{"id":10732,"date":"2012-12-26T18:15:19","date_gmt":"2012-12-27T00:15:19","guid":{"rendered":"http:\/\/www.sequenceinc.com\/fraudfiles\/?p=10732"},"modified":"2013-04-12T15:57:19","modified_gmt":"2013-04-12T20:57:19","slug":"medifast-take-shape-for-life-endless-chain","status":"publish","type":"post","link":"https:\/\/www.sequenceinc.com\/fraudfiles\/medifast-take-shape-for-life-endless-chain\/","title":{"rendered":"Medifast Take Shape For Life: Endless Chain?"},"content":{"rendered":"

A recent filing in the Medifast appeal<\/a> (the case in which Medifast sued me and others, and lost miserably<\/a>) raises some interesting questions about whether Take Shape For Life (TSFL) is an endless chain recruitment scheme. From that filing:<\/p>\n

A. Medifast\u2019s Evidence Does Not Prima Facie Show That FitzPatrick\u2019s \u201cEndless Chain\u201d Statement is Provably False<\/strong><\/p>\n

Medifast\u2019s reply again does not demonstrate that FitzPatrick\u2019s endless-chain statement is false. Because Medifast has alleged libel, it must make a prima facie showing that challenged statements are untrue. Masson v. New Yorker Magazine, <\/em>Inc.<\/em>, 501 U.S. 496, 516 (1991). Courts also evaluate whether an average reader would consider the statement to be fact or protected opinion. Carver v. Bonds<\/em>, 135 Cal.App.4th 328, 344 (2005).<\/p>\n

Medifast disregards its prima facie showing obligation, arguing that the Court must accept the declaration of its witness Daniel Bell (\u201cBell\u201d) as true and cannot weigh FitzPatrick\u2019s credibility against Bell\u2019s. (ARRB, p.25.) This ignores Medifast\u2019s threshold duty to establish that FitzPatrick\u2019s statement, about TSFL being an endless chain under California law, is provably false. Indeed, Medifast still contends that it correctly cited to the FTC\u2019s definition of what constitutes a \u201cpyramid scheme\u201d \u2013 not California\u2019s definition of an \u201cendless chain.\u201d (ARRB, p. 29.) FitzPatrick, however, states that \u201cmy report examines and offers an opinion whether Take Shape for Life operates as an \u2018endless chain\u2019 as defined in the California Penal Code.\u201d [ER 54.]<\/p>\n

Because Medifast is relying on the wrong definition, it cannot establish that FitzPatrick\u2019s statement is provably false. Even after FitzPatrick emphasized in his principal brief the differences between the California definition and the FTC Act definition, Medifast offered no analysis of its own. It only states that \u201cno analysis was necessary as Sammartino already determined such a statement was provably- alse.\u201d (ARRB, p.29.) Because this Court\u2019s review is de novo<\/em>, Medifast\u2019s failure to refute FitzPatrick\u2019s analysis warrants reversal.<\/p>\n

Although Judge Sammartino quoted Penal Code section 327 and cited to the California case People v. Bestline Products, Inc.<\/em>, 61 Cal.App.3d 879, 914 (1976), her analysis was based on Bell\u2019s declaration. She accepted Bell\u2019s equivocation that under TSFL\u2019s plan no compensation is paid \u201cmerely\u201d for recruiting, that bonuses are not paid \u201csimply\u201d for introducing new participants, and that \u201cthe vast majority of orders\u201d are placed by clients who are not participants. [ER 16.]<\/p>\n

However, Bell\u2019s negative pregnant explanation did not disclose all elements of TSFL\u2019s compensation system, which itself establishes that FitzPatrick\u2019s statement is not provably false. If participants are not paid \u201cmerely\u201d for recruiting or \u201csimply\u201d for introducing new participants, clearly part of their compensation is for recruiting and introducing new participants. That violates California\u2019s endless chain law, and Medifast failed its burden. These new recruits, who themselves recruit, purchase inventory through internal money transfers, which generates upline commissions and also violates California\u2019s law.<\/p>\n

Under section 327, it makes no difference whether participants receive part of their compensation from sales to non-participants; the crucial consideration is whether participants receive any compensation for introducing new members. Bestline<\/em> reached the same conclusion that it is only pyramid sales plans, underwhich compensation \u201cis limited\u201d to payment for sales to persons who are not participants that are outside the definition of an endless chain. Ibid<\/em>., 61 Cal.App.3d at 914. This point was emphasized again in Bounds v. Figurettes, Inc.<\/em>, 135 Cal.App.3d 1, 18-19 (1982), which discussed Bestline at length. Figurettes<\/em> explained that pointing to the importance of non-participant \u201cretail sales\u201d did not matter because \u201cretail sales do not legalize the pyramid marketing scheme which violates Penal Code section 327.\u201d Id.<\/em> \u201cThe fact that some retail sales occur does not mitigate the unlawful nature of the recruiting.\u201d Id.<\/em><\/p>\n

