The FTC’s Success By Health fraud lawsuit has survived a motion to dismiss.

The Success By Health Plaintiffs (SBH Plaintiffs) filed a motion to dismiss back on July 28th.

Under Rule 19(a) of the Arizona Civil Procedure Rules,  the SBH Plaintiffs argued its affiliates ‘must either be joined as parties or this action must be dismissed.’

This was based on the SBH Plaintiffs’ argument that affiliates had

two cognizable interests in this action—first, an interest in obtaining commission payments for previous SBH product sales, and second, an interest in earning future commissions by selling SBH products — and because litigating this action in their absence may, “as a practical matter,” impair their ability to protect those interests.

In other words SBH affiliates being able to earn commissions through SBH entitled them to be recognized as a collective party, failing which the FTC’s lawsuit must be dismissed.

The court found the SBH Plaintiffs’ motion to be incorrectly filed. The SBH Plaintiffs had thus forfeited their right to file a Rule 19(a) motion to dismiss.

This was one of the responses in opposition the FTC filed. The FTC also argued

  1. Rule 19(a) can’t be used to “force an administrative agency to sue a particular party in an enforcement action”; and
  2. there is no “right to participate in a pyramid scheme”.

Because the SBH Plaintiff’s motion was found to be improperly filed, the court declined to address the FTC’s second and third responses.

The court concluded that the SBH Plaintiffs ‘appear(ed) to be seeking an unprecedented outcome’.

The FTC has cited an unbroken line of cases holding that Rule 19(a) can’t be invoked by a defendant in an enforcement proceeding brought by an administrative agency.

The Individual Defendants, in turn, have not pointed to a single decision ordering such relief.

In related news, an ongoing discovery dispute has also been resolved in the FTC’s favor.

As per a September 17th order, Success By Health has been given until September 30th to produce all “relevant outstanding discovery”.

Looking forward, the FTC has filed a response to Success By Health’s attempt to dissolve or modify the previously granted preliminary injunction.

A decision on Success By Health’s motion remains pending.

The regulator has also been granted permission to file a second amended complaint, and has been ordered to do so by September 29th.

I’ve marked our next case docket update for September 30th.