{"id":5589,"date":"2011-01-18T19:22:47","date_gmt":"2011-01-19T01:22:47","guid":{"rendered":"http:\/\/www.sequenceinc.com\/fraudfiles\/?p=5589"},"modified":"2011-08-19T21:26:46","modified_gmt":"2011-08-20T02:26:46","slug":"the-truth-comes-out-in-the-medifast-litigation","status":"publish","type":"post","link":"https:\/\/www.sequenceinc.com\/fraudfiles\/the-truth-comes-out-in-the-medifast-litigation\/","title":{"rendered":"The Truth Comes Out in the Medifast Litigation"},"content":{"rendered":"

UPDATE: <\/strong>On February 17, 2010, Medifast Inc. filed suit<\/a> 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<\/strong> all of Medifast’s claims against me in her ruling on my anti-SLAPP motion<\/a>.<\/em><\/p>\n

Nearly a year ago, Medifast Inc. (NYSE:MED) filed suit against me and several others<\/a>, for what it claimed was defamation of its Take Shape For Life division (TSFL). My client initiated an investigation of Medifast more than year prior to the filing of the lawsuit, and published several reports on the company<\/a>. I was retained as a consultant to do a small bit of analysis. Some of my work was included in reports published by the client, parts of which were reproduced on this blog, along with some of my own analysis of Medifast and TSFL<\/a>.<\/p>\n

TSFL is a multi-level marketing company which peddles weight loss products. It entices new “health coaches” to invest in the system with claims of “healthy body, healthy mind, healthy finances.” I was critical of this business model, as I frequently am with MLMs.<\/p>\n

And for daring to offer my opinion on Medifast and Take Shape for Life, I was sued for $270 million. From the start, I have characterized this lawsuit against me as a malicious prosecution<\/a>. (Read the page I just linked to for the details.) Medifast has attempted to tarnish my professional reputation with false allegations, even in light of clear and convincing evidence of my innocence. Even after discovery was completed, and Medifast had in their possession evidence which clearly proves I did not do the things they have been alleging, the company has carried on with the charade and has continued to assault my character and integrity.<\/p>\n

A few weeks ago, Medifast was finally forced to lay out their case against me, and the result was a clear: Medifast has no case against me.\u00a0 Their case relies on two things they attempted to prove:<\/p>\n

    \n
  1. That I defamed them by making false statements of fact.<\/li>\n
  2. That I was a part of a conspiracy to trash the company to negatively impact their stock price.<\/li>\n<\/ol>\n

    The brief that Medifast filed<\/a> failed to prove either of these things. It didn’t even come close.<\/p>\n

    Below is the response that I filed today in court, refuting the false claims that Medifast and TSFL made against me. The Medifast lawyers came up with 8 specific instances in which I supposedly defamed the company. The 8 items they identified are either:<\/p>\n

      \n
    1. True (so there is no defamation and no case against me)<\/li>\n
    2. Opinions protected by the First Amendment (so there is no defamation and no case against me)<\/li>\n
    3. Statements I never made (so there is no defamation and no case against me)<\/li>\n<\/ol>\n

      Medifast never proved that I even knew<\/strong> about any alleged conspiracy, and certainly never proved that I agreed to be a part of any such conspiracy.<\/p>\n

      Medifast’s filing was heavy on untrue statements about me, and we demonstrate those lies clearly in our reply. Medifast and TSFL\u00a0 relied on their untrue statements about me, and on lumping me into some “conspiracy,” to try to hold me accountable for the actions of others.\u00a0 The plaintiffs have been unable to prove any of their allegations against me, and I eagerly await my day in court.<\/p>\n

      REPLY MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF TRACY COENEN AND SEQUENCE, INC.’S REVISED SPECIAL MOTION TO STRIKE PLAINTIFFS’ FIRST AMENDED COMPLAINT<\/strong><\/p>\n

      I.Introduction<\/strong><\/p>\n

      Tracy Coenen\u2019s anti-SLAPP motion issued a straightforward challenge to Medifast:\u00a0 You say she defamed the company.\u00a0 Prove it.\u00a0 The company did not respond with similar clarity.<\/p>\n

      The bulk of Medifast\u2019s opposition is spent spinning a murky narrative.\u00a0 It describes a network of nefarious saboteurs, at turns savvy and inept, bent on disgracing Medifast for personal profit.\u00a0 The company relies on this story to impute liability against Coenen. \u00a0Where specific facts do not suit its purpose, it substitutes generalities.\u00a0 When evidence is lacking, it relies on bare conclusions.\u00a0 The effect is to accomplish more subtly Medifast\u2019s intention, made explicit in the opening sentence of its brief, which boldly proclaims \u201cThe First Amendment has nothing to do with this case.\u201d<\/p>\n

      Casual disregard of the Constitution is but the first sign that the company\u2019s claims are not sturdy enough to withstand serious scrutiny.\u00a0 Buried deep in the Opposition (page 43) you will find the barely beating heart of Medifast\u2019s case against Coenen: Eight statements, paraphrased and stripped of context.\u00a0 (Coenen did not even make two of the statements.)\u00a0 There is no argument, only a brief evidentiary annotation.\u00a0 In total, eleven lines of text.<\/p>\n

      The task now is to restore these statements to their full context, evaluate them from the point of view of a reader of Coenen\u2019s blog, and ask two questions: Is this a provably false statement of fact about Medifast?\u00a0 If so, is there clear and convincing evidence that Coenen either knew this statement was false, or doubted its truth before she published it?\u00a0 In each case, the answer to both of these questions is \u201cno.\u201d\u00a0 Medifast\u2019s defamation claim fails.<\/p>\n

