Herbalife Seeks to Prevent Confidential Information from Reaching Ackman in Lawsuit

Herbalife Ltd. is seeking to protect itself from confidential information in a lawsuit leaking to its adversary, Bill Ackman of Pershing Square Capital Management, L.P.

The parties have agreed that material marked as “HIGHLY CONFIDENTIAL-ATTORNEYS EYES ONLY" may not be disclosed at any time to the hedge fund Pershing Square or any of its representatives, including Ackman and Sullivan & Cromwell, LLP, an international law firm.

Ackman has accused Herbalife of operating a pyramid scheme, an allegation Herbalife has repeatedly denied.

Ralph Zarefsky, a U.S. Magistrate Judge in California, signed the stipulated order on April 24 in a proposed class action lawsuit that was filed last year against Herbalife by a former distributor, Dana Bostick.

The order lays out the ground rules during the discovery phase of litigation for protecting confidential information such as Herbalife’s marketing strategies.

The parties agreed information cannot be marked confidential “if the material has been published, distributed to the public, accessible to the public, or disclosed to a nonparty without a confidentiality agreement or a reasonable expectation that the material would be maintained by the non-party in confidence."

Under the 21-page protective order, if a Pershing representative is designated as an expert in the case, Bostick could now show the expert material that Herbalife designated as confidential without first providing a written notification to the company and seeking to resolve the dispute. If the dispute couldn’t be resolved, the court would intervene and the burden would fall on Bostick to “demonstrate why it would be unduly prejudiced unless granted relief from" the non-disclosure provision.

In a lawsuit filed last year against Herbalife, Bostick claimed he was "doomed from the start by an Herbalife marketing plan that systematically rewards recruiting over retail sales." Herbalife countered Bostick couldn't have been fooled because he agreed that he read a statement that revealed distributors' modest earnings. Herbalife also argued Bostick exerted little effort trying to sell the products.

The case is before the U.S. District Court for the Central District of California, 13-cv-02488.