GNC 2010 Annual Report Download - page 109

Table of Contents
GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
insured under most of such parties' insurance policies. The Company is also entitled to indemnification by Numico for certain losses arising
from claims related to products containing ephedra or Kava Kava sold prior to December 5, 2003. However, any such indemnification or
insurance is limited by its terms and any such indemnification, as a practical matter, is limited to the creditworthiness of the indemnifying party
and its insurer, and the absence of significant defenses by the insurers. The Company may incur material products liability claims, which could
increase its costs and adversely affect its reputation, revenues and operating income.
Pro-Hormone/Androstenedione Cases. The Company is currently defending six lawsuits (the "Andro Actions") relating to the sale by GNC
of certain nutritional products alleged to contain the ingredients commonly known as Androstenedione, Androstenediol, Norandrostenedione,
and Norandrostenediol (collectively, "Andro Products"). Five of these lawsuits were filed in California, New York, New Jersey, Pennsylvania,
and Florida. The most recent case was filed in Illinois (see Stephens and Pio matter discussed below).
In each of the six cases, plaintiffs sought, or are seeking, to certify a class and obtain damages on behalf of the class representatives and
all those similarly-situated who purchased from the Company certain nutritional supplements alleged to contain one or more Andro Products.
In April 2006, the Company filed pleadings seeking to remove the then-pending Andro Actions to the respective federal district courts for
the districts in which the respective Andro Actions were pending. At the same time, the Company filed motions seeking to transfer the then-
pending Andro Actions to the U.S. District Court, Southern District of New York based on "related to" bankruptcy jurisdiction, as one of the
manufacturers supplying it with Andro Products, and from whom it sought indemnity, MuscleTech Research and Development, Inc.
("MuscleTech"), had filed for bankruptcy. The Company was successful in removing the New Jersey, New York, Pennsylvania, and Florida
Andro Actions to federal court and transferring these actions to the U.S. District Court, Southern District of New York based on bankruptcy
jurisdiction. The California case, Guzman v. General Nutrition Companies, Inc., was not removed and remains pending in the Superior Court of
the State of California for the County of Los Angeles.
Following the conclusion of the MuscleTech bankruptcy case, in September 2007, plaintiffs filed a stipulation dismissing all claims related
to the sale of MuscleTech products in the four cases then-pending in the U.S. District Court, Southern District of New York (New Jersey, New
York, Pennsylvania, and Florida). Additionally, plaintiffs filed motions with the Court to remand those actions to their respective state courts,
asserting that the federal court had been divested of jurisdiction because the MuscleTech bankruptcy action was no longer pending. That
motion was never ruled upon and has been rendered moot by the disposition of the case, discussed below.
On June 4, 2008, the U.S. District Court, Southern District of New York (on its own motion) set a hearing for the purpose of hearing
argument as to why the New Jersey, New York, Pennsylvania, and Florida cases should not be dismissed for failure to prosecute in conformity
to the Court's Case Management Order. Following the hearing, the Court advised that all four cases would be dismissed with prejudice and
issued an order to that effect. In August 2008, plaintiffs appealed the dismissal of the four cases to U.S. Court of Appeals for the Second
Circuit, and oral argument was heard on October 14, 2009. The Second Circuit reversed the dismissal and remanded the case to the U.S.
District Court, Southern District of New York.
In the Guzman case in California, plaintiffs' Motion for Class Certification was denied on September 8, 2008. Plaintiffs appealed on
October 31, 2008. Oral arguments took place on January 15, 2010 and the court reversed the order denying class certification.
On October 3, 2008, the plaintiffs in the five other Andro Actions filed another suit related to the sale of Andro Products in state court in
Illinois. Stephens and Pio v. General Nutrition Companies, Inc. (Case No. 08 CH 37097, Circuit Court of Cook County, Illinois, County
Department, Chancery Division). The allegations are substantially similar to all of the other Andro Actions.
103