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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 2007

## Text

la
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)

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386016_2062%3A2. Public record. Not legal advice.