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1 BURSOR & FISHER, P.A. Scott A. Bursor (State Bar No. 276006) 2 L. Timothy Fisher (State Bar No. 191626) 3 Annick M. Persinger (State Bar No. 272996) 1990 North California Boulevard, Suite 940 4 Walnut Creek, CA 94596 5 Telephone: (925) 300-4455 Facsimile: (925) 407-2700 6 E-Mail: [email protected] 7 [email protected] [email protected] 8 Interim Class Counsel 9 (Additional Counsel on Signature Page) 10
11 UNITED STATES DISTRICT COURT 12 SOUTHERN DISTRICT OF CALIFORNIA
13 JOSE CONDE, et al., Case No. 14-CV-51 JLS (WVG) 14 Plaintiffs, THIRD CONSOLIDATED 15 AMENDED CLASS ACTION v. COMPLAINT 16
17 SENSA, et al., Honorable Janis L. Sammartino 18 Defendants. 19 JURY TRIAL DEMANDED 20 21 22
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28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG)
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1 Plaintiff Susan Grace Stokes by her undersigned attorneys, bring this class 2 action complaint against Sensa Products, LLC; Sensa, Inc. (f/k/a Intelligent Beauty, 3 Inc.); IB Holding, LLC (a/k/a Intelligent Beauty Holding, LLC); TechStyle, Inc. 4 (f/k/a JustFab, Inc. and Just Fabulous, Inc.); Dr. Alan R. Hirsch; Don Ressler; Adam 5 Goldenberg; Kristen Chadwick; TCV VI, L.P; TCV Technology Crossover Ventures; 6 John Drew; and Does 1 through 10 (collectively, “Defendants”). Plaintiff’s 7 allegations are based upon personal knowledge as to her own acts and upon 8 information and belief as to all other matters. 9 NATURE OF THE ACTION 10 1. In this class action lawsuit, Plaintiff alleges that the marketing of the 11 Sensa Weight Loss System (“Sensa”) was false and misleading. The company that 12 manufactured, marketed and sold Sensa has gone out of business after the Federal 13 Trade Commission entered a judgment against them for fraudulently marketing the 14 product. In addition, in a lawsuit against Dr. Alan Hirsch, the inventor of Sensa, the 15 company admitted that the claims made about the product were false. 16 2. Sensa was marketed as “an easy, effective way to lose weight” that was 17 “doctor formulated” and “clinically shown to help you lose up to 30lbs or more in 18 just 6 months.” Sensa consists of shakers of magic “tastant crystals,” also described 19 as “sprinkles,” which users were instructed to sprinkle on their food. The “Sensa 6- 20 Month System” included two shakers of tastants for each month starting with “Month 21 1” and continuing through “Month 6.” According to the sales pitch, users could lose 22 30+ pounds without a change in “exercise routine” or “lifestyle,” and without “food 23 restrictions,” simply by sprinkling Sensa crystals on their food to “take the weight 24 off.” Sensa’s website explained “How It Works” with the following image: 25 26 27
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6 7 See Sensa Website, www.sensa.com (last visited Jan 14, 2014). 8 3. According to Defendants, “[as] you eat, smell and taste receptors send 9 messages that tell your body it’s time to stop eating. This is a phenomenon we call 10 Sensory Specific Satiety. By enhancing smell, SENSA® Testants were designed to 11 help speed up the process and trigger your ‘I feel full’ signal, so you eat less and feel 12 more satisfied.” As a result, you supposedly eat less and lose weight.1 13 4. The Sensa website and Sensa YouTube channel provided an 14 instructional video on “How Sensa Works.” 2 The video asks, “So, how do you use 15 Sensa?” The video explains, “Simply sprinkle Sensa on your food to take the weight 16 off.” The following images, obtained from the video on the Sensa website, illustrate 17 how Sensa purported to help you lose weight “without dieting.” The video explains 18 that “as you eat, Sensa works with your sense of smell and taste to help stimulate 19 your body’s natural hunger control switch.” When Sensa activates the “hunger 20 control switch” the meter in the user’s brain switches from empty to full. 21 22
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24 1 25 Sensa Website, http://www.sensa.com/?action=works.main (last visited Jan. 16, 2014). 26 2 See Sensa Website, http://www.sensa.com/?action=works.main (last visited Jan. 15, 27 2014); see also SENSA, YouTube.com, http://www.youtube.com/watch?v=- 28 ebppfjqHaQ (last visited Jan. 15, 2014). THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 2 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1601 Page 4 of 78
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20 21 5. The instructional video explains that Sensa activates “your body’s 22 natural hunger control switch” so Sensa users can “Lose 30lbs in just 6 months 23 without dieting. You simply sprinkle Sensa on your food.” Indeed, the onscreen 24 graphic clearly illustrates “studies show avg. weight loss of 30lbs in 6 months.” 25 26 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 3 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1602 Page 5 of 78
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9 10 11 6. To bestow Sensa with an aura of legitimacy, the statement “DOCTOR 12 FORMULATED” appeared in all caps under the name “Alan Hirsch M.D” on the 13 labels of Sensa products. The packaging also stated “Shake. Eat. Lose.” with “No 14 Pills, No Diuretics, No Calorie Counting.” 15 7. The marketing of Sensa was false and misleading because Sensa crystals 16 are ineffective. Sensa has not been “clinically shown” to cause weight loss. Sensa 17 crystals do not induce a “phenomenon” called “Sensory Specific Satiety.” Further, 18 the Sensa Weight Loss System is not “supported by impressive clinical results” 19 because those supposed results are based on fabricated clinical trials. 20 8. Plaintiff relied on Defendants’ false and misleading sales pitch for Sensa 21 crystals, and she would not have purchased Sensa crystals had she known the product 22 is ineffective. She brings this class action on behalf of herself and other purchasers of 23 Sensa crystals and assert claims against Defendants for violations of the Magnuson- 24 Moss Warranty Act, California’s Consumers Legal Remedies Act, California’s False 25 Advertising Law, the unlawful, unfair and fraudulent prongs of California’s Unfair 26 Competition Law, Florida’s Unfair Trade Practices and Consumer Protection Act, for 27 breach of implied and express warranties, and for negligent misrepresentation. 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 4 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1603 Page 6 of 78
1 BACKGROUND 2 9. According to a September 2002 Federal Trade Commission Staff 3 Report,3 the number of Americans who are overweight or obese have reached 4 epidemic proportions; it afflicts 6 out of every 10 Americans. At the same time, 5 nearly 29% of men and 44% of women are trying to lose weight (an estimated 68 6 million American adults). Thus, the potential market for sellers of weight-loss 7 products and services is huge. Consumers spent an estimated $34.7 billion in 2000 8 on weight-loss products and programs. The marketplace has responded with a 9 proliferation of products and services, and many promise miraculous, quick-fix 10 remedies. The FTC found that “[t]he use of false or misleading claims in weight-loss 11 advertising is rampant.”4 12 10. Into this lucrative market stepped a particularly sophisticated huckster – 13 one with a medical degree and a thick stack of junk science to support the claim that 14 his magic crystals are “clinically shown” to promote weight loss without dieting. Dr. 15 Alan Hirsch, M.D., is a board-certified neurologist. His name and photograph appear 16 on Sensa’s packaging, website, advertisements, and promotional literature, together 17 with claims that he has conducted and published more than 200 research studies, 18 authored 8 books, and appeared on numerous television programs including Dateline 19 NBC, CNN, the CBS Early Show, Good Morning America, and Extra. Dr. Hirsch’s 20 20-plus years of research regarding the impact of smell and taste on weight loss 21 purportedly culminated in the patent-pending technology used in the SENSA® 22 Weight-Loss System. In fact, neither Dr. Hirsch nor any other medical professional 23 has ever “clinically shown” that Sensa crystals effectively promote weight loss. 24 3 25 Richard L. Cleland, et al., “Weight Loss Advertising: An Analysis of Current Trends, A Federal Trade Commission Staff Report,” September 2002 (hereafter, 26 “FTC Staff Report”), available at www.ftc.gov/reports/weight-loss-advertisingan- 27 analysis-current-trends/ (last visited Jan. 15, 2014). 4 28 Id., Executive Summary, at page x. THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 5 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1604 Page 7 of 78
1 11. Prior to 1994, weight-control products were regulated as drugs. Unless 2 they were either generally recognized as safe and effective or an approved new drug, 3 over-the-counter (“OTC”) products labeled for weight control were misbranded under 4 Section 502 of the Food, Drug, and Cosmetic Act. See FTC Staff Report at 27-28. 5 With some limited exceptions not pertinent here, an OTC product labeled for weight 6 control required some form of pre-market review and approval by the Food and Drug 7 Administration (“FDA”) to determine safety and effectiveness. Id. at 28. “In 1994, 8 the passage of the Dietary Supplement Health and Education Act of 1994 (DSHEA) 9 dramatically changed the regulatory framework for weight-loss supplements, shifting 10 FDA’s role from premarket clearance to post-market enforcement and shifting the 11 responsibility from government to industry to ensure products were safe and 12 effective.” Id. 13 12. According to the FTC, “this change in regulatory structure has coincided 14 with a dramatic increase in the number of dietary supplement weight-loss products as 15 well as the amount of weight-loss product advertising.” Id. Dr. Hirsch took 16 advantage of this change in the regulatory structure to market Sensa crystals to 17 millions of consumers who would be unable to decipher and debunk the junk science 18 behind the product. In fact, his skillful and crooked manipulation of the regulatory 19 shift resulted in Sensa sales totaling nearly $364 million from 2008-2012. 20 13. While the FTC relaxed the criteria to place weight loss products on the 21 market, the FTC will still prosecute the worst offenders. On January 7, 2014 the FTC 22 brought suit against Defendants for unfair or deceptive practices and false 23 advertisement in violation of Sections 5(a) and 12 of the FTC Act, 15 U.S.C. §§45(a) 24 and 52. As a result, the FTC and several Defendants entered into a stipulated 25 judgment for $46.5 million. The judgment also enjoined several Defendants from 26 making misleading claims that Sensa causes or helps weight loss. 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 6 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1605 Page 8 of 78
1 THE PARTIES 2 Defendants 3 14. Defendant Sensa Products, LLC (“Sensa Products”) is organized 4 under the laws of Delaware and registered with the California Secretary of State to 5 conduct business in California. Sensa Products’ principal place of business was 2301 6 Rosecrans Ave. Ste. 4100, El Segundo California, 90245. However, on October 6, 7 2014, the entity was assigned for the benefit of creditors. 8 15. Defendant Sensa, Inc. (f/k/a Intelligent Beauty, Inc.) (“IBI”) is a 9 Delaware corporation registered with the California Secretary of State to conduct its 10 business in California. IBI’s principal place of business was 2301 Rosecrans Ave 11 Ste. 1150, El Segundo California, 90245. IBI had an ownership interest of 90% in 12 Sensa Products, LLC (collectively the “Sensa Entities”). 13 16. Defendant TechStyle, Inc. (f/k/a JustFab, Inc. and Just Fabulous, 14 Inc.)(“JustFab”) is a Delaware corporation registered with the California Secretary 15 of State to conduct its business in California. JustFab’s principal place of business is 16 800 Apollo St. El Segundo California, 90245. Formerly, JustFab’s principal place of 17 business was 2301 Rosecrans Ave, El Segundo, California. 18 17. Defendant IB Holding, LLC (a/k/a Intelligent Beauty Holding, LLC) 19 (“IB Holding”) is organized under the laws of Delaware and registered with the 20 California Secretary of State to conduct business in California. IB Holding’s 21 principal place of business is also 800 Apollo St., El Segundo California, 90245. 22 Formerly, IB Holding’s principal place of business was also 2301 Rosecrans Ave, El 23 Segundo, California. IB Holding is a holding company with ownership interest in 24 JustFab. IB Holding was also an owner of the Sensa Entities. Defendant Goldenberg 25 concedes that JustFab and the Sensa Entities were operated as a single entity until at 26 least 2010. Even after the purported separation of these entities, money continued to 27 move freely between them. 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 7 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1606 Page 9 of 78
1 18. Defendant Alan R. Hirsch is a citizen of Illinois who created Sensa after 2 he purportedly did 25 years of research on “tastants.” Dr. Hirsch’s name appears on 3 Sensa packaging under the words “Dr. Formulated,” and his research is touted on the 4 Sensa websites. Dr. Hirsch was a 10% owner of Sensa Products. Dr. Hirsch received 5 almost $11 million in advancements and distributions from Sensa Products. Much of 6 this money was received after the Sensa Entities’ insolvency became apparent. 7 19. Defendant Don Ressler, Executive Chairman of Sensa Products, 8 oversaw all operational aspects of the company, including marketing and sales. He is 9 an owner, board member and officer of JustFab and IB Holding. He was an owner, 10 board member and officer of the Sensa Entities. He co-founded all of these 11 companies with Adam Goldenberg in in El Segundo, California. Under the terms of 12 incorporation of Defendant Sensa Products, he also served as a manager, to whom all 13 officers reported. As a manager, he had full power to enter into contract, fulfill the 14 obligations and responsibilities under all agreements entered into by the company, 15 actively monitor and supervise projects and manage the business of the company, pay 16 the operating expenses of the company, pay all taxes, maintain day-to-day books and 17 records for the company, and provide any necessary day-to-day management of the 18 company. At times Defendant Ressler simultaneously held officer and board 19 positions with the Sensa Entities, JustFab, and IB Holding. 20 20. Defendant Adam Goldenberg cofounded the Sensa Entities, IB Holding 21 and JustFab with Don Ressler. He is a shareholder, board member and officer of 22 JustFab and IB Holding. He was a shareholder, board member and officer of the 23 Sensa Entities. Under the terms of incorporation of Defendant Sensa Products, he 24 also served as a manager, to whom all officers reported. As a manager, he had full 25 power to enter into contract, fulfill the obligations and responsibilities under all 26 agreements entered into by the company, actively monitor and supervise projects and 27 manage the business of the company, pay the operating expenses of the company, pay 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 8 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1607 Page 10 of 78
