Appendix — Trudeau v. United States, 127 S. Ct. 1836 (2007) (No. 06-1012)

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APPENDIX A

IN THE UNITED STATES

COURT OF FEDERAL CLAIMS

05-263 C

Filed September 26, 2005

TO BE PUBLISHED

KEVIN TRUDEAU,

Subject matter jurisdiction, breach

of contract, stipulated order set-

tling Federal Trade Commission

enforcement action, sovereign ca-

pacity, proprictary capacity,

Kania, Sanders

Plaintiff,

V.

UNITED STATES,

Defendant.

A i ee ee i ee a

Eric L. Hirschhorn, Winston & Strawn, LLP, Wash-

ington, D.C., for plaintiff. Kimball R. Anderson, Ronald

Rothstein, Stephen P. Durchslag, Lisa K. Seilheimer,

Winston & Strawn, Chicago, Illinois; David J. Bradford,

Daniel J. Hurtado, Jenner & Block, LLP, Chicago, [li-

nois, of counsel.

Brian M. Simkin, Assistant Director, David M. Cohen,

Director, Peter D. Keisler, Assistant Attorney General,

United States Department of Justice, Washington, D.C.,

for defendant. William Blumenthal, General Counsel,

John F. Daly, Deputy General Counsel for Litigation,

Lawrence DeMille-Wagman, Attorney, Federal Trade

Commission, Washington, D.C., of counsel.

2a

OPINION AND ORDER

GEORGE W. MILLER, Judge.

This matter is before the Court on defendant’s motion

to dismiss plaintiffs complaint pursuant to Rule 12(b)(1)

of the Rules of the Court of Federal Claims (““RCFC’”) for

lack of subject matter jurisdiction or, in the alternative,

pursuant to RCFC 12(b)(6) for failure to state a claim

upon which relief can be granted. Oral argument was

deemed unnecessary. For the reasons set forth below,

defendant’s motion to dismiss pursuant to RCFC 12(b)(1)

is GRANTED.

BACKGROUND!

I. Nature of the Case

The case arises from a dispute regarding the wording

of a press release issued by the Federal Trade Commis-

sion (“FTC”) to announce the settlement of a civil en-

forcement action against plaintiff Kevin Trudeau for false

advertising in violation of the Federal Trade Commission

Act.

At the time the enforcement act was filed, Mr. Tru-

deau was in the business of selling various self-help and

health-related products, principally through radio and

television “infomercials,” which are relatively long com-

mercials in the format of television programs.’ See Web-

ster’s New College Dictionary 369 (2001). In particular,

Mr. Trudeau promoted a dietary supplement named

Coral Calcium Supreme, which he advertised would cure

cancer, among other diseases. In January 1998, the FTC

filed a complaint against Mr. Trudeau in the District

Court for the Northern District of Illinois, alleging that

this product did not provide the advertised benefits and

that Mr. Trudeau had engaged in false and deceptive

|! Unless otherwise indicated, the facts set forth in this section

are either undisputed or alleged and assumed to be true for the

purposes of the defendant’s motion.

3a

trade practices. The FTC’s suit concluded when the par-

ties reached a settlement agreement, which was embod-

ied in a Stipulated Final Order entered by the District

Court for the Northern District of Illinois on September 2,

2004 (“the Stipulated Order”). The Stipulated Order pro-

vided the FTC with injunctive relief, including a broad

prohibition of the type of infomercial that had led to the

enforcement action. In addition, Mr. Trudeau was pro-

hibited from manufacturing, distributing, promoting or

offering for sale any products containing coral calcium.

However, the Stipulated Order stated:

Defendants * * * expressly deny any wrongdoing or li-

ability for any of the matters alleged in the Complaint

and the civil contempt action. There have been no

findings or admissions of wrongdoing or liability by

the Defendants * * * other than the finding against

Kevin Trudeau for contempt of Part I of the Stipulated

Preliminary Injunction, entered by the Court on June

29, 2004.

Compl. Ex. A at 3-4. On September 7, 2004, the FTC is-

sued a press release on its website regarding the settle-

ment with Mr. Trudeau. This press release forms the ba-

sis for Mr. Trudeau’s claims in this litigation.

In his complaint, Mr. Trudeau characterizes the dis-

trict court’s Stipulated Order as a contract within this

Court’s Tucker Act jurisdiction. He alleges that the

FTC’s press release breached the contract’s implied cove-

nant of good faith and fair dealing because it announced

that the settlement constituted an admission of wrongdo

ing by Mr. Trudeau, thereby depriving Mr. Trudeau of

the benefits of the agreement. See Compl. 4 2. Mr. Tru-

deau seeks an unspecified amount of money damages for

business injuries resulting from the alleged breach of the

Stipulated Order.

The United States moves to dismiss Mr. Trudeau's

complaint for lack of subject matter jurisdiction pursuant

4a

to RCFC 12(b)(1) or, in the alternative, for failure to state

a claim upon which relief can be granted pursuant to

RCFC 12(b)(6). Defendant argued that “the Stipulated

Order, if contractual at all, was entered into by the

United States in its sovereign capacity,? and thus, falls

outside this Court’s limited Tucker Act jurisdiction.” Def.

