Source: http://www.casewatch.org/civil/usana/complaint.shtml
Timestamp: 2014-03-12 01:42:59
Document Index: 533352275

Matched Legal Cases: ['§ 327', '§ 17200', '§ 327', '§ 382', '§ 382', '§ 382', '§ 382']

Send This Page to a Friend USANA Sued for Fraud and Deceit
Stephen Barrett, M.D. A lawsuit seeking class action status has been filed in California State Court on behalf of thousands of individuals who became "Associates" (distributors) of USANA Health Sciences Inc. on or after January 1, 1995 in California. The plaintiffs accuse USANA and several of its officers and directors of fraud and deception. Among other things, the suit alleges USANA (a) exaggerated the business opportunity, (b) failed to disclose that 87% of active distributors were losing money, (c) misrepresented the credentials of its advisory board, and (d) basically operated a pyramid scheme requiring a constant churn in its sales force. The lawsuit seeks damages for distributors left with thousands of dollars of losses each after paying for business “kits” and products they say they couldn’t sell. Earlier this year, similar class-action suits were filed on behalf of shareholders. SUPERIOR COURT OF THE STATE OF CALIFORNIA
JEANNETTE JOHNSON and CHRISTOPHER CRANE, Individually and On Behalf of All Others Similarly Situated, Plaintiffs,
WAITLEY, CHRISTINE WOOD, LADD McNAMARA, DEBORAH WAITLEY-McNAMARA, MYRON W. WENTZ, DAVID A. WENTZ, and GILBERT A. FULLER, and DOES 1-50, inclusive,
8. Venue as to each Defendant is proper in this judicial district, pursuant to Business and Professions Code Section 17203 and California Code of Civil Procedure Sections 395(a) and 395.5. Each Defendant either transacts business, has an agent, or is found in the County of San Diego and is within the jurisdiction of this Court. The unlawful acts alleged herein had a direct effect on consumers within the State of California and, more particularly, within the County of San Diego. Additionally, the trade and commerce described herein is carried on, in substantial part, in the State of California and, more particularly, within the County of San Diego. 9. Plaintiffs reserve the right to amend this Complaint if after a reasonable opportunity for discovery, additional persons are found to be liable, or if any of the other allegations or requests in this Complaint should be amended to conform to such discovery or conform to proof at trial.
13. Defendants Christine Wood of Del Mar, California, Ladd McNamara of Oceanside, California and Deborah Waitley-McNamara of La Jolla, California, are all members of the Company’s Advisory Board and directors. Each of these Defendants actively participated in promoting the Company’s multi-level marketing scheme, with Ms. Wood appearing on the Company’s online video presentation. On or about June 4, 2007, Mr. McNamara was forced to resign from the Advisory board because it was uncovered that he was practicing medicine without a license. 14. Defendant Myron W. Wentz (“M. Wentz”) was, at all relevant times, the Company’s Chief Executive Officer (“CEO”). Mr. Wentz has allegedly renounced his U.S. citizenship and transferred significant assets to the tax havens of St. Kitts and Nevis, the Isle of Mann, and Liechtenstein. 15. Defendant David A. Wentz (“D. Wentz”) was, at all relevant times, the Company’s President and a Company Director, and a graduate of the University of California, San Diego.
a. Whether Defendants conspired to operate a pyramid scheme, or endless chain under Penal Code § 327; b. Whether Defendants’ business acts or practices violated the Unfair Competition Law, §§ 17200 et seq. of the California Business and Professions Code (“UCL”);
g. The appropriate nature of class-wide equitable relief including injunctions and corrective and remedial action; h. Whether the members of each Plaintiff Class are entitled to rescission and restitution as a result of Defendants’ conduct and, if so, what is the proper measure and appropriate formula to be applied in determining such restitution;
i. Whether the members of each Plaintiff Class have sustained damages as a result of Defendants’ conduct and, if so, what is the proper measure and appropriate formula to be applied in determining such damages; and j. Whether the members of each Plaintiff Class are entitled to punitive and exemplary damages as a result of Defendants’ acts of fraud, malice and oppression or in conscious disregard of the rights of Plaintiffs and each Plaintiff Class, and, if so, what is the proper amount of such punitive and exemplary damages.
