Herbalife to pay $15M settlement in Bostick class-action case
The Bostick class-action suit filed against Herbalife isn’t quite over yet, but a settlement agreement was filed a settlement yesterday that stipulated it would pay $15 million dollars to settle the case.
An additional $2.5 million would be paid to cover “product returns”, along with “numerous changes” to its business model for at least three years.
The proposed settlement terms were granted “preliminary approval” yesterday.
The Bostick class-action case dates back to April 2013, when ex-affiliate Dana Bostick filed a 68 page complaint under Federal corruption and racketeering laws.
The complaint accused Herbalife of being an “inherently fraudulent pyramid scheme.”
Herbalife initially moved to dismiss to the lawsuit but had their motion rejected in October. At the time, Judge Beverly Reid O’Connell stated she felt that ‘Bostick’s allegations were significant enough to proceed toward trial‘.
Some fifty hours of mediation followed, however settlement negotiations remained deadlocked.
In June of this year, Bostick’s case was awarded class-action status after four additional ex-affiliates joined the proceedings.
Settlements resumed, with Herbalife now signaling that they were now ready to negotiate a settlement over letting the case go to trial.
Herbalife, which is under investigation by the Federal Trade Commission and other regulators, has denied the allegations and earlier said the suit had no merit.
But it now appears willing to accept a class-wide settlement to put a cap on its liability, sources told The Post.
The class would cover about 1.5 million people — those who joined in the US after 2009 to the present, excluding those who signed up last year after Herbalife instituted an arbitration clause in its distributor contracts.
The settlement awarded preliminary approval on Friday will now see Herbalife ‘pay $15 million in cash, plus up to $2.5 million for product returns‘.
Herbalife maintain that ‘the settlement did not contain an admission of liability or wrongdoing.’
Because y’know, when a case has “no merit” – that’s what you do.
Reading between the lines, on Bostick’s side of the case a trial would have meant significant ongoing expense. For Herbalife, they’d have likely lost and would have had to ultimately cough up far more than $15 million.
Bostick’s lawyers meanwhile are coming out on top, as their agreement with Bostick sees them ‘seek fees equal to 30 percent of the combined sum of the settlement amount‘.
So as I calculate it, that leaves around $11.9 million for Herbalife victims. How these funds will be divvied up is as of yet not clear.
under the agreement, Herbalife must make a number of changes to its corporate policies, including how it defines its distributors, paying shipping charges for products that are legitimately returned by members and making clarifications in its membership agreement to make them less confusing.
The product return fund would be available to distributors who file valid claims for the return of unused and unopened products
Perhaps we’ll finally see an accurate representation of Herbalife’s affiliate-base, with the introduction of a once-promised preferred customer class.
Herbalife currently count affiliates who earn no money as retail customers, which is grossly misleading.
“In return for the economic and corporate policy changes provided in the settlement agreement, the settlement class will agree to fully release Herbalife from all claims that were or could have been raised in the complaints in this action,” Judge Beverly Reid O’Connell said in the filing.
As I understand it, once the settlement terms are given final approval, Herbalife will be required to cough up and implement the proposed changes to their business model and corporate policies.
The FTC have previously advised that they find Herbalife’s business practices “disturbing”.
Whether the agency will separately nail the company on the ongoing problematic nature of their business model however, remains to be seen.
from herbalife’s press release :
so, bill ackman spends 50 mil trying to kill herbalife, and herbalife spends 15+2.5 mil settling all distributor class action problems ,till the present date. guess who’s a smarter spender?
since last year , distributor agreements have clauses that preclude distributors from filing jury and class-action suits.
herbalife distributors are claiming that news of an FTC settlement will be coming sooner than expected.
(Ozedit: affiliates are not retail customers, regardless of what you call them. End of story.)
Let’s not derail by attempting to frame this within the context of the stock market.
Herbalife have negotiated a settlement in a lawsuit accusing them of being an “inherently fraudulent pyramid scheme” via Federal corruption and Racketeering laws.
Whether settlement means they’ve paid less than losing at trial, let that not detract from the significance of a settlement.
Herbalife’s PR team can attempt to spin it any way they wish. Everything coming out of that department has rung hollow against the backdrop of Herbalife reneging on the promise of establishing preferred customers and revealing their true retail figures.
The underlying message behind this decision speaks for itself.
IF dana bostick has such a strong case , WHY did s/he settle?
doesn’t s/he owe it to 3.5 mil distributors to expose the ‘illegality’ of herbalife?
dana bostick bowed out , and that’s the fact of the matter !
point and match to herbalife !
An individual going up against a multi-billion dollar corporation. Even in a class-action, you do the math.
Anything short of Herbalife defending the matter in court implies guilt (yes, regardless of PR spin).
Herbalife weren’t interested in settling until Bostick’s case was given class-action status.
Bostick will be reimbursed, which is what he wanted all along. Herbalife lose out on proving themselves in court.
Their decision to do that will hang in the air, undermining any claims of legitimacy via the usual hollow PR-spin rhetoric.
as if dana bostick did not know what s/he was getting into !
no , the burden of proof is on the accuser. the accuser buckled ; dana bostick called herbalife illegal , then took the money and ran .
anyway boss, this is over, lets wait for FTC to clear herbalife with some fines, next .
Whether he did or not is irrelevant.
