20 Jul

Medifast is Abusing the Legal System to Punish Critics of Take Shape For Life

Medifast General Counsel Michael Tanczyn, Esq. at the deposition of Sam Antar. (click to enlarge)

UPDATE: On February 17, 2010, Medifast Inc. filed suit in US District Court, Southern District of California, alleging defamation, violation of California Corporations Code, and unfair business practices. On March 29, 2011, Judge Janis Sammartino dismissed all of Medifast’s claims against me in her ruling on my anti-SLAPP motion.

Earlier this year, Medifast (NYSE: MED) filed a $270 million lawsuit against Barry Minkow, me, and several other defendants for what it has alleged are false statements and a conspiracy to damage the stock price of the company. This lawsuit is nothing more than the typical big company suing a critic to shut her up. Medifast has far more resources than any of the defendants, and the company was hoping that by suing us, we’d shut up about the company’s multi-level marketing division Take Shape For Life (TSFL).

Because the lawsuit was filed in California, the defendants were immediately able to file anti-SLAPP motions.  (SLAPP = Strategic Lawsuit Against Public Participation) Under the California law which authorizes this, the burden immediately falls on Medifast to prove that it has a probability of winning its case against us.

This is where the Medifast case is supposed to get good. We say we’ve told the truth about the company and/or expressed our opinions as protected under the First Amendment. Medifast then has to prove that we lied about them and they can win their case against us.

The whole point of the anti-SLAPP process is to stop big companies from abusing the legal system to get people to shut up. Big companies like Medifast sue people because they know the people can’t afford ongoing legal fees and will likely just stop talking about the company, even if the critics are right. The anti-SLAPP legislation is supposed to force Medifast to prove its case early on, saving the defendants legal fees if Medifast is filing a frivolous suit to harass and bankrupt the defendants.

In this case, Medifast got a gift from the court. They are supposed to prove their case immediately. In this instance, they cannot prove their case, so they resorted to alternate tactics, and the judge is allowing it. Medifast has even been busy lying to the court, but hasn’t been held to account for this yet.

What can’t Medifast prove? The defendants basically proved three key things after an analysis of Medifast’s SEC filings and other publicly available information:

  1. The growth of Medifast as a company is based almost solely on the multi-level marketing division TSFL (Take Shape For Life)
  2. TSFL is an endless chain recruiting scheme which relies on the continuous recruitment of new health coaches  in order to stay alive
  3. Health coaches with TSFL make almost no money (but of course, you wouldn’t know that unless you went through Medifast’s misleading and confusing disclosures and were aware of how they have manipulated the numbers)

All three of these things are absolutely true, and Medifast knows it. Therefore, they have no case against the defendants.

The first report by the defendants about Medifast and TSFL was publicly released more than a year prior to this lawsuit being filed. In that year, Medifast never once pointed to a specific statement made by the defendants and explained or proved what was false about it. The closest they ever came was an allegation that defendant William Lobdell lied about Medifast insiders selling $6 million worth of stock in November and December 2009, which the company says is refuted by their SEC filings. According to Lobdell, however, the SEC filings completely support his assertion about insider sales of stock.

But its no fun for Medifast to have to follow the law and argue the anti-SLAPP motions immediately. How can they punish and harass the defendants and cost them tens of thousands of dollars each in legal fees if they have no case?

Instead of proceeding with the case as the anti-SLAPP legislation requires, Medifast claimed it needed to do discovery. Look at the above three points. If any of them are false, who has in their possession the data to show exactly that? Medifast, of course. They have the information to prove or disprove the above statements, but they don’t want to move to that part of the litigation because they lose there.

Instead, Medifast asked the judge to allow them to do discovery. And the judge granted it. The judge granted “limited” discovery, but the process really isn’t limited at all. It’s as if the case is proceeding without the anti-SLAPP motions, because Medifast has been able to do every bit of discovery that it would do in the absence of anti-SLAPP motions.

What does this mean? Medifast is making this as difficult, time consuming, burdensome, and costly as possible for all the defendants. They are intentionally causing each of us to incur tens of thousands of dollars of legal fees, in the hopes that we will be unable to do our real jobs or to afford the cost of continued litigation and settle with them.

In my case, Medifast decided that producing the documents I had in my possession related to Medifast was not enough. They demanded a forensic analysis of my computer to try to recover deleted emails and documents that were deleted long before the lawsuit was filed. Nothing was deleted improperly, and Medifast knows this. Yet, they demanded this expensive and time-consuming process to be undertaken to place a great financial burden on me. They made silly demands that were aimed at increasing the cost and burden of this process, too.

We ultimately had my computer looked at and produced whatever could be recovered, because we don’t want to give Medifast a chance to go in front of the judge and distract the judge from the real issue.  The real issue is the three points above and whether they’re true or false. We don’t want Medifast to spend time arguing about discovery issues when we should get to the real issues that Medifast should have to argue.

Yet Medifast is still delaying the process and trying to punish the defendants for daring to criticize the company. Medifast was given 90 days to conduct discovery, and now they want 30  more days. This is simply another delay tactic, designed to cost the defendants more time and more money.

What has Medifast done in the last 90 days? They’ve done things like depose the ever-important Sam Antar. Yes, he is such a key to their case, that he’s not listed as a defendant. He’s merely a blogger who is friends with some of the defendants. He’s written about Medifast on his blog. And so Medifast has spent hours and hours harassing him.

Wait! What about the defendants? Shouldn’t Medifast be worried about deposing them? Wasn’t that the whole point of this discovery process? I have heard not one peep about deposing me. Yep. Deposing Sam Antar is far more important. So important that now Medifast wants to extend discovery so that they can do depositions of the actual defendants.

Again, let me remind you that the whole point of the anti-SLAPP motions is to stop the process. It is to protect the defendants so they aren’t incurring tens of thousands of dollars of legal fees and hours and hours of time related to a frivolous lawsuit. Yet nothing has stopped. Medifast is like Girls Gone Wild, demanding all sorts of documents and enlarging time frames and generally being a bully with the blessing of the judge.

It’s easy to see what Medifast is doing. They’re delaying arguing the real issues because they will lose on the facts. And as a result, they’re also delaying having to provide any discovery themselves. They know what happens if they’re forced to turn over data and documents: it will be proven that the defendants told the truth. And we know that the longer Medifast goes without having to produce information themselves, the greater the chance that they are destroying and altering documentation.

How willing do you think Medifast will be to take the every single computer of every single employee to a computer forensic firm and have them examined for deleted documentation? I doubt they’ll want to do that, but they expect the defendants to do it.

The games need to stop. This litigation needs to proceed under the anti-SLAPP legislation in California. Enough games. Enough burden on the defendants. Someone (the judge, maybe?) needs to make Medifast prove its case the way the law intended them to prove it.

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