      So go the rest of the claims.\u00a0 Medifast cannot bootstrap Coenen into liability as a coconspirator; the company fails to show that Coenen knew of Minkow\u2019s alleged scheme to defame Medifast or that she intended to defame the company.\u00a0 Medifast\u2019s one-sentence argument for market manipulation ignores both the plain language of the statute and the California Supreme Court\u2019s interpretation of it.\u00a0 And the company makes only a passing mention of its claim for unfair business practices.<\/p>\n

      II. Reply<\/strong><\/p>\n

      A.\u00a0 Each of the Allegedly Defamatory Statements is Not Actionable<\/strong><\/p>\n

      Some key principles guide the court\u2019s analysis of the eight statements Medifast claims constitute defamation on Coenen\u2019s part.\u00a0 First, to be actionable, the statement must be false<\/span>. \u00a0A true statement of fact is not defamatory.\u00a0 Morningstar, Inc. v. Sup. Ct.<\/em>, 23 Cal.App.4th 676, 686 (Cal. Ct. App. 1994).\u00a0 Merely making unflattering factual statements does not give rise to a cause of action for defamation.\u00a0 Id<\/em>.\u00a0 And a statement is not false for defamation purposes if it is substantially true.\u00a0 Masson v. New Yorker Magazine<\/em>, 501 U.S. 496, 516-517 (1991).<\/p>\n

      Second, the statement must be provably<\/span> false.\u00a0 A statement that is too vague or subjective to be proven true or false is not actionable.\u00a0 See<\/em> Seelig v. Infinity Broadcasting Corp.<\/em>, 97 Cal.App.4th 798, 810 (Cal. Ct. App. 2002)\u00a0and Roberts v. McAfee, Inc.<\/em>, 2010 U.S. Dist. LEXIS 20455, *31-32 (N.D. Cal. 2010).<\/p>\n

      Third, the statement viewed in its full context<\/span> must convey a statement of fact<\/span>, not opinion.\u00a0 The fact that a statement standing alone could be construed as false is not sufficient to support a claim for defamation.\u00a0 Monterey Plaza Hotel v. Hotel Employees & Restaurant Employees<\/em>, 69 Cal.App.4th 1057, 1065 (Cal. Ct. App. 1999).\u00a0 \u201cWhat constitutes a statement of fact in one context may be treated as a statement of opinion in another, in light of the nature and content of the communication taken as a whole.\u201d\u00a0 Baker v. Los Angeles Herald Examiner<\/em>, 42 Cal.3d 254, 260 (Cal. 1986)\u00a0(citation omitted).<\/p>\n

      Where the context of a statement signals to readers that they are receiving the author\u2019s opinion, courts construe statements as opinion that may otherwise be deemed fact. Id<\/em>. at 260, 267-268 (reader expects opinion from Op-Ed pages and critical reviews).\u00a0 See also<\/em> Global Telemedia Int’l, Inc. v. Doe 1<\/em>, 132 F.Supp.2d 1261, 1267 (C.D. Cal. 2001)\u00a0(court looks at \u201cthe reasonable expectations of the audience\u201d in analyzing context.).\u00a0 In a setting where \u201cthe audience may anticipate efforts by the parties to persuade others to their positions by use of epithets, fiery rhetoric or hyperbole, language which generally might be considered as statements of fact may well assume the character of statements of opinion.\u201d \u00a0Baker<\/em>, 42 Cal.3d at 260.\u00a0 \u201cWhen the language used is \u2018loose, figurative [and] hyperbolic,\u2019 this tends to negate the impression that a statement contains an assertion of verifiable fact,\u201d and the statement is not actionable.\u00a0 Cochran v. NYP Holdings, Inc.<\/em>, 58 F.Supp.2d 1113, 1123 (C.D. Cal. 1998)\u00a0(citing Milkovich v. Lorain Journal Co.<\/em>, 497 U.S. 1, 21 [1990]).<\/p>\n

      1.\u00a0\u00a0\u00a0 The Statements Must Be Analyzed in the Context of Fraud Files<\/strong><\/p>\n

      Each of the allegedly defamatory statements must be analyzed in the context of the forum in which they appeared: Coenen\u2019s \u201cFraud Files\u201d blog.[1]<\/a> The header of Fraud Files explains that it is \u201cdaily commentary on fraud, scams, scandals, and court cases.\u201d\u00a0 The blog is a forum for opinion, commentary, and discussion; Coenen does not purport to break hard news on the site.\u00a0 Coenen regularly employs feisty, hyperbolic language and fiery rhetoric to make her case.[2]<\/a> The debate continues in the comment section, where Coenen and her readers challenge each other on various points raised in the main posts.\u00a0 [E.g. Exh. GG.]\u00a0 Readers perusing Fraud Files understand they are receiving Coenen\u2019s opinion, and they know or quickly learn her slant: pro-consumer, anti-multilevel marketing.<\/p>\n

      2.\u00a0\u00a0 YTB Comparison<\/strong><\/p>\n

      a. <\/strong>First statement[3]<\/span><\/a>: \u201cTen levels of commission payouts \u2013 nine others get paid more than the seller.\u201d<\/p>\n

      The post actually states:<\/p>\n

      1. Both Medifast (NYSE:MED) and YTB International have 10 levels of commission payouts.\u00a0 That means on any given sale of actual products or services, the person selling it will receive a small commission, while 9 other levels will receive a total commission exceeding the seller\u2019s commission.\u00a0 [Compl. Exh. 13.]<\/p><\/blockquote>\n

      The gist of this statement is that the nine upline participants collectively earn a greater percentage of the total commission than a bottom-level health coach that makes a product sale.\u00a0 This statement does not convey a defamatory meaning and, thus, is not actionable.<\/p>\n