1 all taxes, maintain day-to-day books and records for the company, and provide any 2 necessary day-to-day management of the company. At times, Defendant Goldenberg 3 simultaneously served as the CEO of IBI, IB Holding, and JustFab. 4 21. Defendant Kristen Chadwick was the President of Sensa Products 5 and/or IBI. She assumed responsibility for Defendant Ressler’s day-to-day 6 management responsibilities. Defendant Chadwick wore several hats during her six 7 year involvement with the company. From 2007-2008, she acted as a Brand Director 8 at IBI, and she was involved with the 2009 launch of Sensa which eventually 9 bourgeoned into its own company. Interestingly, she received an award from GNC 10 (for the company) as “GNC Vendor of the Year 2012.” She was also IBI’s Employee 11 of the Year in 2010 for her involvement in building the Sensa brand. On January 7, 12 2014 after the FTC fined the Sensa Entities and ordered the company to return $26.5 13 million to consumers, she issued a statement saying “We stand behind Sensa. We 14 continue to receive positive feedback from our customers and remain committed to 15 developing products that help our No.1 priority – our customers – live healthier, 16 happier lives.” http://articles.latimes.com/2014/jan/07/business/la-fi-ftc-sensa- 17 20140108. In fact, Defendant Chadwick felt so strongly about standing “behind 18 Sensa” that she directed board members of the Sensa Entities to hide the financial 19 insolvency of the Sensa Entities from creditors. Furthermore, Defendant Chadwick 20 played an integral role in moving money across the Defendant entities. 21 22. Defendant TCV VI, L.P. (“TCV”) is a limited partnership organized 22 and existing under the laws of the State of Delaware. Its principal office is located at 23 528 Ramona Street, Palo Alto, California. TCV is an owner, directly or indirectly, of 24 JustFab and IB Holding. TCV was an owner, directly or indirectly, of the Sensa 25 Entities. 26 23. Defendant TCV Technology Crossover Ventures (“Ventures”) 27 formed TCV, and was an affiliate thereto. Ventures is a private equity firm with the 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 9 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1608 Page 11 of 78
1 same address as TCV. Ventures is an owner, directly or indirectly, of JustFab and IB 2 Holding. Ventures was an owner, directly or indirectly, of the Sensa Entities. TCV 3 and Ventures both have offices in New York City and London. 4 24. Defendant John Drew is a general partner of TCV and Ventures. Upon 5 information and belief, John Drew was responsible for managing TCV’ and 6 Ventures’ investment in the Sensa Entities, JustFab, and IB Holding. He served on 7 the board of directors of the Sensa Entities, and is a principle of IB Holding. 8 25. The true names and capacities of the Defendants sued herein as Does 1 9 through 10, inclusive, are currently unknown to Plaintiff, who therefore sues such 10 Defendants by fictitious names. Each of the Defendants designated herein as a Doe is 11 legally responsible for the unlawful acts alleged herein. Plaintiff will seek leave of 12 Court to amend this Complaint to reflect the true names and capacities of the Doe 13 Defendants when such identities become known. 14 26. Each of the Defendants acted jointly to perpetrate the acts described 15 herein. At all times relevant to the allegations in this matter, each Defendant acted in 16 concert with, with the knowledge and approval of, and/or as the agent of the other 17 Defendants within the course and scope of the agency, regarding the acts and 18 omissions alleged. 19 Plaintiff 20 27. Plaintiff Susan Grace Stokes is a citizen of Florida and purchased Sensa 21 from 2009-2013. Ms. Stokes spent approximately $5,000 on Sensa products. Ms. 22 Stokes was exposed to and relied upon Defendants’ representations regarding the 23 weight loss efficacy of Sensa, as detailed herein, and but for those representations, 24 Ms. Stokes would not have purchased the Sensa products. The product did not 25 provide the promised benefits. Had she known the truth about the products and 26 Defendants’ misrepresentations and omissions at the time of sale, Ms. Stokes would 27 not have purchased the Sensa products. 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 10 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1609 Page 12 of 78
1 28. Defendants’ misrepresentations concerning the effectiveness of Sensa 2 were an immediate cause of Plaintiff Stokes’ decision to purchase Sensa. In all 3 reasonable probability she would not have agreed to purchase Sensa had she known 4 that the misrepresentations were false and misleading. 5 29. Defendants’ misrepresentations played a substantial part, and so were a 6 substantial factor in, Plaintiff Stokes’ decision to purchase Sensa. 7 JURISDICTION AND VENUE 8 30. This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 9 1332(d)(2)(A). There are more than 100 Class Members, and the aggregate claims of 10 all members of the proposed Class exceed $5,000,000.00, exclusive of interest and 11 costs. At least one Class Member is a citizen of a state different than at least one 12 Defendant. 13 31. This Court also has subject matter jurisdiction under 28 U.S.C. § 1331 14 (federal question). This Court has supplemental jurisdiction over this action pursuant 15 to 28 U.S.C. § 1367. 16 32. This Court has personal jurisdiction over Sensa Products because it was 17 registered with the California Secretary of State to conduct business within 18 California. In addition, it conducted substantial business within California and the 19 claims in this complaint arise out of that business. 20 33. This Court has personal jurisdiction over Dr. Alan R. Hirsch because he 21 purposefully directed his activities at California residents through his active 22 participation in the fraudulent sale and marketing of Sensa crystals to California 23 residents. Specifically, Dr. Hirsch created Sensa crystals with the intention that they 24 would be marketed and sold to California residents. He has also appeared in 25 television advertisements and infomercials promoting Sensa crystals that have aired 26 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 11 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1610 Page 13 of 78
1 on television in California. Dr. Hirsch has also promoted Sensa crystals on television 2 programs that air in California such as Extra TV and KTLA Prime News.5 3 34. This Court has personal jurisdiction over IBI because it is registered with 4 the California Secretary of State to conduct business within California and is 5 headquartered in California. In addition, it conducted substantial business within 6 California and the claims in this complaint arise out of that business. 7 35. This Court has personal jurisdiction over JustFab because it is registered 8 with the California Secretary of State to conduct business within California and is 9 headquartered in California. In addition, JustFab has substantial contacts with 10 California and the claims in this complaint arise out some of those contacts. 11 36. This Court has personal jurisdiction over IB Holding because it is 12 registered with the California Secretary of State to conduct business within California 13 and is headquartered in California. In addition, JustFab has substantial contacts with 14 California and the claims in this complaint arise out some of those contacts 15 THE MARKETING OF SENSA 16 37. In early 2008, Dr. Hirsch and Sensa Products, LLC announced what was 17 “[q]uite possibly the most important weight-loss discovery of the 21st century.”6 18 Through their website, they explained that Sensa is “an entirely NEW, clinically 19 proven method of losing weight … [with] no food restrictions, and no change in 20 lifestyle.”7 These statements were false in at least three respects. 21 38. First, Sensa was not “entirely NEW.” Dr. Hirsch had previously 22 marketed his magic tastant crystals in 2004, at which time he called the product 23 “Sprinkle Thin.” By 2005, Sprinkle Thin had been pulled from the market and the 24 5 See Sensa in the News, Sensa.com, http://www.trysensa.com/news-stories.htm (last 25 visited Jan. 16, 2014). 26 6 See Try Sensa Website, www.trysensa.com (May 17, 2008), attached hereto as 27 Exhibit A. 7 28 Id. THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 12 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1611 Page 14 of 78
1 company that had sold it was out of business. So when the product was reincarnated 2 as “Sensa crystals” in 2008, it was not “entirely NEW.” 3 39. Second, Sensa crystals were not a “clinically proven” method of losing 4 weight. In 2008, there was no reliable scientific evidence showing that Sensa crystals 5 had any effect on weight loss, and no such evidence exists today. 6 40. Third, the claim that Sensa could cause weight loss without dieting is a 7 “red flag” weight loss claim which the FTC has found is “almost always deceptive.”8 8 41. The FTC identifies claims of scientific proof and doctor endorsements as 9 common tactics used by weight-loss hucksters: 10 And for those who remain skeptical, there is an answer. The products are backed by ‘clinical studies’ or are 11 ‘clinically tested’ …. Even if they do not purport to be clinically proven, many claim to be the product of years of 12 scientific research … or are doctor recommended. 13 FTC Staff Report at 6. 14 Phrases like ‘the clinically proven healthy way to lose weight,’ ‘clinically tested,’ ‘scientifically proven,’ and 15 ‘studies confirm’ bestow products with an aura of scientific legitimacy and aim to persuade consumers that they should 16 feel confident that a product will work. 17 Id. at 17. This tactic was at the very core of the Sensa scam, as nearly every element 18 of the product labeling, every advertisement, and every page of the Sensa website 19
20 8 Leslie Fair, “Weighing the Evidence: Substantiating Claims for Weight Loss 21 Products,” Federal Trade Commission, available at 22 http://business.ftc.gov/documents/weighing-evidence-substantiating-claims-weight- loss-products (“The FTC has listed seven ‘red flag’ weight loss claims that are almost 23 always deceptive. Think twice before participating in the promotion of any product 24 that says it can cause weight loss without diet or exercise ….”); see also Federal Trade Commission, Gut Check: A Reference Guide for Media on Spotting False 25 Weight Loss Claims, available at http://www.business.ftc.gov/documents/gut-check- 26 reference-guide-media-spotting-false-weight-loss-claims (last visited Jan. 15, 2014) (explaining that claims a weight loss product[“c]auses substantial weight loss no 27 matter what or how much the consumer eats” are impossible “as a matter of 28 science”). THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 13 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1612 Page 15 of 78
1 emphasizes that Sensa crystals are “[c]linically shown” to work by “clinical studies” 2 and were “Doctor Formulated” by Dr. Hirsch following “20-plus years of research.” 3 42. When it launched in 2008, Sensa’s website touted “more than 2 decades 4 of research.” See Exhibit A. It stated that “Sensa’s exclusive Tastant Technology is 5 proven in clinical testing to produce an average weight loss of 30.5 pounds in just 6 6 months.” It further stated that “Sensa is the ONLY weight-loss system with this 7 revolutionary technology and these amazing clinical results.” Under a link titled 8 “Where’s the Proof?,” the website presented a bold headline stating “Clinical Study 9 Proved Average Weight Loss of 30.5 lbs!” Under that headline, the text read: 10 In one of the largest clinical studies for a non-prescription weight-loss product ever conducted, 1436 men and women 11 participants were instructed to sprinkle Sensa Tastants on all of their daily food for 6 months. 100 men and women 12 participants were monitored in a placebo group. The participants were not advised to change their regular diet or 13 exercise and were weighed at the beginning and the end of the study. 14 At the end of the 6-month study, the average weight loss of 15 the Sensa Tastant group was 30.5 pounds, or an average of 5.1 pounds per month. The placebo group only lost an 16 average of 2 pounds. 17 43. The statements identified in the foregoing paragraph were all false, 18 misleading, and unsubstantiated. First, despite the repeated references to a “placebo 19 group,” the purported 6-month clinical study was not placebo-controlled. The 20 references to a “placebo group” are simply false. Dr. Hirsch later admitted the falsity 21 of those statements and attributed them to a “misunderstanding.” Second, the 22 purported “study” was so lacking in rigor that calling it “junk science” would 23 probably overstate its validity. The study does not appear to have been done at a 24 clinic or medical facility; participants weighed themselves and reported their own 25 weight losses with no outside checks. They paid Dr. Hirsch $49 per month to 26 participate. More than a thousand participants dropped out, and no report of their 27 weight loss, or gain, was made. ABC News showed Dr. Hirsch’s “study” to a former 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 14 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1613 Page 16 of 78
1 Research Director of a National Institutes of Health-funded Research Center, 2 Professor R. Barker Bausell of the University of Maryland. His reaction was to 3 “laugh out loud.”9 According to Professor Bausell, Dr. Hirsch’s research is beyond 4 worthless – it “has a negative value.”10 5 44. Prior to filing this action, Counsel retained an independent expert to 6 review Dr. Hirsch’s purported “clinical study.” That expert examined the reports 7 from Dr. Hirsch’s “study” and concluded that it is not scientifically credible and does 8 not support claims that Sensa crystals are effective for weight loss. 9 45. Nevertheless, claims that Sensa crystals are “clinically proven” and 10 “clinically shown” to cause weight loss pervaded every aspect of Sensa’s packaging, 11 labeling, advertisements, and marketing materials. Front and center on the box, 12 shown below, is the statement “DOCTOR FORMULATED” in all caps, next to a 13 caduceus and the name Alan Hirsch M.D. The “doctor formulated” claim and the 14 prominent display of a symbol of medicine were designed to bestow Sensa crystals 15 with the aura of scientific and medical credibility. Further down the front center of 16 the box says:
17 SHAKE.
18 EAT.
19 LOSE. 20 21 22
23 24
25 9 Jim Avila, “Eat Ice Cream, Burgers and Pizza and Still Lose Weight?,” ABC 26 NEWS, available at http://abcnews.go.com/print?id=5495808 (last visited Jan. 15, 27 2014). 10 28 Id. THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 15 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1614 Page 17 of 78
1 2 3 4 5 6 7 8 9 46. The back of the box features a photograph of Dr. Alan Hirsch, together 10 with this text: 11 About SENSA® Creator: Dr. Alan Hirsch, M.D., board- 12 certified neurologist, has conducted over 25 years of 13 research regarding the impact of smell and taste on weight loss. This research culminated in the creation of 14 the SENSA® Weight-Loss System. 15 These statements were also designed to bestow Sensa crystals with the aura of 16 scientific and medical credibility. 17 47. The back of the box also states “EFFECTIVE RESULTS 1436 men and 18 women lost an average of 30.5 pounds in just 6 months without changing their diet 19 or exercise program.” (emphasis added). These statements were also designed to 20 bestow Sensa crystals with an aura of scientific and medical credibility and to convey 21 the message Sensa crystals are scientifically proven for effective weight loss. 22 48. The back surface of the box features before-and-after photographs of a 23 woman wearing a bikini with high-heels, together with representations that the 24 woman “lost 35 lbs.” Near these photos, the following text appears: “studies show 25 average weight loss of 30.5lbs in 6 months.” 26 49. Inside the box is a “GET STARTED!” package insert pamphlet. The 27 pamphlet contains before-and-after pictures of “Real Users” who got “Real Results,” 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 16 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1615 Page 18 of 78
1 including a woman who “LOST 30 lbs,” a woman who “LOST 25 lbs,” a man who 2 “LOST 30lbs,” a man who “LOST 34 lbs,” a woman who “LOST 35 lbs,” and a man 3 who “LOST 15 lbs.” 4 50. The pamphlet explains the “The Sensa 6-Month System” as follows:
5 SENSA® is a 6-month weight-loss system. Sensa® creator 6 Dr. Alan Hirsch spearheaded one of the largest clinical studies on a non-prescription weight loss system, where 7 1,436 people lost an average of 30.5 pounds in 6 months. 8 For best results, Dr. Hirsch recommends following the 6- 9 month system in order.
10 Each month is indicated by the number on the container and 11 contains a different blend of Tastants. You are given two shakers for each month: one to keep at home and one to 12 carry with you. 13 It is important to move on to the next month in the system 14 after 30 days so you continue to lose weight.