Br. at 3. Additionally, the Government argued that the

“Court lacks jurisdiction because the district court has

expressly retained jurisdiction to enforce the Stipulated

Order upon which Mr. Trudeau bases his claim.” Jd. A\l-

ternatively, the Government contended that Mr. Trudeau

had failed to state a claim upon which relief can be

granted because the Stipulated Order did not impose any

implied duties upon the FTC and, even if it did, no rea-

sonable view of the facts alleged in the complaint could

establish that the FTC breached the contract in the man-

ner alleged by Mr. Trudeau. Jd. at 4.

II. Statutory and Regulatory Background

The FTC is an independent agency of the United

States created by the Federal Trade Commission Act

(“FTC Act” or “Act”), 15 U.S.C. §§ 41-58 (2000). Among

other responsibilities, the FTC enforces sections 5 and 12

of the FTC Act. Section 5(a) declares unlawful “unfair or

9

2 The sovereign capacity doctrine is distinct from the sovereign

acts doctrine. The sovereign capacity. doctrine provides that

the United States Court of Federal Claims lacks jurisdiction

over certain contracts that the Government makes in its sover-

eign capacity. Kania v. United States, 227 Ct. Cl. 458, 464, 650

F.2d 264, 267-68 (1981). In contrast, the sovereign acts doc-

trine is a merits-based affirmative defense under which the

United States, when sued as a party to a contract, “cannot be

held liable for an obstruction to the performance of the particu-

lar contract-resulting from its public and general acts as a sov-

ereign.” Allegre Villa v. United States, 60 Fed. Cl. 11, 16 (2004)

(quoting Horowitz v. United States, 267 U.S. 458, 461 (1925)).

The Government’s motion to dismiss “does not assert the sover-

eign acts doctrine.” Def. Reply at 9.

a renee rrr ee

oa

deceptive acts or practices in or affecting commerce” and

empowers the Commission to prevent such acts or prac-

tices. 15 U.S.C. § 45(a)(1), (2). Section 12 prohibits the

dissemination of “any false advertisement” in order to in-

duce the purchase of “food, drugs, devices, or cosmetics.”

15 U.S.C. § 52(a)(2). The Act defines “false advertise-

ment” as “an advertisement, other than labeling, which is

misleading in a material respect.” 15 U.S.C. § 55.

A false advertisement under section 12 constitutes an

unfair or deceptive act or practice within the meaning of

section 5. 15 U.S.C. § 52(b). False advertising is also

made a criminal offense if committed in connection with

the sale of injurious products or “with intent to defraud or

mislead,” and is punishable by a fine of not more than

$5,000 and imprisonment for not more than six months.

15 U.S.C. § 54.

The Act authorizes the FTC, through its own attor-

neys and/or the Attorney General, to initiate civil actions

in federal district court to enjoin violations of the FTC

Act. See 15 U.S.C. §§ 53(b), 56(a). In such cases, the dis-

trict court’s authority to issue injunctive relief carries

with it the full range of equitable remedies, including

consumer redress and disgorgement of profits. See FTC

v. Gem Merchandising Corp., 87 F.3d 466, 468-70 (11th

Cir. 1996).

III. Statement of Facts

A. The FTC’s Enforcement Efforts Against Mr. Tru-

deau

For several years, the FTC sought relief against Mr.

Trudeau, alleging that his infomercials misled consumers

about cures for serious diseases, such as cancer and mul-

tiple sclerosis, as well as common conditions, such as hair

Joss and obesity. The Stipulated Order resolved two cases

that the FTC had filed against Mr. Trudeau dating back

to 1998. Specifically, in 1998, and again in 2003, the FTC

filed actions against Mr. Trudeau and other defendants in

6a

the United States District Court for the Northern District

of Illinois, alleging that the marketing of various specified

products violated sections 5 and 12 of the FTC Act.

Compl. {| 7; FTC v. Trudeau, No. 98-0168 (N.D. Ill.) (Filed

Jan. 12, 1998); FTC v. Trudeau, et al., No. 03-3904 (N.D.

Ill.) (Filed June 9, 2003). In the 2003 suit, the FTC al-

leged that Mr. Trudeau violated the FTC Act by falsely

claiming that one product, a dietary supplement named

Coral Calcium Supreme, could cure cancer, multiple scle-

rosis, lupus, heart disease, high blood pressure, and other

diseases. Compl., Ex. B.

In connection with both actions, which were consoli-

dated, the FTC sought injunctive relief and redress for

consumers. The FTC also sought preliminary relief and,

in July 2003, the court entered a stipulated preliminary

injunction that prohibited Mr. Trudeau from making any

of the claims for Coral Calcium Supreme that the FTC

had challenged. Compl., Ex. A at 2; Ex. B at 1. Despite

the preliminary injunction, Mr. Trudeau continued mak-

ing the challenged claims with respect to Coral Calcium

Supreme and, on June 29, 2004, the Honorable Robert W.

Gettleman of the United States District Court for the

Northern District of Illinois found Mr. Trudeau in civil

contempt for violating the preliminary injunction by con-

tinuing to advertise Coral Calcium Supreme as an effec-

tive cure for cancer. Compl., Ex. A at 2; Ex. B at 1.