      Even if it did, Medifast\u2019s evidence proves it is true.\u00a0 When this statement was made, a health coach made a 15% commission; after July 2009, a health coach earns 20%, out of a total commission paid of approximately 50%.\u00a0 [Bell Dec. \u00b6\u00b6 50, 61-63.]\u00a0 Medifast\u2019s evidence is focused on how health coaches earn a greater commission and bonus as they advance to higher<\/em> levels (i.e., level six: \u201cExecutive Director\u201d). \u00a0[Bell Dec. \u00b6\u00b6 59-65.]\u00a0 This ignores the point of the statement: that the bottom-level health coach (level 1 out of 10), without any promotion, earns less than the nine levels above him collectively earn.<\/p>\n

      3.\u00a0 \u201cConflict of interest for Medifast auditors?\u201d<\/strong><\/p>\n

      Medifast next identifies two statements from a post about FDI\u2019s report questioning the independence of Medifast\u2019s auditors: \u201cThat BJL Wealth Management recommended the purchase of Medifast stock to an operative of FDI\u201d and \u201cThe recommendation of Medifast stock by its outside auditor may be considered a conflict of interest.\u201d\u00a0 The post actually states:<\/p>\n

      Last week Barry Minkow and Fraud Discovery Institute released a report regarding the independence of the auditors of Medifast Inc. (NYSE:MED). The company is audited by Bagell, Josephs, Levine & Company. The audit partner happens to also be a part of BJL Wealth Management, an investment firm with the same address as the audit firm.<\/p>\n

      This becomes interesting when you consider that BJL Wealth Mangement recommended the purchase of Medifast stock to an operative of FDI. Is this a conflict of interest? It may be. Does the audit partner, in his role at the investment firm, make recommendations regarding Medifast stock? Does he have any financial interest in transactions involving Medifast stock? If the answer to either of these questions is yes, then the audit partner would have compromised his independence.<\/p>\n

      An auditor working in the capacity of an investment advisor does not automatically give rise to independence issues. In fact, over the last ten years, the accounting powers that be were recommending that CPAs get involved in selling investments to generate additional revenue in their practices. However, when conducting an audit, the CPA has to draw a very clear line and not make recommendations regarding the buying or selling of securities of an audit client. The CPA also must not have any financial interest in the buying or selling of that stock. (i.e. He can\u2019t receive any income from the sale of securities of an audit client, even if it was someone else in the investment firm making the sale or recommendation.)<\/p>\n

      Another interesting factoid uncovered by FDI \u2026 The PCAOB inspected six audits done by Bagell, Josephs, Levine, and found significant audit deficiencies in HALF of them. That\u2019s a pretty bad hit rate.\u00a0 [Compl. Exh. 17.]<\/p><\/blockquote>\n

      a. <\/strong>Second Statement: That BJL Wealth Manager recommended the purchase of Medifast stock to an operative of FDI.<\/p>\n

      The average reader would not interpret the post as stating that Coenen herself claimed that BJL Wealth Management made the stock recommendation.\u00a0 In context, the facts (the identity of the auditor and the wealth management firm, and the statement about the stock recommendation) refer to claims made in the FDI report, which the post immediately identifies as its source.\u00a0 This is reinforced later in the post where Coenen refers to \u201c[a]nother interesting factoid uncovered by FDI,\u201d again clarifying that the facts came from the FDI report.\u00a0 Coenen links to both the FDI report that was the source of the claim (Comp. Exh. 15) and Antar\u2019s blog (Exh. HH), which restates FDI\u2019s claim that BJL recommended Medifast stock.<\/p>\n

      Even if the statement could be attributed to Coenen, it is not actionable against her because she was merely republishing a statement made by FDI.\u00a0 Barrett v. Rosenthal<\/em>, 40 Cal.4th 33, 39 (Cal. 2006).\u00a0 Coenen cannot be liable because she did not materially contribute to the illegality of this statement.\u00a0 Phan v. Pham<\/em>, 182 Cal.App.4th 323, 328 (Cal. Ct. App. 2010).<\/p>\n

      b. <\/strong>Third Statement: \u201cThe recommendation of Medifast stock by its outside auditor may be considered a conflict of interest.\u201d<\/p>\n

      This statement cannot support a claim for defamation as a matter of law.\u00a0 Whether a conflict of interest exists is an opinion, and does not imply an objective fact that can be provably true or false.\u00a0 Savage v. Pac. Gas & Elec. Co.<\/em>, 21 Cal.App.4th 434, 445 (Cal. Ct. App. 1993).\u00a0 But Coenen does not even state there is a conflict of interest; she poses a hypothetical about what would and would not be a conflict of interest, and concludes it is an open question based on the information presented in the FDI report.\u00a0 [See Compl. Exh. 17.]<\/p>\n

      4.\u00a0 \u201cMedifast and Take Shape For Life: Weight loss pyramid scheme?\u201d<\/strong><\/p>\n

      The fourth, fifth and sixth statements are each paraphrased from a post titled \u201cMedifast and Take Shape For Life: Weight loss pyramid scheme?\u201d\u00a0 While it is necessary to evaluate each statement in the context of the entire post, Coenen has included only excerpts due to page limits.<\/p>\n

      a. <\/strong>Fourth Statement: \u201cMedifast requires minimum purchases to continue to qualify in the pyramid.\u201d<\/p>\n

      The post actually states:<\/p>\n

      Why is multi-level marketing such a cash cow for the owners and executives of companies like these? Because product and service sales become largely irrelevant. The company instead markets the \u201copportunity\u201d for making extra money and achieving financial freedom. (Almost no one is able to actually achieve either of these[4]<\/span><\/a><\/span> when they sign up to sell MLM junk, but that\u2019s beside the point. Get people to believe it\u2019s possible<\/strong>, and you\u2019re golden.) Recruit people into the MLM, require \u201cminimum purchases\u201d from each to continue to \u201cqualify\u201d in the pyramid, and you are likely going to have exponential growth for the company.\u00a0 [Compl. Exh. 18.]<\/p><\/blockquote>\n

