Permanent Injunction against Herbalife (1986)


December 11, 2004

JOHN K. VAN DE KAMP, Attorney General of the State of California
HERSCHEL T. ELKINS & CHARLTON HOLLAND
Assistant Attorneys General
ALBERT NORMAN SHELDEN (619) 137-7754
PETER G. DeMAURO (916) 324-5331
Deputy Attorneys General
1515 K Street, Suite 511
Sacramento, California 95814

ARTHUR DANNER III, District Attorney of Santa Cruz County
DON GARTNER (408) 425-2071
Assistant District Attorney
701 Ocean Street
Santa Cruz, California 95060

Attorneys for Plaintiffs

LAW OFFICES Of CONRAD LEE KLEIN
CONRAD LEE KLEIN
14001 Ventura Boulevard
Sherman Oaks, California 91423
Telephone: (818) 986-8600

Attorneys for Defendants

SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SANTA CRUZ

PEOPLE OF THE STATE OF CALIFORNIA AND
THE DIRECTOR OF THE DEPARTMENT. OF
HEALTH SERVICES,

Plaintiffs,

vs.

HERBALFE INTERNATIONAL, INC.,
a California corporation, and
MARK HUGHES, et al.

Defendants


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No. 92767

FINAL JUDGMENT

AND

PERMANENT INJUNCTION

The People of the State of California and the Director of the Department of Health Services, having filed their complaint here in and defendants having been served with a summons and a copy of the complaint tiled herein; and defendants Herbalife International, Inc. (herein Herbalife), a California corporation, and Mark Hughes, an individual, having filed their answer to the complaint; and plaintiffs appearing through their attorneys John Van de Kamp, Attorney General, Herschel T. Elkins and Charlton Holland, Assistant Attorneys General; Albert Norman Shelden and Peter G. DeMauro, Deputy Attorneys General, by Albert Norman Shelden and Peter G. DeMauro, and Arthur Danner III, District Attorney of Santa Cruz, Don Gartner, Assistant District Attorney, by Don Gartner; and defendants Herbalife and Mark Hughes appearing through their attorneys Law Offices of Conrad Lee Klein by Conrad Lee Klein; and

It appearing that plaintiffs, the People of the State of California and the Director of the Department of Health Services, and defendants above named, personally and through their- attorneys, have stipulated and consented to the entry of this final judgment and permanent injunction prior to the taking of any proof and without trial or adjudication of any fact or law herein and without this final judgment constituting evidence or an admission by said defendants regarding any issue or any fact alleged in said complaint, defendants having denied the allegations in the complaint;

NOW, THEREFORE, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED:

1. This court has jurisdiction in the State of California over the subject matter hereof and the parties hereto.

2. The provisions of this final judgment are applicable to: (a) defendants, Herbalife, Mark Hughes, and each of them, and their respective successors in interest, whether corporate or otherwise, and (b) those officers, directors and employees of said defendants and any other entities acting under, by or on behalf of either such defendant or pursuant to their direction, who have notice of this injunction.

3. Pursuant to Business and Professions Code Sections 17203 and 17535, defendants are hereby permanently enjoined and restrained from:

A. Using or causing to be used pages B-3 through B-10 of the Official Career Book which bears a copyright date of 1982.

B. Representing that defendants’ products contain herbs: (1) which in and of themselves naturally curb the appetite; (2) which burn of£ calories; or, (3) which naturally cleanse the system. Defendants, however, are not restrained from representing that the herbs when used in the quantity recommended by defendants assist the natural self-cleansing function of the body, if there is a reasonable basis therefore

C. Representing that one who uses defendants’ products will lose weight without a reduction in the user’s caloric intake.

D. Representing that defendants’ Formula #2 is helpful for the conditions or organs enumerated in the complaint on file at page 14, lines 8-27.

E. Representing that because of its iodine content, the use of kelp in Formula #2 is valuable in a weight reduction program.

F. Representing that the inclusion of lecithin in Formula #2 will result in an inch loss from fatty areas.

G. Representing that the manner in which  defendants include cider vinegar in Formula #2 acts to help curb the appetite.

H. Representing that because of the herbs and the manner in which they are included in Herbalife’s products, the use of such products will cleanse the villi and help prevent the clogging of the villi in the intestine.  defendants however, are not restrained from representing that the effect of the herbs as used in their product on the villous portion of the digestive tract is to aid its nutrient absorption function, if there is a reasonable basis therefor.