B. The Stipulated Order

Two months later, the parties entered into a settle-

ment agreement, which was embodied in the Stipulated

Order issued by Judge Gettleman on September 2, 2004.

Compl., Ex. A. The Stipulated Order resolved (1) the

FTC’s attempt to have Mr. Trudeau held in contempt of

the 1998 Order; (2) the FTC’s request for additional re-

medial measures ii connection with Mr. Trudeau’s failure

to comply with the preliminary injunction; and (3) the

FTC’s 2003 complaint. Compl., Ex. A at 2.

7a

In the Stipulated Order, Mr. Trudeau agreed to a

permanent injunction that essentially granted the FTC

all the equitable relief it sought, including a broad prohi-

bition of the type of infomercial that had led to the law-

suits. /d. at 7-10. Among other things, the Stipulated

Order prohibited Mr. Trudeau “from producing, dissem1-

nating, making or assisting others in making any repre-

sentation in an infomercial aired or played on any televi-

sion or radio media ***.” Compl., Ex. A at 8. The

Stipulated Order contained a limitea exception to the

prohibition, specifying that:

This * * * does not prohibit Defendants from making

any representation in any television or radio media in

connection with the manufacturing, labeling, advertis-

ing, promotion, offering for sale, sale, or distribution of

any book, newsletter or other informal publication in

any format provided that such book, newsletter or

other informal publication: 1) does not reference, di-

rectly or indirectly, any branded or trademarked

product, program or service that Defendants are pro-

moting; 2) is not, directly or indirectly, an advertise-

ment for any product, program or service; and 3) is not

sold, promoted, or marketed, directly or indirectly,

with any product, program, or service that is related

to the content of the book, newsletter, informal publi-

cation or infomercial.

Id.

The Stipulated Order also prohibited Mr. Trudeau

“from manufacturing, labeling, advertising, promoting,

offering for sale, sale, or distribution of any product con-

taining coral calcium * * *,” or from making any repre-

sentation regarding benefits, performance, or efficacy of

any product, pregram or service unless such representa-

tion was true and not misleading. /d. at 10-11. More-

over, the Stipulated Order reflected Mr. Trudeau's agree-

ment to pay “equitable monetary relief” in the amount of

$2 million, which relief included, but was not limited to,

8a

“consumer redress.” Jd. at 16. Finally, the Stipulated

Order also provided that the United States District Court

for the Northern District of Illinois retained jurisdiction

to interpret, enforce, and modify the order. Compl., Ex. A

at 29.

C. The FTC Press Release

On September 7, 2004, the FTC issued a press release

announcing the settlement, which was posted on the

agency's website. Compl. § 10 & Ex. B. The release is

headed “Kevin Trudeau Banned from Infomercials,” with

a subheading “Trudeau Settles Claims in Connection

with Coral Calcium Supreme and Biotape.” /d., Ex. B at

1. The first paragraph explains that, pursuant to the set-

tlement, Mr. Trudeau is broadly banned from appearing

in, producing, or disseminating future infomercials that

advertise any type of product, service, or program to the

public, except for truthful infomercials for informational

publications. Jd. It also states that he “agreed” to these

prohibitions and to pay $2,000,000 to “settle” the charges

the FTC had brought. Jd. The next paragraph explains

the manner in which Mr. Trudeau would satisfy the

monetary judgment. /d. The third paragraph quotes the

Acting Director of the FTC’s Bureau of Consumer Protec-

tion, Lydia Parnes, as stating: “This ban is meant to shut

down an infomercial empire that has misled American

consumers for years.” Id. Ms. Parnes also stated: “Other

habitual false advertisers should take a lesson; mend

your ways or face serious consequences.” /d.

The fourth paragraph detailed what the FTC “al-

leged,” and was followed by a paragraph describing what

the court “found” regarding Mr. Trudeau’s contempt of

the 2003 preliminary injunction. Jd. The sixth and sev-

enth paragraphs provided additional detail regarding the

terms of “the settlement announced today.” Jd. Finally,

the press release closed with the following statement:

Ga

NOTE: This stipulated final order is for settlement

purposes only and does not constitute an admission by

the defendants of a law violation. A stipulated final

order has the force of law when signed by the judge.

Id. at 2.

D. Mr. Trudeau’s Complaints Regarding the Press

Release

On February 16, 2005, Mr. Trudeau requested that

the FTC withdraw the press release from its website and

issue a corrective retraction. Compl. | 27 & Ex. C. Mr.

Trudeau asserted that the press release indicated that

the district court had found him liable for wrongdoing,

when in fact the Stipulated Order stated that there had

been no findings or admissions of liability on his part. Jd.

For this reason, Mr. Trudeau asserted that the press re-

lease “effectively deprived [him] of the bargained-for

benefits” of the settlement agreement embodied in the

Stipulated Order. Compl]. 4 2. The FTC denied Mr. Tru-

deau’s request by letter dated February 22, 2005, citing

the statement in the press release that the Stipulated

Order was for settlement purposes only and that Mr.

Trudeau’s settlement did not constitute an admission of a

violation of law. Compl. 4 28 & Ex. D.