15 Start with Month 1, and shake SENSA® on everything you 16 eat for 30 days. After 30 days, move on to the next month in the system. If you wish to continue past Month 6, simply 17 start the system over with Month 1. 18 51. The pamphlet goes on to explain the following in relevant part: 19 Unlike traditional diets, SENSA® isn’t based on restriction 20 … During your first 60 days, it’s crucial that you use 21 SENSA® consistently … It may take some time for you to start seeing results. 22 52. The pamphlet instructs users to take Sensa “From morning ‘til night,” 23 and then provides the following daily Sensa consumption itinerary: 24 Here’s what a sample day looks like: 25 8 am Shake SENSA® on breakfast 26 8:15 am Take SENSA® COMPLETE 10 am Have a SENSA® CHEW and drink SENSA® QUENCH 27 12 pm Shake SENSA® on lunch 28 2 pm Drink SENSA® QUENCH THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 17 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1616 Page 19 of 78
4 pm Have a SENSA® CHEW 1 6 pm Shake SENSA® on dinner 2 53. The pamphlet asks “Skeptical?” and then provides the following 3 reassurance: 4 It’s natural to have doubts when starting a new weight-loss 5 program. Many of our users initially questioned whether 6 SENSA® would work, but they stuck with it and went on to reach their goals. 7 8 54. The pamphlet concludes with answers to frequently asked questions, 9 including:
10 How long will it take until I lose weight? 11 Although many people lose weight within the first month of 12 using SENSA®, it may take a few months for others to start seeing results. Stick with the 6-month system, and you can 13 lose weight. 14 55. Also inside the box is a “How To DVD.” The video on the DVD 15 features Dayna Devon. 16 “Hi! You’re here because you made the decision to lose weight. Congratulations! I’m Dayna Devon and I’ve lost 17 20lbs with the Sensa Weight-Loss System. You know, Sensa has changed my life, and it’s about to change yours 18 too. In the next ten minutes, I’m gonna tell you how easy it is to sprinkle the pounds away. Now, get ready to discover 19 the thinner, healthier, happier you.” 20 56. Dayna says: Approximately 2 minutes and 55 seconds into the video, 21 Dayna continues: 22 “[Y]ou may be wondering what’s in your tastants. Looking 23 at the ingredient list, you’ll see that the tastants are made up of common ingredients that you would find in your own 24 kitchen pantry. That’s right; Sensa contains only 100% 25 FDA generally recognized as safe ingredients, so there’s nothing harmful in Sensa. In fact, Sensa is made up of just 26 4 simple ingredients. The first ingredient, Maltodextrin, is 27 derived from corn and found in cereals and canned fruits. The second ingredient, Tricalcium Phosphate, is commonly 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 18 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1617 Page 20 of 78
found in juices and jams. And the third ingredient, Silica, is 1 an essential element that’s found in leafy green vegetables. 2 These three ingredients are combined with Dr. Hirch’s 3 flavor combinations to help you feel full and satisfied sooner, so you eat less. 4 If you’ve ever been on a restrictive diet, you may have 5 noticed that you lose weight the first few weeks, but once 6 your body gets used to the diet, you stop losing weight all together. This is called the plateau effect. Sensa shatters 7 the plateau effect because your body never gets used to the 8 tastants. Over the course of the 6 month system there is a different proprietary blend of tastants each month so you 9 continue to drop pounds. The introduction of new 10 tastants every 30 days makes each month of Sensa as effective as the first. Resulting in greater overall weight 11 loss. So you can reach your goal weight and transform 12 your body in only 6 months. 13 The entire 6 month system is Dr. Hirsch’s prescription for 14 weight loss success with Sensa. Just like a doctor’s prescription, you need to follow it consistently in order to 15 achieve your ideal weight. So if you’re looking to get the 16 best results, stick with the system until you’ve met your goal. Simply start with Month 1 and use it for 30 days. 17 Then, move on to Month 2, and so on with Months 3, 4, 5, 18 and 6. If you wish to continue with the system after Month 6, cycle right back again with Month number 1. You 19 should always move on to the next month even if you have 20 some tastants left over, this way you can achieve maximum weight loss. There are two shakers in the program for each 21 month. One to keep at home, and one to always carry with 22 you. The two shakers combined should last you 30 days if you are sprinkling on every meal and snack. If you have a 23 lot left over at the end of the month, start sprinkling Sensa 24 more liberally and be sure you’re using it every day. On the other hand, if you run out of tastants before the end of the 25 month, simply move on to the next month and try and 26 sprinkle a little less next time. See, it really is as simple as sprinkle, eat, and lose weight.” 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 19 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1618 Page 21 of 78
1 57. Approximately 7 minutes and 25 seconds into the video, Dayna explains 2 the “science behind Sensa” as follows:
3 “Alright, now let me tell you about the science behind 4 Sensa. This weight loss revelation is the result of 25 years of research and testing by the world’s leading expert on 5 the science of taste and smell, Dr. Alan Hirsch. Dr. Hirsch 6 has written 7 books on the subject, conducted and published more than 180 research studies, and holds multiple patents 7 relating to the science of smell and taste. His research has 8 been cited in major publications, including the New York Times, Time Magazine, and USA Today. And he’s been a 9 guest on TV programs such as the Today Show, Dateline 10 NBC, CNN, The CBS Early Show, Good Morning America, and Extra. During the course of his pioneering 11 research Dr. Hirsch discovered the groundbreaking secret 12 behind Sensa that’s changed the way the world looks at weight loss. He tested more than 4,000 tastants to 13 determine the specific combinations that promoted 14 maximum weight loss.” 15 58. Approximately 8 minutes into the video, Dr. Alan Hirsch appears and
16 states: 17 “I’ve found that hunger isn’t controlled by your stomach; it’s controlled by your brain. We don’t overeat just because 18 we’re hungry, it’s because we love to eat, and diets don’t 19 stop you from wanting to eat. They just stop you from eating what you want, and that’s a recipe for failure.” 20 59. Approximately 9 minutes into the video, a Dr. Nancy Zamora appears 21 and claims: 22 “Sensa is different than a diet because you sprinkle it 23 on your food, and this then makes you feel fuller faster, 24 and therefore you’re eating smaller portions.” 25 60. At the end of the video “real users” share their experiences with Sensa. 26 Roger Shultz states: 27 “I have lost 75 pounds with Sensa…I’ve always liked food, it’s food, fun and football on Friday, Saturday and 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 20 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1619 Page 22 of 78
Sunday. So now with Sensa I found something where I 1 can continue to eat the food that I like, and I am shaking 2 Sensa on my food…you just take it sprinkle on your 3 food and that’s it” 4 61. Wendy explains:
5 “I’ve lost 125 pounds with Sensa. I tried everything 6 before Sensa, and nothing had worked. Then, I got brave and decided to try one more thing. When I started Sensa, 7 I didn’t change my eating habits. I just sprinkled Sensa, 8 and I lost 7 pounds the first month. With Sensa I could eat wherever I wanted, I love Mexican food.” 9 62. Tim shares: 10 “I’ve lost 67 pounds using Sensa … I ordered Sensa and 11 just carried on with my normal life, only I was sprinkling 12 Sensa on all my food at every meal that I had. At the end of 9 months, I had lost 67 pounds… Sensa really works.” 13 63. Finally, Dorris concludes: 14 “I’ve lost 45 pounds with Sensa ... and I’m back in the saddle.” 15 64. Sensa was promoted and sold through the Sensa Website, 16 www.sensa.com, and Try Sensa Website, www.trysensa.com. 17 65. During the class period, visitors to the Try Sensa, www.trysensa.com, 18 were greeted by a video featuring Dayna Devon, depicted in the image below11: 19
20 21 22
23 24 25 26
27 11 Now available on Sensa’s Official YouTube channel at http://www.youtube.com/ 28 watch?v=sp2PA0rNJvE. THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 21 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1620 Page 23 of 78
1 2 3 4 5 6 7 8
9 10 11 12 13
14 15 Dayna states:
16 “Hi, I’m Dayna Devon. I’ve been a reporter and broadcast 17 journalist for more than 20 years. So when my producers asked me to do a story on a weight loss product called 18 Sensa, I thought, hmmmm, this product sounds too good to 19 be true. You may have read about Sensa in the New York Times and Time Magazine or seen it on Dateline NBC. 20 Sensa’s been getting lots of media attention because of a 21 landmark 6-month research study [onscreen graphic: “Doctor Formulated! 1436 men and women lost an average 22 of 30 lbs”] in which 1,436 people lost an average of over 30 23 pounds. And here’s the really amazing part: they did it without taking pills, stimulants, or counting calories. 24 Sounds too good to be true right? Yep, I thought so too, 25 until I tried Sensa for myself. It’s just one of those things that you have to try to see how easy it is to lose weight. 26 That’s why we put together an absolutely incredible offer. 27 For a limited time, we’ll send you the complete Sensa starter kit to try for 30 days with no obligation to buy. 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 22 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1621 Page 24 of 78
Hundreds of thousands of people have said yes to this offer. 1 And you know what? They’ve lost over a million pounds. 2 [Onscreen graphic]
3
4 5 6 7 8
9 10 11 12 13 Look at these before and after shots. These are all people 14 who have lost lots of weight with Sensa. Look at them! [Onscreen graphics] 15 16 17 18 19
20 21 22
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1 2 3 4 5 6
7 8 They’re almost unrecognizable from their before photos. 9 Sensa worked for them, and it will work for you, too. 10 Satisfaction guaranteed. In fact, we are so confident that you’ll lose weight with Sensa, we don’t want you to pay for 11 it unless you see the results you want. That’s an offer you 12 won’t find anywhere else. You’ve got nothing to lose, except unwanted pounds.” 13 66. During the class period, visitors to the Sensa Website, www.sensa.com, 14 found Octavia Spencer “Award-Winning Actress” who claims, “Sensa® changed my 15 life, not my lifestyle. I lost 20 pounds.” Below Octavia Spencer’s endorsement, the 16 website states that Sensa is “Easy,” “Effective,” and “Doctor Formulated.” 17 18 19
20 21 22
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1 THE ADVERTISING OF SENSA IS DESIGNED TO BESTOW SENSA CRYSTALS WITH A FALSE AURA OF SCIENTIFIC AND MEDICAL 2 CREDIBILITY 3 67. During the class period, the Sensa’s websites included detailed 4 information on two purported clinical studies that supposedly support Sensa’s 5 advertising. The “Success Stories” section of the Sensa Website refered to “Studies” 6 showing an average weight loss of “30.5 lbs in 6 months.”12 But no reliable 7 randomized study has been conducted using Sensa crystals. 8 68. After reviewing the reports from both purported “studies,” an 9 independent expert concluded that neither “study” is scientifically credible, and 10 neither “study” supports the claims that Sensa crystals are effective for weight loss. 11 In fact, both studies are unreliable and invalid. 12 69. When addressing claims that these kinds of weight-loss product have 13 been shown effective in clinical studies, the FTC Staff Report on Weight Loss 14 Advertising comments: “Although some advertisements briefly describe the results, 15 and provide some information about the methodology of a particular study, such as 16 the study’s duration and number of participating subjects, most of the advertisements 17 fail to give consumers sufficient detail about a study to allow consumers to verify the 18 advertiser’s representations.” FTC Staff Report at 17. 19 70. As demonstrated by the recent FTC suit against Sensa, neither the 20 advertisements nor the additional materials available through the website provide 21 sufficient information to determine the validity of the Sensa study. In fact, the FTC 22 recently condemned Defendants’ claim that Sensa was clinically proven and their 23 claim that studies were conducted by an independent laboratory, stating the claims 24 were “false” and “deceptive act[s] or practice[s].” See FTC Complaint, FTC v. Sensa 25 Products, LLC., et al, Case No. 14-cv-71, attached hereto as Exhibit B, at 17-19. 26
27 12 See Success Stories, Sensa.com, http://www.sensa.com/success-stories.htm (last 28 visited April 30, 2013). THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 25 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1624 Page 27 of 78
1 71. The FTC’s claims are well supported. For example, the one-page poster 2 of the purported “Double-Blind Placebo-Controlled Lab Study” does not identify an 3 author or the facility where the study was done. It does not provide any information 4 on how many participants were assigned to the test and control groups, nor does it 5 provide any information about what statistical tests, if any, were done to analyze the 6 data. However, prior to filing this complaint, Plaintiff’s counsel requested that 7 Defendants provide more detailed data from the studies. Plaintiff’s counsel 8 subsequently provided the data to an independent expert for review. That expert 9 concluded that the data was not scientifically credible and does not support claims 10 that Sensa crystals are effective for weight loss. 11 72. Apparently, the Sensa Medical Advisory Board “brings extensive 12 knowledge of obesity and its related issues to [the Sensa] program.” However, none 13 of the advisory board “medical doctors” have researched Sensa, and none participated 14 in the formulation of Sensa. Their biographies are included in Sensa promotional 15 materials to create an illusion that doctors in the medical community, other than Dr. 16 Hirsch, support the claims that Sensa causes weight loss.
17 DR. HIRSCH’S “GROUND BREAKING RESEARCH STUDY” IS FATALLY 18 FLAWED, INVALID, AND UNRELIABLE 19 73. During the class period, the main page of the Sensa Website,
20 www.sensa.com, included the phrase “DOCTOR FORMULATED” and the image 21 below. Similarly, the website Try Sensa, www.trysensa.com, included the phrase 22 “CLINICALLY PROVEN” along with the text and images below:
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1 2 3 4 5 6 7 8 9 74. The main page of the Sensa website also includes a tab entitled “OUR 10 FOUNDER,” which links to a page entitled “DOCTOR FORMULATED.”13 11 During the class period, below the title “DOCTOR FORMULATED,” the website 12 included detailed information about Dr. Alan Hirsch, the “Creator of the SENSA® 13 Weight-Loss System,” as well as a bar chart that depicts the supposed results of “Dr. 14 Hirsch’s Ground-Breaking Research Study.” 15
16 17 18 19
20 21 22
23 24 25 With regard to the creator of Sensa, the website stated: 26
27 13 See Doctor Formulated, http://www.sensa.com/doctor-formulated.htm (last visited 28 Jan. 15, 2014). THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 27 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1626 Page 29 of 78
1 Award-winning neurologist Dr. Alan Hirsch has devoted 25 2 years of research to the science of smell and taste, leading him to develop the patented technology behind SENSA®. 3 4 He has published over 200 research studies exploring how smell and taste affect human behaviors. 5 6 His awards and appointments include receiving the prestigious Peter Bassoe Award from The Chicago 7 Neurological Society and serving as the Honorary 8 Chairman of the Physician’s Advisory Board to the National Republican Congressional Committee. 9 10 Board-certified neurologist and psychologist Director of the Smell & Taste Treatment and 11 Research Foundation in Chicago 12 Nation’s leading authority on the science of smell 13 and taste Author of 8 books on the science of smell and taste 14 Featured on Dateline NBC, CNN and Good Morning 15 America.
16 See id. These statements are designed to bestow Sensa crystals with an aura of 17 scientific and medical credibility. 18 75. Further down on the page, below the heading “Dr. Hirsch’s Ground- 19 Breaking Research Study, the text states: 20 During his career, Dr. Hirsch observed that many patients 21 who had lost their sense of smell due to head trauma 22 frequently gained 20-30lbs. This prompted him to hypothesize that if losing one’s sense of smell could lead to 23 weight gain, could the opposite be true … could enhancing 24 one’s sense of smell lead to weight loss?
25 After painstaking research and testing, Hirsch created a 26 blend of edible “Tastants” that he believed would enhance the smell and taste of food and eventually lead to weight- 27 loss. He then tested those sprinkles in one of the largest 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 28 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1627 Page 30 of 78
research studies ever conducted on a non-prescription 1 weight-loss product. 2 3 During his study, 1436 women and men sprinkled the scented, flavorless “Tastants” on everything they ate during 4 a 6 month period and they lost an average of 30.5 pounds. 5 Those in the control group lost only 2 pounds, on average.
6 Now, Dr. Hirsch’s breakthrough “Tastants” are available to 7 everyone as SENSA® and hundreds of thousands of people have lost weight on the system. 8 See a copy of the webpage attached hereto as Exhibit C. These statements are 9 accompanied by a bar chart, shown below, depicting the “results” of the purported 10 clinical study that compared Sensa crystals to a placebo. 11 12 13 14 15
16 17 18 19
20 21
22 76. The webpage also provided a link labeled “View the 1436-person 23 research study” that links to an “Abstract Poster of Use of Stimuli for Weight Loss” 24 (the “Abstract”) instead of a full version of the purported research study. That 25 Abstract is attached hereto as Exhibit D. 26 77. The Abstract merely recites the statements included on the website and 27 does not provide any additional information that could be used to test the validity of 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 29 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1628 Page 31 of 78
1 the study. The Abstract again states that “[o]ne thousand four hundred and thirty-six 2 patients completed this study,” and “[t]he average weight loss for the test group was 3 30.5 pounds.” 4 78. Rather than seeking to evaluate the hypothesis that using edible Tastants 5 results in weight loss, the Abstract states that the research was conducted to reach the 6 desired outcome: showing that Tastants cause weight loss. In that connection, the 7 abstract states that the “[t]he objective of this study is to demonstrate that non-caloric 8 tastant crystals sprinkled on food prior to consumption will enhance gustatory evoked 9 satiety, reduce consumption, and represent itself by a reduction in weight.” Dr. 10 Hirsch’s “objective” study indicates that he intended to support the claims about 11 Sensa, the product he created, and that he did not set out to perform credible research 12 or to test a hypothesis. 13 79. The Abstract also states that only 100 subjects were included in the non- 14 treated, placebo group while 2,437 overweight or obese subjects were given “tastant 15 crystals.” In other words, the study compares a test group that is over 24 times the 16 size of the control group. The Abstract also does not state whether the control 17 subjects were overweight or obese like the test group. The study’s methodology and 18 the study groups used are invalid. 19 80. Based on available information, an independent expert concluded that 20 Dr. Hirsch’s study is fatally flawed and unreliable.