I. Representing that the Herbalife Cell-U-Loss product: (1) contains herbs which on their own naturally eliminate “cellulite” or the appearance of “cellulite”; ( 2) has the medicinal properties which are helpful for the conditions or organs enumerated in the complaint herein at pages 15-16 lines 25-3; or (3) directs weight loss to particular portions of the body. Defendants, however, are not restrained from representing that Cell-U-Loss is a unique vitamin, mineral and herb formula which assists elimination of excess fluids and helps reduce the appearance of “cellulite,” if there is a reasonable basis therefor.

J. Representing that the Herbalife N.R.G product: (1) naturally increases energy; (2) naturally provides a nutritional lift; (3) has the medical action and uses enumerated in the complaint herein at page 16, lines 19-24; (4) helps to reduce hunger; or (5) that the product is a nutritional factor in health. Defendants, however, are not restrained from representing that N.R.G. provides a tremendous lift, aids mental alertness and reduces feelings of fatigue, if there is a reasonable basis therefor.

K. Failing to disclose in the career book and on the label that one of guarana’s components is caffeine.

L. Representing that the Herbalifeline product: (1) dissipates the abnormal build-up of plaque in the arteries, or (2) provides protection for the entire vascular system. Defendants, however, are not restrained from representing that Herbalifeline includes several nutritional factors important for health, in a base of carefully selected herbs and supplies a full-spectrum marine source lipid complex, which is particularly rich in Omega 3 tatty acids, which are considered by various scientific experts to playa role in good cardiovascular health, if there is a reasonable basis therefore.

M. Representing that the Herbalife Schizandra Plus product helps to combat damage that can lead to premature aging. defendants, however, are not restrained from representing that the nutrients in this product help combat premature damage to cells from toxins in the environment, and did cell integrity, if there is reasonable basis therefor.

N. Representing that Tang Kuei relieves menstrual disorders.  defendants, however, are not restrained from representing that Tang Kuei is an herbally based formula which nutritionally helps with the normal discomforts associated with the menstrual function, if there is a reasonable basis therefor.

O. Representing that Flora Fiber restores flow in the intestine and prevents disease. Defendants, however, are not restrained from representing that Flora fiber helps reconstitute and maintain essential flora of the gastrointestinal tract, provides fiber for a natural cleansing effect on the intestinal tract and helps contribute to a proper diet, if there is a reasonable basis therefor.

P. Representing that K-8 stops or affects psycho-neurotic depression.  defendants, however, are not restrained from representing that K-8 is an herbal formula with amino acids which helps to naturally offset feelings of temporary stress and moodiness, if there is a reasonable basis therefor;

Q. Making false or misleading representations with respect to any specific goals for participants in  defendants’ marketing program relating to the number of new customers or new participants a participant may obtain within a specific time period or an amount of money a participant may earn through bonuses and overrides.

R. Representing that defendants’ otter their products with a “100% Satisfaction Guarantee (or your money back) or any other such refund otter unless: (1)  defendants in a clear and conspicuous manner disclose any limitations which apply to the refund offer at the time the refund offer is disclosed; and, (2) defendants continue to clearly inform participants in their marketing program of such participants’ obligations vis-a-vis a purchaser who invokes the refund offer, if participants in defendants’ marketing program have any such obligation.

S. Defendants shall not use any “live” testimonials relating to the experience the individual giving the testimonial had with one or more of  defendants’ products unless prior to the taking of any testimonials at live presentations, defendants shall indicate, orally or in a conspicuous writing, to those giving testimonials that: (1) testimonials cannot contain any untrue or misleading representations; (2) testimonials regarding any of  defendants’ weight loss products or products for- special dietary use may not describe curative or preventive properties or experiences for disease or illness. Provided, however,  defendants may indicate that an individual giving a testimonial may, if it is true as to that individual, make reference to general feelings of well-being as well as make reference to a product’s effect to the same extent that defendants can refer to that product’s effect. If defendants have reason to believe that a testimonial in contravention of the above has been given. they shall, no later than at the conclusion of the testimonial portion of the presentation, disavow such testimonial to those physically in the audience, and shall not thereafter utilize such contravening testimonial in any manner. If defendants have reason to believe that an individual either gave a testimonial in violation of (1), above, or continues to give testimonials in violation of (2). above, then defendants shall not permit that. person to again otter testimonials for  defendants’ product(s). The provisions of this paragraph .S. shall not apply to any live training meetings given only for and attended by distributors of Herbalife products; provided, however, representations or claims for defendants products not allowed to be made pursuant to this judgment shall not be made at such meetings.

