedial order

could be said to adequately target its monetary relief to injured consumers, the

court should not have afforded a full-price refund to all such consumers, especially

without any requirement to return the product. On the specific facts of this case,

we find no abuse of discretion.

The listed expiration period for the hand sanitizer products was two years,

and at the time of the district court’s remedial ruling on April 22, 2022, much of

the product at issue would already have expired. Moreover, by the time that the

FTC would be able to set up the contemplated refund program and provide

notification to consumers, the relevant product would have expired by the end of

the 120-day period for requesting refunds. Under these unique circumstances,

imposing a requirement to return expired or about-to-expire products could

reasonably be viewed as pointless and of no value. On that basis, we conclude that

8 the district court did not abuse its discretion in failing to require return of the

products as a condition for receiving a full refund.

Defendants also assert that providing full refunds to consumers whose

product was only one or two days late overcompensates them for any asserted

injury from the delay. We conclude that, in light of the requirement that no

refunds would be given unless a particular consumer affirmatively made such a

request, the district court did not abuse its discretion. That limitation could

reasonably be deemed sufficient to screen out any consumers who experienced

only a de minimis delay. And for those who experienced a material delay, a

uniform monetary award is a reasonable approximation of individual consumer

injury, particularly given the relatively modest price of the sanitizer and the

urgency with which consumers sought such products at the beginning of the

pandemic.

3. Defendants also raise a number of challenges to the district court’s award

of injunctive relief. We conclude that, with one exception, the district court did not

abuse its discretion.

a. The district court did not abuse its discretion in concluding that there was

a sufficient likelihood of future violations to warrant the imposition of an

injunction. See FTC v. Evans Prods. Co., 775 F.2d 1084, 1087 (9th Cir. 1985)

(holding that, as a general rule, injunctive relief under § 13(b) is available “only if

9 the wrongs are ongoing or likely to recur”); see also CFPB v. Gordon, 819 F.3d

1179, 1197 (9th Cir. 2016) (stating that a grant of permanent injunctive relief is

reviewed for abuse of discretion).

Defendants argue that, in finding that they acted with a “high degree of

scienter” in connection with the hand sanitizer sales, the district court

misconstrued, as attributable to QYK, general comments that Tammabattula made

in a podcast about the difficulties of obtaining sufficient supplies to keep up with

demand. This contention is refuted by the podcast itself. In it, Tammabattula

prefaces his remarks as reflecting his company’s “firsthand” experience in being

“one of the few companies here in the U.S. that’s trying to produce [personal

protective equipment (‘PPE’)] domestically,” an experience that allowed them to

“see all the challenges here.” Moreover, the district court also relied on ample

additional undisputed facts concerning Defendants’ awareness of the scope of the

problems concerning supply chains and shipping delays.

Defendants also emphasize that the violations occurred only over a period of

several months rather than several years and that they recently changed their

business model to avoid the sort of direct retail sales that were involved in the

violations at issue here. While these are factors that arguably weigh in favor of

declining to impose an injunction, the district court reached a contrary conclusion

after considering these factors in light of other considerations that, in its view,

10 reflected a potential willingness and continued opportunity to engage in violations

of the FTC Act. On the undisputed underlying facts in this record, we cannot say

that the decision to impose an injunction was an abuse of discretion.

b. Finally, Defendants challenge the scope of the injunction. Specifically,

Defendants argue that the injunction is overbroad to the extent that it permanently

bars all Defendants from “advertising, marketing, promoting, or offering for sale,

. . . any Protective Goods and Services,” which the injunction defines as “any good

or service designed, intended, or represented to detect, treat, prevent, mitigate, or

cure COVID-19 or any other infection or disease.”

“To determine if an injunction is overbroad, we consider ‘(1) the seriousness

and deliberateness of the violation; (2) [the] ease with which the violative claim

may be transferred to other products; and (3) whether the [defendant] has a history

of prior violations.’” FTC v. Grant Connect, LLC, 763 F.3d 1094, 1105 (9th Cir.