21 THE STUDY CONDUCTED BY THIRD PARTY BATTS LABORATORIES IS 22 EITHER FAKE OR THE PRODUCT OF GROSS INCOMPETENCE
23 81. During the class period, the Try Sensa website, www.trysensa.com, also 24 included a tab entitled “CLINICALLY PROVEN,” which linked to information on a 25 purported clinical study conducted by a third party. A true and correct copy is 26 attached hereto as Exhibit E. 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 30 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1629 Page 32 of 78
1 2 3 4 5 6 7 8
9 10 11 82. The “Double Blind, Placebo-Controlled Lab Study” was conducted by 12 BATTS Laboratories, and it purportedly supports Dr. Hirsch’s flawed research. 13 83. The BATTS study, co-authored by Charlotte Kiosea and Dr. Marlowe 14 Schneidkraut, is riddled with false statements and errors. 15 84. The Study Director, Charlotte Kiosea, admitted in her deposition on 16 December 14, 2011, that all of BATTS’ paper files had been shredded and used 17 by Ms. Kiosea’s cats as kitty litter in April or May of 2011. See 12/14/2011 18 Deposition of Charlotte Kiosea, attached hereto as Exhibit F, at 235:12-18. 19 According to Ms. Kiosea, the electronically stored documents were lost because they 20 were all on one computer that “crashed” in 2009. Id. at 282:9-25. 21 85. Charlotte Kiosea, the “Study Director,” was the sole author of the 22 protocol used for the study, and the “single point of study control…with ultimate 23 responsibility for the overall scientific conduct of the study.” Id. at 133:14-24. But 24 Ms. Kiosea is not a scientist: 25 Q: So you would not describe yourself as a scientist? 26 A: No. 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 31 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1630 Page 33 of 78
1 Id. at 134:19-21. She admits that she is not qualified, by training or experience, to 2 conduct a study according to the FDA’s Good Laboratory Practices (GLP) or Good 3 Clinical Practices (GCP) standards. Id. at 130:6-8 (“I will never be a study director 4 on a GLP study. I cannot be one, because my background does not qualify me to be 5 one … I don’t have the experience and formal education to do a GLP study in vitro or 6 in vivo.”); id. at 157:5-10 (“Q: You are not qualified by education, training, or 7 experience to be an investigator in a clinical study … Is that accurate? … A: Yes. It 8 is accurate…”). 9 86. Ms. Kiosea has no training or experience that would qualify her to 10 conduct a clinical study. She has the equivalent of a bachelor’s degree in economics 11 from the Academii de Studii Economise in Buchareset, Romania. Id. at 15:8-14. 12 From 1994 through 1998, she worked as a receptionist and manager at a veterinary 13 hospital. Id. at 22:18-23. From 1998 through 2003, she worked as a travel agent, 14 first at Bertelsmann Industries, then for a variety of small airlines. Id. at 24:20-21; 15 26:12-16. 16 87. BATTS Laboratories was founded by Ms. Kiosea’s husband, Matai 17 Kiosea. Matai Kiosea made his son, Nick Codim Kiosea, a partner in BATTS 18 Laboratories after he graduated. Charlotte Kiosea joined her husband’s company in 19 2003 as a “volunteer.” Id. at 29:2. She was “handling all the operations from 20 cleaning the floors and monitoring the construction to everything.” Id. at 29:14-19. 21 Eventually, her husband gave her the title of “chief of operations.” Id. (“My husband 22 said you should probably be in charge of operations; and that’s what it was.”). 23 88. No medical doctors were involved in the BATTS study. Id. at 159:15- 24 20. Ms. Kiosea took the medical history for each participant. Id. at 102:3-5. The 25 BATTS report makes reference to an “Institutional Review Board (IRB).” Id. at 26 155:16-24. But Ms. Kiosea admits there was no IRB. Id. at 156:5 (“Correct, there 27 was no IRB ….”). The BATTS report makes reference to “[m]onthly clinic visits” 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 32 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1631 Page 34 of 78
1 and “clinic controlled weighing processes.” Id. at 222:10-19; 242:1-4. But Ms. 2 Kiosea admits there was no clinic:
3 Q: Where was the clinic? 4 A: Well, if I would have said performed human control 5 weighing process, it doesn’t sound the way it’s 6 supposed to sound. … 7 Q: Okay. So even though there’s a reference to clinic here, there was no clinic involved in this study, right? 8
9 [Objection omitted.] 10 THE WITNESS: Of course, not. 11 Id. at 222:20-223:9. 12 89. Based on her reports and the other written materials available, Ms. 13 Kiosea could not determine the number of participants enrolled in the study. Nor was 14 she able to determine how many participants completed the study. Id. at 185:9-16. 15 The first paragraph of her report states that 78 volunteers completed the first four
16 months of the study. The second paragraph states that 81 completed a two month 17 extension, consisting of “47 and 32 for the placebo and test article groups 18 respectively.” Id. at 195:10-22. Ms. Kiosea admits that 47 +32 = 79, not 81, and not 19 78.
20 Q: So we know that this 47 plus 32 is 79. 21 A: Right. 22 Q: That still doesn’t match up to the 78 in the first paragraph.
23 A: Right. 24 Id. at 196:18-22. Elsewhere Ms. Kiosea’s report states 100 participants were 25 enrolled, and 7 dropped out. Id. at 235:24-236:9. These figures suggest 93 26 completed the study, not 78, 79, or 81, as other figures in the report suggest. 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 33 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1632 Page 35 of 78
1 90. Ms. Kiosea had no explanation for these discrepancies. See id. at 2 250:20-256:10. Instead she admitted her report was riddled with errors and that she 3 was unqualified to do the study: 4 “[Y]eah, there were mistakes, okay. I didn’t verify the data because I didn’t have it anymore. I might be an 5 idiot, nonqualified, and not a scientist to do this test, but 6 there were so many entities around me that didn’t see the mistakes, I wonder who in QVC,[14] in my report, didn’t 7 see the mistakes.” 8 Id. at 263:8-13. 9 91. Ms. Kiosea’s daughter, Dolly Kiosea, is a paralegal who is not formally 10 employed at BATTS. Id. at 71:1-2. However, she played a number of interesting 11 roles in this study. She was a participant in the study. Id. at 209:1-18 (“I even paid 12 her. She was huge.”). She performed some of the statistical analysis of the data. Id. 13 at 269:9-10 (“[S]he helped me with the calculation of the statistical data.”). She 14 communicated with the sponsor about the calculations. Id. at 269:14-17 (“I think she 15 knows a little better to express herself in English than myself.”). Finally, she gave a 16 testimonial for Sensa after the study was done. Id. at 327:3-6 (“Q: Did your daughter 17 ever give a testimonial for Sensa? A: Oh, yes. She landed a husband after Sensa. 18 She was happy.”). 19 92. After Charlotte Kiosea collected the data, and Dolly Kiosea performed 20 the statistical analysis of the data, Luis Munoz verified the statistical analysis emailed 21 to him by Charlotte Kiosea. Id. at 313: 6-11. 22
23 24
25 14 QVC is a television shopping channel that was receiving interim reports of the 26 data from the BATTS study. See id. at 125:15-20; see also id. at 124:18-21 (“They [the Sensa Entities] were pestered, as I remember, by QVC or Home Shopping 27 Network, but one of these, and it was an ongoing study. My agreement with this 28 company was that they are provided with the data, so I sent the data.”). THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 34 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1633 Page 36 of 78
1 93. After reviewing the reports from the research study, an independent 2 expert retained by counsel for Plaintiff concluded that the “study” is not scientifically 3 credible, and it did not support claims that Sensa crystals are effective for weight loss.
4 THE SENSA MEDICAL ADVISORY BOARD IS DESIGNED TO 5 LEGITIMIZE SENSA’S FALSE ADVERTISING AND TO DECEIVE 6 CONSUMERS 94. During the class period, the Sensa Website also included a tab at the top 7 labeled “MEDICAL ADVISORS,” which linked to the page about the “Sensa 8 Advisory Panel.” Sensa Advisory Panel, Sensa.com, 9 http://www.sensa.com/advisory-panel.htm, attached hereto as Exhibit G. Below the 10 headline “SENSA® MEDICAL ADVISORY BOARD,” the text states: 11 “The SENSA® Medical Advisory Board consists of leading 12 medical doctors from across the country who provide 13 independent counsel on a range of health and weight-loss related issues. Each member brings extensive knowledge of 14 obesity and its related issues to our program.” 15 Beneath the text are headshots and biographies of the members of the so-called 16 “Medical Advisory Board.” 17 18 19
20 21 22
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12
13
14 DEFENDANTS DISREGARDED A PERMANENT INJUNCTION BY CONTINUING TO MAKE FALSE AND MISLEADING 15 REPRESENTATIONS BASED ON INCOMPETENT AND UNRELIABLE 16 SCIENTIFIC EVIDENCE 17 95. The People of the State of California, represented by the District 18 Attorneys for the counties of Santa Cruz, Alameda, Marin, Monterey, Orange, Napa, 19 Santa Clara, Solano, and Sonoma filed a civil complaint in the Santa Cruz County
20 Superior Court against Defendant Sensa Products, and IBI. The People alleged that 21 the Sensa Entities engaged in unfair competition, as defined in CA Bus. and Prof. 22 Code §17200, and in violations of Business and Professions Code §17500.
23 96. On November 20, 2012, the Sensa Entities stipulated to entry of final 24 judgment in People of the State of California v. Sensa Products, LLC et. al., Case No. 25 CV 175655 (CA Superior Court, Santa Cruz County). The Final Judgment Pursuant 26 to Stipulation is attached hereto as Exhibit H. 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 36 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1635 Page 38 of 78
1 97. The Sensa Entities stipulated to the permanent injunction with no 2 intention of changing their practices. 3 98. The Final Judgment Pursuant to Stipulation states the following in 4 relevant part:
5 Defendants, in connection with the manufacturing, 6 labeling, advertising, offering for sale, sale, or distribution of any NUTRITIONAL SUPPLEMENT, are 7 hereby permanently enjoined and restrained …from 8 engaging in, directly or indirectly, any of the following acts or practices: … 9 10 (B) [M]aking and/or disseminating any representation, either directly or indirectly, about the effects, efficacy, or 11 safety of any NUTRITIONAL SUPPLEMENT unless a 12 the time of making and/or disseminating such representation, it is true, not misleading, and Defendants 13 already have in their possession and rely upon 14 COMPETENT AND RELIABLE SCIENTIFIC EVIDENCE that substantiates such representation; 15 16 (C) Making and/or disseminating any representation, either directly or indirectly, that misrepresents the 17 existence, contents, validity, results, conclusions, or 18 interpretations of any test, study or research relied upon that substantiates such representation;… 19 20 (E) Making and/or disseminating any representation, either directly or indirectly, that any NUTRITIONAL 21 SUPPLEMENT: (1) causes, assists, or contributes to 22 weight loss and/or fat loss; (2) causes, assists, or contributes to any increase in metabolism and/or fat 23 burning; unless, at the time of making and/or 24 disseminating such representation, it is true, not misleading, and Defendants already have in their 25 possession and rely upon COMPETENT AND 26 RELIABLE SCIENTIFIC EVIDENCE – concerning the NUTRITIONAL SUPPLEMENT, or an ESSENTIALLY 27 EQUIVALENT PRODUCT for which the claims are 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 37 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1636 Page 39 of 78
being made and/or disseminated – that substantiates such 1 representation; 2 3 (F) Making and/or disseminating any representation, either directly or indirectly, that the health benefits, 4 performance, efficacy, safety or any aspect of any 5 NUTRTIONAL SUPPLEMENT has been clinically proven or clinically tested, unless, at the time of making 6 or disseminating such representation, it is true and not 7 misleading, and Defendants already have in their possession and rely on COMPETENT AND RELIABLE 8 SCIENTIFIC EVIDENCE – that includes at least one 9 adequate and well-controlled human clinical study that is randomized, double-blind, placebo-controlled, and 10 conducted by persons qualified by training and 11 experience to conduct such study performed on the NUTRITIONAL SUPPLEMENT, or on an 12 ESSENTIALLY EQUIVALENT PRODUCT for which 13 the claims are being made and/or disseminated – that substantiates such representation.” 14 15 (G) Enrolling any customer in any automatic shipment program without first providing the customer with a clear 16 and conspicuous disclosure of the customer’s obligation 17 under the program, and obtaining the customer’s affirmative consent to the agreement to enroll the 18 customer in the program and assume the obligations of 19 the program at the time the automatic shipment program is ordered by the customer; 20 21 (H) Violating Civil Code § 1584.5, which provides in pertinent part, no person, firm, partnership, association, 22 or corporation, or agent of employee thereof, shall in any 23 manner, or by any means, offer for sale of goods, wares, merchandise, or services, where the offer includes the 24 voluntary and unsolicited sending or providing of goods, 25 wares, merchandise, or services not actually ordered, requested by the recipient, either orally or in writing. 26 The receipt of any goods, wares, merchandise, or services 27 shall for all purposes be deemed an unconditional gift to the recipient who may use or dispose of the goods, wares, 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 38 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1637 Page 40 of 78
merchandise, or services in any manner he or she sees fit 1 without any obligation on his or her part to the sender or 2 provider; 3 (I) Continuing to bill after shipping direct sale products 4 to a customer after a customer’s request has been made, 5 consistent with California law and the instructions on Defendants’ website or with the ordered products, to be 6 taken off Defendants’ shipping list or to cancel the 7 customer’s continuity order; provided however, if Defendant reverses such billing, within 30 days, the 8 billing shall not constitute a violation of this paragraph. 9 99. The Sensa Entities continued to violate Subparagraph (B) by making 10 false and misleading representations about the efficacy of Sensa and by relying on 11 incompetent and unreliable scientific evidence for a substantial part of the class 12 period. Defendants have no evidence that substantiates their representations about 13 the efficacy of Sensa. 14 100. Defendants continued to claim that BATTS Laboratories and Dr. Hirsch 15 have conducted valid research that substantiates their claims about the efficacy of 16 Sensa. Those claims are false. For a substantial portion of the class period, the Sensa 17 Entities continued to rely on junk science in violation of Subparagraph (C). 18 101. Similarly, the Sensa Entities continued to violate Subparagraph (E) 19 because they made and disseminated representations that Sensa “causes, assists, or 20 contributes to weight loss and/or fat loss,” even though Defendants did not “already 21 have in their possession and rely upon COMPETENT AND RELIABLE 22 SCIENTIFIC EVIDENCE.” 23 102. The Sensa Entities’ practices also violated Subparagraph (F). 24 Defendants represented that Sensa had been “clinically proven” to cause weight loss 25 and that Sensa has been “clinically tested” such that studies show an average weight 26 loss of 30lbs in 6 months. Defendants had no scientific evidence. Nor did 27 Defendants have scientific evidence “that includes at least one adequate and well- 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 39 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1638 Page 41 of 78
1 controlled human clinical study that is randomized, double-blind, placebo controlled, 2 and conducted by persons qualified by training and experience to conduct such study 3 performed on [Sensa].” BATTS Laboratories’ so-called double-blind, randomized 4 study was turned into kitty litter by its “Study Director.” This “Study Director,” 5 Charlotte Kiosea, has experience as a travel agent and as a receptionist but had no 6 experience that would qualify her to perform a well-controlled clinical study. The 7 available information on Dr. Hirsch’s study demonstrates that his study was not 8 double-blind, or well-controlled, and was entirely inadequate. 9 103. Even though, under Subparagraph (G), the Sensa Entities are enjoined 10 from “[e]nrolling any customer in an automatic shipment program without first 11 providing the customer with a clear and conspicuous disclosure of the customer’s 12 obligation under the program, and obtaining the customer’s affirmative consent to the 13 agreement to enroll the customer in the program and assume the obligations of the 14 program,” Defendants offered a “30 day free trial offer” with a catch: after customers 15 sign up for a 30 day free trial, customers are sent Sensa month number one, and, 16 unexpectedly, Sensa month number two. Defendants did not conspicuously notify 17 customers that if the second month of Sensa was not sent back, an automatic charge 18 for both months will follow. 19 104. When a customer called to ask for the free trial to be cancelled, 20 Defendants would not cancel the “customer’s continuity,” as required by 21 Subparagraph (I). Because Defendants provide no conspicuous notification, 22 customers were surprised to learn that the second month of Sensa had to be sent back, 23 or an automatic charge for both month one and month two would follow. 24 105. In violation of Subparagraph (H) and Cal. Civil Code § 1584.5, the 25 second month of Sensa is anything but an “unconditional gift,” because Defendants 26 charged customers unless they sent the second month of Sensa back. Even if the 27 Sensa was sent back, customers still paid shipping for the “free trial.” 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 40 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1639 Page 42 of 78
1 106. The People of the State of California took the Sensa Entities to task for 2 their false advertising and spurious science, and California entered into an agreement 3 with Defendants permanently enjoining them from engaging in unfair competition. 4 But, Defendants had no intention of changing their practices. Instead, Defendants 5 did not change their marketing strategy and continued to claim that “studies show 6 average weight loss of 30lbs” with Sensa. 7 THE FTC ENTERED INTO A STIPULATED JUDGMENT FOR $46.5 MILLION AGAINST DEFENDANTS GOLDENBERG, HIRSCH, 8 SENSA PRODUCTS AND IBI 9 107. On January 7, 2014, the FTC brought suit against Defendants for unfair 10 or deceptive practices and false advertisement in violation of Sections 5(a) and 12 of 11 the FTC Act, 15 U.S.C. §§45(a) and 52. Like the Plaintiff in this case, the FTC 12 claimed Sensa does not work. The FTC asserted that Sensa is ineffective at 13 producing weight loss without diet, exercise, or feeling hunger, as Defendants’ claim. 14 The FTC further claimed Defendants’ assertion that Sensa is “clinically proven” is 15 categorically false, and Defendants’ representation that the product was proven 16 effective in an independent study was also false, misleading, and deceptive. 17 Additionally, the FTC claimed Defendants acted deceptively and falsely advertised 18 Sensa by failing to disclose “material connections” with consumer endorsers. This 19 includes the fact that endorsers received incentives to appear in advertisements, 20 including monetary compensation, free trips, and TV appearances. 21 108. With respect to Defendant Hirsch, the FTC claimed he provided 22 “unsubstantiated expert endorsement claims.” Amongst other allegations, Defendant 23 Hirsch deceptively and falsely represented that Sensa causes substantial weigh loss 24 without diet and exercise, that users will lose the weight without feeling hungry, and 25 that Sensa is “clinically proven” to result in 30 pounds of weight loss in six months. 26 The FTC further claimed that Hirsch provided Defendants with deceptive and 27 misleading scientific, promotional, and other materials for the marketing and sale of 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 41 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1640 Page 43 of 78
1 Sensa, therefore supplying them with the means and instrumentalities for commission 2 of deceptive acts and practices. 3 109. As a result of these claims, the FTC and Defendants Goldenberg, Hirsch, 4 Sensa Products and IBI entered into a stipulated judgment for $46.5 million. The 5 Stipulated Final Judgment is attached hereto as Exhibit I. The judgment also 6 enjoined Defendants from making misleading claims that Sensa causes or helps 7 weight loss. Unlike the junk science Defendants relied upon and that is described in 8 this complaint, Defendants agreed that all future representations surrounding Sensa’s 9 efficiency must be backed by “competent and reliable” scientific research. 10 110. Ultimately, the FTC suit resulted in the insolvency of the Sensa Entities 11 and both companies filed for bankruptcy on or around October 17, 2014. 12 THE HIRSCH ACTION 13 111. On May 13, 2015, Sensa Products, by and through their bankruptcy 14 counsel, filed an action against Defendant Alan Hirsch. Sensa v. Hirsch, BC581772 15 (Los Angeles Sup. Ct. May 13, 2015) (hereinafter the “Hirsch Action”). The Hirsch 16 Action admits Sensa Products, IBI, and Alan Hirsch acted in concert to deceive the 17 public regarding the efficacy of Sensa, stating that since at least 2011 “… many of 18 Sensa’s claims were false or overstated. … Sensa repeatedly claimed that a study 19 showed that study participants lost an average of thirty pounds over six months 20 through the use of Tastants. … [Sensa Products] is informed and believes that the [] 21 Study contained many fatal flaws…. In short, the [] Study did not meet minimum 22 requirements for clinical research and could not serve as the basis for Sensa’s 23 efficacy claims.” See Exhibit J, Hirsch Complaint, at 436. Accordingly, the 24 Defendants have been on notice for the duration of the class period that their clinical 25 evidence is “fatal[ly] flaw[ed].” Id. at 6. 26 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 42 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1641 Page 44 of 78
1 112. Further, in the Hirsch Complaint, Sensa Products admits that it was 2 insolvent no later than October 17, 2013, but the company nevertheless continued to 3 engage in business and transactions. Id. at 10. 4 113. The Hirsch Complaint describes, in part, Defendants Hirsch, Ressler and 5 Goldenberg’s active de-capitalization of the Sensa Entities through distributions and 6 advancements to Dr. Hirsch. In 2010, Defendants Hirsch, Goldenberg and Ressler 7 organized the formation of Sensa Products and the compensation structure of Dr. 8 Hirsch. See Ex. J at 27-48. In 2012, Defendant Goldenberg personally signed the 5th 9 Amendment to the Sensa Products LLC Agreement that authorized millions of dollars 10 in advancements to Dr. Hirsch. See id. at 56-57. Of the $37,000,000 Sensa Products 11 claimed as yearly profit between June 2008 and October 2014, almost $11,000,000 12 was distributed and advanced to Dr. Hirsch. See id. at 4. The Hirsch Complaint 13 details the timing of these distributions and advancements:15
14 Plaintiff is informed and believes that Sensa [Products] made $733,127 15 in yearly profits between January 1, 2012 and December 31, 2012. Plaintiff is informed and believes that Defendant Hirsch’s share of these 16 profits is $73,313 and that Defendant Hirsch received approximately $94,909 in distributions. Plaintiff is informed and believes that 17 Defendant Hirsch received at least $3,071,600 in Advances from Sensa 18 [Products] in Fiscal Year 2012.