      Medifast\u2019s allegation misstates the content of the post.\u00a0 Coenen does not state that Medifast requires minimum purchases<\/span>; rather, the statement is made about multilevel marketing programs generally, many of which do require minimum purchases.<\/p>\n

      A reader would not interpret the claim, buried in the paragraph, to be a statement of fact about Medifast.\u00a0 Coenen uses figurative and hyperbolic language to explain her opinion of why multilevel marketing programs in general<\/em> are profitable.\u00a0 She claims that products and services are \u201cirrelevant,\u201d uses quotation marks to convey skepticism for the business \u201copportunity,\u201d and characterizes the products as \u201cjunk.\u201d\u00a0 All of this signals to the audience that they are receiving Coenen\u2019s opinion about multilevel marketing programs in general, not facts about Medifast.<\/p>\n

      b. <\/strong>Fifth Statement: \u201cMedifast does not make proper disclosures.\u201d<\/p>\n

      The post actually states:<\/p>\n

      But maybe the MLM part of the company is so successful because it works so well for the \u201ccoaches\u201d recruited into the program? We\u2019ll never know for sure, as Medifast doesn\u2019t disclose how much money the coaches are making, how much they spend on expenses of the business, what their attrition rates are, or how many recruits are actively selling or recruiting.\u00a0 [Compl. Exh. 18.]<\/p><\/blockquote>\n

      Medifast\u2019s claim fails for several reasons. \u00a0First, Coenen did not state that \u201cMedifast does not make proper disclosures.\u201d\u00a0 What Coenen did state was true: she identified information that, at the time, Medifast was not disclosing.\u00a0 Second, \u201cproper\u201d appears nowhere in the post; even if it did, that would be a statement of Coenen\u2019s opinion\u2014whether or not something is \u201cproper\u201d is not a provably false statement of fact.\u00a0 Roberts<\/em>, 2010 U.S. Dist. LEXIS at *31-32 (statement that employee was fired for \u201cimproper\u201d conduct too vague and subjective to be proven true or false.).\u00a0 Indeed, Coenen made no statement regarding disclosure \u201crequirements.\u201d\u00a0 The evidence cited by Medifast relates to whether the company was legally required to make these disclosures.[5]<\/a> The post neither states nor implies that it was.\u00a0 Her position has been consistent: that the disclosures would be helpful to consumers looking to evaluate TSFL as a business opportunity.<\/p>\n

      Medifast takes issue with Coenen\u2019s criticism of the company\u2019s lack of transparency about TSFL.[6]<\/a> It then seeks to hold her accountable on pain of defamation for not knowing the information it was not disclosing.\u00a0 Here the chaos is complete.\u00a0 Coenen cannot be held accountable for not knowing information that the company was withholding.\u00a0 Indeed, the great bulk of the evidence Medifast uses to support its claims for falsity\u2014the data in the Bell declaration being the most glaring example\u2014is information the company released for the first time when it filed its Opposition.<\/p>\n

      c. <\/strong>Sixth Statement: \u201cTSFL makes it clear that to make real money, you have to recruit new people into the plan.\u201d<\/p>\n

      The post actually states:<\/p>\n

      Take Shape For Life, however, makes it clear that to make real money, you have to recruit new people into the plan<\/span>.[7]<\/a> This is where the allegations of being a pyramid scheme come in. Like all other MLMs that I\u2019ve looked at, the product or service isn\u2019t really the focus. It\u2019s simply the bait to get someone in and make the company look legitimate<\/span>.[8]<\/a> The real focus, however, is the recruiting of new marks into the scheme.\u00a0 [Compl. Exh. 18.]<\/p><\/blockquote>\n

      This statement is not actionable for several reasons.\u00a0 First, the phrase \u201creal money\u201d is too vague and subjective to be capable of being proven true or false. \u00a0See Nygard, Inc. v. Uusi-Kerttula<\/em>, 159 Cal.App.4th 1027, 1048-51 (Cal. Ct. App. 2008)\u00a0and Roberts<\/em>, supra<\/em>, 2010 U.S. Dist. LEXIS at *31-32.\u00a0 Second, the statement as a whole is marked by the type of loose, figurative language that signals it is Coenen\u2019s opinion: the phrase \u201creal money,\u201d characterizing the products or services as \u201cbait\u201d to make the company look \u201clegitimate,\u201d and calling participants \u201cmarks\u201d and multilevel marketing a \u201cscheme.\u201d<\/p>\n

      Reference to the post as a whole confirms that it is Coenen\u2019s opinion.\u00a0 The post uses TSFL to provide context for commentary on the economic realities of multilevel marketing programs.\u00a0 Coenen discusses the financial lure of the business opportunity and how the programs rely on recruitment for continued success.\u00a0 The paragraph in which the statement is made makes a larger point: multilevel marketing programs appear to be about product sales, while in reality the structure incentivizes recruiting.\u00a0 This dichotomy between what is possible, on the one hand, and what is practical and probable, on the other, is central to Coenen\u2019s (and FitzPatrick\u2019s) critique of multilevel marketing programs.<\/p>\n

      Coenen highlights the difference between what is advertised and theoretically possible\u2014significant income or success based on product sales alone\u2014versus the reality of multilevel marketing: most people make little money and, from a practical standpoint, to make \u201creal\u201d money, you need to recruit people.[9]<\/a> In its full context, the statement reflects Coenen\u2019s opinion that in TSFL, like other multilevel marketing programs, it may be possible to make money through product sales alone, but the only practical way to make significant money is by recruiting participants.\u00a0 Medifast relies on proprietary data\u2014data it did not publish until filing its Opposition\u2014to claim health coaches make money through sales, not recruiting.\u00a0 This misses the point; Coenen\u2019s opinion on the structure of TSFL\u2019s structure was based on her analysis of the documents publicly available at the time.<\/p>\n

