Wednesday, October 1, 2014

A Lawsuit Filed in July by USANA Claims Sales Were Dramatically and Negatively Impacted - USANA Versus Belynda Lee


Update 11/13/2017: This lawsuit was dismissed on January 20, 2015 by the judge after Belynda Lee filed for a motion to dismiss. Case closed...

In a lawsuit filed on July 25, 2014 USANA seeks at least $3 million in damages from a former employee that USANA believes "has dramatically and negatively impacted USANA’s sales". Because of the amount and the significance of the quoted statement I believe USANA had an obligation to disclose the court case and negative sales impact to their shareholders. I cannot find any public mention of this issue by USANA to its shareholders.  

USANA Health Sciences V. Lee was filed in the Utah District Court. I will briefly discuss the court issue and pull quotes from the court document with my emphasis added in bold as well as the occasional link on certain key words.

Belynda Lee was hired by USANA in 2005 as Asian Market Development Manager. In March 2011 she was promoted to Vice President over its Canadian and North American Asian Market. On January 23, 2014 she submitted a letter of resignation to USANA, which ended on February 6, 2014. USANA and Belynda agreed to a separation agreement. This agreement consisted of a non-solicitation agreement as well as a non-compete agreement.

20. In exchange for Ms. Lee's non-solicitation, non-competition, and other promises, USANA agreed to pay Ms. Lee $53,045.01 within seven days of her resignation date.


USANA also extended the life of her Stock-Settled Stock Appreciation Rights.

21. In addition, USANA agreed to extend the life of 5000 of Ms. Lee’s Stock-Settled Stock Appreciation Rights (“SSAR’s”), awarded on July 21, 2008, until October 21, 2014. On February 6, 2014, Ms. Lee exercised these rights, sold the underlying shares, and received proceeds of $209,700.

22. USANA further agreed to extend the life of the equivalent of 6000 of Ms. Lee’s SSAR’s, awarded on July 21, 2011, until May 6, 2014. On February 10, 2014, Ms. Lee exercised these rights, sold the underlying shares, and received proceeds of $227,040.

23. Finally, USANA agreed that an additional 6,000 SSAR’s would continue to vest on Ms. Lee’s behalf, would become available to exercise on July 27, 2014, and would not expire until October 27, 2014.

24. The extension of Ms. Lee’s SSAR’s was made “[c]onditional upon [Ms. Lee] complying with the non-solicitation and non-competition restrictions” of the Separation Agreement.

So now the interesting part begins. According to the court documents, USANA agreed to a "limited waiver" which would allow Belynda to accept a position a Nerium Internation without violating her non-compete restriction. However, she violated that agreement.

27. In particular, Ms. Lee, together with her son and Aaron Dinh, directly or indirectly recruited members of USANA to leave USANA and join Nerium, for which Ms. Lee had been named Regional Vice President of Sales and General Manager of Canada.

28. Ms. Lee’s recruiting strategy was to contact USANA distributors, customers, and potential distributors and customers, together with or through her son and Aaron Dinh, to explain to them the purported problems with USANA, and to convince them that Nerium would be a better fit.

29. As a result of Ms. Lee’s efforts, several key USANA distributors and customers left USANA and joined Nerium, including Brenton Haag, Cathy Ngo, Aaron Dinh, May Anilhongse, Maurizio Flores, Coach Mike, and Christy Grisom.

30. Two of the distributors (Dinh and Ngo) were two-star Diamond Directors for USANA, which is a very significant distributor position within USANA. Their departure has dramatically and negatively impacted USANA’s sales, as they were highly recognized distributors with large, successful sales organizations. In addition, their departure has created negative publicity for USANA.

USANA admits in the court document that the departure of these high level associates negatively impacts their sales in a "dramatic" way. The wording of this implies a material significance that may have been required to mention in their second quarter 2014 SEC financial statement. The publishing date of that Q2 SEC filing was August 5, 2014 which should have been plenty of time to add a line item that mentioned this court case and the dramatic impact it had on their sales.