Mr. Trudeau now seeks judicial relief. He does not

press his claim, however, in the United States District

Court for the Northern District of Illinois, which was the

court that entered and retained jurisdiction to enforce the

Stipulated Order. Instead, on February 28, 2005, Mr.

Trudeau filed his complaint in this Court. At the same

time, he filed a complaint in the United States District

Court for the District of Columbia seeking relief pursuant

to the Administrative Procedure Act, 5 U.S.C. § 701, et

seq. (“APA”).

In his APA suit, Mr. Trudeau sought declaratory and

injunctive relief—namely, the rewording of the press re-

lease. On August 25, 2005, the United States District

10a

Court for the District of Columbia granted the FTC’s mo-

tion to dismiss Mr. Trudeau’s complaint on the ground

that the court was without jurisdiction to review his

claims. Trudeau v. FTC, 384 F. Supp. 2d 281, 288-89

(D.D.C. 2005). Specifically, the district court held that it

lacked jurisdiction over Mr. Trudeau’s APA claim because

the press release at issue was not a “final agency action”

under section 704 of the APA. Z/d. at 289-91. In the al-

ternative, the court concluded that Mr. Trudeau’s

claims—a First Amendment retaliation claim and a claim

that the FTC had exceeded its authority to issue press

releases under 15 U.S.C. § 46(f)—-should be dismissed for

failure to state a claim upon which relief can be granted.

Id. at 288-89, 294-98.

Mr. Trudeau argues that because the claim pending

before this Court is based on a contract rather than the

APA and seeks money damages rather than injunctive

relief, the district court’s jurisdictional holding “is

hardly * * * authoritative.” Pl.’s Resp. To Def.’s Notice of

Additional Auth. at 3. He also contends that the district

court’s statement that “[flairly read, the press release is

not inaccurate or misleading at all,” 384 F. Supp. 2d at

292-93, “is dictum” and “does not bind this Court.” Pl.’s

Resp. To Def.’s Notice of Additional Auth. at 2 n.2.

In his case before this Court, Mr. Trudeau character-

izes the Stipulated Order as a “contract” within this

Court’s Tucker Act jurisdiction. He alleges that the

FTC’s press release “breached” the Stipulated Order, and

he seeks an unspecified amount of money damages for

injuries to his business resulting from the alleged breach.

Specifically, Mr. Trudeau alleges that the press release

and resulting articles have created a public perception

that he is a “habitual false advertiser,” which has ad-

versely affected sales of his books and _ publications.

Compl. 4 26.

lla

DISCUSSION

I. Standard of Review on Motion to Dismiss for

Lack of Subject Matter Jurisdiction

The Court must address the issue of subject matter

jurisdiction before any others, Moran v. Kingdom of

Saudi Arabia, 27 F.3d 169, 172 (5th Cir. 1994), and it

must dismiss a complaint “when it lacks the statutory or

constitutional power to adjudicate the case.” Nowak uv.

Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1187

(2d Cir. 1996). However, when this court hears such a

jurisdictional challenge, “its task is necessarily a limited

one.” Scheuer v. Rhodes, 416 U.S. 232, 236 (1974) (over-

ruled, on other grounds, by Davis v. Scherer, 468 U.S. 183

(1984)). “The issue is not whether plaintiff will ulti-

mately prevail but whether the claimant is entitled to of-

fer evidence to support the claims.” /d.

The court must accept as true the facts alleged in the

complaint, and must construe such facts in the light most

favorable to the pleader. See Henke v. United States, 60

F.3d 795, 797 (Fed. Cir. 1995) (holding that courts are

obligated “to draw all reasonable inferences in plaintiffs

favor’); Reynolds v. Army & Air Force Exch. Serv., 846

F.2d 746, 747 (Fed. Cir. 1988). “If, however, the motion

challenges the truth of the jurisdictional facts alleged in

the complaint, the court may consider relevant evidence

in order to resolve the factual dispute.” McDonald ov.

United States, 37 Fed. Cl. 110, 113 (1997); Moyer v.

United States, i90 F.3d 1314, 1318 (Fed. Cir. 1999)

(“Fact-finding is proper when considering a motion to

dismiss where the jurisdictional facts in the com-

plaint * * * are challenged.”). Once the court’s subject

matter jurisdiction is put into question, it is “incumbent

upon [the plaintiff] to come forward with evidence estab-

lishing the court’s jurisdiction. [The plaintiff] bears the

burden of establishing subject matter jurisdiction by a

preponderance of the evidence.” Reynolds, 846 F.2d at

748; see also McNutt v. General Motors Acceptance Corp.,

12a

298 U.S. 178, 189 (1936) (“If [plaintiffs] allegations of ju-

risdictional facts are challenged by his adversary in any

appropriate manner, he must support them by competent

proof.”).

Il. The Government Was Acting in Its Sovereign

Capacity When It Agreed to Entry of the Stipu-

lated Order in Connection With the Settlement

of the FTC Action

This Court’s subject matter jurisdiction under the

Tucker Act extends to “claims against the United States

founded * * * upon any express or implied contract with

the United States.” 28 U.S.C. § 1491 (2000). The Tucker

Act, however, merely confers jurisdiction on this court, “it

does not create any substantive right enforceable against

~the United States for money damages.” United States v.