      Finally, the gist of the sixth statement is substantially true: participants have to move up the pyramid to make significant income.\u00a0 Medifast\u2019s own documents confirm this.\u00a0 Coenen links to TSFL\u2019s graphical compensation plan, which shows how the commission percentages increase as a participant moves up level-by-level.\u00a0 Medifast\u2019s current income disclosure statement illustrates how this works in practice: the bottom 80% earn a median monthly income of $78.97-$388.24,[10]<\/a> the top 0.63% earn $16,751.52-$41,563.37.\u00a0 [Exh. II.]\u00a0 Thus, the statement is substantially true, and not actionable.\u00a0 See Masson<\/em>, 501 U.S. at 516-517.<\/p>\n

      5.\u00a0 Medifast Identifies Two Statements that Coenen Did Not Make<\/strong><\/p>\n

      Lastly, Medifast attributes two statements to Coenen that she did not make and points to no evidence to demonstrate the contrary: the seventh statement, \u201cAlmost no one makes a living wage in TSFL,\u201d and eighth statement, \u201cThe bottom 50% of coaches are making all of the sales and not getting paid for their work.\u201d<\/p>\n

      Even if Coenen made the seventh statement, it is both a statement of opinion and is too vague and subjective to be capable of being proven true or false.\u00a0 See Nygard<\/em>, Inc.<\/em> 159 Cal. App. 4th at 1048-51.\u00a0 How would \u201calmost no one\u201d be defined in this context?\u00a0 What about \u201cliving wage\u201d?\u00a0 Id<\/em>.\u00a0 And Medifast can hardly claim this statement is false when the income disclosure statement shows that the bottom two levels, which account for 80% of active health coaches, make a median monthly income less than $400.\u00a0 [Exh. II.]<\/p>\n

      As to the eighth statement, she mentioned the \u201cbottom 50%\u201d of coaches only once, when quoting FitzPatrick\u2019s analysis in his January 2010 updated report, wherein he concluded that the bottom 50% of coaches received 6% of the total commissions.\u00a0 [Compl. Exh. 24.]\u00a0 The post does not state or imply what Medifast claims.\u00a0 Even if it did, Coenen is immune from liability for republishing FitzPatrick\u2019s analysis.\u00a0 See Barrett<\/em>, 40 Cal.4th at 39; Phan<\/em> <\/em>182 Cal.App.4th at 328.<\/p>\n

      B.\u00a0 Medifast is a Limited Purpose Public Figure<\/strong><\/p>\n

      As a limited purpose public figure, Medifast must prove actual malice (knowledge of falsity or serious doubts as to falsity) by clear and convincing evidence.\u00a0 Ampex Corp. v. Cargyle<\/em>, 128 Cal.App.4th 1569, 1577-78 (Cal. Ct. App. 2005).\u00a0 To avoid this burden, Medifast claims that it did not voluntarily inject itself into the debate; rather, it simply replied to the alleged defamation.\u00a0 [Opp. 25:1-27:6.]\u00a0 This myopic framing ignores the public dimension of Medifast\u2019s promotion of TSFL as a viable business opportunity, and itself as a sound investment.\u00a0 The company cannot expect to promote TSFL in the manner that it does and avoid any criticism.<\/p>\n

      Medifast\u2019s attempt to claim it is not a limited public figure because there was no preexisting \u201cpublic\u201d controversy is an approach that has been soundly rejected.\u00a0 See Gilbert v. Sykes<\/em>, 147 Cal.App.4th 13, 24-26 (2007).\u00a0 The relative merits of TSFL, and programs like it, has garnered attention and is the focus of widespread public interest.\u00a0 Once an entity places itself in the spotlight on a topic of public interest, its conduct relating to that topic may be a fair target of criticism.\u00a0 Id<\/em>. at 19.\u00a0 When publicly traded companies like Medifast engage in public controversies, as here, they are limited purpose public figures.\u00a0 See<\/em>, e.g.<\/em>, Ampex Corp.<\/em> v. Cargyle<\/em>, supra<\/em>, 128 Cal.App.4th 1569, 1576-1578 (2005).[11]<\/a><\/p>\n

      In Gilbert<\/em>, a plastic surgeon sued a former patient who created a website that related her negative experience with the surgeon.\u00a0 Gilbert<\/em>, supra<\/em>, 147 Cal.App.4th at 19-20.\u00a0 The court rejected the surgeon\u2019s claim that he was not a public figure because there was no \u201cpreexisting public controversy\u201d with the plaintiff.\u00a0 This argument\u2014the same that Medifast makes here\u2014was \u201cat war with the concept of a limited purpose public figure.\u201d\u00a0 Id<\/em>. The court held the surgeon was the \u201carchetypical example\u201d of a limited purpose public figure: he touted the virtues of plastic surgery through television appearances, journal articles, and magazine pieces.\u00a0 Id<\/em>. at 25. \u00a0Once he placed himself into the public debate about a topic that concerns a substantial number of people, he became a public figure relating to that topic.\u00a0 Id<\/em>. at 25-26.<\/p>\n

      Such is the case here.\u00a0 With TSFL, Medifast has voluntarily placed itself at the core of two substantial public debates: the country\u2019s obesity epidemic and the personal finance crisis.\u00a0 [Comp. \u00b6\u00b6 21-22, 37-39; Exhs. M, N, O, P, Q, R, CC, DD.]\u00a0 Through its advertisements and websites, Medifast has made public claims not only about the quality of its weight-loss products, but also about TSFL\u2014promoting it as a way to achieve not only a \u201chealthy body,\u201d but also a \u201chealthy mind [and] healthy finances.\u201d\u00a0 [Compl. \u00b6 22.]<\/p>\n

