PEOPLE OF THE STATE OF CALIFORNIA
AND THE DIRECTOR OF THE EPARTMENT OF HEALTH SERVICES, )
HERBALIFE INTERNATIONAL, INC. )
a California corporation, )
and MARK HUGHES, et al., )
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:
- This court has jurisdiction in the State of California over the
subject matter hereof and the parties hereto.
- 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.
- 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.
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
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.
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.
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
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
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
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.
- 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
- 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.
- 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
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 ~6851, commonly known as the Sherman Food, Drug and Cosmetic Act.
D. Which are introduced after the date of this judgment or which are
current but which in a material manner have been reformulated and for which
there is a reasonable basis to support any claims or representations made
for such products.
E. For which there is a newly acquired reasonable basis to support any
claims or representations made for such products.
F. In manner now
prohibited by law but which subsequently becomes legally permissible.
- defendants shall not represent in advertising that their marketing plan or
product claims have been approved by this court, the California Attorney
General's office, the California Department of Health Services, the Santa
Cruz County District Attorney's office or any other governmental agency.
Provided, however, defendants may represent, after the entry of this
judgment, that the action evidenced by the complaint on file herein, has
been settled and is no longer pending and defendants in conformity with the
provisions hereof can legally continue to conduct business in California.
- A. Defendant, Herbalife, is hereby ordered to pay to Plaintiffs, State
of California, the sum of $850,000.00, as and for reimbursement to
plaintiffs for costs, attorneys tees, expenses of investigation and other
expenses and pursuant to Business and Professions Code Sections l7206 and
B. Payment is to be made at the office of the Attorney General of the
State of California, 110 West .A Street, Suite 700, San Diego, California
92101. Payment, if made by check, is to be made to the order of the
California Attorney General. Payments shall be made according to the
|1. Upon Filing of Judgment
|120 Days After Filing
|2. December 15, 1987
|April 15, 1988
|August 15, 1998
|3. October 15, 1988
|December 15, 1988
|February 15, 1989
|April 15, 1989
|July 15, 1989
|4. October 15, 1989
|December 15, 1989
|February 15, 1990
|April 15, 1990
|July 15, 1990
|5. September 15, 1990
|December 15, 1990
|March 15, 1991
|June 15, 1991
|September 15, 1991
C. Two Hundred
Thousand Dollars ($200,000.00) of said $850,000.00 payment is to reimburse
the California Department of Health Services for its attorneys tees, costs
of investigation and other expenses; said Department shall be entitled to
one-quarter (1/4) of each payment received until the full amount of its said
reimbursement is received by it.
D. If defendant Herbalife is more than
twenty-five days late in making any scheduled payment the entire unpaid
balance shall be due and payable if thereafter and with in five days after
Herbalife receives written notice of its failure to make such scheduled
payment it further fails to make the same.
- Defendant Mark Hughes is
hereby ordered to post security with plaintiffs in the amount of
$400,000.00, or in the aggregate amount due to plaintiffs pursuant to Sect
ion 8, above, whichever amount is less, from time to time. In the event
defendant Herbalife defaults in any payment due pursuant to Section 8,
above, plaintiff may collect from said security the amount due pursuant to
this judgment, to a maximum amount of $400,000.00. In no event shall the
amount paid by defendant Herbalife and the amount collected by plaintiffs
from the security posted by defendant Hughes, exceed the total amounts to be
paid pursuant to Sect ion 8, above. Such security may consist of cash, cash
equivalents, personal or real property, marketable securities, or
appropriate sureties. If during the course of the payments required to be
made hereunder, plaintiff and Mark Hughes agree to a substitution of
security designated above, such new security as agreed upon may be
- To insure compliance with the injunctive provisions of this
judgment, defendants shall give a full copy of or a summary of the
injunctive provisions of this judgment to each officer and each director,
who controls, manages, directs or otherwise takes part in developing
advertisements for defendants' products or defendants' marketing plan.
Defendants shall report to plaintiffs on compliance with this Section within
thirty days after entry of judgment.
- In the event that plaintiffs or
their counsel become informed and believe that defendants are violating any
provision of this judgment, prior to initiating any enforcement action
plaintiffs, through the office of the attorney general to which payments
hereunder are last made, shall give defendants written notice by mail or
otherwise of the nature of the alleged violation and thirty days to
undertake correction thereof. If defendants tail to undertake and diligently
pursue appropriate corrective activities plaintiffs may then institute such
legal action as is appropriate under the law. Provided, however, if
plaintiffs determine, in their sole discretion, that the best interest of
the people of the State of California require action plaintiffs may proceed
with or without first giving the notice and opportunity to correct which is
provided for herein.
- A. Jurisdiction is retained for the purpose of
enabling any party to this final judgment to apply to the court any time for
such further orders and directions as may be necessary or appropriate for
the construction or carrying out of this final judgment, for the
modification of any of the injunctive provisions hereof, for the enforcement
or compliance herewith, for relief herefrom, and for the punishment of
B. The right to seek relief pursuant to this Section l2 shall include the
right to seek to have the injunctive provisions of this judgment terminated
as to either or both defendants because, for example, the defendant's
conduct has for a sufficient period of time indicated that the public
interest does not require the continuation of this injunction.
C. (1) If any
proceeding is initiated or sought to be maintained by or against a defendant
hereto pursuant to the provision of this Section 12 or any other provision
of this judgment the venue therefor shall be determined in accordance with
generally applicable law for a period of one year after the date of this
Judgment, after that period the venue therefor shall be in the Superior
Court of the County of Los Angeles and, upon motion of any party or upon
the Courts own motion the venue shall be so transferred.
(2) A motion to change the venue of this action to the Superior Court
of the County of Los Angeles may be made at any time.
- Whenever, by the express terms of this judgment, a notice shall or may
be given to a party, such notice may be given to the party's then current
attorney of record or to the party itself.
- This final judgment shall take effect immediately upon the entry
- The Clerk is ordered to enter this final judgment forthwith.
Dated: October 14, 1986
JUDGE OF THE SUPERIOR COURT
Jeffrey A. Babener, of Portland, Oregon, is the
principal attorney in the law firm of Babener & Associates. For more than 25
years, he has advised leading U.S. and foreign companies in the direct
selling industry, including many members of the Direct Selling Association.
He has lectured and published extensively on direct selling and many of his
writings will be found at www.mlmlegal.com, of which he is Editor. He is a
graduate of the University of Southern California Law School, where he was
an Editor of the USC Law Review.