Mitchell, 445 U.S. 535, 538 (1980) (quoting United States

uv. Testan, 424 U.S. 392, 398-99 (1976)).

“The contract liability which is enforceable under the

Tucker Act consent to suit does not extend to every

agreement, understanding, or compact which can seman-

tically be stated in terms of offer and acceptance or meet-

ing of the minds.” Kania v. United States, 227 Ct. Cl.

458, 464, 650 F.2d 264, 268 (1981). The jurisdiction of

the Court of Federal Claims does not extend to contracts

entered into by the Government in its sovereign capacity

that do not unmistakably subject the United States to

damages in the event of breach. Id. at 464-65, 650 F.2d

at 268, see also Silva v. United States, 51 Fed. Cl. 374,

377, affd, 51 Fed. Appx. 12 (Fed. Cir. 2002) (unpub.). In

Awad v. United States, the Court of Federal Claims ex-

plained that:

[t]he two main categories of contracts that the gov-

ernment makes are often referred te as proprietary

and sovereign. See Doe v. United States, 37 Fed. Cl.

74, 77 (1996). The United States generally has

waived sovereign immunity with regard to proprie-

13a

tary contracts, which are contracts in which “the sov-

ereign steps off the throne and engages in purchase

and sale of goods, lands, and services, transactions

such as private parties, individuals or corporations

also engage in among themselves.” Kania, [227 Ct.

Cl. at 464,] 650 F.2d at 268; see also Bloemker. v.

United States, 229 Ct. Cl. 690, 692-93 (1981). In con-

trast, the government has not waived sovereign 1m-

munity for contracts that it makes in its sovereign, or

governmental capacity. See Kania, [227 Ct. Cl. at

464,] 650 F.2d at 268.

61 Fed. Cl. 281, 284 (2004).

Plaintiff argues that the sovereign capacity doctrine

as set forth in Kania applies only in the criminal context.

Alternatively, plaintiff contends that the “sovereign / pro-

priet{ary] distinction in Kania [has been recast as] a dis-

tinction between civil and criminal contracts to which the

United States is a party.” Pl. Br. at 20 (quoting United

States v. Zajanckauskas, 346 F. Supp. 2d 251, 257 (D.

Mass. 2003)). Relying on Zajanckauskas, 346 F. Supp. 2d

at 258, in which the District of Massachusetts adopted

the distinction between civil and criminal contracts as the

basis for determining which government contract claims

are cognizable under the Tucker Act, plaintiff argues that

the sovereign capacity doctrine is inapplicable to this case

because Mr. Trudeau’s contract with the Government did

not arise in the criminal context.

This Court is not bound by the opinion of the District

of Massachusetts, and we decline to follow the decision in

Zajanckauskas. Recent decisions of the Court of Federal

Claims have continued to rely upon Kania and its prog-

eny in holding that the relevant distinction is between

government contracts entered into in a proprietary or

sovereign capacity rather than whether a particular con-

tract arose in a criminal or civil context. See Awad uv.

United States, 61 Fed. Cl. at 284; Bailey v. United States,

54 Fed. Cl. 459, 482-83 (2002) ( “The existence of a crimi-

14a

nal case does not make all related contracts actions of the

sovereign *** .”). If Zajanckauskas were correct, there

would be no need for the Court of Federal Claims to con-

tinue to analyze whether contracts were entered into by

the Government in its sovereign capacity. See Pappas v.

United States, 66 Fed. Cl. 1, 7 (2005); Awad, 61-Fed. Cl.

281; Houston v. United States, 60 Fed. Cl. 507 (2004); see

also Miller v. United States, 67 Fed. Cl. 195, 200 (2005)

(“this court lacks jurisdiction over claims, such as plain-

tiffs treaty law claim, in which the government acts in its

sovereign capacity’).

To be sure, many of the contracts at issue in the

Kania line of cases arose in the criminal context, t.e., plea

agreements, immunity agreements, and witness protec-

tion agreements. Pappas, 66 Fed. Cl. 1; Silva, 51 Fed. Cl.

374; Sadeghi v. United States, 46 Fed. Cl. 660 (2000);

Drakes v. United States, 28 Fed. Cl. 190 (1993); Grundy v.

United States, 2 Cl. Ct. 596 (1983); Kania, 227 Ct. Cl.

458, 650 F.2d 264. The Kania line of cases stands for the

proposition that “activities of the criminal justice sys-

tem * * * without question, lie at the heart of sovereign

action.” Silva, 51 Fed. Cl. at 377. However, the court in

Kania did not draw a “civil/criminal” distinction in decid-

ing whether the Tucker Act waived sovereign immunity

for Mr. Kania’s claim. Kania, 227 Ct. Cl. 458, 650 F.2d

264. In fact, in applying the sovereign capacity doctrine,

the court relied on a principle frequently invoked in civil

matters that “[t]he claimant for money damages for

breach of an express or implied in fact contract must

show that the officer who supposedly made the contract

had authority to obligate appropriated funds.”* Jd. at

465, 650 F.2d at 268. The court then stated:

3 In Kania, the court found that the plaintiff had not made any

attempt to show that the Government official at issue had the

authority to make an agreement obligating the Government to

pay money or specifying how the liability of the Government

should be determined. /d. at 465, 650 F.2d at 268.