      Medifast invited public attention to itself and the TSFL program.\u00a0 In periodic press releases announcing its financial results, Medifast touted TSFL\u2019s success, and relied on the rapid growth of TSFL to project a positive financial outlook for the company as a whole.\u00a0 [Exhs. M, O, R, CC.]\u00a0 These reports convey to investors and consumers that Medifast is a sound investment, poised for future growth on the back of TSFL, which in turn is a sound business opportunity.\u00a0 [Id<\/em>. and Exhs. KK and LL.]\u00a0 These claims predate FitzPatrick\u2019s first report; indeed, FitzPatrick\u2019s reports\u2014and Coenen\u2019s posts\u2014involve dissecting those public claims made by the company.<\/p>\n

      This case is distinguishable from those cited by Medifast to support its claim that it was a private figure drawn into a public controversy.\u00a0 Vegod<\/em> and Maekoff<\/em> support the general proposition that a business is not a public figure simply by virtue of advertising to the public.\u00a0 See Makaeff v. Trump Univ., LLC<\/em>, 2010 U.S. Dist. LEXIS 87112, *13 (S.D. Cal. 2010)\u00a0and Vegod Corp. v. Am. Broad. Cos.<\/em>, 25 Cal.3d 763, 769 (Cal. 1979).\u00a0 In each of those cases the allegedly defamatory statements were not directly related to claims made by the advertising.[12]<\/a> Similarly, in Firestone<\/em>, concerning a high-profile divorce, the plaintiff made no public claims about the health of her marriage prior to the press reports revealing details about the divorce settlement.\u00a0 Time, Inc. v. Firestone<\/em>, 424 U.S. 448 (1976).<\/p>\n

      By contrast, Medifast voluntarily injected itself into a public discussion by publishing claims about TSFL in several press releases promoting itself, and by forecasting future success based on the continued growth of the TSFL program.\u00a0 It has widespread access to the media, as demonstrated by the scores of press releases, articles, profiles and advertisements about the company.\u00a0 To allow Medifast to cloak itself as a private figure turns the public figure\/private figure distinction on its head. See<\/em> Wolston v. Reader\u2019s Digest<\/em> Ass\u2019n<\/em>, 443 U.S. 157, 164 (1979)\u00a0(rationale for requiring public figures to prove actual malice: (1) voluntary exposure to criticism by attempting to influence public issue, and (2) capacity for \u201cself-help\u201d through media access).<\/p>\n

      The company became a public figure when it injected itself into public debate by making claims about its business model and the viability of TSFL as a means to achieve wealth and health.<\/p>\n

      C.\u00a0\u00a0 Medifast Failed to Produce Clear and Convincing Evidence of Actual Malice<\/strong><\/p>\n

      In order to demonstrate \u201cactual malice,\u201d Medifast must produce clear and convincing evidence that Coenen made a defamatory statement knowing it was false, or with reckless disregard of its truth or falsity.\u00a0 Ampex Corp.<\/em>, supra<\/em>, 128 Cal.App.4th at 1578-79.\u00a0 To meet this standard, the evidence must be sufficiently strong \u201cas to command the unhesitating assent of every reasonable mind.\u201d\u00a0 Id<\/em>. at 1579.\u00a0 \u201cReckless disregard\u201d is a purely subjective test, focused on the defendant’s attitude about the truth of the published material, not her attitude toward the plaintiff.\u00a0 Reader’s Digest Ass\u2019n v. Sup. Ct.<\/em>, 37 Cal.3d 244, 257 (Cal. 1984).\u00a0 For actual malice, the test is not \u201cwhether a reasonably prudent man would have published, or would have investigated before publishing.\u201d\u00a0 St. Amant v. Thompson<\/em>, 390 U.S. 727, 731 (1968).\u00a0 Instead \u201c[t]here must be evidence of actual doubt concerning the truth of the publication.\u201d\u00a0 Reader’s Digest<\/em> Ass\u2019n.<\/em>, 37 Cal.3d at 257.<\/p>\n

      Here, Medifast does not present any evidence to support its claims of malice.\u00a0 Rather, it concludes Coenen acted with malice based on speculative, conclusory and\/or incorrect statements.\u00a0 Medifast presents only two arguments to support its claim that Coenen acted with actual malice.\u00a0 First, it claims that Coenen failed to adequately review the TSFL compensation plan.\u00a0 [Opp. 48:14-24.]\u00a0 This is a blanket allegation; Medifast fails to link this claim to any of the eight statements in particular.<\/p>\n

      The contention is also false.\u00a0 Coenen testified that she reviewed at least two versions of the compensation plan, though she could not specifically recall for how long or whether she reviewed the specific compensation plan placed in front of her during the deposition.\u00a0 [Coenen Dep. 96:24-101:23.]\u00a0 But even if Medifast\u2019s claim was credited, it is insufficient to establish actual malice.\u00a0 The company does not dispute that Coenen reviewed many documents in connection with her posts, including FitzPatrick\u2019s reports (which analyze the compensation plan in detail) and Medifast\u2019s publicly-filed documents.\u00a0 In light of the investigation done by Coenen, the claim that she failed to pay enough attention to the compensation plan is insufficient to show actual malice.\u00a0 See<\/em> Reader’s Digest<\/em> Ass\u2019n<\/em>, 37 Cal.3d at p. 258 (\u201cfailure to conduct a thorough and objective investigation, standing alone, does not prove actual malice…\u201d)<\/p>\n