19 Plaintiff is informed and believes that Sensa [Products] made no yearly profit between January 1, 2013 and December 31, 2013 and in fact lost 20 more than $26,000,000. Plaintiff is informed and believes that Defendant Hirsch received at least $2,642,000 in Advances from Sensa 21 [Products] in Fiscal Year 2013. 22 Plaintiff is informed and believes that Sensa [Products] made no yearly 23 profit between January 1, 2014 and October 17, 2014, but defendant Hirsch received $600,000 in Monthly Advances. 24 25 114. As creditor and consumer liabilities loomed, Defendants continued to 26 bail money from Sensa Products into the pockets of Defendant Hirsch. Even worse,
27 15 28 Id. at 5 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 43 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1642 Page 45 of 78
1 Sensa Products continued to advance Dr. Hirsch $600,000 after the FTC filed its 2 action against the Sensa Entities on January 7, 2014. Defendants used systematic 3 loans to de-capitalize Sensa Products and avoid liability to consumers and creditors. 4 115. Plaintiff adopts the Hirsch Action’s allegation that Defendant Hirsch, 5 Ressler, Goldenberg, and Chadwick received distributions from the Sensa Entities 6 while the companies were operating. See Id. at 11. Upon information and belief, 7 they continued to receive these payments and conduct business as the FTC liability 8 loomed and the financial condition of the Sensa Entities approached insolvency. The 9 authorization of such distributions and advancements, in the face of looming liability, 10 was an abuse of the corporate form and indicates domination of the Sensa Entities by 11 the other Defendants. 12 THE WINDMILL ACTION 13 116. Windmill Health Products, LLC (“Windmill”) contracted with the Sensa 14 Entities to handle distribution of Sensa. Simply put, Windmill dealt with the retailers 15 for Sensa. When these retailers became aware that Sensa was a fraud, the retailers 16 returned the product en masse to Windmill. Under the terms of their contract with 17 Windmill, the Sensa Entities were responsible to pay for the returns. Unfortunately 18 for Windmill, the Sensa Entities went bankrupt in the wake of the FTC settlement. 19 Windmill, however, rejected Defendants’ contention that there was no money left. 20 Instead, Windmill brought an action against the owners, officers, and affiliates of the 21 Sensa Entities who played a role in, and profited from, the deception of Windmill. 22 117. On October 3, 2016, Windmill Health and Vitaquest International, Inc. 23 filed their Fifth Consolidated Amended Complaint (the “Windmill Complaint”) 24 against Defendants TCV VI, Drew, Ressler, Goldenberg, Chadwick, IB Holding, 25 JustFab, and Brand Ideas. See Windmill Health Products, LLC, et al., v. TCV VI, LP, 26 et al., Case. No. BC561252 consolidated with BC576327 (Los Angeles Sup. Ct. Oct. 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 44 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1643 Page 46 of 78
1 3, 2016) (the “Windmill Action”).16 The Windmill Action plaintiffs generally allege 2 that Defendants fraudulently misrepresented the solvency of the Sensa Entities and 3 actively de-capitalized the Sensa Entities to avoid paying the plaintiffs’ contract 4 damages. See Ex. at 1-5 5 118. Specifically, the Windmill Action plaintiffs alleged that the above named 6 Defendants “promoted and sold millions of dollars of diet products with false and 7 misleading statements regarding the product culminating in Sensa’s insolvency after 8 the Federal Trade Commission obtained a $46.5 million judgment against Sensa 9 [Products] and its parent, [IBI]. … for false and deceptive practices.” Ex. K at 1. 10 Further, these plaintiffs allege that while Defendants where negotiating fines with the 11 FTC they were busy fraudulently concealing the insolvency of the Sensa Entities and 12 hiding transfers of some $26,000,000 from the Sensa Entities to Defendant JustFab 13 “in an effort to defraud creditors….” Id at 3. 14 119. The Windmill Complaint further explains that Defendants’ business 15 organization is so interconnected that the other Defendant entities and individual 16 Defendants should be liable for the debts of the Sensa Entities:17
17 [a]ll of the Defendant entities and the individual Defendants are part of a 18 web of companies that exist as one economic group. By pursuing a single purpose, they seek to generate large assets while seeking to avoid 19 liability by disbursement of asserts to the numerous entities. All entities are, therefore, responsible for the acts of their related entities. 20 21 …
22 At the other Defendants’ direction, [the Sensa Entities] were grossly undercapitalized and unable to satisfy their debts as they became due, 23 including their multi-million dollar debt to Windmill as well as Sensa’s multi-million dollar fine owing to the FTC. 24 120. The Windmill Action plaintiffs then provided a detailed factual summary 25 of allegations in support of their claim that “[r]ecognition of the privilege of separate 26
27 16 See a true and correct copy of the Windmill Complaint attached hereto as Exhibit K 17 28 Id. at 7 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 45 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1644 Page 47 of 78
1 existence would promote injustice because the other Defendants in bad faith 2 dominated and controlled [the Sensa Entities]….” The Windmill plaintiffs 3 specifically allege:18
4 The other Defendants directed day-to-day management of [the Sensa 5 Entities].
6 The other Defendants diverted assets from [the Sensa Entities] to themselves to the detriment of creditors, including Plaintiffs, and did so 7 even while participating in the negotiation of a multi-million payment to 8 the Federal Trade Commission described below.
9 …
10 Sensa [Products], IBI, IB Holding, JustFab and Brand Ideas have interlocking owners, directors, officers and employees. 11 12 The offices of Sensa [Products], IBI, IB Holding, JustFab, and Brand Ideas all shared the same office building. When one met with any of the 13 interlocking officers of the Defendants such as Goldenberg and Ressler, there was no attempt by Defendants to distinguish which entity they 14 represented. 15 Goldenberg admits that JustFab, IBI, Sensa [Products], and DermStore 16 (another affiliated IB Holding entity) were all operated as a single entity with three different business lines that operated as [IBI] from at least 17 2006-2010…
18 Goldenberg further admits that the transition to operating as separate 19 entities did not occur overnight and that there was a period of time where expenses were shared. 20 … 21 22 Financial statements for years 2012 and 2013 show that JustFab and IB Holding[] prepared consolidated financials and filed a unitary tax return 23 with [IBI] in 2012. 24 121. The Windmill Complaint goes on to describe how Defendants used a 25 series of intercompany transfers to move money between the supposedly separate 19 26 entities, thereby hiding money from the Sensa Entities’ creditors:
27 18 28 Id. at 7-8 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 46 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1645 Page 48 of 78
1 From January 2010 through October 2014, during that time that JustFab, 2 IBI, Sensa [Products], Dermstore and IB Holding[] had been “spun out,” there were thousands of inter-defendant transfers and transactions 3 between JustFab and the other defendants in this action … [See Ex. K at 103-258 (on information and belief a true and accurate spreadsheet of 4 these transactions)]. 5 These Intercompany Transfers were for the alleged purpose of “shared 6 expenses,” but these expenses were separated out and reconciled not by CFOs for each of the “separate entities,” but were done solely by the 7 CFO for Just Fab [sic] and Sensa [Products], Heidi Crane (“Crane”)…
8 On September 11, 2013, the day that Sensa [Products] and Goldenberg 9 signed the Consent Decree with the FTC, Crane admitted there was an Intercompany debt of some $22.4 Million outstanding from JustFab to 10 “Corporate” for expenses such as IT licenses, insurance policies, JustFab’s credit card debt (due to its inability to obtain credit cards), 11 salaries for Goldenberg, Matt Fojut, Crane and other shared staff 12 members. [See Ex. K at 260 (on information and belief a true copy of a September 11, 2013 email chain from Crane)]. 13 In or about May 2012, when IBI obtained approximately $20 million in 14 loans from Bank of America, the loans were not intended to and did not support [IBI] but were merely obtained to provide working capital for 15 JustFab with no intention of repayment to [IBI]. [See Ex. K at 263 (on 16 information and belief, a true copy of an 11/25/13 internal document)].
17 Goldenberg concedes that there was $10,000,000 that IBI provided to IB Holding to purchase JustFab shares in or around 2011 and 2012 [] which 18 was at or about the same time that [the Sensa Entities] and Goldenberg 19 and others were negotiating the Consent Decree and fine with the FTC.
20 122. The Windmill Complaint further highlighted specific abuses of the 21 defendant entities by the individual Defendants. Notably, Defendant Ressler used 22 Defendant TCV and Brand Ideas (a bankrupt affiliate of the Sensa Entities) as a 23 private bank account:20 24 Defendant Ressler utilized the Defendant entities: Brand Ideas and TCV 25 as piggy banks for his personal expenses, admitting that on January 3, 26
27 19 Id. at 8 20 28 Id. at 10 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 47 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1646 Page 49 of 78
2011 he “borrowed” some $500,000.00 from Brand Ideas and in or about 1 2012 borrowed some $3,000,000.00 from TCV to purchase his home. 2 3 123. Furthermore, Defendants Chadwick, Ressler and Drew all participated in 21 4 moving funds across the web of Defendant entities:
5 The funds to pay the fine the FTC imposed on IBI came from the sale of a purported “separate affiliated entity, Dermstore, where the proceeds 6 from its sale to Target generated $100,000,000 that was divided up 7 among other affiliated entities. [See Ex. K at 266 (on information and belief a true and correct copy of an email from Chadwick to Drew and 8 Ressler)].
9 124. The Windmill Complaint advances a simple theory – because Defendants 10 did not treat the Defendant entities as separate when they sought to perpetrate fraud, 11 they cannot now be allowed to use a fiction of separate entities to protect their ill- 12 gotten gains. 13 THE BANK OF AMERICA ACTION 14 125. In 2012, Bank of America (“BofA”) extended a $15,000,000 line of 15 credit to IBI. When the Sensa Entities went bankrupt, Defendants defaulted. BofA 16 filed suit against the Sensa Entities, JustFab, IB Holding, Brand Ideas, Goldenberg 17 and Ressler.22 18 126. Specifically, BofA alleged that Defendants fraudulently cancelled 19 millions of dollars in debt owed by JustFab to IBI. Importantly, BofA alleged that (1) 20 IBI, JustFab, and IB Holding engaged in a fraudulent transfer to hide money from 21 BofA, (2) IBI, JustFab, IB Holding, Goldenberg and Ressler conspired to defraud 22 BofA, and (3) JustFab and IB Holding are alter egos of IBI. See Ex. L at 14-20. 23 24 25 26 21 Id. at 9 27 22 Attached hereto as Exhibit L is a true and correct copy of the BofA Second 28 Amended Complaint. THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 48 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1647 Page 50 of 78
1 127. To support its allegations that JustFab and IB Holding should be held 2 liable as the alter egos of IBI, BofA described interconnectedness of these Defendant 3 entities:23
4 In 2010, IB Holding[] was the parent company to JustFab and [IBI]. 5 Defendants Goldenberg and Ressler were the co-CEOs of IB Holding[], JustFab, and [IBI]. These entities also had the same CFO, General 6 Counsel, and many other employees.
7 Prior to April 30, 2010, JustFab’s predecessor entity was named Shoe 8 Fabulous, LLC (“Show Fabulous”). At that time, Shoe Fabulous was a subsidiary of [IBI]. Show Fabulous also had the same CEO, CFO, 9 General Counsel, and owners as [IBI]. Shoe Fabulous and [IBI] maintained intercompany accounts between them. There was no written 10 agreement setting forth the terms of how the intercompany accounts were to operate or how the amounts were to be repaid. The accounts 11 were not settled every month. Rather, the practice was that the CFO and 12 the CEO of the two entities jointly determined, on an as needed basis, if and when the accounts would be settled and/or repaid. 13 In late 2009 or 2010, Shoe Fabulous started incurring expenses to pay 14 vendors, employees, rent, and other costs. To cover theses expenses, as 15 well as the initial capital needed to fund Show Fabulous’ business, [IBI] paid these expenses directly and/or transferred cash to Shoe Fabulous. 16 Defendants have testified that these expenses and/or transfers of cash were decisions made on behalf of “all entities” and “the enterprise as a 17 whole.” Goldenberg testified that “So to fund JustFab, Inc., when we were starting that business you know we would use profits from [IBI] 18 and the Dermstore business, to help fund that operation.” 19 These expenses and/or cash payments eventually totaled over 20 $22,000,000. There was no agreement between Shoe Fabulous and [IBI] as to when the balance was to be repaid. [IBI] did not receive any equity 21 or other interest in Shoe Fabulous in exchange for transferring 22 $22,000,000 to Shoe Fabulous.
