Former Herbalife distributors who objected to an approved class-action settlement have asked a federal judge in Los Angeles to reconsider her decision.
Herbalife Ltd. last year agreed to reserve US$15 million for distributors and abide by other terms including a number of corporate reforms to settle a class-action lawsuit that alleged the multilevel marketer (MLM) was a pyramid scheme.
Judge Beverly Reid O’Connell concluded in May that the settlement was fair, adequate, and reasonable. But lawyers representing 18 distributors who previously objected to the agreement aren’t done contesting its adequacy. A motion for reconsideration was filed Wednesday, asking the judge to vacate the final judgment and order of dismissal in the case.
Massachusetts lawyer Douglas Brooks argued the notice to the class was inadequate and that the named plaintiffs in the lawsuit didn’t have the right or “standing" to seek injunctive relief because they are no longer active participants in the MLM. And the judge erred by failing to independently evaluate the value of the plaintiffs’ lawsuit, according to Brooks’ 29-page memorandum.
Finally, Brooks referenced an old speech by Herbalife CEO Michael Johnson and a recent Herbalife annual sales convention or “Extravaganza" where the St. Louis Post-Dispatch interviewed distributors who operate in a level dubbed “Future Millionaire." Last month, the New York Post quoted Johnson in a 2005 speech as stating that distributors had sometimes engaged in unethical practices, and Herbalife’s leader reportedly encouraged high-level distributors to do the right thing.
“The conduct at last week’s Herbalife Extravaganza in St. Louis indicates that Michael Johnson’s warnings to Herbalife’s high level distributors have been ignored, and that Herbalife is not serious about enforcing them," Brooks wrote.
Although the company has faced accusations that it operates a massive pyramid scheme and is being investigated by state and federal authorities, fewer than 8,000 individuals—or less than 1 percent of class members—filed a claim for relief under the class-action settlement.
Herbalife doesn’t see a problem with that. Earlier this year, Herbalife argued in court papers that the majority of class members who declined to file a claim “confirmed the integrity of its business model."
Herbalife on Wednesday declined to comment on the motion for reconsideration.
If the judge declines to change her mind, Brooks’ clients will have to decide whether to live with the final settlement or lodge an appeal with the U.S. Court of Appeals for the Ninth Circuit.
The former distributors are being represented by Brooks and the Los Angeles law firm Cohen McKeon LLP.