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A federal judge has thrown out most of the claims that Usana Health Sciences Inc. made in a lawsuit against a corporate watchdog who issued a critical report on the company's multilevel marketing structure.
Judge Tena Campell tossed four of five claims that Usana made against Barry Minkow, of California, a convicted corporate felon who now runs a Web site called the Fraud Research Institute.
But Usana, a Utah-based marketer of food supplements and health products, said the most important parts of the lawsuit remain, and it intends to move forward with the case.
Campbell on Tuesday dismissed four of five claims against Minkow, whose report claimed Usana's multilevel marketing plan is unstable, with the constant need to replenish sales associates who almost never earn as much money as the company suggests they can by recruiting other salespeople and receiving a portion of their earnings. Minkow also claimed the company's products were overpriced and not of greater quality when compared with other products.
The four dismissed claims were based on alleged violations of California corporate law. But Campbell cited another California law aimed at protecting people, such as Minkow, from suits that attempt to silence or scare away critics.
She found, in part, that Minkow was protected by that law because Usana did not show a "reasonable probability" it would win on those claims.
The judge cited two examples where Usana failed to refute Minkow's claims that its products were overpriced because they were not of better quality than other lower-priced brands. Usana's arguments were "hypertechnical statements representing differing interpretation of data," Campbell said.
"The message from this case is if you have accurate information and you don't break the law and you can corroborate your findings, you don't have to fear retribution from the company," Minkow said in an interview.
But Usana said the parts of the lawsuit it considers the most important remain. Those include its ability to identify and sue institutional investors, hedge funds and individual investors it says conspired with Minkow to profit from the company's falling stock. It also can still seek an injunction prohibiting Minkow from providing false information that hurts the company.
"The fundamental thrust of this case goes on undisturbed," said D.J. Poyfair, attorney for Usana.
Shares of Usana closed at $29.51, down $1.06, or 3.47 percent on Wednesday.