2014) (citation omitted). Our review is for abuse of discretion, id. at 1101, and we

will uphold the injunction “so long as it bears a ‘reasonable relation to the unlawful

practices found to exist,’” id. at 1105 (quoting FTC v. Colgate-Palmolive Co., 380

U.S. 374, 394–95 (1965)). Under these standards, we conclude that the injunction

is overbroad only with respect to Defendant Tammabattula.

The district court’s decision to permanently bar Nguyen and the corporate

11 Defendants1 from the “Protective Goods and Services” industry was not an abuse

of discretion. As the district court correctly noted, Nguyen was “a licensed

pharmacist who had her pharmacy license suspended” for serious misconduct,

including acts of dishonesty, all of which was documented in the record. Given

her willingness to then make false health claims to sell products during the

pandemic (i.e., Basic Immune IGG), the district court acted well within its

discretion in concluding that she and the Defendant corporations should be

enjoined from further participation in the selling of goods or services for the

detection, treatment, prevention, mitigation, or cure of illness. FTC v. Gill, 265

F.3d 944, 957 (9th Cir. 2001).

We reach a different conclusion as to Defendant Tammabattula.2

Tammabattula’s wrongful conduct in this case was limited to the false shipping

claims respecting the hand sanitizer. The record does not reflect that he had any

1 In the district court, the parties agreed that the various corporate Defendants all “operated as a common enterprise” and that each corporate Defendant “is liable for the acts and practices alleged” in the operative complaint. Because Nguyen acted through one or more of these corporate Defendants, who are in turn each concededly fully responsible for each other, any injunctive relief that is appropriate as to Nguyen would properly also extend to all of the corporate Defendants. 2 The FTC contends that Defendants failed to object to the district court’s inclusion of Tammabattula in the injunction below. But even assuming arguendo that our review is only for plain error, Draper v. Rosario, 836 F.3d 1072, 1084–85 (9th Cir. 2016), we conclude that the plain-error standard is met here. For the reasons we explain, the district court’s decision to subject Tammabattula to the same injunction as Nguyen and the corporate Defendants was an obvious error that should be corrected in order to prevent a miscarriage of justice. Id.

12 personal involvement in Nguyen’s prior misconduct as a pharmacist or in her

misrepresentations regarding Basic Immune IGG. Moreover, in contrast to the

corporate Defendants, there was no agreement below that Nguyen and

Tammabattula were fully liable for each other’s conduct, such that any injunction

against Nguyen could automatically be extended, in every respect, to

Tammabattula. Tammabattula’s first-time violation did not reasonably support

including him, personally, in the sweeping permanent industry ban imposed by the

district court.3 Cf. Grant Connect, 763 F.3d at 1097–98, 1105 (upholding

permanent injunction entered against defendant whose “business practices ha[d]

drawn FTC scrutiny for over a decade[] and ha[d] resulted in three distinct

enforcement actions against him”). We leave it to the district court, on remand, to

exercise its discretion in determining whether, and to what extent, a more suitably

tailored injunction should be imposed with respect to Tammabattula.

For the foregoing reasons, we vacate the injunction as to Tammabattula

personally and remand for further proceedings consistent with this decision. The

judgment of the district court is otherwise affirmed in all respects.

AFFIRMED IN PART, VACATED IN PART, AND REMANDED.

3 We do not disturb the injunction to the extent that it prohibits any person (including Tammabattula) from acting “in active concert or participation” with Nguyen or the corporate Defendants in violation of the injunction as to them. We vacate the injunction only insofar as it applies fully to Tammabattula with respect to his future conduct independent of Nguyen or the corporate Defendants.

13

FILED

FTC v. QYK Brands, LLC, Case No. 22-55446

APR 9 2024

Rawlinson, Circuit Judge, concurring in the result:

MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

I concur in the result.

1