Wednesday, May 13, 2015

Bostick v. Ackman: 2:13-cv-02488-BRO-SH

I previously wrote how there was a very low number of claims against Herbalife in the Bostick class action case.

After objections to the settlement were filed in March by a group of 18 persons (the majority of which were organized by a local LULAC chapter in Chicago) who were represented by the three time Herbalife class-action attorney Douglas Brooks, Herbalife agreed to extend the claim filing deadline through the end of April.

Part of the rationale for granting the extension was expressed in class counsel's previous declarations in which Bostick's attorneys commented that if the pro rata award for former members was raised from 50% reimbursement to 75% reimbursement the net claims for business opportunity members would increase to between approximately $7,218,539-$7,299,619; given that the value of claims fell far below the net settlement fund, there was room for increasing the pro rata awards up to 75% instead of diverting the leftover funds to the cy pres component of the settlement agreement.

This past Monday the final hearing on the tentatively approved settlement was held in California. During the hearing Judge O'Connell granted TINA's motion for leave to file their amicus curae, and will thus take their brief into consideration while forming her final opinion, however O'Connell refused to entertain LULAC's claims regarding undocumented worker. Of particular note, documents presented in court showed that as Douglass Brook predicted, by extending the claim filing period, the total business opportunity claims increased, although not nearly as drastically as Brooks would have had you believe. The claims increased to $7,396,407 and the number of total claims increased to 7457 claims filed. Effectively, even by raising the pro rata award to 75% and extending the claim filing deadline by almost three months, the total claims filed were only increased by a total of 219 claims(+3%) which were filed for an average claim of $812. There were no additional claims above $10,000, five additional claims for $5,000-$10,000, twenty six additional claims for $1,000-5000 and 188 claims for ≤ $1,000.

It's also notable that although the settlement fund provided up to $2.5 million specifically for product returns, a grand total of $938,280.75 was claimed in product returns(even though they only needed to provide an estimate price and didn't have to actually return products). The extension provided by Herbalife increased the product return payout by a net increase of $35,968.83(~4%) even with the claim filing extension to the end of April.

The numbers don't quite add up though. Although treble-deft Douglass Brooks started representing the settlement objectors in February and despite the vociferous protestations of LULAC starting well before February, the claim extension through April still only produced a tiny increase in additional claims.

I suppose that at the very least we can now retire Brook's previous theories as to why the settlement should be denied approval. Brooks claimed that better communication (beyond the 93% already reached in the class in both English & Spanish) and stronger community outreach (via someone like his declarant Contreras) as well as adequate and proper legal representation (by someone like, oh I don't know, say Douglass Brooks maybe?) would have resulted in a drastically different outcome with respect to the settlement claims. 219 additional claims doesn't seem to be a ringing endorsement for those theories. Maybe all those trips to N.Y. and D.C. proved to be too much of a distraction for Contreras and Brooks.

If Herbalife members/distributors were as disenfranchised and defrauded by Herbalife as Ackman and others would have you believe, why would a class in which we know at least 1.4M people were properly notified, still produce less than $1M in product refund requests and 7,457 total claims after an extended filing period? The simplest answer is the one Ackman refuses to recognize.

We've watched Ackman's thesis morph over the years from pyramid scheme, to inventory loading, to currency headwind, to scraping, and member retention issues. For all the political pressure and fanfare Ackman has attempted to reign down upon Herbalife, you need look no further than the class action suit to discover 1.5 million human reasons why the case is playing out more like Bostick v. Ackman. In my opinion, even if O'Connell does not approve the settlement in its current embodiment, the evidence and documentation presented in the Bostick case by the third party claims administrator KCC has almost single handedly destroyed Ackman's entire short thesis on Herbalife.

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