Herbalife has reached a settlement in a class action alleging that the company violated California’s endless chain scheme law and the Racketeer Influenced and Corrupt Organizations Act based on its organizational structure, according to a motion for preliminary approval of the class action settlement. Bostick v. Herbalife Int’l of Am., Inc., No. 13-2488 (U.S. Dist. Ct., C.D. Cal., W. Div., motion filed October 31, 2014).

Under the agreement, Herbalife would pay $15 million into a settlement fund, which would then be distributed to class members depending on the types of claims they file. Only “legitimate Business Opportunity Claimants,” or “those Class Members who joined Herbalife primarily to pursue a business opportunity (and not primarily for personal and/or family consumption of Herbalife products),” would be allotted a portion of the fund. In addition, “higher levels of Herbalife distributors/members (i.e. GET Team and above) are not part of the Class and thus are not eligible for any cash award to reduce conflicts between the class.”

Members who purchased at least $750 worth of qualified products would receive a pro rata award—full compensation for the estimated total loss of those products or half of the price paid for the products, because “[g]enerally speaking, the claimants who purchased larger amounts of product are those more likely to have invested significant funds (possibly borrowed funds) in the purchase of product in order to obtain a higher distributor/member level. . . . The $750 threshold was selected because it would have been physically difficult, if not impossible, for someone purchasing that amount to have selfconsumed it in a year.”

Class members who purchased less than the threshold would be entitled to a $20 flat rate award from the fund, with total flat rate awards capped at $3 million. If filed claims exceed $3 million, the amount of the flat rate award would be adjusted proportionally, or if any funds are left over from the $3 million, they would be available for distribution pro rata. Any remaining funds would be donated cy pres to the Consumer Federation of America. Herbalife would also make up to $2.5 million in funds available to buy back products that were purchased more than one year before the deadline for submitting claim forms because Herbalife already allows for the return of unsold products within one year.