GNC 2010 Annual Report Download - page 110

Table of Contents
GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As any liabilities that may arise from these cases are not probable or reasonably estimable at this time, no liability has been accrued in
the accompanying financial statements.
California Wage and Break Claim. On November 4, 2008, ninety-eight plaintiffs filed individual claims against the Company in the
Superior Court of the State of California for the County of Orange, which was removed to the U.S. District Court, Central District of California on
February 17, 2009. Each of the plaintiffs had previously been a member of a purported class in a lawsuit filed against the Company in 2007 and
resolved in September 2009. The plaintiffs allege that they were not provided all of the rest and meal periods to which they were entitled under
California law, and further allege that we failed to pay them split shift and overtime compensation to which they were entitled under California
law. Discovery in this case is ongoing and we are vigorously defending these matters. The court has developed a mediation procedure for
handling the pending claims and has ordered the parties to mediate with small groups of plaintiffs and stayed the case as to the plaintiffs not
participating in the mediations. The first of the mediation sessions occurred February 10, 2010 and March 4, 2010 and did not result in any
settlements. Any liabilities that may arise from these matters are not probable or reasonably estimable at this time.
Franchise Class Action. On November 7, 2006, Abdul Ahussain, on behalf of himself and all others similarly situated, sued GNC
Franchising, LLC and General Nutrition Corporation in the U.S. District Court, Central District of California, Western Division. Plaintiff alleged
that GNC engages in unfair business practices designed to earn a profit at its franchisees' expense, among other things, in violation of
California Business & Professions Code, §§ 17200 et seq. (the "CBPC"). These alleged practices include: (1) requiring its franchises to carry
slow moving products, which cannot be returned to GNC after expiration, with the franchisee bearing the loss; (2) requiring franchised stores to
purchase new or experimental products, effectively forcing the franchisees to provide free market research; (3) using our Gold Card program to
collect information on franchised store customers and then soliciting business from such customers; (4) underselling its franchised stores by
selling products through the GNC website at prices below or close to the wholesale price, thereby forcing franchises to sell the same products
at a loss; and (5) manipulating prices at which franchised stores can purchase products from third-party suppliers, so as to maintain GNC's
favored position as a product wholesaler. Plaintiffs are seeking damages in an unspecified amount and equitable and injunctive relief. On
March 19, 2008, the court certified a class as to only plaintiffs' claim under the CBPC. The class consists of all persons or entities who are or
were GNC franchisees in the State of California from November 13, 2002 to the date of adjudication. Plaintiff's individual claims were settled
and dismissed. On March 18, 2009, the Company's motion for summary judgment was granted as to the CBPC class claim. In April 2009, GNC
filed a motion for court costs and attorneys' fees and the court ordered the plaintiffs to pay approximately $0.4 million to GNC for its fees and
costs. Plaintiff's judgment was satisfied in full by October 6, 2009, and a Satisfaction of Judgment was filed with the court on that date.
Jackson Claim. On November 10, 2008, Grady Jackson, on behalf of himself and all others similarly situated, filed a complaint against
General Nutrition Corporation and the Company in the Superior Court of the State of California for the County of Alameda. On December 15,
2008, the matter was removed to the U.S. District Court, Northern District of California. This consumer class and representative action brought
under California Unfair Competition and False Advertising Law asserts, among other things, that the non-GNC product "Nikki Haskell's Star
Caps" contained a prescription diuretic ingredient that was not disclosed on the label. On March 31, 2009, GNC filed a motion to dismiss. By
order dated June 10, 2009, the court dismissed three of the seven counts asserted by plaintiffs. In September 2009, a settlement was reached,
contemplating payment of an immaterial amount of attorneys' fees to putative class counsel by GNC, and distribution of GNC discount coupons
to certain putative class members. The court signed the stipulation of dismissal on October 27, 2009.
DiMauro Claim. On December 18, 2008, plaintiffs Laura and Charles DiMauro filed a personal injury complaint against General Nutrition
Corporation in Circuit Court for Miami-Dade County Florida. Plaintiffs allege that Laura DiMauro's use and consumption of a non-GNC product
called "Up Your Gas" resulted in liver failure that required a liver transplant in August 2007. Plaintiffs assert, among other things, claims for strict
liability, negligence, and fraud and seek unspecified monetary damages. GNC has moved to dismiss this case on the grounds of forum non
conveniens. In December 2009, a settlement was reached, contemplating payment of an immaterial amount by GNC.
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