ANN NARI SRE SSS NAW tI IARI A nw A ELIE EOE RI BE

a ee ee he a eh ee |

ld5a

By the same line of reasoning, we would deem it pos-

sible to make a binding contract subject to Tucker Act

jurisdiction, creating a liability for breach of a plea

bargaining agreement or one to grant immunity for

giving testimony, or to protect a witness. But, in such

case, the court would look for specific authority in the

AUSA to make an agreement obligating the United

States to pay money, and spelling out how in such a

case the liability of the United States is to be deter-

mined.

Id. at 465, 650 F.2d-at 268. The court noted that in the

criminal context, the need for specificity was “the greater

because the role of the judiciary in the high function of

enforcing and policing the criminal law is assigned to the

courts of general jurisdiction and not to this court.” Id.

However, nothing in the Kania court’s reasoning limited

the sovereign capacity doctrine exclusively to so-called

“criminal” as opposed to “civil” contracts.

Alternatively, plaintiff contends that, even if Kania

and cases following it were originally premised upon a

sovereign/proprietary distinctron, the Federal Circuit’s

decision in Sanders v. United States, 252 F.3d 1329 (Fed.

Cir. 2001), “significantly recast” Kania’s holding and

“made clear that a ‘sovereign capacity defense is avail-

able only in the criminal context.” Pl. Br. at 17, 19-20.

The Court of Appeals in Sanders did not undertake to

overrule Kania, nor could it without reconsidering that

decision en banc. Bankers Trust New York Corp. v.

United States, 225 F.3d 1368, 1373 (Fed. Cir. 2000)

(“Court of Claims cases, until overturned by [the Federal

Circuit] en banc, are binding precedent”); South Corp. v.

United States, 690 F.2d 1368, 1370 (Fed. Cir. 1982) (“[W]e

deem it fitting, necessary, and proper to adopt an estab-

lished body of law as precedent. That body of law repre-

sented by the holdings of the Court of Claims and the

Court of Customs and Patent Appeals announced before

the close of business on September 30, 1982 is most appli-

16a

cable***.”). Also, because the agreements in both

Kania and Sanders were concerned with the conduct of

the parties in a criminal case, it would have been unnec-

essary and illogical for the Sanders court to “recast”

Kania’s holding. Thus, even if the opinion in Sanders

contained language that one might argue was intended to

“recast” the distinction between sovereign and proprie-

tary capacities, such language would have been dicta, not

binding precedent. See Co-Steel Raritan, Inc. v. Interna-

tional Trade Comm'n, 357 F.3d 1294, 1307 (Fed. Cir.

2004). The holdings of Kania and Sanders are therefore

consistent, and do not suggest that the application of the

sovereign capacity doctrine should be limited to contracts

arising in the criminal context.‘

As indicated above, the Court of Federal Claims has

followed Kania and its progeny in relying upon the sover-

eign/proprietary distinction. In Awad v. United States,

the court declined jurisdiction and found that the issu-

ance of a passport and granting of citizenship were ac-

tions undertaken by the Government in its sovereign ca-

pacity. 61 Fed. Cl. at 284-85. In that case, the Court of

Federal Claims affirmed that “[t]his court has jurisdiction

¢ To the extent plaintiff argues that Kania and its progeny are

wrongly-decided, see Pl. Br. at 21, this Court is required to fol-

low Federal Circuit precedent. See Crowley v. United States,

398 F.3d 1329, 1335 (Fed. Cir. 2005) (“[T]he Court of Federal

Claims may not deviate from the precedent of the United

States Court of Appeals for the Federal Circuit any more than

the Federal Circuit can deviate from the precedent of the

United States Supreme Court. Trial courts are not free to

make the law anew simply because they disagree with the pre-

cedential and authoritative analysis of a reviewing appellate

court.”). There are only two “narrow exceptions” to that princi-

ple, neither of which is applicable here: if the circuit’s prece-

dent is expressly overruled by statute or by a subsequent Su-

preme Court decision. Strickland v. United States, 423 F.3d

1335, 1338 n.3 (Fed. Cir. 2005). Otherwise, a circuit. court deci-

sion controls until the circuit court overrules it en banc. Id.

l7a

over most proprietary contracts, but generally does not

have jurisdiction over contracts that the government

makes in its sovereign capacity.” 61 Fed. Cl. at 284. The

Awad court’s focus on distinguishing between contracts

entered into in the Government’s sovereign and proprie-

tary capacities indicates that Sanders did not alter the

outcome-determinative nature of that distinction.

The Court notes that the Awad decision has been the

subject of recent criticism based on reasoning that “[t}]he

only reason for granting the sovereign immunity from

suit is to prevent interference with sovereign affairs. Al-

lowing a suit for money damages is not that type of case.”

