GNC 2010 Annual Report Download - page 111

Table of Contents
GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Romero Claim. On April 27, 2009, plaintiff J.C. Romero, a professional baseball player, filed a complaint against, among others, General
Nutrition Centers, Inc. in Superior Court of New Jersey (Law Division/ Camden County). Plaintiff alleges that he purchased from a GNC store
and consumed 6-OXO Extreme, which is manufactured by a third party, and in August 2008, was alleged to have tested positive for a banned
substance. Plaintiff served a 50 game suspension imposed by Major League Baseball. The seven count complaint asserts, among other things,
claims for negligence, strict liability, misrepresentation, breach implied warranty and violations of the New Jersey Consumer Fraud Act, and
seeks unspecified monetary damages. GNC tendered the claim to the insurance company of the franchisee whose GNC store sold and
allegedly misrepresented the product. On or about October 9, 2009, GNC answered plaintiff's first amended complaint and cross-claimed
against co-defendants Proviant Technologies and Ergopharm. Discovery in this case is ongoing and the Company is vigorously defending the
matter. Any liabilities that may arise from this matter are not probable or reasonably estimable at this time.
Ciavarra Claim. On November 19, 2008, Ryan Ciavarra filed a personal injury lawsuit against, among others, General Nutrition
Corporation, in the District Court of Harris County, Texas. Plaintiff alleges that his use and consumption of the diet product Hydroxycut, which is
manufactured by a third party and was, until recently, sold in the Company's stores, caused severe liver damage, jaundice and elevated liver
enzymes. Plaintiff asserts claims for strict liability, negligence and breach of warranty and seeks unspecified monetary damages. Any liabilities
that may arise from this matter are not probable or reasonably estimable at this time.
Hydroxycut Claims. On May 1, 2009, the FDA issued a warning on several Hydroxycut-branded products manufactured by Iovate Health
Sciences U.S.A., Inc. ("Iovate"). The FDA warning was based on 23 reports of liver injuries from consumers who claimed to have used the
products between 2002 and 2009. As a result, Iovate voluntarily recalled fourteen Hydroxycut-branded products. Following the recall, GNC was
named, among other defendants, in 22 lawsuits in several states (note that prior to May 1, 2009, GNC was a co-defendant in one Hydroxycut
case, Ciavarra (see "Ciavarra Claim" entry above)). Iovate previously accepted GNC's tender request for defense and indemnification under its
purchasing agreement with GNC and, as such, Iovate has accepted GNC's request for defense and indemnification in the new Hydroxycut
matters. GNC's ability to obtain full recovery in respect of any claims against GNC in connection with products manufactured by Iovate under
the indemnity is dependent on Iovate's insurance coverage and the creditworthiness of its insurer, and the absence of significant defenses by
the insurer. To the extent GNC was not fully compensated by Iovate's insurer, it could seek recovery directly from Iovate. GNC's ability to fully
recover such amounts would be limited by the creditworthiness of Iovate.
GNC has been named in 23 lawsuits related to Hydroxycut: 17 individual, largely personal injury claims (including Ciavarra discussed
above) and 6 putative class actions, generally inclusive of claims of consumer fraud, misrepresentation, strict liability, and breach of warranty.
The following 16 personal injury matters were filed by individuals claiming injuries from use and consumption of Hydroxycut-branded
products:
• Michael Owens and Donna Owens v. Iovate Health Sciences USA, Inc., et al., Superior Court of the State of California, County of
Los Angeles, BC413006 (filed May 1, 2009);
• Eva M. Stasiak v. Iovate Health Sciences USA, Inc., et al., Superior Court of the State of California, County of Los Angeles,
BC413201 (filed May 11, 2009);
• Jaime Ruben Perez v. Gerald Brandt, individually and d/b/a/ Breakthru Products, et al., 229th Judicial District, Duval County,
Texas (filed May 29, 2009);
• Juan A. Noyola, II v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Southern District of New York, 09CV6740 (filed
July 29, 2009);
• Christopher and Dana Hamilton v. Iovate Health Sciences USA, Inc., et al., U.S. District Court, Northern District of Ohio,
09CV1944 (filed August 18, 2009); 105