USANA Bites Minkow
In a curious legal action, USANA has filed a defamation action in Utah against Barry Minkow and the Fraud Discovery Institute.
A number of blogs have commented on the lawsuit, including Pink Truth: Facts, Kim Klaver, and Transforming MLM. There is also a follow-up piece in the Wall Street Journal, which stated:
"The company's suit, filed in U.S. District Court in Salt Lake City, accuses Mr. Minkow of a "distort and short" move, saying he misrepresented details in his report in an effort to profit off its falling stock price. The company's stock was off 15% at $49.85 in 4 p.m. Nasdaq Stock Market composite trading Thursday, after some of Mr. Minkow's criticisms were reported in The Wall Street Journal.
Usana's lawsuit accuses Mr. Minkow of misrepresenting laboratory evidence he collected. For example, the report had taken issue with the company's marketing of its "Ten X" antioxidant bar, saying it was only two times as powerful as a serving of grape juice, not 10 times. The lawsuit says that Usana's marketing is accurate when interpreted as a gram-for-gram comparison, instead of serving-for-serving."
The legal action is curious for five reasons:
The complaint does not contain any injunctive relief which would require the Fraud Discovery Institute to removing the offending material from its website.
The plaintiff is only USANA, which makes it hard to show defamation damages.
USANA complains of three different "defamations" regarding FDI's testing of three of USANA's products by an independent lab. USANA disagrees with the interpretation of the lab's results, but has not added the lab as a defendant, even though the lab is the source of the report.
The complaint does not address, what I consider a major problem, the different representations made to the SEC and FTC concerning FTC's new proposed disclosure requirements for network marketers. Minkow et. al. are saying that USANA has failed to disclose how its business model really works in its public documents. As evidence, they point to USANA's representations to the FTC in which USANA says its business model will be "impossible" if forced to disclose its rates of attrition. Yet, in their public documents to the SEC, USANA states that the FTC new disclosure will entail a possible change in their pre-sale disclosure. (USANA correctly points out that two different company executives made these representations, but since neither of them are plaintiffs the confusion between their identities is not material.) USANA is saying two different things to the SEC and to the FTC. Which is true? Harm or no harm?
Finally, although the complaint may be amended, USANA's response to the FDI's 8 Red Flags is to simply deny them. There is no attempt to justify or even explain away the problems raised.
This is a very interesting lawsuit, but I wonder whether it will survive the challenge to jurisdiction, or California's Anti-SLAPP Statute.