Dealing with the Sovereign: Risky Business, 18 Nash &

Cibinic Report 53 (2005); see also Postscript: Dealing With

the Sovereign, 19 Nash & Cibinic Report 6 (2005) ( “By a

similar logic, the government could argue that the Tucker

Act ** * disallows the Court of Federal Claims (and

boards) from hearing disputes on fighter aircraft, subma-

rine, and major weapons systems because there is no ‘pri-

vate analogue’.”) (quoting Awad, 61 Fed. Cl. at 284).

However, prior to Awad, Kania set forth the following

justification for holding the Government liable for con-

tracts entered into in its proprietary capacity: “If the gov-

ernment insists on making itself the sole judge of law and

fact in all disputes between its contractors and itself, the

prices and terms it receives will compare unfavorably

with those that [parties] obtain in [a] purely private

transaction.” Kania, 227 Ct. Cl. at 464, 650 F.2d at 268.

Clearly, this justification is not applicable when the Gov-

ernment acts in its sovereign capacity, undertaking ex-

clusively governmental functions without a private coun

terpart. See Awad, 61 Fed. Cl. at 284. Furthermore, the

relevant question is not whether there is a private coun-

terpart to the specific good or service purchased by the

Government, but rather whether the Government has

“step[ped] off the throne and engagjed] in the purchase

and sale of goods, lands and services * ** .” Kania, 227

Ct. Cl. at 464, 650 F.2d at 268. As explained in Bailey:

18a

Prisons are related to the sovereign action of incar-

cerating persons convicted in the criminal justice sys-

tem. The act of building the prison, however, is not a

sovereign act but an act in which the sovereign has

stepped off the throne and has engaged in the pur-

chase of goods, lands and services.

54 Fed. Cl. at 483.

Having determined that the sovereign capacity doc-

trine is not limited to government contracts that arise in

a criminal context, the Court must address whether the

Government was acting in its sovereign capacity when it

agreed to entry of the Stipulated Order upon which Mr.

Trudeau bases his claim. The Government’s action

against Mr. Trudeau was a civil enforcement action. The

Government was seeking to enforce a statute that, al-

though not criminal, was specifically designed to protect

the public from conduct that is illegal. The criminal con-

text may be the paradigm case, but it is not the exclusive

context in which the Government may enter into a con-

tract in its sovereign capacity.

The FTC engages in law enforcement activities, such

as enforcing the Nation’s consumer protection laws, to

prevent unfair or deceptive acts or practices in commerce.

The sine qua non for this activity is protection of the pub-

lic. See FTC v. Klesner, 280 U.S. 19, 27 (1929) (“to justify

the Commission in filing a complaint under section 5, the

purpose must be protection of the public’); FTC v. Cin-

derella Career & Finishing Schools, Inc., 494 F.2d 1308,

1313 (D.C. Cir. 1968) (“the basic purpose of the Act is the

protection of the public’); Holloway v. Bristol-Myers

Corp., 485 F.2d 986, 991 n.18 (D.C. Cir. 1973) (“[T]he

Commission’s role as both guardian and spokesman of the

public interest has unquestioned vitality.”) (citations

omitted).

In order to permit the FTC to discharge its responsi-

bilities, Congress vested the Commission with broad dis-

19a

cretionary powers that are akin to prosecutorial func-

tions. See Klesner, 280 U.S. at 27 (FTC exercises “func-

tions of both prosecutor and judge”); Holloway, 485 F.2d

at 991 (“The Commission was entrusted with a broad re-

sponsibility and discretion, prosecutorial in part, judicial

in part * **.”). For this reason,.courts have uniformly

held that there is no implied private right of action under

the FTC Act. See, e.g., Dreisbach v. Murphy, 658 F.2d

720, 730 (9th Cir. 1981); Naylor v. Case and McGrath,

Inc., 585 F.2d 557, 561 (2d Cir. 1978). As explained by

the Court of Appeals in Holloway, “there is need to weigh

each action against the Commission’s broad range policy

goals and to determine its place in the overall enforce-

ment program of the FTC.” Holloway, 485 F.2d at 997

(citations omitted). Because such functions are uniquely

governmental in character, Congress created the FTC as

the “exclusive enforcement authority” for violations of

section 5. Id. at 998.

The purported contract upon which Mr. Trudeau re-

lies was allegedly created when the FTC agreed to entry

of the Stipulated Order in connection with the settlement

of its enforcement action against Mr. Trudeau. The FTC

initiated that action to prevent deceptive acts or practices

and false advertising in violation of sections 5 and 12 of

the Act. The FTC’s purpose when it initiated, litigated,

and later settled, the enforcement action was clear: to

protect the public against deception by ensuring, through

the remedies afforded by the FTC Act, that advertising

conveys truthful information to the public.

By agreeing to entry_of the Stipulated Order, the FTC

vindicated this public interest. In so doing, it plainly did

not “step[ | off the throne and engage[] in purchase and

sale of goods, lands, and services, transactions such as

private parties, individuals or corporations also engage in

among themselves.” Kania, 227 Ct. Cl. at 464, 650 F.2d

at 268. The FTC did not receive goods or services in ex-

change for its agreement to entry of the Stipulated Order,

20a

but instead obtained for the public a measure of protec-

tion against the dangers of false advertising. The FTC’s

efforts to obtain this relief, in and for the public interest,

were undertaken by the Government in its sovereign, not

proprietary, capacity.