23 Shoe Fabulous was ultimately renamed as JustFab. 24 128. The BofA Complaint went on to detail how Goldenberg and Ressler 25 abused their control over IBI to release JustFab of these substantial debts in exchange 24 26 for no consideration:
27 23 28 Id. at 18-19 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 49 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1648 Page 51 of 78
1 On or about September 13, 2011, JustFab raised outside capital from 2 investors. As part of that transaction, Defendants contend that an agreement was reached between JustFab and its new investors that 3 JustFab could not repay any amount owed to [IBI] less than a “floor” of $18,700,000, unless and until one of the entities entered into a qualifying 4 capital transaction and raised at least $1000,000,0000. 5 Defendants also contend that the September 13, 2011 intercompany 6 Agreement between JustFab, IB Holding[], and [IBI] likewise provided that JustFab was not required to pay any amounts to [IBI] less than a 7 “floor” of $18,700,000, unless and until one of the entities entered into a qualifying capital transaction and raised at least $100,00,000 [sic]. This 8 agreement was signed by Goldenberg on behalf of all tree entities, in his 9 position as CEO of all three entities.
10 Defendants contend that these agreements “changed the nature of that receivable.” Goldenberg testified that “Up until this point that 11 receivable could be paid back. We had all the same owners. There was 12 no contractual restriction.”
13 …
14 If [IBI] were truly an independent entity and not controlled by the same owners and employees of JustFab, then [IBI] never would have agreed to 15 forego the right to collect the $18,700,000 that it had transferred to 16 JustFab.
17 As a result of these actions, [IBI], IB Holding[], and JustFab were actually operating as a single enterprise, without observing corporate 18 formalities of separate, independent entities that had separate and 19 independent financial accounts. Rather, these entities were acting for the benefit of their common owners. 20 129. Defendants Ressler and Goldenberg, as co-CEOs and co-owners of 21 JustFab, personally benefited from their decision as IBI officers to cancel the debt 22 JustFab owed to IBI:25 23 Each of the Defendants collectively determined that they would contend 24 that the receivables were not currently due and owing and were not collectable by [IBI]. Goldenberg and Ressler are owners, directors, and 25 officers of Defendants and they directed Defendants to take this position, 26 and/or acquiesced to such a position once it was taken. In particular,
27 24Id. at 19-20 25 28 Id. at 17 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 50 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1649 Page 52 of 78
[BofA] believes that each of said Defendants obtained a monetary 1 benefit resulting from these actions by enhancing the value of Just Fab 2 [sic] and IB Holding at the expense of [IBI] and [BofA], and that Goldenberg and Ressler did so to increase their own interest in JustFab. 3 130. In overruling defendants demurrer against these pleadings, Judge 4 Dierdre Hill found that BofA’s “pleading adequately describes an alleged 5 conspiratorial scheme to defraud Plaintiff of its right to repayment under a substantial 6 commercial loan.” Defendants cannot use self-dealing intercompany loans to escape 7 the Sensa Entities’ liability to its creditors – regardless of whether those creditors are 8 lenders or defrauded consumers. 9 ALTER EGO / VIEL PIERCING ALLEGATIONS 10 131. Plaintiff hereby incorporates the factual allegations of the FTC 11 Complaint, the Hirsch Complaint, the BofA Complaint and the Windmill complaint 12 (collectively the “Complaints”). Without limiting this incorporation, Plaintiff 13 specifically incorporates the facts in the Complaints that describe the lack of 14 corporate formalities among the Defendants, the domination of the Sensa Entities by 15 the other Defendants and the active de-capitalization of the Sensa Entities by the 16 Defendants. 17 132. Defendants Goldenberg and Ressler, as owners, directors and officers of 18 IBI, caused IBI to forego its right to collect nearly $20 million from JustFab. This 19 was not a decision that a rational profit-maximizing entity would make; the 20 agreement solely benefited IB Holding and JustFab. IBI received no consideration 21 for this purported release of debts. Rather, this release was an active de-capitalization 22 of the IBI by its owners and officers to insulate the ill-gotten gains of the Sensa fraud. 23 133. Defendant Goldenberg, acting as CEO for all three entities, signed the 24 agreement to forego JustFab’s debt to IBI. Defendant Goldenberg acted with the 25 approval and support of his co-CEO, co-founder and co-owner, Ressler. In doing 26 this, Goldenberg and Ressler dominated IBI to not act in the entity’s self-interest, but 27 to rather act in the interest of JustFab’s owners – namely, themselves. It was against 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 51 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1650 Page 53 of 78
1 the self-interest of IBI to release the JustFab debt. This deal only benefited IB 2 Holding, JustFab, and their owners. Through IB Holding, the then owner of IBI and 3 JustFab, Defendants Ressler and Goldenberg had an ownership interest in both IBI 4 and Justfab. To them, the debt release was merely a transfer of money from their left 5 pocket to their right. 6 134. As a result of these actions, the Sensa Entities, IB Holding, and JustFab 7 were actually operating as a single enterprise, without observing corporate formalities 8 of separate, independent entities that had separate financial accounts. Instead of 9 operating for their own self-interest, these entities were acting for the benefit of their 10 common owners. 11 135. Without limiting the earlier incorporation of the Complaints, Plaintiff 12 further relies on the additional following allegations describing the treatment of the 13 JustFab, IB Holding and the Sensa Entities as a single enterprise such that the 14 entities operated as alter egos of each other:
15 a. Officers and directors of these individual entities made no effort to 16 distinguish which entity they represented when they worked with third parties. For much of the relevant time period, these Defendant entities 17 operated from the same address – at 2301 Rosecrans Avenue, El Segundo, California. 18 19 b. Sensa Products, IBI, IB Holding, and JustFab have interlocking owners, directors, officers and employees. 20 c. JustFab, IBI, and Dermstore (another affiliated IB Holding entity) 21 were all operated as a single entity with three different business lines that operated as IBI from at least 2006 unitl 2010. 22 23 d. Separation of these entities did not occur definitively. There was a substantial period of time where money moved freely between 24 the entities.
25 e. These defendant entities did not engage in arm’s length negotiations. 26 For instance, intercompany loans between IBI, Sensa Products, IB Holding and JustFab generally had no formal agreements, bargained for 27 consideration, or loan payment schedule. 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 52 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1651 Page 54 of 78
1 f. IBI released JustFab of nearly $20,000,000 in debt for no consideration. 2 This was not a decision that a rational profit-maximizing entity would 3 make; the agreement solely benefited IB Holding, JustFab and their owners. 4 5 g. IBI provided $10,000,000 to IB Holding to purchase JustFab shares. See Ex. K at 9. 6 7 h. Financial statements for years 2012 and 2013 show that JustFab and IB Holding prepared consolidated financials and filed a unitary tax return 8 with IBI in 2012. 9 136. For the foregoing reasons, adherence to the fiction of the separate 10 existence of the Sensa Entities as a distinct entity from JustFab and IB Holding 11 would permit abuse of the corporate privilege and sanction fraud to the detriment of 12 consumers harmed by the Sensa fraud. Indeed, the Sensa Entities and are insolvent, 13 out of business, and have assigned their assets to an assignee. They have no financial 14 reason to even appear in this lawsuit - but are doing so only because they are owned 15 and controlled by the owners of JustFab and seek to assist JustFab in attempting to 16 prevent Plaintiff and the class she seeks to represent from seeking recovery for the 17 Sensa fraud. Accordingly, the Court should determine that Defendant entities are 18 jointly and severally liable for the Sensa fraud. 19 137. Plaintiff specifically alleges that Defendant Goldenberg had an 20 ownership interest in the Sensa Entities and dominated the Sensa Entities for his 21 personal financial gain by perpetrating the Sensa fraud and protecting the ill-gotten 22 gains through an abuse of the corporate structure. Adherence to the fiction of the 23 separate existence of the Sensa Entities as a distinct entity from Defendant 24 Goldenberg would permit abuse of the corporate privilege and sanction fraud, to the 25 detriment of injured consumers. Without limiting the earlier incorporation of the 26 Complaints, Plaintiff relies on the following to hold Defendant Goldenberg jointly 27 and severally liable for the Sensa Entities conduct: 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 53 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1652 Page 55 of 78
1 a. Defendant Goldenberg, either directly or indirectly, was an owner of IBI 2 and Sensa Products.
3 b. Defendant Goldenberg, either indirectly or directly, is an owner of IB Holding and JustFab. 4 5 c. Defendant Goldenberg did not treat these companies as separate and distinct entities. He made no effort to distinguish which entity he 6 represented when he worked with third parties. For much of the relevant 7 time period, Defendant Goldenberg operated the Defendant entities from the same address – at 2301 Rosecrans Avenue, El Segundo, California. 8 9 d. Under Defendant Goldenberg’s control, these Defendant entities did not engage in arm’s length negotiations. For instance, intercompany loans 10 between IBI, Sensa Products, IB Holding[] and JustFab generally had no 11 formal agreements, bargained for consideration, or loan payment schedule. 12 13 e. Defendant Goldenberg, acting as the CEO, owner and board member of the Sensa Entities, actively de-capitalized the Sensa Entities to protect 14 the ill-gotten gains of the Sensa fraud. Plaintiff is aware of three distinct 15 examples of this active de-capitalization.
16 f. First, Defendant Goldenberg personally authorized Sensa Products to 17 advance Defendant Hirsch millions of dollars; these advancements continued after Sensa Products was insolvent and after Sensa Products 18 was faced with massive FTC fines. 19 g. Second, Defendant Goldenberg, acting as IBI’s CEO, released nearly 20 $20,000,000 of JustFab’s debt – an entity he owned in part. 21 h. Third, Goldenberg concedes that IBI provided $10,000,000 to IB 22 Holding, a company he owned in part, to purchase JustFab shares. See 23 Ex. K at 9.
24 i. On the basis of this pattern, Plaintiff alleges that Defendant Goldenberg 25 engaged in other actions to de-capitalize the Sensa Entities to protect the ill-gotten gains of the Sensa fraud from creditors, including but not 26 limited to, advances and distributions of money to himself personally. 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 54 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1653 Page 56 of 78
1 138. Plaintiff specifically alleges that Defendant Ressler had an ownership 2 interest in the Sensa Entities and dominated the Sensa Entities for his personal 3 financial gain by perpetrating the Sensa fraud and protecting the ill-gotten gains 4 through an abuse of the corporate structure. Adherence to the fiction of the separate 5 existence of the Sensa Entities as a distinct entity from Defendant Ressler would 6 permit abuse of the corporate privilege and sanction fraud, to the detriment of injured 7 consumers. Without limiting the earlier incorporation of the Complaints, Plaintiff 8 relies on the following to hold Defendant Ressler jointly and severally liable for the 9 Sensa Entities conduct: 10 a. Defendant Ressler, either directly or indirectly, is an owner of IB Holding[] and JustFab. 11
12 b. Defendant Ressler, either directly or indirectly, was an owner of Sensa 13 Products and IBI.
14 c. Defendant Ressler did not treat the companies as separate and distinct 15 entities. He made no effort to distinguish which entity he represented when he worked with third parties. For much of the relevant time 16 period, Defendant Ressler operated the Defendant entities from the same address – at 2301 Rosecrans Avenue, El Segundo, California. 17 d. Under Defendant Ressler’s control, these Defendant entities never 18 engaged in arm’s length negotiations. For instance, intercompany loans 19 between IBI, Sensa Products, IB Holding[] and JustFab had no formal agreements, bargained for consideration, or loan payment schedule. 20 e. Defendant Ressler utilized the Defendant entity TCV and the now 21 bankrupt Brand Ideas, an affiliate of IB Holding, as piggy banks for his 22 personal expenses. He admits that on January 3, 2011 he “borrowed” some $500,000.00 from Brand Ideas and in or about 2012 he borrowed 23 some $3,000,000.00 from TCV to purchase his home.
24 f. Defendant Ressler, acting as the CEO, owner and board member of the Sensa Entities, actively de-capitalized the Sensa Entities to protect the 25 ill-gotten gains of the Sensa fraud. Plaintiff is aware of three distinct 26 examples of this active de-capitalization.
27 g. First, Defendant Ressler, in forming Sensa Products, authorized Sensa Products to advance Defendant Hirsch millions of dollars; these 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 55 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1654 Page 57 of 78
advancements continued after Sensa Products was insolvent and after 1 Sensa Products was faced with massive FTC fines. 2 h. Second, Defendant Ressler, as a co-CEO, co-owner and co-founder of 3 the Sensa Entities, ratified Defendant Goldenberg’s release of around $20,000,000 in receivables from JustFab – an entity Defendant Ressler 4 owned in part. 5 i. Third, IBI provided $10,000,000 to IB Holding, a company Ressler 6 owned in part, to purchase JustFab shares. See Ex. K at 9. 7 j. On the basis of this pattern, Plaintiff alleges that Defendant Ressler engaged in other actions to de-capitalize the Sensa Entities to protect the 8 ill-gotten gains of the Sensa fraud from creditors, including but not limited to, advances and distributions of money to himself personally. 9 139. Plaintiff specifically alleges that Defendant Hirsch had an ownership 10 interest in the Sensa Entities and dominated the Sensa Entities for his personal 11 financial gain by perpetrating the Sensa fraud and protecting the ill-gotten gains 12 through an abuse of the corporate structure. Adherence to the fiction of the separate 13 existence of the Sensa Entities as a distinct entity from Defendant Hirsch would 14 permit abuse of the corporate privilege and sanction fraud, to the detriment of injured 15 consumers. Without limiting the earlier incorporation of the Complaints, Plaintiff 16 relies on the following to hold Defendant Hirsch jointly and severally liable for the 17 Sensa Entities conduct: 18 19 a. Defendant Hirsch was a 10% owner of Defendant Sensa Products.
20 b. In 2010, Defendants Hirsch, Goldenberg and Ressler organized the formation of Sensa Products and the compensation structure of Dr. 21 Hirsch. In 2012, Defendant Goldenberg and Dr. Hirsch agreed to the 5th 22 Amendment to the Sensa Products LLC Agreement that authorized millions of dollars in advancements to Dr. Hirsch. 23 24 c. Of the $37,000,000 Sensa Products claimed as yearly profit between June 2008 and October 2014, almost $11,000,000 was distributed and 25 advanced to Dr. Hirsch.
26 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 56 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1655 Page 58 of 78
d. As creditor and consumer liabilities loomed, Defendants continued to 1 bail money from Sensa Products into the pockets of Defendant Hirsch to 2 hide the ill-gotten gains of the Sensa fraud.
3 e. Indeed, Sensa Products admits that it was insolvent no later than October 17, 2013, but the company nevertheless continued to pay Defendant 4 Hirsch at least $1,133,567.64 after this date. 5 f. A rational profit maximizing entity would not continue to advance 6 millions of dollars in the face of insolvency. Dr. Hirsch dominated Sensa Products to act irrationally. In doing so, Dr. Hirsch treated Sensa 7 Products like a personal bank account and abused the corporate form to frustrate the creditors of Sensa Products. 8 140. Plaintiff specifically alleges that Defendant Chadwick had an ownership 9 interest in the Sensa Entities and dominated the Sensa Entities for her personal 10 financial gain by perpetrating the Sensa fraud and protecting the ill-gotten gains 11 through an abuse of the corporate structure. Adherence to the fiction of the separate 12 existence of the Sensa Entities as a distinct entity from Defendant Chadwick would 13 permit abuse of the corporate privilege and sanction fraud, to the detriment of injured 14 consumers. Without limiting the earlier incorporation of the Complaints, Plaintiff 15 relies on the following to hold Defendant Chadwick jointly and severally liable for 16 the Sensa Entities conduct: 17 18 a. As VP of marketing and President of the Sensa Entities Defendant Chadwick controlled the day-to-day activities of the Sensa fraud. 19 b. As President of the Sensa Entities Defendant Chadwick participated in, 20 ratified and/or endorsed Defendant Goldenberg’s release of around $20,000,000 in JustFab receivables, despite no consideration or benefit 21 to the Sensa Entities. 22 c. Defendant Chadwick shared her office at 2301 Rosecrans Avenue, El Segundo, California with Sensa Products, IBI, IB Holding, Just Fab, 23 Brand Ideas, Goldenberg, and Ressler. 24 d. Defendant Chadwick was instrumental in controlling the flow of capital across the web of Defendant entities. 25 e. From April 2011 until September 11, 2013, Defendant Chadwick 26 discussed the potential implication of an FTC fine ranging from $65,000,000 to $45,000,000 with Ressler Goldenberg and Defendant 27 Entities. 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 57 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1656 Page 59 of 78
f. As President of the Sensa Entities, Defendant Chadwick was aware that 1 the Sensa Entities faced insolvency no later than October 17, 2013. 2 g. Despite her knowledge of the Sensa Entities’ financial insolvency and looming FTC liability, Defendant Chadwick continued the Sensa fraud 3 to further her own pecuniary interest. 4 h. Defendant Chadwick instructed Ressler and the Sensa Entities Board to not disclose the true financial state of the Sensa Entities’ to creditors. 5 i. Defendant Chadwick was a shareholder of the Sensa Entities. 6 j. Plaintiff alleges that, based on Dr. Hirsch’s compensation structure, as 7 well as the other de-capitalization schemes, Defendant Chadwick’s was compensated through advancements that de-capitalized the Sensa 8 Entities and hid the ill-gotten gains of the Sensa fraud.