Herbalife were more than capable financially of going all the way with this. Yet they chose not to the second Bostick’s lawsuit was awarded class-action status.
Apparently the thought of challenging the claims in Bostick’s complaint, and potentially paying out thousands of ex and current affiliates with similar experiences sent Herbalife scrambling to negotiate a settlement.
You don’t get “cleared” with FTC fines. In MLM circles you get fined for committing fraud, which you may or may not own up to.
from earnings Q3 , 2014 report :
‘First order limits’ means it will no longer be possible to directly buy-in to supervisor level.
The percentage of direct buy-in , was not high to begin with , but even then herbalife has made it impossible to do so , in a further effort to dance with the FTC .
China and Russia aren’t exactly known for their MLM compliance.
And still no retail figures… not good enough Herbalife.
well. firstly, brent wilkes, of LULAC has threatened to challenge the settlement. he said ;
there are some who believe that wilkes is playing tag team with ackman, but since this is just an allegation , we can stay neutral on that.
keep eyes open for any movement on above front, by wilkes.
from kevin thompsons website:
The required corporate reforms [for herbalife] in the bostick settlement are included below:
as we can see, herbalife has already announced differentiation in ‘members’ and ‘distributors’. the bostick settlement order does not require any classification of a ‘preferred customer’ class.
I’ll believe it when I see it.
I’m sure Herbalife will manage to bullshit their way out of “members = retail customers”. They’ve been withholding retail statistics for years now.
this is the settlement agreement, between herbalife and bostick.
it gets interesting from page 37, before that its all technicalities about class actions, blah blah.
‘shockingly’ the settlement does not talk about ‘retail’ much at all [unless i’ve missed it in the 47 odd pages], and neither has the court raised the question.
the argument is anchored around members buying for self consumption, and about how that’s okay. the fact that herbalife hinges its self consumption argument, on market surveys, is also acceptable to the court.
the court found the settlement to be worth settling based on these arguments.
a-a-n-d that phrase ‘buyers club’!! its a wonder the court found it a ‘reasonable comparison’, to allow the settlement.
the court did not throw herbalife out for saying ‘buyers club’, like how people get thrown off blogs for saying the same two words!! 🙂
Let’s not lose sight of the fact that Herbalife are settling here (paying up to make the case go away).
All the crap about buying clubs and what not is meaningless if they have no retail activity. A class-action lawsuit filed that was settled is the wrong context to be analysing that through.
Herbalife evidently don’t have any significant retail activity, given their consistent efforts to hide retail data from the general public and keep it out of focus.
That however is a matter for another forum (regulatory investigation), now that this case has been settled.
Bump in the road:
Good on them if they go through with it, $10 per class-action member is ridiculous.
yeah right, dana bostick and his lawyer philip dracht, may have made a private killing, and hung up the ‘class’ to dry. who knows? who was watching?
the law firm KCC, who is handling herbalife claims and settlements, says in its FAQ:
so, i guess the appeal is not a ‘total surprise’ for herbalife.
fresh trouble for herbalife in hong kong. it seems two senior female herbalife distributors, collected money from other distributors, as ‘advance’ against product orders, and ran with the money!
Thanks for the heads up Anjali. Had to put this one on hold a few days what with Chinese New Year hitting my neck of the woods.
Too many stories to cover and not enough time!
well, i dont think wilkes will interfere with the class settlement because around october 2014, LULAC ‘s national board of directors made this statement:
so will there be no appeal?
a consumer body called truth in advertising, TINA, has filed an amicus brief, in the bostick settlement, on march 17,2015, challenging these aspects:
1] deceptive marketing by herbalife
2] pyramid scheme allegation
3]illegal packaging, handling and shipping charges
the case will be heard in may, no date was given.
so it’s literally an eye for an eye, tit for tat, blah for blah.
keep it interesting fellows! don’t pause!
so, i expect the parties ie bostick and herbalife, will have to file a reply about this amicus brief, or will the judge solely decide, without hearing the parties opinions?
it’s obvious bostick’s lawyer will not support this intervention by TINA, as he stands to get paid upward of 5 mil, in fees for this settlement.
this the amicus brief filed by TINA:
some points are coming to light;
1] admitting or denying an amicus brief, is solely at the discretion of the judge, so parties will not give a reply.
2] amicus briefs are mostly decided on, at appeal. all/most the cases cited by TINA as precedent, are circuit court orders.
3] so, even if the court admits the brief, it may refuse to change the settlement terms, and then this will go to appeal by TINA.
4] we can remember that the DSA, in burnlounge, had filed an amicus brief, at the appeals level in the ninth circuit court.
Don’t tell me we’re in for yet another round of “if, may, might, could, possibly, should” inexpert speculation
bugger off LRM, i have some good news for oz 🙂
guess who has made a ‘declaration’ as exhibit A, in the TINA amicus brief!!
bill keep, himself. and this para from his declaration will be music for oz:
c’mon may 11th,2015, don’t be tardy!!
I’m content to just sit back and let this all play out. The big play for me is on the regulatory front.
Everything else is just somewhat of a distraction.
aw, i hope you haven’t lit a lamp on that.
a full blown corporate war like herbalife vs ackman, cannot be divorced from politics. that’s not how the way the world runs, ‘in practice’.
But it can be divorced from my interest, which is on MLM.