Ill. The Stipulated Order Did Not Contain an

Unmistakable Promise to Subject the United

States to Monetary Liability

The fact that the Government acted in its sovereign

capacity, however, is not necessarily fatal to plaintiff's

claim. In Kania, the Court of Claims held that a claim for

money damages for the breach of a contract entered into

by the Government in its sovereign capacity may be

maintained if there is “specific authority * * * to make an

agreement obligating the United States to pay money,

and spelling out how in such a case the liability of the

United States is to be determined.” Kania, 227 Ct. Cl. at

465, 650 F.2d at 268. In Sanders, the Federal Circuit ex-

plained that liability on such a claim “could only exist if

there was an unmistakable promise to subject the United

States to monetary liability. This would require the same

kind of express language (in both written and orai

agreements) requirea by the unmistakability doctrine

concerning government liability for the exercise of sover-

eign power.” 252 F.3d at 1336.5

In this case, the purported contract between Mr. Tru-

deau and the United States does not “clearly and unmis-

takably” provide that the United States is liable for

monetary damages in the event of breach. Instead, the

‘

5 The unmistakability doctrine recognizes that “sovereign

power, even when unexercised, is an enduring presence that

governs all contracts subject to the sovereign’s jurisdiction, and

will remain intact unless surrendered in unmistakable terms.“

Klamath Irrigation Dist. v. Unite’ States, 67 Fed. Cl. 504, 536

n.57 (2005) (quoting Bowen v. Pub. Agencies Opposed to Social

Security Entrapment, 477 U.S. 41, 52 (1986)).

2Zla

purported contract is a judicial decree that restrains and

enjoins Mr. Trudeau from engaging in certain business

activities and practices. It contains ne provision for the

payment of money damages in the event of a breach by

the Government. ‘To the contrary, the “contract” embod-

ied in the Stipulated Order is an instance where “mone-

tary compensation by the government was not contem-

plated in the [a]greement * * * and was not contemplated

as a remedy in the event of a breach.” Pappas, 66 Fed.

Cl. at 8. Accordingly, the purported contract did not spell

out how such compensation was to be determined in the

event of breach.

Because the Government, through the FTC, was act-

ing in a sovereign capacity when it agreed to entry of the

Stipulated Order and because plaintiff has failed to es-

tablish that the Stipulated Order contained an unmis-

takable promise to subject the United States to monetary

liability in the event of a “breach” of that Order, see

Sanders, 252 F.3d at 1336, this Court lacks subject mat-

ter jurisdiction over plaintiffs breach of contract claim.

IV. The Court Need Not Address the Other Ar-

guments Set Forth in Defendant’s Motion to

Dismiss

In its motion to dismiss, the Government argued that

the district court’s retention of jurisdiction over enforce-

ment of the Stipulated Order divests this Court of juris-

diction over plaintiffs breach of contract claim. Def. Br.

at 20-22. Having determined that we lack subject matter

jurisdiction over that claim, the Court need not address

the effect of the district court’s retention of jurisdiction.

The Court likewise need not address defendant’s alterna-

tive arguments in support of its motion to dismiss plain-

tiffs complaint pursuant to RCFC 12(b)(6) for failure to

state a claim upon which relief can be granted.

22a

CONCLUSION

For the reasons set forth above, defendant’s motion to

dismiss for lack of subject matter jurisdiction is

GRANTED. The Clerk is directed to enter judgment dis-

missing plaintiffs complaint pursuant to RCFC 12(b)(1).

IT IS SO ORDERED.

/s/

GEORGE W. MILLER

Judge

23a

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

06-5004

KEVIN TRUDEAU

Plaintiff-Appellant,

v.

UNITED STATES

Defendant-Appellee.

JUDGMENT

On Appeal from the UNITED STATES COURT OF

FEDERAL CLAIMS

In CASE NO(S). 05-CV-263

This CAUSE having been heard and considered, it is

ORDERED and ADJUDGED:

Per Curiam (GAJARSA, Circuit Judge, CLEVENGER,

Senior Circuit Judge, and PROST, Circuit Judge)

AFFIRMED. See Fed. Cir. R. 36.

ENTERED BY ORDER OF

THE COURT

/s/

DATED June 13 2006

Jan Horbaly, Clerk

24a

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

ORDER

A petition for rehearing en banc having been filed by

the Appellant, and the matter having first been referred

as a petition for rehearing to the panel that heard the ap-

peal, and thereafter the petition for rehearing en banc

having been referred to the circuit judges who are in

regular active service,

UPON CONSIDERATION THEREOF, it is

ORDERED that the petition for rehearing be, and the

same hereby is, DENIED and it is further

ORDERED that the petition for rehearing en banc be,

and the same hereby is, DENIED.

The mandate of the court will issue on September 15,

2006.

FOR THE COURT,

/s/

Jan Horbaly

Clerk

Dated: 09/08/2006

ec: Eric L. Hirschhorn

Brian M. Simkin

TRUDEAU V US, 2006-5004

(CFC-05-CV-263)