9 141. Plaintiff specifically alleges that Defendant Drew had an ownership 10 interest in the Sensa Entities and dominated the Sensa Entities for his personal 11 financial gain by perpetrating the Sensa fraud and protecting the ill-gotten gains 12 through an abuse of the corporate structure. Adherence to the fiction of the separate 13 existence of the Sensa Entities as a distinct entity from Defendant Drew would 14 permit abuse of the corporate privilege and sanction fraud, to the detriment of injured 15 consumers. Without limiting the earlier incorporation of the Complaints, Plaintiff 16 relies on the following to hold Defendant Drew jointly and severally liable for the 17 Sensa Entities conduct: 18 a. Defendant John Drew is a general partner of TCV and Ventures. John Drew 19 was responsible for managing TCV and Ventures’ investment in Sensa Products and IBI where he served on the board of directors of both Sensa 20 Products and IBI. Defendant Drew is a principal of IB Holding. 21 b. Defendant Drew participated in controlling the flow of capital across the 22 web of Defendant entities.
23 c. As a board member of the Sensa Entities, Defendant Drew participated in, ratified and/or endorsed Defendant Goldenberg’s release of around 24 $20,000,000 in JustFab receivables, despite no consideration or benefit to the Sensa Entities. 25 26 d. Defendant Drew is a principal of IB Holding. IB Holding is the owner and JustFab. Defendant Drew, as a principal of IB Holding, had/has an 27 ownership interest in both IBI and Justfab. Release of the JustFab debt benefited Defendant Drew to the detriment of the Sensa Entities. 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 58 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1657 Page 60 of 78
1 e. On the basis of this pattern of de-capitalization, Plaintiff alleges that 2 Defendant Drew engaged in other actions to de-capitalize the Sensa Entities to protect the ill-gotten gains of the Sensa fraud from creditors, including but 3 not limited to, advances and distributions of money to himself personally.
4 142. Plaintiff specifically alleges that Defendants TCV and Ventures had an 5 ownership interest in the Sensa Entities and dominated the Sensa Entities for their 6 financial gain by perpetrating the Sensa fraud and protecting the ill-gotten gains 7 through an abuse of the corporate structure. Adherence to the fiction of the separate 8 existence of the Sensa Entities as a distinct entity from Defendants TCV and 9 Ventures would permit abuse of the corporate privilege and sanction fraud, to the 10 detriment of injured consumers. Without limiting the earlier incorporation of the 11 Complaints, Plaintiff relies on the following to hold Defendant TCV and Ventures 12 jointly and severally liable for the Sensa Entities conduct: 13 14 a. TCV and Ventures, either directly or indirectly, were owners of the Sensa Entities. 15 b. TCV and Venture, either directly or indirectly, are owners IB Holding and 16 JustFab.
17 c. These Defendants appointed John Drew to serve on the board of directors of 18 both Sensa Products and IBI. These organizations appointed John Drew to serve as a principal for IB Holding. 19 d. Defendants’ agent Drew participated in controlling the flow of capital 20 across the web of Defendant Entities. 21 e. As owners of the Sensa Entities, IB Holding and JustFab, Defendants’ TCV 22 and Ventures ratified and/or endorsed Defendant Goldenberg’s release of around $20,000,000 in JustFab receivables, despite no consideration or 23 benefit to the Sensa Entities.
24 143. Defendants IB Holding, JustFab, Alan R. Hirsch, Don Ressler, Adam 25 Goldenberg, Kristen Chadwick, TCV, Ventures, John Drew, and Does 1-10. are 26 liable for the conduct of the Sensa Entities under a theory of alter ego / veil piercing 27 because these Defendants used the corporate form of the Sensa Entities to accomplish 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 59 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1658 Page 61 of 78
1 fraudulent objectives, namely to fraudulently promote the sale of Sensa and to 2 conceal the proceeds of that fraud and frustrate the ability of victims to obtain redress 3 for the fraud. The other Defendants used the Sensa Entities’ corporate form to 4 conceal the profits and income derived from the Sensa fraud. Plaintiff requests that 5 this Court hold the other Defendants jointly and severally liable for the Sensa 6 Entities’ conduct. 7 CLASS ACTION ALLEGATIONS 8 144. Plaintiff Stokes seeks to represent a class defined as all persons in the 9 United States who purchased Sensa crystals at any time from August 22, 2012 to the 10 present (the “National Class”). Excluded from the Class are governmental entities, 11 Defendants, Defendants’ affiliates, parents, subsidiaries, employees, officers, 12 directors, and co-conspirators, and anyone who purchased Sensa crystals for resale. 13 Also excluded is any judicial officer presiding over this matter and the members of 14 their immediate families and judicial staff. 15 145. Plaintiff Stokes also seeks to represent a subclass defined as all members 16 of the Class who purchased Sensa crystals from within the state of Florida (the 17 “Florida Subclass”) at any time from August 22, 2012 to the present. 18 146. Members of the Class and the Florida subclass are so numerous that their 19 individual joinder herein is impracticable. The precise number of Class members and 20 their identities are unknown to Plaintiff at this time but will be determined through 21 discovery of Defendants’ records. Class members may be notified of the pendency of 22 this action by mail, email, and/or publication. 23 147. Common questions of law and fact exist as to all Class members and 24 predominate over questions affecting only individual Class members. These common 25 legal and factual questions include, but are not limited to: 26 a. Whether the marketing and advertisements for Sensa included false, misleading and unsubstantiated statements; 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 60 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1659 Page 62 of 78
b. Whether Defendants’ conduct violated the Magnuson-Moss 1 Warranty Act; 2 c. Whether Defendants’ conduct violated the CLRA; 3 d. Whether Defendants’ conduct violated the FAL; e. Whether Defendants’ conduct violated the UCL’s unlawful, 4 unfair, and fraudulent and deceptive prongs; 5 f. Whether Defendants’ conduct violated Florida’s Deceptive and Unfair Trade Practices Act; 6 g. Whether Defendants’ conduct breached express or implied 7 warranties; and h. Whether Defendants made negligent misrepresentations. 8 148. Plaintiff Stokes’ claims are typical of the claims of the proposed Class 9 and the Florida Subclass. Each Class member was subjected to the same illegal 10 conduct, was harmed in the same way, and has claims for relief under the same legal 11 theories. 12 149. Plaintiff Stokes is an adequate representatives of the Class and the 13 Florida Subclass because her interests do not conflict with the interests of the Class 14 and Subclass members she seeks to represent, she has retained counsel competent and 15 experienced in prosecuting class actions, and she intends to prosecute this action 16 vigorously. The interests of Class and Subclass members will be fairly and 17 adequately protected by Plaintiff and her counsel. 18 150. The class mechanism is superior to other available means for the fair and 19 efficient adjudication of the claims of Class members. Each individual Class member 20 may lack the resources to undergo the burden and expense of individual prosecution 21 of the complex and extensive litigation necessary to establish Defendants' liability. 22 Individualized litigation increases the delay and expense to all parties and multiplies 23 the burden on the judicial system presented by the complex legal and factual issues of 24 this case. Individualized litigation also presents a potential for inconsistent or 25 contradictory judgments. In contrast, the class action device presents far fewer 26 management difficulties and provides the benefits of single adjudication, economy of 27 scale, and comprehensive supervision by a single court on the issue of a defendant’s 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 61 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1660 Page 63 of 78
1 liability. Class treatment of the liability issues will ensure that all claims and 2 claimants are before this Court for consistent adjudication of the liability issues. 3 151. Unless a class is certified, Defendants will retain monies received as a 4 result of their conduct that were taken from Plaintiff and proposed Class members. 5 Unless a class-wide injunction is issued, Defendants will continue to commit the 6 violations of law alleged, and the members of the Class and the general public will 7 continue to be harmed thereby. 8 COUNT I 9 Violation of the Magnuson-Moss Warranty Act, 15 U.S.C. §2301, et seq. 10 152. Plaintiff incorporates by reference and re-allege each and every 11 allegation set forth above as though fully set forth herein. 12 153. Plaintiff brings this claim individually and on behalf of the members of 13 the proposed Class against Defendants. 14 154. The Sensa Weight Loss System is a consumer product within the 15 meaning of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301(1). 16 155. Plaintiff and Class members are “consumers” within the meaning of the 17 Magnuson-Moss Warranty Act, 15 U.S.C. § 2301(3). 18 156. The Sensa Entities are both “suppliers” and a “warrantors” within the 19 meaning of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301(4) and (5). 20 157. The Sensa Entities’ statements as alleged herein (including, inter alia, 21 statements that Sensa is a “new, clinically proven method of losing weight,” “backed 22 up by scientific proof,” with “more than 2 decades of research,” and “exclusive 23 tastant technology [] proven in clinical testing to produce an average weight loss of 24 30.5 pounds in just 6 months”) are “written warranties” within the meaning of the 25 Magnuson-Moss Warranty Act, 15 U.S.C. § 2301(6)(A). 26 158. As alleged herein, the Sensa Entities have breached this written warranty 27 by selling consumers the Sensa Weight Loss System, which is not in fact “clinically 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 62 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1661 Page 64 of 78
1 proven,” “backed up by scientific proof,” supported by “more than 2 decades of 2 research,” or “proven in clinical testing to produce an average weight loss of 30.5 3 pounds in just 6 months” as warranted, thus failing to conform to the written 4 warranty, violating the Magnuson-Moss Warranty Act, and causing Plaintiff and the 5 Class injury and damage. 6 159. As set forth above, Defendants JustFab, IB Holding, Hirsch, Ressler, 7 Goldenberg, Chadwick, TCV, Ventures and Drew, as alter egos of the Sensa Entities, 8 are jointly and severally liable for the Sensa Entities’ violation of the Magnuson- 9 Moss Warranty Act, 15 U.S.C. § 2301. 10 COUNT II 11 Breach of Express Warranty 12 160. Plaintiff incorporates by reference and re-alleges each and every 13 allegation set forth above as though fully set forth herein. 14 161. Plaintiff brings this claim individually and on behalf of the members of 15 the proposed Class against Defendants. 16 162. Plaintiff, and each member of the Class, formed a contract with the 17 Sensa Entities at the time Plaintiff and the other members of the Class purchased 18 Sensa. The terms of that contract include the promises and affirmations of fact made 19 by the Sensa Entities in advertisements and the packaging of Sensa as described 20 above. This product packaging and advertising constitutes express warranties, 21 became part of the basis of the bargain, and is part of a standardized contract 22 between Plaintiff and the members of the Class on the one hand, and the Sensa 23 Entities on the other. 24 163. All conditions precedent to the Sensa Entities’ liability under this 25 contract have been performed by Plaintiff and the Class. The Sensa Entities breached 26 the terms of this contract, including the express warranties, with Plaintiff and the Class 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 63 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1662 Page 65 of 78
1 by not providing a product that was scientifically proven to provide the promised 2 weight-loss benefits. 3 164. As a result of the Sensa Entities’ breach of warranty, Plaintiff and the 4 Class have been damaged in the amount according to proof. 5 165. As set forth above, Defendants JustFab, IB Holding, Hirsch, Ressler, 6 Goldenberg, Chadwick, TCV, Ventures and Drew, as alter egos of the Sensa Entities, 7 are jointly and severally liable for the Sensa Entities’ breach of express warranty. 8 COUNT III 9 Breach of Implied Warranties 10 166. Plaintiff incorporates by reference and re-alleges each and every 11 allegation set forth above as though fully set forth herein. 12 167. Plaintiff brings this claim individually and on behalf of the members of 13 the proposed Class against Defendants. 14 168. The Sensa Entities knew that Plaintiff and other Class members were 15 buying Sensa for a particular purpose – to lose weight – and that Plaintiff and other 16 Class members relied on the Sensa Entities’ skill and judgment to select goods fit for 17 that purpose. 18 169. Sensa is not fit for this purpose because it does not produce the results 19 that it promises, despite the promises that the Sensa Entities made on their 20 advertising, labeling, and packaging. For the same reasons, Sensa was 21 unmerchantable at the time it left the location where it was created, and remains 22 unmerchantable at all times after that. This unmerchantability is inherent in the 23 product. 24 170. Plaintiff notified the Sensa Entities of the acts constituting breach of the 25 implied warranties of fitness for a particular purpose and merchantability, both for 26 herself and the Class. Plaintiff and other Class members suffered injury as a result of 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 64 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1663 Page 66 of 78
1 these breaches of warranty, for which Plaintiff hereby prays, because she paid for and 2 received Sensa that was not as warranted. 3 171. As set forth above, Defendants JustFab, IB Holding, Hirsch, Ressler, 4 Goldenberg, Chadwick, TCV, Ventures and Drew, as alter egos of the Sensa Entities, 5 are jointly and severally liable for the Sensa Entities’ breach of implied warranty