Bell admits that in TSFL\u2019s scheme, participants pay to become members [ER 1014], with charges for semi-annual renewals, which gives them the chance to receive compensation for introducing new participants. [ER 1005, \u00b621]. \u201cBonuses\u201d also are paid, including: \u201cclient assist bonuses\u201d when a participant (coach) sponsors another participant; and, \u201cgrowth bonuses\u201d paid to senior participants who grow their business. [ER 1016-1020.] Indeed, Medifast\u2019s complaint confirms that TSFL is an endless chain. \u201cHealth coaches (participants) receive commissions based upon \u2026products they sell either to non-health-coach clients, or to other health coaches\u2026 The only benefit that health coaches receive from recruiting additional health coaches is a residual commission \u2026<\/em>\u201d [ER 32, \u00b6\u00b6 32-33, emphasis added.]<\/p>\n

All of this meets the definition of an endless chain under section 327 (\u201can \u2018endless chain\u2019 means a scheme\u2026whereby a participant pays a valuable consideration for the chance to receive compensation for introducing one or more additional persons into participation \u2026\u201d). By paying to become participants, Medifast\u2019s health coaches receive \u201cthe chance to receive compensation\u201d for recruiting new participants through commissions as well as bonuses. Medifast cannot show that FitzPatrick\u2019s statement about TSFL being an endless chain is provably false. Accordingly, Medifast failed to meet its burden of establishing a probability that it will prevail on its libel claim.<\/p>\n

B. As a Matter of Law, FitzPatrick\u2019s Evidence Supporting His anti-SLAPP Motion Defeats Medifast\u2019s Evidence<\/strong><\/p>\n

Because Medifast did not make a prima facie showing that FitzPatrick\u2019s statement is provably false, this Court does not have to consider whether his evidence defeats Medifast\u2019s as a matter of law. However, as an alternative reason for reversing the District Court\u2019s ruling, he also showed that his statement is true.<\/p>\n

In his declaration, FitzPatrick discusses that in 2011, the SEC required Medifast to restate its 2009 10K filing and make additional disclosures. Among them were that Medifast also markets \u201cincome opportunities\u201d through TSFL, which includes financial rewards tied to an expanding sales force. [SER 731.] Medifast states further that it distributes its products through \u201cthe Take Shape for Life network of independent health coaches \u2026that buy products themselves\u201d and are \u201cdistributors\u201d in a \u201cnetwork marketing system.\u201d [SER 734, \u00b618 and fn. 6.] This was followed by the admission to its shareholders that \u201c[o]ur direct selling distribution channel is subject to risk of interpretation of certain laws pertaining to the prevention of \u2018pyramid\u2019 or \u2018chain sale\u2019 schemes.\u201d [SER 736, \u00b625.]<\/p>\n

As discussed above, FitzPatrick showed through Medifast\u2019s materials, that participants in TSFL pay for the ability to participate in the scheme [ER 1013-14]; and that they, then, have the chance to receive compensation by introducing others into the scheme [ER 1006-1007] though commissions and bonuses [ER 1016- 1017]. This evidence alone defeats Medifast\u2019s as a matter of law in confirming that TSFL is an endless chain.<\/p>\n

FitzPatrick also used information from Medifast\u2019s website to show that over time, health coaches using the pyramid structure would exponentially out-earn those who relied on client sales. [ER 78.] That was the incentive to recruit and not rely on retail sales.<\/p>\n

FitzPatrick further exposed a primary indicia of an endless chain by calculating the attrition rate of health coaches. Bell concealed the rate by revealing only the overall increase in coaches and not disclosing how many quit. FitzPatrick used Medifast\u2019s SEC reports in conjunction with Bell\u2019s comments to calculate a 60% attrition rate. [SER 746.]<\/p>\n

FitzPatrick defeated Medifast\u2019s evidence as a matter of law. In doing so, FitzPatrick also revealed how insidious pyramid schemes are and that Medifast has been manipulating data to conceal the telltale signs of TSFL\u2019s endless chain \u2013 the high attrition rate of those at the bottom of the pyramid.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

A recent filing in the Medifast appeal (the case in which Medifast sued me and others, and lost miserably) raises some interesting questions about whether Take Shape For Life (TSFL) is an endless chain recruitment scheme. From that filing: A. […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[827,184],"tags":[2026,834,890],"class_list":["post-10732","post","type-post","status-publish","format-standard","hentry","category-public-companies","category-pyramid-schemes-mlm","tag-endless-chain","tag-medifast","tag-pyramid-scheme"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p6Z0e-2N6","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/10732","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/comments?post=10732"}],"version-history":[{"count":0,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/10732\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/media?parent=10732"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/categories?post=10732"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/tags?post=10732"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}