USANA goes on to make makes several "claims" and asks for an amount in damages. I will skip over those details and simply quote from the last couple pages.
WHEREFORE, USANA prays for judgment in his favor as follows:

1. On its first claim for relief, for a monetary judgment against Ms. Lee in an amount to be determined at trial, but not less than $1,000,000;

2. On its second claim for relief, for a monetary judgment against Ms. Lee in an amount to be determined at trial, but not less than $1,000,000;

3. On its third claim for relief, for a monetary judgment against Ms. Lee in an amount to be determined at trial, but not less than $1,000,000;

4. On its first, second, and third claims for relief, in the alternative, for a temporary restraining order, preliminary injunction, or permanent injunction, prohibiting Ms. Lee from continuing to act in a manner contrary to law;

5. On its fourth claim for relief, a declaratory judgment declaring that: (i) the Separation Agreement is an enforceable contract; (ii) USANA performed its obligations under the Separation Agreement; (iii) Ms. Lee materially breached the Separation Agreement by actively recruiting USANA distributors and customers to leave USANA; and that (iv) as a result of Ms. Lee’s breach, USANA is no longer obligated to provide the stock options (SSAR’s) it promised to provide, and that it can recoup the value of the SSAR’s Ms. Lee has already exercised;

6. For pre- and post-judgment interest on all sums due at the rate provided by law;

7. For an award of reasonable attorney’s fees and costs; and

8. For such other and further relief as the Court may deem equitable, appropriate and just under the circumstances.

DATED this 25th day of July, 2014.

USANA is seeking at least $3 million in damages. I believe this $3,000,000 could be considered materially significant when compared it to USANA's net revenues for Q2-2014 of $29 million before taxes.

9 comments:

  1. Interesting how someone will find the time to keep up a negative blog on a company whose products continually rate number 1. In Canada, USANA products have been rated by an independent, 3rd party company no 1 for 12 straight years. The compensation program isn't for everyone specifically those who aren't concerned about their health or lack ambition. It's a viable business for those who have the desire to help others become healthier while at the same time, wealthier. I looked at some of the negative testimonials and believe, although I could be mistaken but probably not, that some of those people wouldn't make it in any capacity regardless of the job or market. Anyone interested in learning more of the truth and opportunity is welcome to contact me. ianbirnie@cogeco.ca

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    1. Sorry bud but I'm going to call your bluff here. What products were rated "number 1" and in what category were they rated in? Also, who were they rated by? Go on, I'll wait.

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    2. How long do you have to wait?

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  2. Interesting How Ian

    Only an uniformed Usana associate could criticize a court document written by Usana's attorney. To purpose of the document id to bring an unscrupulous former Usana in compliance with her contract. Usana is seeking damages from a former employee. The Dog has informed the public. I hope Usana can recover the damages.

    Who in Canada rated Usana #1? What has that to do with the court case?

    I think that everyone that has invested in or works for Usana would want to know about the case. We certainly know that Birnie knows nothing about nothing and only a fool would contact you.

    Do you know who was put in your upline today?

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  3. Oct. 10, 2014 - when most stocks are down - USANA still on the green. I may not be an expert but I can see that this company will stand whatever crisis they're facing.

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    1. Even though the company stands, that doesn't mean the people in it stand. Besides, I am aware of a criminal being with USANA, he was found guilty in scam and drug trafficking and spent 4 years in jail. If USANA accepts this kind of criminals to be part of the organisation, it allows them to scam even more people. Consequently, I would say USANA is a good place for scammers to try to make money. By the way, that guy and I have quite a few mutual friends, but none of them are really close to me. It's disappointing to see them actually working together.

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  4. Wow... Belynda Lee, and Aaron Dinh.. I recalled there was an audio cd of him talking about some motivational speech to motivate people. My wife heard it and I heard it. But it did not moved me because I have been there done that and know what he is saying is just superficial. Joel Osteen is even better motiviational speaker as what he said have substance. I'm glad I didn't worship or give a f-k about him and his speech because at the end of the day, you are nothing more than a sales person who can move laterally, like how he did. I can feel how bad his downlines felt who had think he is a great leader. I'm from usana to..but I don't give a d-mn about who my upline is as she is in it for herself also (it's a win-win, so you can't blame ppl on that)... I am a leader myself, but I don't force people to take it.

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  5. Please do research usana philippines

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  6. undoubtedly, this watchdog is someone being hired to write all these junk to condemn others. Soon, he will condemn the walmart selling him potatoes at higher price than china. Keep the negativity up

    ReplyDelete

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