Deception About the History of Medifast and Take Shape For Life

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.

Robert FitzPatrick filed an absolutely riveting anti-SLAPP motion in the case brought against us by Medifast Inc. (NYSE:MED) and its Take Shape For Life (TSFL) multi-level marketing division. Below is probably the most interesting part of the filing. It discusses at lengthy the shady past of the company, efforts to improperly conceal the prior bad acts, and current dishonesty about Medifast and TSFL. It seems that lying to the court has become routine for Medifast.

Proof that Medifast’s Complaint should be viewed as a SLAPP suit arises out of Plaintiffs’ false, self-serving and misleading allegations, devoid of any facts, as well as Plaintiffs’ fraudulent concealment of relevant facts that show what kind of history Medifast and its predecessor companies carry with them, but do not disclose to the public or its stockholders despite orders to do so by the FTC.

Another reason why Plaintiffs cannot establish a probability of prevailing on any of their claims is because Plaintiffs’ Complaint is replete with misrepresentations and material omissions of material fact that render the entire Complaint suspect, making proof of Plaintiffs’ financial loss impossible to establish.

For example, contrary to Plaintiffs’ claim, Medifast, Inc. did not start doing business in 1980. (See Complaint, ¶18.) In fact, Medifast was not incorporated until 2001 when it changed its name from Healthrite to Medifast. (Exhibit D.)

In 1980, a company called Jason Pharmaceutical, Inc. began manufacturing and marketing to doctors and hospitals, products with the brand name Medifast. (See Exhibit E.)

Contrary to Plaintiffs’ claim (Plaintiffs’ Complaint, ¶21), the Medifast products and weight loss plan was developed by Dr. William Vitale, not Dr. Wayne Anderson. (Exhibits F and FF.)

Contrary to Plaintiffs’ claim (Complaint, ¶20), Medifast products were not at all times readily available to the public. Instead, Medifast products were only available from a doctor and with a doctor’s supervision because the Medifast program was an extremely low calorie diet and dangerous. (Exhibit G).

As set forth in Exhibit H at p. 901, in a 1992 FTC Consent Decree issued against Jason Pharmaceuticals, there were substantial health risks associated with Medifast products. As set forth in Exhibit JJ, there are still significant health risks. (See Grell Aff., ¶¶78-80.)

As also set forth in FTC Consent Decree, the FTC found that Jason Pharmaceuticals was guilty of false and misleading statements about the safety and efficacy of the Medifast products and program, facts that were concealed by Jason Pharmaceuticals and its successor companies, Vitamin Specialties, Healthrite and Medifast.

Jason Pharmaceuticals was also involved in a number of personal injury lawsuits stemming from the use of their Medifast program. These lawsuits were also concealed, allowing Plaintiffs to claim that these products are safe.

As set forth in Exhibit I, up until the time that the FTC issued its Consent Decree, Jason Pharmaceuticals (“Jason”) successfully marketed the Medifast plan through the use of false and misleading advertising.

Facing an increasing number of personal injury lawsuits, coupled with the fraud claims brought by the FTC, Jason filed for bankruptcy in 1994. (See Exhibit J.)

In 1995, a publically traded corporation named Vitamin Specialties purchased Jason. (See Exhibit K.) Jason became a subsidiary of Vitamin Specialties.

Despite the fact that Jason had been ordered by the FTC to provide copies of the 1992 FTC order to any company that subsequently purchased or acquired Jason (See Exhibit H, p. 915), the annual reports of Vitamin Specialties for the year 1995 made no mention of the FTC’s Consent Decree to the public or its stockholders. No mention was made of any of the lawsuits that were filed against Jason either.

In 1995, Vitamin Specialties changed its name to Healthrite. (Exhibit L.) Jason remained a subsidiary. Bradley MacDonald was CEO of Healthrite.

At no time did Healthrite, which was also publically traded, ever mention the 1992 FTC Consent Decree or any of the lawsuits to the public or its stockholders during the years 1995, 1996, 1997, 1998, 1999, 2000 and 2001.

In 1997, the Board of Directors of Healthrite fired MacDonald, claiming he was incompetent. (See Exhibit M.)

After being fired, MacDonald used the Healthrite stock he had acquired as CEO and started a proxy fight with Healthrite’s then Board of Directors. (See Exhibit N.)

As a result of the proxy fight, MacDonald regained his position as CEO of Healthrite in 1998. (Exhibit O)

In 2001, Healthrite decided to change the company’s name to Medifast. (Exhibit P.)

At no time did Medifast disclose to the public that a consent decree had been issued against Jason Pharmaceutical, a subsidiary of Medifast.