T. (1) Subject to the exceptions in Section 6, below, engaging in the following described conduct: (a) Representing or implying that any current product of defendants diagnoses, cures, mitigates, treats or prevents disease if the product is a “new drug” as defined in Health and Safety Code Section 26021 unless defendants have first complied with the requirements of Health and Safety Code Section 26670 (a) or (b), and having the representations made for any products comply with the provisions of Health and Safety Code Sections 26660 and 26661, if those sections are applicable; (b) Offering for sale any drug unless it is safe and effective or any food unless it is sate and defendants have a reasonable basis for the claims made for such drug or food; (c) Representing that  defendants’ Formula 2 is helpful for any physical disorder or disease. The provisions set forth in subsection (a) of Section T do not apply to Herbatan and APR because those products, as of the date of this judgment, are not considered new drugs by the plaintiffs so long as the products are in compliance with proposed or final over-the-counter monographs of the Food and Drug Administration and advertising for such is in conformity with the standards therein; but plaintiffs’ right to enforce applicable laws are not affected hereby.

(2) If plaintiffs claim that any conduct not con forming to the preceding paragraph has been engaged in, then plaintiffs shall proceed against defendants therefor, if at ail, by taking action pursuant to Business and Professions Code sections 17200 et seq. and 17500 et seq., or the applicable Health and Safety Code sections, or any other statutory provisions, but not by direct enforcement of this judgment, as for example, by way of contempt.

(3) Nothing contained in this Section T shall be deemed to be a limitation on any other provision, or the method of enforcement of any other provision, of this judgment nor the penalties, if any, which may be available under the provisions of Sections 17207 and 17535.5 of the California Business and Professions Code.

4. Whenever a reasonable basis. for a representation or claim is required pursuant to the terms of this judgment, such bas is does not exist. if the defendants knew or in the exercise of reasonable care should have known that the representation or claim was untrue or misleading at the time it was made.

5. A.  defendants shall not establish, maintain or operate a marketing program in which:

(1) A participant pays a valuable consideration for the chance in whole or in part, to receive, either directly or indirectly, compensation, which is based on other than retail sales for introducing one or more additional persons into participation in  defendants’ marketing program or for the chance to receive compensation., either directly or- indirectly, when the newly introduced participant introduces a new participant into defendants’ marketing program;

 (2) Any compensation, however denominated (including but not limited to “commissions,” “overrides,” “achievement bonuses,” or any term of similar import), defendants pay or participants receive is based upon anything other than the retail sale of  defendants’ products; and

(3) A participant can obtain any specific level in defendants’ Marketing program based upon criteria other than the amount of retail sales made by the participant or person (s) introduced into  defendants’ marketing program by the participant.

B.  defendants shall be in compliance with this Section 5, as long as a verification or documentation system they implement allows them, at any given point in time, to verify or: document to plaintiffs that any and all participants who receive commissions, bonuses, overrides and/or advancement from defendants in  defendants marketing program, after entry of this judgment, are based on retail sales made by or through such participant(s) or others introduced directly or indirectly under participant(s). Plaintiffs shall not seek such verification or documentation prior to 90 days after entry of this judgment., and defendants shall be in compliance with this verification or documentation requirement it their records are current and accurate to a point in time which does not precede plaintiffs’ request for verification or documentation by more than 90 days. Plaintiffs’ request for verification or documentation of retail sales shall be made to  defendants counsel of record.

C. The term “retail sale” as used in this Section 5 means a sale at defendants’ product(s) in any of the following situations: (1) to persons who are not part of defendant’s marketing program or distribution system; or, (2) to persons who are not buying to become part of  defendants marketing program or distribution system; or, (3) to persons who, although desirous of becoming or who are a part of defendants’ marketing plan or distribution system are buying for their own personal or family use.

6. Notwithstanding anything to the contrary herein, defendants shall not be in violation of this final judgment and permanent injunction by advertising, offering or selling products:

A. In compliance with Federal regulations relating to foods for special dietary use as such regulations are adopted by California Health and Safety Code Section 26208 or any successor sections; provided however, advertisements or otters which exceed the scope of such regulations or relate to issues not covered by such regulations are to that extent, subject to the provisions of Section 3.

B. In compliance with guidelines established and approved by the Federal Food and Drug Administration in over-the-counter monographs; or other Federal Food and Drug Administration criteria, provided however, advertisements or otters which exceed the scope of such guidelines or relate to issues not covered by such guidelines are to that extent, subject to the provisions of Section 3.

C. In compliance with California Health and Safety Code Sections 26000 through