Herbalife Settles ‘Pyramid Scheme’ Class Action Lawsuit for $15M

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According to documents filed Friday in California federal court, Herbalife Ltd. has agreed to pay $15 million to escape a class action lawsuit accusing it of operating as an illegal pyramid scheme.

Herbalife is a multilevel marketing company that relies on independent distributors who purchase Herbalife products and resell them for a profit. These Herbalife distributors also make money by recruiting new distributors and taking a portion of their profits.

Plaintiff Dana Bostick initially filed the Herbalife class action lawsuit in April 2013, alleging the company operated as an illegal pyramid scheme. He claims he spent $3,000 on Herbalife products, set up multiple websites and spent money on coaching sessions to learn how to recruit new distributors. Despite his efforts, his only recruit was a lifelong friend. He alleges that the vast majority of U.S. Herbalife distributors fail to make any money.

Herbalife fought the pyramid scheme class action lawsuit and insists that its business model does not violate the law. However, its motion to dismiss the class action lawsuit was denied in October 2013. Subsequently, the health products company agreed to enter into settlement negotiations.

Although Herbalife denies the allegations, it has agreed to pay Class Members $15 million and offer up to $2.5 million for returned products that had been purchased by its sales representatives. Herbalife says it agreed to a class action settlement in order to avoid the “distraction, disruption and burden” of ongoing litigation.

Under the terms of the proposed Herbalife class action settlement, Class Members include “all persons who are or were Herbalife members or distributors in the United States at any time” during the period beginning April 1, 2009 and the date the class action settlement is preliminarily approved.

The pyramid scheme class action settlement is meant to compensate those Class Members who joined Herbalife with the primary goal of pursuing a business opportunity rather than those who had the primary goal of obtaining Herbalife products for personal or family use.

“Generally speaking, the claimants who purchased larger amounts of products are those more likely to have invested significant funds (possibly borrowed funds) in the purchase of product in order to obtain a higher distributor/member level,” according to the Herbalife class action settlement documents. “These claimants would have more product than would be reasonably self-consumed.”

“Thus, the Cash Settlement Fund payments … are designed to benefit those Class Members who were purchasing Herbalife products with the intent to resell those products for more than they paid, but who were unable to sell them for at least their cost,” according to the pyramid scheme class action settlement.

More information about the Herbalife class action settlement was not immediately available. Keep checking TopClassActions.com or sign up for our free newsletter for the latest updates. You can also mark this article as a “Favorite” using your free Top Class Actions account to receive notifications when this article is updated.

Bostick is represented by Philip D. Dracht of Fabian & Clendenin and Thomas G. Foley Jr., Robert A. Curtis and Justin P. Karczag of Foley Bezek Behle & Curtis LLP.

The Herbalife Pyramid Scheme Class Action Lawsuit is Dana Bostick v. Herbalife International of America Inc., et al., Case No. 2:13-cv-02488, in the U.S. District Court for the Central District of California.

UPDATE 1: A California federal judge preliminarily approved the Herbalife class action settlement on Dec. 2, 2014.

UPDATE 2: Former Herbalife distributors who believe the pyramid scheme class action settlement is inadequate are reportedly planning to object to the deal. The deadline to file a claim for the Herbalife settlement passed on Feb. 3, 2015, according to the settlement website. However, some Class Members are concerned they were not adequately informed of the claim process. Class Members who wish to exclude themselves from or object to the Herbalife class action settlement must do so by March 24, 2015.

UPDATE 3: The Herbalife class action settlement received final approval on May 14, 2015.