At the time, Medifast sent a proxy statement to all shareholders. (Exhibit Q.) One of the more interesting disclosures that Medifast made in 2001, was that instead of there being the 20,000 physicians who had recommended the Medifast products and weight plan as set forth in Plaintiffs’ Complaint (See Complaint, ¶19), there were only “several thousand doctors” who did so.)

Proof that Medifast falsely advertised and continues to falsely advertise that 20,000 physicians recommend the Medifast program is set forth in Medifast’s 2008 Annual Report (Exhibit R), wherein Medifast claims that 15,000 physicians had recommended the Medifast program. Proof that this number had not changed in the past two decades is set forth in Exhibit H, p. 910, wherein it was reported that in 1989, two to three years before the FTC issued its order, 12,000 physicians recommended Medifast.

In other words, assuming that during the years 1990 and 1991 before the Consent Decree, another 1,333 new physicians joined Medifast, by September 1992, the time of the dissent decree, there were approximately 15,000 physicians getting paid to falsely advertise and recommend the Medifast program.

Under the 1992 FTC Consent Decree, Jason Pharmaceuticals was ordered to serve a copy of the FTC order on every physician involved. (See Exhibit H, p. 915.) As a result, many physicians ceased being involved, especially when Medicare stopped reimbursing physicians for patients on the Medifast plan. (Exhibit S.)

In short, Medifast’s claim that 15-000-20,000 physicians are currently recommending Medifast is, at best, disingenuous. Most likely it is entirely false.

Medifast’s advertisements claiming that 15,000 or 20,000 physicians recommended the Medifast program is also misleading because the Medifast program that was previously recommended in 1992 was not the same Medifast program sold today. (See Exhibit T.)

In fact, in last 2002, the last year that the FTC order was in effect (See Exhibit H, p. 915), Medifast stated the company “Take Shape for Life.” As set forth in Exhibits U and EE, the TSFL Medifast business model bore no resemblance to the original doctor-supervised Medifast liquid protein diet plan which doctors were paid for recommending.

As set forth in Exhibits U and W, at the time Medifast changed to its multi-level marketing program, the company was on the verge of bankruptcy.

After regaining his position as CEO of Healthrite/Medifast, in 2007, MacDonald was again removed as CEO of Medifast for suspected improprieties. (Exhibit V.)

As set forth in Exhibit W, Medifast’s stock also had a history of substantial declines.

Given the prior history of Medifast and MacDonald and their failure to disclose information to the public and its stockholders, it was only a matter of time before the questionable practices and problems with Medifast were exposed and cause for investigation. Exposing the truth, however, does not give rise to a libel claim. To the contrary, under the SLAPP laws, hiding the truth, by allowing large corporations to trample on a person’s right to free speech on issues of public importance, is strictly prohibited.

Other material and misleading claim by Plaintiffs is their claim that the Medifast program has been clinically approved. As set forth in Exhibit X, Medifast never publicized the fact that the clinical study done by John Hopkins by Lawrence Cheskin, M.D., the principal author, was paid for by Medifast and run by Lawrence Cheskin, M.D., a member of Medifast’s Board of Medical Advisors. Medifast also failed to disclose that the John Hopkins study, which Medifast uses to advertise, was rejected for publication by Diabetes Care, a leading peer-reviewed journal. (See Exhibit X.) It was later published in a less prestigious journal.

As set forth in the Grell Aff. (Exhibit C, ¶¶78-81), Medifast also failed to disclose the risks of the Medifast diet to the public or its stockholders, risks which Medifast’s own Dr. Cheskin writes about in his books and reports. This information is not disclosed on Medifast’s website.

Another false and misleading claim is Medifast’s claim that health coaches can obtain “healthy finances.” (Complaint, ¶22.) As set forth in Exhibit Y, recently posted compensation documents, buried in the Medifast TSFL’s website, show that the average monthly income of a health coach is $76.00, less than what it would cost a health coach to set up its Medifast business opportunity. Indeed, while Medifast claims that its health coaches have low start-up costs (Complaint, ¶27), Medifast fails to disclose the true cost for a health coach to get their business up and running and to stay up and running. (Exhibit Z, see also Grell Aff., ¶¶80-81.)

In short, Medifast past and present history, as set forth in Plaintiffs’ Complaint, and in this motion, is replete with false and misleading statements and omissions of material fact made by Medifast to promote the integrity of the case, the company, the company’s products and the integrity of Medifast and of MacDonald as upstanding public figures, while denigrating the character and objectives of Robert FitzPatrick to protect the public. Plaintiffs are not what they want the Court to believe. As a result5, Plaintiffs’ claims should be viewed with suspicion by this Court in evaluating the merits of Plaintiffs’ opposition to Robert FitzPatrick’s Motion to Dismiss.