Herbalife distributors claim events were a sham in US$1b lawsuit
Patricia and Jeff Rodgers figured they did everything right to get rich beyond their wildest dreams selling Herbalife health and personal care products. They attended all of the 'Circle of Success' events, brought in new recruits, met their quotas on buying Herbalife goods to sell, and even set up a storefront shop.
But they didn't get rich. Instead, Patricia Rodgers estimates the couple lost over US$100,000, including about US$20,000 spent on attending Herbalife events.
Now, the couple and others are suing the multilevel marketing company that sells its products through a network of distributors, who recruit more distributors. The potential class-action case could involve more than 100,000 plaintiffs and might mean as much as US$1 billion in damages.
"We did everything they told us to do. We attended every event. We travelled and we spent money. And we didn't get successful like they said we would," Rodgers said in an interview at the couple's home in Hallandale Beach, Florida. "You get involved in it, it's almost like a cult mentality."
Los Angeles-based Herbalife, a publicly traded company with 2017 net sales of US$4.4 billion, has long been embroiled in litigation and regulatory actions over its business practices, which have been compared by some to a pyramid scheme. A spokeswoman declined to comment for this story, although Herbalife attorneys are seeking to get the lawsuit dismissed or moved from Florida to a California court.
Herbalife lawyers say in court papers the distributors now suing the company in Miami were not specific in how company statements influenced them into making bad decisions.
"Plaintiffs' failure to specify how they were misled by these alleged misrepresentations is fatal" to many key claims, the lawyers wrote.
SELLS TO MAKE PROFIT
To become a distributor, a person must be recruited by an existing distributor, according to the company's website. The new recruit also must purchase a 'Herbalife Nutrition International Business Pack' explaining how the business works and how to become a sponsor. The new distributor buys Herbalife products at a discount and sells them, often part-time, in hopes of making a profit.
In 2016, the company settled a US Federal Trade Commission, FTC, case for US$200 million. It centred on Herbalife's business model being based on recruitment of distributors rather than actual sales of its products, such as protein shakes, vitamins and skincare items.
One year earlier, another lawsuit by Herbalife distributors ended in a US$17.5-million settlement.
In the FTC case, the agency said in a statement that "only a small minority of distributors have made anything near what the company promises" through promotional materials showing how they lived in expensive homes, drove luxury cars and took exotic vacations.
"A large majority of distributors made little or no money and a substantial percentage lost money," the FTC said.
The case in Miami federal court is different, said plaintiffs' attorney Etan Mark. It targets the system of high-energy events known as Circle of Success that distributors are cajoled into attending all over the country at their own expense. They are touted as the supposed key to learning how to become wealthy all the while signing up more people to become distributors in what's called the 'downline'.
A common company refrain was: "If you go to all of the events, you qualify for everything you will get rich," according to the lawsuit. Another was: "These crucial events provide you with the skills you need to take it to the next level," court documents show.
"They felt like they were chasing a ghost. It's the event you missed that would have changed your life," Mark said. "These tens of thousands of people in this case lost money. I believe the vast majority of people lose money through the Herbalife opportunity."
PAYS THE BILLS
Not every distributor feels that way. Valarea Pagan, an Orlando-area single mother, said selling Herbalife helps pay her bills as a second income source. She said Herbalife products helped her lose weight and feel good about herself.
"I love the products, and I'm helping people and I'm getting extra money," Pagan said in an interview. "It's helping me a lot."
Pagan said the biggest Circle of Success events are multi-media extravaganzas that get everyone hyped about selling Herbalife products. And they push distributors to aim for the company's VIP-level circles or even the company's top 'President's Team'.
"It's crazy. You get so pepped up. It's like the Super Bowl for us," she said. "It's like the biggest event of the year."
Herbalife's website says it has about 8,300 employees worldwide and about 2.3 million distributors. China, North America and the Asia-Pacific region account for nearly two-thirds of Herbalife sales.
Herbalife attorneys contend that many of the claims in the Miami court case are covered by the 2015 settlement with distributors that also focused on purported misrepresentations by the company about the pathway to wealth. That settlement, however, involved distributors who either couldn't sell the products for at least the cost of their purchase or wanted to return products after the company's one-year return policy.
If the case isn't dismissed or settled, Herbalife wants it transferred to a California federal court, which it claims is a requirement when a person signs up to become a distributor. In the Miami case, the plaintiffs claim their lawsuit isn't about the distributor agreements but about the Circle of Success events, so that requirement does not apply.
US District Judge Marcia Cooke in Miami is weighing all these motions, with trial set for September 2019 if the case isn't resolved before then. A key hearing is set for today, Wednesday, on pretrial motions.
Rodgers, the former Florida Herbalife distributor who's suing, said she'd like to recover some of her money, but also hopes others don't get fooled as she thinks she was.
"I took what money I had. I followed a dream I was sold. It was addictive. It was almost like you got hypnotised and you were in some kind of trance," she said. "Then you realise, man, I really got duped."