33. USANA and its recruiters knew no bounds. The promotions targeted both the elderly and the not-so-well-off. USANA’s online presentation states that … 40% of Aging Americans are not sure if they have enough money to retire. Half of all bankruptcies are caused by illness or medical bills. The average household owes $8,000 in credit card debt, with most people living paycheck to paycheck, “Change your life”, let USANA be your retirement solution, without high start up costs or complex business plans. You work for yourself not by yourself… Yet, once those on the lower level of the pyramid inevitably failed, they truly were by themselves. 34. In one instance, the Fraud Discovery Institute of San Diego uncovered an extremely egregious example. An elderly blind man lost his life savings and mortgaged his home in a failed effort to realize the USANA dream of true wealth. In fact, contrary to the statements made at opportunity meetings, Defendants fraudulently concealed and never disclosed to potential Associates that 74% of Associates failed in the first year. As a publicly traded Company, and because Defendants’ touted the potential profitability of its Associates, Defendants had a duty to disclose these adverse facts, yet never did. Like a true pyramid scheme, the initial members of USANA made money from recruiting others, who recruited others, and so on. However, those further down the line were doomed to fail. As shown by recent events, USANA’s business was built on misrepresentations and concealment, which have caused the Plaintiffs and members of the Class to lose money.
Associates cannot simply recruit others for the purpose of developing a downline and earn income passively, depending solely on the efforts of their downline. Each Associate is required to purchase a certain amount of product each month (“Qualifying Purchases”), which they must either resell to consumers or personally use, in order to be qualified to earn commissions or bonuses under USANA’s Compensation Plan. [Emphasis added.] 36. The fact that one could qualify for commissions by personal use brings USANA’s business model within the parameters of a pyramid scheme or endless chain under Penal Code § 327. Furthermore, USANA either intentionally or negligently failed to adopt the necessary internal practices in order to insure that the Company was not operating as a pyramid scheme.
We recognize the need to continue to attract and retain Associates. We maintain emphasis on the partnership between the USANA management team and our Associate leads. Through this partnership, our Associate leaders continue to host “Health & Freedom” meetings and online presentations, both aimed at presenting the business opportunity to potential Associates and providing additional training and resources for existing Associates. In addition to our Annual International Convention and our Asia Pacific Convention, we hold several regional events in key growth areas to provide support and training to new Associates in these areas. We intend to continue growing our business by maintaining a focus on our two core values, “True Health” and “True Wealth.” We plan to accomplish this by increasing the number of active Associates and teaching them how to build a strong customer base. By leveraging the current growth we have in our Associate field, we believe we can continue to attract individuals that are interested in joining a winning team and starting a home-based business with USANA. 38. Regarding the Company’s compensation plan for its associates, the Company’s Form 10-K, in relevant part, stated:
45. Plaintiffs seek class certification of this cause of action as a class action, on behalf of all those similarly situated, pursuant to CCP § 382. SECOND CAUSE OF ACTION
52. The foregoing acts and omissions of Defendants, as set forth hereinabove, constitute and continue to constitute unfair business practices within the meaning of section 17200 et seq. of the California Business and Professions Code. 53. The effect on Plaintiffs and upon the Plaintiff Class is that the Plaintiffs and the Plaintiff Class lost money and were also overcharged for the products purchased.
57. Plaintiffs seek class certification of this cause of action as a class action, on behalf of all those similarly situated, pursuant to CCP § 382. THIRD CAUSE OF ACTION
60. Defendants’ concealed from the Plaintiffs and the Plaintiff Class the true facts. The true facts were that Defendants operated a pyramid scheme, 74% of Associates failed in the first year, and 87% of Associates were losing money, even though the Plaintiffs and the Plaintiff Class ordered and paid for premium product, Defendants would instead supply the Plaintiffs and the Plaintiff Class with similar product to that found in any retail store, that USANA did not provide “True Wealth”, and that the Company’s stability was questionable as evidenced by Myron Wentz’s attempt to insulate himself from the jurisdiction of the United States judicial system. 61. Defendants intended that the Plaintiffs and the Plaintiff Class rely upon the omissions and false representations set forth in the USANA website, promotional materials, and at opportunity meetings. The Plaintiffs and the Plaintiff Class reasonably relied upon Defendants’ misrepresentations and they agreed to enter into individual standardized agreements to become USANA Associates and to purchase USANA product at premium product prices. 62. As a direct result of the fraud and deceit of the Defendants, as herein alleged, the Plaintiffs and the Plaintiff Class were injured in that they lost money and were overcharged by Defendants for products.
63. In doing the acts heretofore mentioned, Defendants acted maliciously, fraudulently, oppressively, and/or in conscious disregard of the rights of the Plaintiffs and the Plaintiff Class. The acts of the Defendants were despicable in that Defendants intended to take money away from the Plaintiffs and the Plaintiff Class and stick that money in their own pocket, while knowing full well that they were not entitled to that money. The Plaintiffs and the Plaintiff Class seek exemplary and punitive damages against the Defendants in an amount to be determined at the trial of this matter. 64. Plaintiffs seek class certification of this cause of action as a class action, on behalf of all those similarly situated, pursuant to CCP § 382. FOURTH CAUSE OF ACTION
72. Plaintiffs seek class certification of this cause of action as a class action, on behalf of all those similarly situated, pursuant to CCP § 382. WHEREFORE, Plaintiffs and the other members of the Class pray for relief as follows: