Filed an Objection
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Case 2:13-cv-02488-BRO-SH Document 121 Filed 03/24/15 Page 1 of 64 Page ID #:3391 1 COHEN MCKEON LLP 2 MICHAL L. COHEN (SBN 206253) 3 [email protected] HEATHER M. MCKEON (SBN 186414) 4 [email protected] 5 1910 W. Sunset Boulevard, Suite 440 Los Angeles, California 90026 6 213-413-6400 (phone) 7 213-403-6405 (fax) 8 Douglas M. Brooks (pending pro hac vice) 9 [email protected] 10 60 Thoreau Street, No. 219 Concord, MA 01742 11 Telephone: (781) 424-6737 12 13 Attorney for Objectors 14 15 IN THE UNITED STATES DISTRICT COURT 16 CENTRAL DISTRICT OF CALIFORNIA, WESTERN DIVISION 17 18 Case No. 2:13-CV-02488-BRO-RZ 19 DANA BOSTICK, et al., 20 Plaintiffs, 21 OBJECTIONS TO CLASS ACTION vs. SETTLEMENT AND NOTICE OF 22 INTENT TO APPEAR AT FINAL HERBALIFE INTERNATIONAL OF APPROVAL HEARING 23 AMERICA, INC., et al., Hon. Beverly Reid O’Connell 24 Defendants. 25 26 27 28 OBJECTIONS TO CLASS ACTION SETTLEMENT - 1 Case 2:13-cv-02488-BRO-SH Document 121 Filed 03/24/15 Page 2 of 64 Page ID #:3392 The following class members object to the proposed class action settlement 1 2 in this action for the reasons set forth in their Declarations attached hereto and for 3 the reasons set forth in the memorandum below: Elvia Acosta (Exhibit A), Sabas 4 5 Avila (Exhibit B), Miguel Calderon (Exhibit C), Felipe Colon (Exhibit D), 6 Elizabeth Correa (Exhibit E), Maria Cutzal (Exhibit F), Juana Estala (Exhibit G), 7 8 Jose G. Garcia (Exhibit H), Valentina Leon (Exhibit I), Rossina Martinez (Exhibit 9 J), Gilberto Melchor Sanchez (Exhibit K), Martil Palma Vallecillo (Exhibit L), 10 Yader A. Pastran (Exhibit M), Susana Perez (Exhibit N), Eric Rodensky (Exhibit 11 12 O), Jose Tafoya (Exhibit P), Olivia Torres (Exhibit Q) and Julia Ulloa (Exhibit R). 13 The foregoing class members will be collectively referred to herein as “Objectors.” 14 15 I. Summary of Objections 16 A. The Financial Compensation for the Endless Chain Scheme Claim is 17 Inadequate 18 The financial compensation for the Rule 23(b)(3) damages class is grossly 19 20 inadequate, by at least an order of magnitude. The parties failed to provide the 21 Court with any information from which the Court could determine the range of 22 possible recovery on any of the claims in the Complaint. The parties have 23 24 provided no data concerning the composition of the class or the range of damages 25 suffered by class members. While Objectors do not have access to the data which 26 27 Herbalife provided to Plaintiffs’ counsel during confirmatory discovery, the 28 information which is available suggests that aggregate damages of the class for the OBJECTIONS TO CLASS ACTION SETTLEMENT - 2 Case 2:13-cv-02488-BRO-SH Document 121 Filed 03/24/15 Page 3 of 64 Page ID #:3393 core claim in the Amended Complaint, violation of the California Endless Chain 1 2 Scheme Law, range from $700 million to $1.12 billion or more, 3 B. The Financial Compensation for the Shipping and Handling Claim is 4 Inadequate 5 Objectors estimate that the aggregate class damages for the shipping and 6 7 handling fee claim are approximately $260 million. In light of the potential 8 recovery, and considering all of the risks of litigation, the Settlement Fund of $15 9 10 million and the Product Return Fund of $2.5 million are patently inadequate. 11 C. Some Settlement Class Members Were Wrongfully Excluded from the 12 Rule 23(b)(3) Damages Class. 13 The Settlement calls for certification of both a damages class under Rule 14 15 23(b)(3) and a broader injunctive relief class under Rule 23(b)(2). Herbalife 16 distributors who are subject to the arbitration clause (including a class action 17 waiver) which Herbalife began using in distributor agreements during and after 18 19 September of 2013 are included in the broader injunctive relief class but not the 20 damages class. However, Herbalife has waived its rights under its unilateral 21 22 arbitration clause by including distributors who were supposedly subject to the 23 clause in the injunctive relief class, and by reserving the right to make unilateral 24 25 modifications to the distributor agreement and arbitration clause. Distributors who 26 were supposedly subject to the arbitration clause should not have been excluded 27 from the Rule 23(b)(3) damages class. 28 OBJECTIONS TO CLASS ACTION SETTLEMENT - 3 Case 2:13-cv-02488-BRO-SH Document 121 Filed 03/24/15 Page 4 of 64 Page ID #:3394 D. The Failure to Permit Class Members to Recover Consequential 1 Damages is Unfair and Unreasonable. 2 3 Herbalife is well aware of the fact that its distributors incur substantial expenses 4 in the operation of their Herbalife distributorships and Nutrition Clubs. In light of 5 the clear legal authority permitting the recovery of consequential damages for 6 7 violation of the Endless Chain Scheme law, the failure to permit class members to 8 recover their consequential damages is unfair and unreasonable. 9 10 E. There is No Adequate Representation of the Injunctive Relief Class 11 The Rule 23(b)(2) injunctive relief class was improperly defined to include 12 13 former distributors who have no interest or stake in whatever injunctive relief is 14 imposed against Herbalife. None of the named Plaintiffs are current Herbalife 15 distributors. Representation of the injunctive relief class is therefore not only 16 17 inadequate, but non-existent. 18 F. The Injunctive Relief Provides No Benefit to the Class But Does Provide 19 a Substantial, Improper Benefit to Herbalife 20 The thirteen “corporate policies” which Herbalife has agreed to continue for 21 22 three years are utterly inadequate and fail to address the core allegations of the 23 Complaint, that Herbalife promotes an endless chain scheme in which the vast 24 25 majority of distributors lose their investments, falsely advertises its business 26 opportunity, and grossly overcharges for shipping and handling. In reality the 27 injunctive relief benefits only Herbalife, by giving its corporate policies the 28 OBJECTIONS TO CLASS ACTION SETTLEMENT - 4 Case 2:13-cv-02488-BRO-SH Document 121 Filed 03/24/15 Page 5 of 64 Page ID #:3395 judicial imprimatur of this Court, as it prepares to deal with the governmental 1 2 regulators who are investigating its business practices. 3 G. The Settlement Release is Too Broad 4 5 The Release in the Settlement Agreement will release claims against high level 6 Herbalife distributors who would otherwise be subject to “claw back” actions by 7 8 government regulators, receivers or class members. 9 H. The Class Notice and Claims Process is Inadequate 10 The Class Notice was inadequate because it fails to provide class members 11 12 with any means for estimating how much of their losses they will recover if the 13 Settlement is approved. It is confusing because it does not make clear that class 14 15 members who wish to object can, and should, also file a claim. The on-line claims 16 process is confusing and deceptive because the page on which claimants are 17 advised of the amount of their “Business Opportunity Claim Award” does not 18 19 disclose that the award may be subject to pro rata reduction. 20 I. The Class Notice Program is Inadequate 21 22 The Class Notice program is inadequate because it fails to address the special 23 problems created by Herbalife’s aggressive marketing to the Latino community, 24 25 including undocumented residents who became Herbalife distributors or Herbalife 26 Nutrition Club operators. 27 28 OBJECTIONS TO CLASS ACTION SETTLEMENT - 5 Case 2:13-cv-02488-BRO-SH Document 121 Filed 03/24/15 Page 6 of 64 Page ID #:3396 II. ARGUMENT 1 2 Objectors are mindful of the risks of litigation and the benefits of settlement. 3 Their counsel has litigated class actions against large multilevel marketing firms, 4 5 including Herbalife, and is well aware of all of the things that can go wrong with a 6 case like this. But this is a settlement where the financial compensation is so small 7 8 in relation to the potential damages that could be recovered at trial, and where the 9 injunctive relief is so patently inadequate, that it should not be approved. In 10 addition, this case is highly visible, and is being closely followed by government 11 12 regulators and both partisans and critics of the multilevel marketing industry. This 13 settlement will undoubtedly impact the practices of other multilevel marketers and 14 15 the ongoing investigations of Herbalife by the Federal Trade Commission and 16 several state Attorneys General. Objectors respectfully request that the Court 17 undertake the searching inquiry that is called for here, and reject the settlement. In 18 19 re Bluetooth Headset Products Liab. Litig., 654 F.3d 935, 946-47 (9th Cir. 2011) 20 (more searching inquiry is required when a settlement comes before a class is 21 22 certified); Mirfasihi v. Fleet Mortgage Corp., 356 F.3d 781, 785 (7th Cir. 2004) 23 (“because class actions are rife with potential conflicts of interest between class 24 25 counsel and class members, district judges presiding over such actions are 26 expected to give careful scrutiny to the terms of proposed settlements in order to 27 28 OBJECTIONS TO CLASS ACTION SETTLEMENT - 6 Case 2:13-cv-02488-BRO-SH Document 121 Filed 03/24/15 Page 7 of 64 Page ID #:3397 make sure that class counsel are behaving as honest fiduciaries for the class as a 1 2 whole.”).