      Second, Medifast claims that Coenen posted about the potential conflict of interest with BJL recommending Medifast stock even though she did not believe it was a conflict, and failed to investigate the identity of the operative who told Minkow about the recommendation.\u00a0 [Opp. 49:1-12.]\u00a0 Once again, Medifast misstates the content of post.\u00a0 Coenen outlines what would and would not constitute a conflict of interest under the scenario alleged by FDI, and states that more information is needed.\u00a0 [Compl. Exh. 17.]\u00a0 She never stated there was a conflict of interest.\u00a0 This is consistent with the emails between Coenen and Minkow about BJL.[13]<\/a> [Exh. EE.]<\/p>\n

      Finally, there is no evidence that Coenen believed the statement about the BJL stock recommendation was false, or even entertained serious doubts respecting its truth.\u00a0 Medifast faults Coenen for not investigating the identity of the \u201cFDI operative.\u201d\u00a0 Medifast\u2019s principal argument (as to the Minkow defendants) surrounding the statement\u2019s probable falsity is due to its source\u2014Michael Lair.\u00a0 But Coenen did not learn who Lair was, that he was the \u201coperative,\u201d or about his criminal record until after<\/span> this lawsuit was filed.\u00a0 [Dep. Coenen 178:6-180:7.]\u00a0 Medifast does not claim otherwise.\u00a0 Coenen republished the statement from the FDI report; Medifast presented no evidence that Coenen had reason to doubt the statement\u2019s truth when she republished it.\u00a0 The lack of investigation alone is insufficient to meet the \u201cclear and convincing\u201d evidence standard.\u00a0 See<\/em> Reader’s Digest<\/em> Ass\u2019n.<\/em>, 37 Cal.3d at 257.<\/p>\n

      Mere speculation is insufficient to meet Medifast\u2019s burden of proof.\u00a0 Despite its conjecture regarding Coenen\u2019s allegedly malicious intent, Medifast failed to produce sufficient evidence to show that Coenen published any of the eight statements with actual malice.<\/p>\n

      D.\u00a0 Medifast Cannot Prevail on its Claim for Conspiracy to Defame<\/strong><\/p>\n

      Its direct defamation claims against Coenen lacking, Medifast tries to bootstrap Coenen into liability for the other defendants\u2019 statements by alleging a conspiracy to defame.\u00a0 \u201cBecause a civil conspiracy is so easy to allege,\u201d Medifast bears a \u201cweighty burden to prove it.\u201d\u00a0 Choate v. County of Orange<\/em>, 86 Cal.App.4th 312, 334 (Cal. Ct. App. 2000).\u00a0 \u201cConspiracies cannot be established by suspicions\u201d; \u201c[m]ere association does not make a conspiracy.\u201d\u00a0 Kidron v. Movie Acquisition Corp.<\/em>, 40 Cal.App.4th 1571, 1582 (Cal. Ct. App. 1995)\u00a0(citation omitted).\u00a0 To establish Coenen\u2019s liability as a coconspirator, the company must show that Coenen (1) had actual knowledge of a plan to defame Medifast, (2) intentionally joined the plan, and (3) joined the plan for the purpose of harming Medifast.\u00a0 Id<\/em>.\u00a0 Medifast\u2019s principal failure of proof lies in the absence of evidence that Coenen agreed to be part of a conspiracy to defame the company.<\/p>\n

      As with its other claims against Coenen, the evidence presented is thin.\u00a0 Medifast concludes there was a conspiracy based on Coenen\u2019s participation in FDI\u2019s Medifast investigation, specifically citing her work drafting the YTB comparison and providing feedback to Minkow and FitzPatrick on drafts of reports and releases.\u00a0 [Opp. 51:1-7.]\u00a0 This is insufficient.<\/p>\n

      Indeed, Coenen\u2019s work supports the opposite conclusion: that she did not know of a scheme to defame Medifast and did not intend to defame the company.\u00a0 First, the YTB comparison was not defamatory.[14]<\/a> Medifast does not cite any evidence that Coenen knew anything written in the comparison was false.\u00a0 As to FitzPatrick\u2019s reports, she provided honest and pointed feedback, asking questions to clarify his arguments.\u00a0 [Exh. JJ.]\u00a0 When Coenen disagreed with the BJL investigation, she made her opinion known.\u00a0 She told Minkow she \u201chated\u201d the draft report, and that she thought it was \u201cstupid.\u201d\u00a0 [Exh. EE.]\u00a0 She forcefully made her argument on the issue of BJL\u2019s independence.\u00a0 Id<\/em>.<\/p>\n

      Other than the YTB comparison, Medifast does not claim that Coenen played a responsible part in creating the allegedly defamatory statements made by her so-called co-conspirators\u2014FitzPatrick, Lobdell or Minkow.<\/p>\n

      In sum, there is no evidence that Coenen knew of a scheme to defame Medifast.\u00a0 But even if Coenen knew of such a scheme, Medifast has offered no evidence that she intended to join in the scheme to defame the company.\u00a0 To the contrary, the evidence shows that Coenen took care to make accurate statements about the company, and to encourage the others to do the same, even vehemently expressing her disagreement.<\/p>\n

      E.\u00a0 Medifast Failed to Prove a Probability of Prevailing on its Derivative Claims<\/strong><\/p>\n

      Medifast does not dispute that its claims for market manipulation and unfair business practices fail if it cannot prove its primary claim of defamation.\u00a0 See Blatty v. New York Times Co.<\/em>, 42 Cal.3d 1033, 1042 (Cal. 1986)\u00a0(constitutional privilege applies to all claims whose gravamen is defamation).\u00a0 Medifast pays only brief lip service to its unfair business practices claim.\u00a0 Yet the company still claims that Coenen can be liable for market manipulation.<\/p>\n

      Medifast does not dispute that Coenen did not purchase or sell Medifast\u2019s stock. \u00a0The sole basis for the company’s market manipulation\u00a0claim is the company’s assertion that\u00a0California Corporations Code section 25400(e)\u00a0\u201cextends liability to any person who is compensated by a stock manipulator for the dissemination of false statements.\u201d\u00a0 [Opp. 52:5-7.] \u00a0This is incorrect.<\/p>\n

