Evidence supports civil contempt finding

Where a jury found two companies’ statements about probiotics constituted false advertising, the district court enjoined them from making certain statements about the products. But when they violated that order, the court did not err in holding the companies in civil contempt.

Background

Claudio De Simone helped develop an eight-strain probiotic, which he patented in 1998. He licensed the probiotic’s formulation to VSL Pharmaceuticals Inc., which partnered with Leadiant Biosciences Inc., to market it under the name VSL#3. Leadiant later assigned its rights under the contract to Alfasigma USA Inc.

In 2015, De Simone cut ties with VSL, Leadiant, and Alfasigma. He began licensing his formulation to ExeGi, which marketed it under the name Visbiome. Meanwhile, VSL developed a new probiotic in Italy and began selling it under the name VSL#3.

In May 2015, De Simone and ExeGi sued VSL, Leadiant and Alfasigma. A jury found Leadiant and Alfasigma liable for false advertising, awarding ExeGi $15 million, and VSL liable for violating the agreement, awarding De Simone $967,435.

Based on that verdict, the district court issued a permanent injunction, which enjoined Alfasigma and Leadiant from making certain statements. Less than four months later, ExeGi moved for a civil contempt order against VSL and Alfasigma. ExeGi identified multiple violations of the injunction including: (1) a letter Alfasigma sent to health care providers, (2) comments on Facebook  and (3) an Actial Farmaceutica S.r.l. press release. The district court found VSL and Alfasigma in contempt.

Waiver

De Simone and ExeGi claim that, by not raising them before the district court, VSL and Alfasigma waived four arguments: (1) Alfasigma didn’t know the health care providers letter was accessible on its website after removing its internal links; (2) Alfasigma was unaware of the Facebook commentary; (3) the press release wasn’t promotional material and (4) VSL and Alfasigma shouldn’t be jointly liable for the fee award.

The court is satisfied that VSL and Alfasigma sufficiently raised the first three arguments before the district court. On the other hand, since VSL and Alfasigma didn’t contest below the district court’s ability to impose joint and several liability, they have waived it.

Knowledge

Among other elements, a party moving for civil contempt must establish by clear and convincing evidence that the alleged contemnor by its conduct violated the terms of the decree, and had knowledge (at least constructive knowledge) of such violations.

VSL and Alfasigma argue the health care providers letter wasn’t contemptuous because they didn’t know of the violation and made reasonable efforts to comply with the injunction. However the letter was on Alfasigma’s website so Alfasigma constructively knew about the violation. Because Alfasigma had constructive knowledge, its actual knowledge is irrelevant.

VSL and Alfasigma next argue that Alfasigma took reasonable steps to comply with the injunction. They call the health care providers letter a “technical violation.” And they reiterate that Alfasigma removed its website’s links to the letter after the district court issued the injunction. But Alfasigma needed to take “all reasonable steps” to ensure compliance. Verifying that the letter wasn’t readily accessible via external links is a reasonable step. Turning to the Facebook commentary, the court finds that Alfasigma had constructive (if not actual) knowledge and that Alfasigma didn’t make a good-faith effort to comply with the injunction.

VSL and Alfasigma assert that De Simone and ExeGi waived their argument that the YouTube Materials were contemptuous by raising it for the first time in their reply before the district court. But the untimely argument was “intimately related” to the original grounds for the motion. And VSL and Alfasigma could have sought leave to file a sur-reply.

VSL and Alfasigma next assert that the Actial press release doesn’t fall within the permanent injunction’s scope and their use of the term “generic” wasn’t prohibited. The court disagrees.

Damages

A party moving for civil contempt must also establish that it suffered harm by clear and convincing evidence. VSL and Alfasigma argue there’s no evidence that De Simone and ExeGi suffered harm because they didn’t show (1) a direct connection between each violation and the harm it caused and (2) that any consumers had seen the health care providers letter or Actial press release. The court rejects these arguments.

VSL and Alfasigma next contend that the district court lacked authority to award attorneys’ fees because they didn’t willfully disobey the injunction and the fees were punitive. Again, the court disagrees.

Affirmed.

De Simone v. VSL Pharmaceuticals Inc., Case Nos. 20-1846, 20-1869, June 7, 2022. 4th Cir. (Diaz), from DMD at Greenbelt (Chuang). Robert Scott Brennen and Turner Anderson Broughton for Appellants. Jeremy Wyeth Schulman for Appellee. VLW 022-2-139. 29 pp.