Herbalife Agrees to Let Other Distributors Join in Pyramid Scheme Lawsuit

But under a stipulation with the plaintiff, Herbalife has expressly reserved the right to move to dismiss an amended lawsuit.

LOS ANGELES—A plaintiff who sued Herbalife Ltd. last year has been given the green light by his adversary to amend his proposed class-action complaint.

Herbalife stipulated to the filing of a 75-page amended lawsuit but with a caveat. The marketer of nutritional products expressly reserves the right to move to dismiss the suit or otherwise respond to the complaint under federal court rules of procedure.   

A former Herbalife distributor, Dana Bostick, has accused the company of running an unlawful pyramid scheme, an allegation state and federal authorities including the FTC are investigating. Bostick claimed he was "doomed from the start by an Herbalife marketing plan that systematically rewards recruiting over retail sales."

In a proposed amended complaint, Bostick is seeking to add four other plaintiffs who allege losses after joining Herbalife as a distributor. Bostick said in court papers that he sought permission to amend the complaint because Herbalife had raised concerns about his “adequacy" to represent the proposed class of former distributors.

The stipulation between Herbalife and Bostick is subject to approval by the judge (Beverly Reid O’Connell) overseeing the case in the U.S. District Court for the Central District of California.

"Apart from asking the court for permission to amend the complaint to add the new proposed plaintiffs, the case is in substance the same as it always has been," a spokesman for Herbalife said in a statement. "Herbalife believes the case is without merit and will continue to defend it vigorously."

Distributors' Allegations

A homemaker in Chester County, Penn. with children in their teens, Anita Vasco opened an Herbalife nutrition club last year and became a supervisor. The complaint alleged individuals could only enter the club by invitation, making it difficult for Vasco to attract business and forcing her to invite people on the street.

Vasco suffered $12,000 in 2013 losses on the nutrition club excluding hundreds or thousands of work hours and $2,000 in products that she paid for and cannot be returned to Herbalife because it is beyond the one-year return policy, according to the amended complaint.

Bill Ackman, the billionaire hedge fund manager of Pershing Square Capital Management, has accused Herbalife of luring new distributors into its massive network by making promises that they can accumulate vast wealth and enjoy the millionaire life. Herbalife has denied the allegations, noting the statement of average compensation shared with all prospective members offers a level of transparency that few multi-level marketing companies provide. But Vasco claimed she never saw Herbalife’s statement of average gross compensation in 2012 while she was working on an Herbalife distributorship.

Other plaintiffs in the amended lawsuit include Judi Trotter, a retiree in Kings County, Wash.; Beverly Molnar of Allegheny County, Penn.; and Chester Cote of Bellows Falls, Vt.

Cote joined Herbalife as a distributor after he was laid off in 2009. He not only had trouble recruiting family and friends into the network, Cote found it difficult to sell Herbalife products online “because the prices were depressed by other distributors who were selling their products at a significant discount off SRP," the lawsuit alleged. “Cote still has canisters of Herbalife product that he would like to return but the return period has ended."

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