6 COUNT IV 7 Violation of California’s Consumers Legal Remedies Act, 8 California Civil Code § 1750, et seq.
9 172. Plaintiff Stokes incorporates by reference and re-alleges each and every 10 allegation set forth above as though fully set forth herein. 11 173. Plaintiff Stokes brings this claim individually and on behalf of the 12 members of the proposed Class against Defendants. 13 174. The Sensa Entities violated Civil Code § 1770(a)(2), (5), (7), (9), and 14 (14) by making false, and misleading statements regarding Sensa crystals. 15 175. Plaintiff Stokes and the members of the Class have suffered harm as a
16 result of these violations of the CLRA because they have incurred charges and/or 17 paid monies for Sensa crystals that they otherwise would not have incurred or paid. 18 176. On February 23, 2011, prior to the filing of this Complaint, a CLRA 19 notice letter was served on Defendants Sensa Products, IBI, Hirsch, and GNC which
20 complies in all respects with California Civil Code §1782(a). Plaintiff’s counsel sent 21 Defendants a letter via certified mail, return receipt requested, advising Defendants 22 that they are in violation of the CLRA and demanding that they cease and desist from
23 such violations and make full restitution by refunding the monies received therefrom. 24 177. As set forth above, Defendants JustFab, IB Holding, Hirsch, Ressler, 25 Goldenberg, Chadwick, TCV, Ventures and Drew, as alter egos of the Sensa Entities, 26 are jointly and severally liable for the Sensa Entities’ violation of the CLRA. 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 65 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1664 Page 67 of 78
1 178. Pursuant to Civil Code § 1780, Plaintiff seeks an order of this Court 2 permanently enjoining Defendants from continuing to engage in their unlawful 3 conduct as alleged herein. Plaintiff also seeks an order of this Court requiring 4 Defendants to: 5 a. Pay damages according to proof; 6 b. Immediately cease the conduct alleged herein; 7 c. Make full restitution of all monies wrongfully obtained; 8 d. Disgorge all ill-gotten revenues and/or profits; and 9 e. Pay punitive damages. 10 COUNT V 11 Violation of California’s False Advertising Law (“FAL”), Business & Professions Code § 17500 et seq. 12 179. Plaintiff Stokes incorporates by reference and re-alleges each and every 13 allegation set forth above as though fully set forth herein. 14 180. Plaintiff Stokes brings this claim individually and on behalf of the 15 members of the Class against Defendants. 16 181. Defendants violated Business & Professions Code § 17500 by publicly 17 disseminating false, misleading and unsubstantiated advertisements regarding Sensa 18 crystals. 19 182. The Sensa Entities false, and misleading advertisements were 20 disseminated to increase the sales of Sensa. 21 183. The Sensa Entities knew or should have known that their advertisements 22 for Sensa crystals were false, misleading, and unsubstantiated, and those 23 advertisements would induce consumers to purchase Sensa crystals. 24 184. Furthermore, the Sensa Entities publicly disseminated the false, and 25 misleading advertisements as part of a plan or scheme with the intent to sell an 26 unproven, ineffective, and worthless product. 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 66 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1665 Page 68 of 78
1 185. Plaintiff Stokes and the members of the Class have suffered harm as a 2 result of these violations of the FAL because they have incurred charges and/or paid 3 monies for Sensa crystals that they otherwise would not have incurred or paid. 4 186. As set forth above, Defendants JustFab, IB Holding, Hirsch, Ressler, 5 Goldenberg, Chadwick, TCV, Ventures and Drew, as alter egos of the Sensa Entities, 6 are jointly and severally liable for the Sensa Entities’ violation of the FAL. 7 187. Pursuant to Bus. & Prof. Code § 17500, Plaintiff Stokes seeks an order 8 of this Court permanently enjoining Defendants from continuing to publicly 9 disseminate false, misleading, or unsubstantiated advertisements for Sensa crystals as 10 alleged herein. Plaintiff Stokes also seeks an order requiring Defendants to: 11 a. make full restitution for all monies wrongfully obtained; and 12 b. disgorge all ill-gotten revenues and/or profits. 13 COUNT VI 14 Unlawful Business Practices In Violation of California’s Unfair Competition Law (“UCL”), 15 Business & Professions Code §§ 17200 et seq. (Unlawful Practices) 16 188. Plaintiff Stokes incorporates by reference and re-alleges each and every 17 allegation set forth above as though fully set forth herein. 18 189. Plaintiff Stokes brings this claim individually and on behalf of the 19 members of the Class against Defendants. 20 190. Defendants violated the unlawful prong of the UCL by violating Civil 21 Code § 1770(a)(2), (5), (7), (9), and (14) and Business & Professions Code § 17500 22 as described above. 23 191. The Sensa Entities also violated the unlawful prong of the UCL by 24 violating the FTC Act, 15 U.S.C. § 45(n) because false, misleading, and 25 unsubstantiated claims concerning the clinically proven efficacy of Sensa crystals are 26 likely to deceive reasonable consumers and are likely to cause injury to consumers by 27 enticing them to purchase a worthless and ineffective product. These claims are also 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 67 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1666 Page 69 of 78
1 likely to incur charges and/or pay monies for Sensa crystals that they otherwise 2 would not have incurred or paid. These injuries are substantial, and are not 3 reasonably avoidable by consumers who in most cases would be unable to debunk the 4 Sensa Entities’ bogus claims about the purported efficacy of Sensa crystals. 5 Furthermore, “[t]he FTC typically requires claims about the efficacy or safety of 6 dietary supplements to be supported with ‘competent and reliable scientific 7 evidence,’ defined in FTC cases as ‘tests, analyses, research, studies, or other 8 evidence based on the expertise of professionals in the relevant area, that have been 9 conducted and evaluated in an objective manner by persons qualified to do so, using 10 procedures generally accepted in the profession to yield accurate and reliable 11 results.’”26 Such support was lacking here, thus the Sensa Entities claims concerning 12 the efficacy of Sensa crystals were unsupported and deceptive in violation of the FTC 13 Act. 14 192. Plaintiff Stokes and the members of the Class have suffered harm as a 15 result of these violations of the unlawful prong of the UCL because they have 16 incurred charges and/or paid monies for Sensa they otherwise would not have 17 incurred or paid. 18 193. As set forth above, Defendants JustFab, IB Holding, Hirsch, Ressler, 19 Goldenberg, Chadwick, TCV, Ventures and Drew, as alter egos of the Sensa Entities, 20 are jointly and severally liable for the Sensa Entities’ violation of the UCL. 21 194. Pursuant to Business & Professions Code § 17203, Plaintiff Stokes seeks 22 an order of this Court permanently enjoining Defendants from continuing to engage 23 in their unlawful conduct as alleged herein. Plaintiff Stokes also seeks an order 24 requiring Defendants to: 25
26 26 Federal Trade Commission, Dietary Supplements: An Adverting Guide for 27 Industry, p. 9, available at http://business.ftc.gov/sites/default/files/pdf/bus09- 28 dietary-supplements-advertising-guide-industry.pdf (“FTC Advertising Guide”). THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 68 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1667 Page 70 of 78
1 a. immediately cease the conduct described herein; 2 b. make full restitution of all monies wrongfully obtained; and 3 c. disgorge all ill-gotten revenues and/or profits. 4 COUNT VII 5 Unlawful Business Practices In Violation Of California’s Unfair Competition Law (“UCL”), 6 Business & Professions Code §§ 17200 et seq. 7 (Unfair Practices) 8 195. Plaintiff Stokes incorporates by reference and re-alleges each and every
9 allegation set forth above as though fully set forth herein. 10 196. Plaintiff Stokes brings this claim individually and on behalf of the 11 members of the proposed Class against Defendants. 12 197. The Sensa Entities’ conduct, described herein, violated the unfair prong 13 of the UCL because such conduct violated various laws and policies recognized by 14 the California Legislature and the California courts, including without limitation, the 15 CLRA and FAL, because the utility of the Sensa Entities conduct is significantly
16 outweighed by the gravity of the harms it imposed on consumers, and because 17 Defendants’ business practices described herein are oppressive, unscrupulous or 18 substantially injurious to consumers. 19 198. Plaintiff Stokes and the members of the Class have suffered harm as a
20 result of these violations of the unfair prong of the UCL because they have incurred 21 charges and/or paid monies for Sensa they otherwise would not have incurred or paid. 22 199. As set forth above, Defendants JustFab, IB Holding, Hirsch, Ressler,
23 Goldenberg, Chadwick, TCV, Ventures and Drew, as alter egos of the Sensa Entities, 24 are jointly and severally liable for the Sensa Entities’ violation of the UCL. 25 200. Pursuant to Business & Professions Code § 17203, Plaintiff Stokes seeks 26 an order of this Court permanently enjoining Defendants from continuing to engage 27 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 69 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1668 Page 71 of 78
1 in their unfair and unlawful conduct as alleged herein. Plaintiff Stokes also seeks an 2 order requiring Defendants to: 3 a. immediately cease their unfair and unlawful acts and practices; 4 b. make full restitution of all monies wrongfully obtained; and 5 c. disgorge all ill-gotten revenues and/or profits.
6 COUNT VIII 7 Unlawful Business Practices In Violation of California’s Unfair Competition 8 Law (“UCL”), Business & Professions Code §§ 17200 et seq. 9 (Fraudulent and Deceptive Practices) 10 201. Plaintiff Stokes incorporates by reference and re-alleges each and every 11 allegation set forth above as though fully set forth herein. 12 202. Plaintiff Stokes brings this claim individually and on behalf of the 13 members of the Class against Defendants. 14 203. The Sensa Entities violated the fraudulent and deceptive prong of the 15 UCL by disseminating false, misleading and unsubstantiated advertisements and 16 marketing materials regarding the effectiveness of Sensa. 17 204. Plaintiff Stokes and the members of the Class have suffered harm as a 18 result of these violations of the fraudulent and deceptive prong of the UCL because 19 they have incurred charges and/or paid monies for Sensa they otherwise would not 20 have incurred or paid. 21 205. As set forth above, Defendants JustFab, IB Holding, Hirsch, Ressler, 22 Goldenberg, Chadwick, TCV, Ventures and Drew, as alter egos of the Sensa Entities, 23 are jointly and severally liable for the Sensa Entities’ violation of the UCL. 24 206. Pursuant to Business & Professions Code § 17203, Plaintiff Stokes seeks 25 an order permanently enjoining Defendants from continuing to engage in their 26 fraudulent and deceptive conduct alleged herein. Plaintiff Stokes also seeks an order 27 requiring Defendants to: 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 70 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1669 Page 72 of 78
1 a. immediately cease their fraudulent and deceptive acts and practices; 2 b. make full restitution of all monies wrongfully obtained; and 3 c. disgorge all ill-gotten revenues and/or profits.
4 COUNT IX 5 Violation of Florida’s Deceptive and Unfair Trade Practices Act (“FDUTPA”), 6 Fla. Stat. § 501.201, et seq. 7 207. Plaintiff Stokes incorporates by reference and re-alleges each and every 8 allegation set forth above as though fully set forth herein.
9 208. Plaintiff Stokes brings this claim individually and on behalf of the 10 members of the proposed Florida Subclass against Defendants. 11 209. The Sensa Entities’ false advertising of Sensa directly affected Plaintiff 12 Stokes and other consumers in Florida. 13 210. The FDUTPA is intended to “protect the consuming public … from 14 those who engage in unfair methods of competition, or unconscionable, deceptive, or 15 unfair acts or practices in the conduct of any trade or commerce.” Fla. Stat. §
16 501.201(2). 17 211. Plaintiff is a consumer as defined by FDUTPA, Fla. Stat. § 501.203. 18 The Sensa products are goods within the meaning of FDUTPA. 19 212. The Sensa Entities’ conduct, described herein, constitutes
20 unconscionable, deceptive, or unfair acts or practices in the conduct of any trade or 21 commerce defined in Fla. Stat. § 501.201 et seq. because the Sensa Entities made 22 false and misleading statements to promote Sensa, and had no intention of selling
23 Sensa as advertised. 24 213. The Sensa Entities engaged in a continuing course of conduct of unfair 25 competition because the Sensa Entities’ marketing and selling of Sensa was likely to 26 deceive the public, including Plaintiff Stokes and members of the Florida Subclass. 27 The Sensa Entities have made unfair, deceptive, untrue, or misleading statements in 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 71 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1670 Page 73 of 78
1 advertising media, including the Internet, within the meaning of FDUTPA, § 501.201, 2 et seq. 3 214. Further, in advertising and packing the Sensa products, the Sensa 4 Entities do not have the requisite competent and reliable evidence to support the 5 claims about the products made in Sensa Entities’ advertising. Therefore, the Sensa 6 Entities made false and misleading statements concerning Sensa, and refused to 7 reveal true facts. 8 215. The Sensa Entities’ practices also constitute unfair methods of 9 competition as described in Fla. Stat. § 501.203 because Sensa does not perform as 10 warranted. 11 216. As a direct and proximate result of the Sensa Entities’ violations of 12 FDUTPA, Plaintiff Stokes and the Florida Subclass have suffered economic loss. 13 Plaintiff Stokes and the Florida Subclass would not have purchased Sensa had they 14 known that it was not as the Sensa Entities represented it. 15 217. As set forth above, Defendants JustFab, IB Holding, Hirsch, Ressler, 16 Goldenberg, Chadwick, TCV, Ventures and Drew, as alter egos of the Sensa Entities, 17 are jointly and severally liable for the Sensa Entities’ violation of the FAL 18 218. Pursuant to FDUTPA, Plaintiff Stokes, seeks an order permanently 19 enjoining Defendants from continuing to engage in their fraudulent and deceptive 20 conduct alleged herein. Plaintiff Stokes also seeks an order requiring Defendants to: 21 a. immediately cease their fraudulent and deceptive acts and practices; 22 b. make full restitution of all monies wrongfully obtained; and 23 c. disgorge all ill-gotten revenues and/or profits. 24 COUNT X 25 Negligent Misrepresentation 26 219. Plaintiff incorporates by reference and re-alleges each and every 27 allegation set forth above as though fully set forth herein. 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 72 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1671 Page 74 of 78
1 220. Plaintiff brings this claim individually and on behalf of the members of 2 the proposed Class against Defendants. 3 221. To make a claim for negligent misrepresentation, Plaintiff must show the 4 following: 5 a. The Sensa Entities made representations in the course of their 6 business; 7 b. the Sensa Entities supplied “false information” for the guidance of 8 others in their business; 9 c. the Sensa Entities did not exercise reasonable care or competence 10 in obtaining or communicating the information; and 11 d. Plaintiff suffered pecuniary loss by justification relying on the 12 misrepresentation. 13 222. All these factors exist here. The Sensa Entities advertised and made 14 false, misleading, and deceptive claims about Sensa. Namely, the Sensa Entities 15 claimed that Sensa tastants are sprinkled onto food and the tastants “trigger your ‘I 16 feel full’ signal, so you eat less and feel more satisfied.” The Sensa Entities claim that 17 Sensa will allow a consumer to “Lose 30 Pounds Without Dieting” by “[e]at[ing] 18 your favorite foods,” with “no restrictive dieting,” “no calorie counting,” and “no 19 sacrifice.” 20 223. The Sensa Entities’ representations were not true, and the Sensa Entities 21 did not exercise reasonable care or competence in obtaining or communicating this 22 information. In fact, the Sensa Entities’ claims in connection with Sensa are 23 inconsistent with and/or conflict with the guidelines and/or statements of the FDA 24 which, in an effort to promote real weight loss and to prevent Americans from being 25 defrauded by “miracle pills,” instructs that “[t]he only proven way to lose weight is 26 either to reduce the number of calories you eat or to increase the number of calories 27 you burn off through exercise.” 28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 73 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1672 Page 75 of 78
1 224. Plaintiff and the Class relied on the Sensa Entities representations of a 2 guaranteed weight loss without dieting or exercise upon purchasing Sensa. There 3 would be no other reason to purchase a weight-loss product other than for weight- 4 loss. As a result, Plaintiff and the Class were damaged by their purchase of Sensa. 5 225. As set forth above, Defendants JustFab, IB Holding, Hirsch, Ressler, 6 Goldenberg, Chadwick, TCV, Ventures and Drew, as alter egos of the Sensa Entities, 7 are jointly and severally liable for the Sensa Entities’ negligent misrepresentation. 8 PRAYER FOR RELIEF 9 WHEREFORE, Plaintiff prays for judgment and relief as follows: 10 A. An order certifying that this lawsuit is properly maintainable as a class 11 action and certifying Plaintiff Stokes as the representatives of the Class 12 and the Florida Subclass; 13 B. For all forms of relief set forth above; 14 C. Damages against Defendants in an amount to be determined at trial, 15 together with pre- and post-judgment interest at the maximum rate 16 allowable by law on any amounts awarded; 17 D. Restitution and/or disgorgement in an amount to be determined at trial; 18 E. Punitive damages; 19 F. An order enjoining Defendants from continuing to engage in the 20 unlawful conduct and practices described herein; 21 G. Reasonable attorneys’ fees and costs; 22 H. An order disregarding the corporate entity of the Sensa Entities and 23 imposing the Sensa Entities’ liabilities on the other Defendants; and 24 I. Granting such other and further relief as may be just and proper. 25 DEMAND FOR TRIAL BY JURY 26 Plaintiff demands a trial by jury of all issues so triable. 27
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Dated: November 1, 2016 BURSOR & FISHER, P.A. 1
2 By: s/ L. Timothy Fisher 3 Scott A. Bursor (State Bar No. 276006) 4 L. Timothy Fisher (State Bar No. 191626) 5 Annick M. Persinger (State Bar No. 272996) 1990 North California Boulevard, Suite 940 6 Walnut Creek, CA 94596 7 Telephone: (925) 300-4455 Facsimile: (925) 407-2700 8 E-Mail: [email protected] 9 [email protected] [email protected] 10 11 Interim Class Counsel
12 GLANCY BINKOW & GOLDBERG LLP 13 Lionel Z. Glancy (#134180) Mark S. Greenstone (#199606) 14 1925 Century Park East, Suite 2100 15 Los Angeles, California 90067 Telephone: (310) 201-9150 16 Facsimile: (310) 201-9160 17 Email: [email protected]
18 GLANCY BINKOW & GOLDBERG LLP 19 Brian P. Murray 122 East 42nd Street, Suite 2920 20 New York, NY 10168 21 Telephone: (212) 682-5340 Facsimile: (212) 884-0988 22 Email: [email protected] 23 CHEFFY PASSIDOMO 24 Louis D. D’Agostino 25 821 Fifth Avenue South Naples, FL 34102 26 Telephone: (239) 261-9300 27 Facsimile: (239) 435-1218
28 THIRD CONSOLIDATED AMENDED CLASS ACTION COMPLAINT CASE NO. 14-CV-51 JLS (WVG) 75 Case 3:14-cv-00051-JLS-WVG Document 76 Filed 11/01/16 PageID.1674 Page 77 of 78
1 COLEMAN, YOVANOVICH & KOESTER, P.A. 2 Edmond E. Koester 3 4001 Tamiami Trail N., Suite 300 Naples, FL 34103 4 Telephone: (239) 435-3535 5 Facsimile: (239) 435-1218
6 Attorneys for Plaintiff Stokes 7 8
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1 CERTIFICATE OF SERVICE 2 I hereby certify that on November 1, 2016, I electronically transmitted the attached 3 document to the Clerk’s Office using the CM/ECF System for filing and transmittal of a 4 Notice of Electronic Filing to all CM/ECF registrants.
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7 Debbie Schroeder
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