A Los Angeles federal judge signed off on a $15 million settlement of a class-action lawsuit brought by a former Herbalife Ltd. salesman who alleged the Los Angeles-based nutrition company was operating a pyramid scheme that victimized hundreds of thousands of people a year.
In a 60-page written opinion issued late Thursday, U.S. District Judge Beverly Reid O’Connell called the settlement “fair, adequate and reasonable.”
The lawsuit, filed two years ago, alleged that Herbalife is a pyramid scheme in which the company’s independent distributors earn more money recruiting new sales people than they do selling its products, an allegation Herbalife has repeatedly and vigorously denied.
Under the settlement terms, Herbalife will set aside $15 million to compensate distributors who claimed losses in the business. The accord also requires the company to provide up to $2.5 million to distributors who return unused products. Herbalife has additionally agreed to abide by a number of corporate reforms for three years.
According to the opinion, about 7,240 class members had filed claims as of April 13. Roughly half of the $15 million cash fund will be distributed to those plaintiffs who claimed losses, while the total value of the product return claims is nearly $1 million.
The judge also approved an award of $5 million in attorneys’ fees to plaintiffs’ counsel — representing nearly 30 percent of the gross settlement fund.
“Herbalife welcomes the decision to grant final approval of the class- action settlement,” the company said in a prepared statement. “As we have consistently stated, we believe that the settlement is fair, reasonable and adequate to class members, and we note the court found that the low number of claimants was not surprising in light of the substantial survey results indicating that most people join Herbalife to become discount consumers of our products.”
Of the roughly 1.5 million class members, only about 690 people opted out of the agreement. Eighteen former Herbalife distributors who were represented by counsel formally objected to the settlement, claiming it was “grossly inadequate.”
O’Connell wrote that although some class members raised “vociferous objections, the number of objectors is quite small in comparison to the total class size.”
The judge refused Herbalife’s 2013 request to dismiss the case, finding that former Herbalife distributor Dana Bostick’s allegations were significant enough to proceed toward trial.
The nutritional supplements company is the subject of federal civil and criminal probes over pyramid-scheme allegations by the Federal Trade Commission, the Securities and Exchange Commission, the FBI, and the attorneys general of New York and Illinois, lawyers said this week.
— City News Service