Herbalife Top Distributors Lose Arbitration Bid

Top distributors of the sometimes controversial nutrition products marketer Herbalife lost their bid to compel arbitration of RICO and related claims made by lower-level distributors in Lavigne v. Herbalife, Ltd., 2020 WL 4342671 (11th Cir. July 29, 2020), which affirmed the order of a Florida district court. The top distributors, alleged to be part of Herbalife’s “Circle of Success,” were accused in the putative class action of participating with Herbalife in a conspiracy that caused the named plaintiffs to lose thousands of dollars on the basis of fraudulent claims of prospective riches. The top distributors were not parties to any arbitration agreement, but sought to compel arbitration of the claims against them under the arbitration agreement between the named plaintiffs and Herbalife.

Herbalife itself succeeded in the district court in enforcing the arbitration agreements executed by some of the class representatives, though the court refused to retroactively enforce arbitration provisions that were added to Herbalife’s Rules of Conduct after the aggrieved distributors signed their agreements.

On appeal, the only issues were denial of the motion to compel arbitration by the top distributors and a motion to transfer claims against them to a California district court. The Eleventh Circuit began its analysis by pointing out that the top distributors were not parties to any of the arbitration agreements they attempted to invoke. The defendant distributors attempted to overcome this barrier by arguing that whether the aggrieved distributors agreed to arbitrate was an issue of arbitrability delegated to the arbitrator. But the court made short work of this argument, finding that there was no contract in the first place between the two sets of distributors. The top distributors alternatively argued that equitable estoppel required arbitration of the claims against them, but the court concluded that the claims made were not founded in or inextricably bound up with the obligations created by the distributorship agreements; thus, the standard for applying equitable estoppel was not met. The court also observed that the aggrieved distributors were not attempting to hold the top distributors liable for any of the duties imposed by the agreements.

Finally, the court concluded that it had no appellate jurisdiction over the denial of a motion to transfer venue and it declined to resort to rarely-exercised pendent appellate jurisdiction, reasoning that the non-appealable decision was not inextricably intertwined with the appealable order.

Posted by Tom Byrne.

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