Federal Trade Commission v. Neora LLC
3:20-cv-01979
| N.D. Tex. | Jul 27, 2020Background
- The FTC sued Neora, LLC and CEO Jeffrey Olson alleging Neora operated an illegal pyramid scheme and made false income and health claims for its EHT supplement (developed/licensed from Signum). Signum settled with the FTC and was dismissed.
- Neora is headquartered in Farmer’s Branch, Texas; Olson lives in Florida. Signum was linked to New Jersey in the complaint (FTC later contends Signum moved to Colorado).
- The FTC investigated Neora beginning in 2016, served CIDs, and circulated draft complaints (initially captioned for the N.D. Ill. and later for D.N.J.) before authorizing suit.
- Hours after the FTC’s authorization and after receiving a final draft complaint, Neora and Olson filed a declaratory-judgment action in the Northern District of Illinois (NDIL). The FTC filed the enforcement action in the District of New Jersey the same afternoon.
- The District of New Jersey declined to dismiss under the first-to-file rule, finding Neora’s Illinois suit was an anticipatory/declaratory filing made in bad faith to preempt FTC litigation; but granted defendants’ alternative motion and transferred the FTC enforcement action to the Northern District of Texas under 28 U.S.C. § 1404(a).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Application of the first-to-file rule | FTC: Illinois action is not duplicative and is an anticipatory declaratory suit; rule inapplicable here. | Defs: Illinois suit filed first; similar parties/subject matter, so New Jersey case should be dismissed/defers to Illinois. | Court: Although substantially similar, declined to apply first-to-file because Neora’s NDIL filing was anticipatory/bad-faith forum shopping. |
| Legitimacy of Neora's NDIL declaratory action | FTC: Declaratory suit was a strategic preemptive filing to avoid FTC venue and relief limitations. | Defs: Filed where FTC allegedly intended to sue and where investigation centered; not in bad faith. | Court: Timing and facts (receipt of FTC’s final draft and imminent filing) show anticipatory filing; bad faith exception applies. |
| Transfer under 28 U.S.C. § 1404(a) (convenience/in interests of justice) | FTC: D.N.J. is appropriate; manufacturing/Signum contacts in New Jersey; plaintiff’s forum choice entitled to deference. | Defs: Texas (N.D. Tex.) is more connected: Neora HQ, management decisions, many employees and Brand Partners are in Texas. | Court: Private factors (defendants’ forum, locus of operations) and neutral public factors favor transfer to Northern District of Texas; transfer granted. |
| Weight of plaintiff’s forum choice | FTC: Its choice is presumptively correct and entitled to deference. | Defs: Plaintiff’s choice has limited weight where operative facts largely occur elsewhere (Texas). | Court: FTC’s choice given less weight because New Jersey has tenuous connections to core claims; factor does not overcome transfer rationale. |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (establishes plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (clarifies Twombly two-step for assessing complaint allegations)
- E.E.O.C. v. Univ. of Pennsylvania, 850 F.2d 969 (3d Cir.) (courts may decline first-to-file where first suit was anticipatory/bad faith)
- Jumara v. State Farm Ins. Co., 55 F.3d 873 (3d Cir.) (enumerates private and public factors for § 1404(a) transfer analysis)
- Shutte v. Armco Steel Corp., 431 F.2d 22 (3d Cir.) (transferee forum must be one where action might have been brought)
- FTC v. Credit Bureau Center, LLC, 937 F.3d 764 (7th Cir.) (interprets limits on FTC’s monetary remedies under § 13(b))
- Phillips v. Allegheny, 515 F.3d 224 (3d Cir.) (standard for Rule 12(b)(6) and construing complaint in plaintiff’s favor)