      Subsection (e) makes it unlawful for any person to receive consideration \u201cto induce the purchase or sale of a security by circulating information that the price of the stock may rise or fall because of market operations conducted for the purpose of raising or depressing the price.\u201d\u00a0 Diamond Multimedia Systems, Inc. v. Sup. Ct., 19 Cal.4th 1036, 1048 (Cal. 1999)<\/em>.\u00a0 The subsection is directed at runners of \u201ctipster sheets\u201d who receive compensation from securities brokers.\u00a0 StorMedia Inc. v. Sup. Ct., 20 Cal.4th 449, 460 (Cal. 1999).\u00a0 See also Kamen v. Lindly<\/em>, 94 Cal.App.4th 197, 203 (Cal. Ct. App. 2001)\u00a0(discussing history of section 25400).<\/p>\n

      Medifast\u2019s claim fails because Coenen did not act as a \u201ctipster.\u201d \u00a0She made no representation that Medifast\u2019s stock would rise or fall.<\/p>\n

      III. Conclusion<\/strong><\/p>\n

      For the reasons set forth above, this special motion to strike should be granted.<\/p>\n

      \n

      [1]<\/a> Fraud Files is not focused on, or limited to, work that Coenen has done with Minkow.\u00a0 Of the over 1,600 posts on the blog, 21 are directed at Medifast (including thirteen posts relating to this lawsuit).\u00a0 Coenen has also posted over 1,000 times \u201cPink Truth\u201d (formerly \u201cMary Kay Sucks).\u00a0 [Rep. Dec. T. Coenen, \u00b6 2.]<\/p>\n

       <\/p>\n

      [2]<\/a> See Exh. GG, \u201cAmway Sucks!\u00a0 Quixtar Sucks!\u00a0 Alticor Sucks!\u201d<\/p>\n

      [3]<\/a> The statements discussed on pages 3-9 refer to the only statements that Medifast claims constitute defamation on Coenen\u2019s part.\u00a0 [Opp: 44: 12-24]<\/p>\n

      [4]<\/a> Hotlink to https:\/\/www.sequenceinc.com\/fraudfiles\/2008\/08\/24\/failure-rates-in-ytb-and-other-mlms\/<\/p>\n

      [5]<\/a> This statement has been a moving target.\u00a0 Medifast originally claimed that Coenen defamed them by reference to \u201cunknown and legally mandated disclosure requirements.\u201d\u00a0 [Compl. 13:23.]\u00a0 Coenen never stated or implied that it was; Medifast now couches the statement as failure to make \u201cproper\u201d disclosures\u2014a tacit admission that this claim lacks merit.<\/p>\n

      [6]<\/a> Coenen is not the only one to take issue with Medifast\u2019s previous disclosures.\u00a0 On January 12, 2011, in response to \u201ccomments from the [SEC],\u201d the company filed an amended annual report for 2009.\u00a0 Among other things, the report was amended to provide information on the commission and bonus structure TSFL.\u00a0 [Cp. Exh. NN, pp. 5-6 with Exh. OO, p. 5.]<\/p>\n

      [7]<\/a> Hotlink to http:\/\/www.tsfl.com\/pdfs\/TSFL_CompensationPlan.pdf<\/p>\n

      [8]<\/a> Hotlink to https:\/\/www.sequenceinc.com\/fraudfiles\/2008\/07\/02\/can-you-make-money-with-mary-kay\/<\/p>\n

      [9]<\/a> This point is underscored by the link to a post about Mary Kay, where she talks about the difficulties of making money with that company through product sales alone.\u00a0 [See fn. 7.]<\/p>\n

      [10]<\/a> This excludes all health coaches earning $24 or less in monthly income, which would presumably lower the average figures for participants at the bottom of the pyramid.\u00a0 [Exh. II.]<\/p>\n

      [11]<\/a> See also<\/em> Isuzu Motors Ltd. v. Consumers Union of United States, Inc.<\/em>, 66 F.Supp.2d 1117, 1120-21 (C.D. Cal. 1999)\u00a0(company a public figure where it was an active participant in the market, made claims about the quality of its product, and the allegedly defamatory statements were related to the company\u2019s public claims.).<\/p>\n

      [12]<\/a> Also, Vegod<\/em> and Makaeff<\/em> <\/em>dealt with companies in very different positions than Medifast \u2013 the former involved two relatively unknown corporations and the latter involved a small privately held company.\u00a0 And, unlike Medifast, those companies did not seek the public\u2019s attention other than in advertising services.<\/p>\n

      [13]<\/a> In addition, Medifast does not argue that Coenen was involved in short selling stock \u2013 because she did not do so.\u00a0 Instead, Medifast insinuates that Coenen\u2019s posts were made to get publicity for her company and services.\u00a0 There is no evidence to support this claim.\u00a0 Regardless, it is not enough to prove malice.\u00a0 Isuzu Motors<\/em> Ltd<\/em>., supra<\/em>, 66 F. Supp.2d 1117 (goal of increasing profit through publicity materials is not sufficient to prove actual malice).<\/p>\n

      [14]<\/a> See section II(A)(2), supra<\/em>.<\/p>\n","protected":false},"excerpt":{"rendered":"

      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 […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","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":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[184],"tags":[830,835,834,836,841,842],"class_list":["post-5589","post","type-post","status-publish","format-standard","hentry","category-pyramid-schemes-mlm","tag-barry-minkow","tag-defamation","tag-medifast","tag-robert-fitzpatrick","tag-take-shape-for-life","tag-tsfl"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p6Z0e-1s9","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/5589","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=5589"}],"version-history":[{"count":0,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/5589\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/media?parent=5589"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/categories?post=5589"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/tags?post=5589"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}