Metabolife seeks single big settlement
'Litigation onslaught' threatens maker of banished ephedra
pill
By Penni Crabtree
STAFF WRITER
San Diego Union Tribune
January 5, 2005
Metabolife International is seeking a national settlement
with U.S. consumers who allege they were injured by the company's
now-defunct ephedra diet pill.
The privately held San Diego company, citing a "litigation
onslaught" that threatens to financially bury it, has
asked a federal judge in New York to approve the proposed
multimillion-dollar class-action settlement.
If the plan is approved, consumers represented in about 300
personal injury lawsuits in federal and state courts could
each receive up to $1.05 million – although they could
also opt out and pursue separate court cases. The settlement
would also cover future claims by injured consumers who have
not filed lawsuits.
Once the nation's leading seller of ephedra diet aids, Metabolife
has seen its reputation and revenue founder in the wake of
lawsuits and federal investigations. Last year, the company
and its former chief executive, Michael Ellis, were indicted
for allegedly lying to the Food and Drug Administration about
the safety of its flagship product, Metabolife 356.
The pill, which was used by bodybuilders for increasing stamina
and dieters for shedding pounds, reaped hundreds of millions
of dollars after its 1995 launch. But Metabolife 356, a combination
of caffeine and the herbal stimulant ephedra, has also been
linked to strokes, heart attacks and, in some cases, death.
Last year, the FDA banned all dietary supplements containing
ephedra.
In a court filing, Metabolife downplayed the merits of the
personal injury lawsuits but called the proposed settlement
a business necessity.
The company compared the dosage of caffeine in two Metabolife
356 caplets to the amount in a single serving of Ben and Jerry's
Nonfat Coffee Fudge Frozen Yogurt. It compared the amount
of ephedra to the quantity of ephedrine, the active ingredient
in ephedra, found in over-the-counter asthma medicines.
"While Metabolife is confident it can expose the deficiencies
of (the) cases, the cost of doing so in the hundreds of claims
currently pending throughout the country threatens the very
existence of Metabolife," the company said in court documents
filed in U.S. District Court in New York.
Many medical experts argue that it is not the separate ingredients
in Metabolife 356 that pose a health risk but the combination.
Ephedra stimulates the nervous system, elevating blood pressure
and increasing the heart rate. When mixed with caffeine and
other herbal stimulants, the effect can be dangerously magnified.
A single Metabolife 356 pill can change electrical pulses
that control the heart, increasing a person's risk threefold
of developing a potentially fatal, irregular heart beat, according
to a study published last year in the Journal of the American
Medical Association.
Such evidence has proved persuasive with some juries. In
June, Metabolife was ordered to pay $7.4 million to a Texas
woman who suffered a stroke after taking Metabolife 356. Earlier,
a jury in Alabama awarded $4.1 million in damages to four
people who suffered injuries after taking the diet pill.
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About 170 lawsuits filed against Metabolife in federal court
have been consolidated in New York under a multidistrict litigation
program. Another 130 lawsuits are pending in state courts,
including 91 California cases transferred to a San Diego court.
As part of the proposed settlement, Metabolife is seeking
a stay on the litigation pending in state courts, including
one lawsuit set for trial in San Diego in March.
Metabolife has resolved more than 400 claims since it was
first hit with personal injury lawsuits in 1999. Much of that
cost was borne by the company's insurance carriers, but now
Metabolife is on the financial hook for many of the unsettled
lawsuits, according to court documents.
The company said it had traditional insurance through March
2001, but about 200 lawsuits claim injuries after that date.
In those cases, Metabolife has had to pay most of the cost
of defending itself and could be responsible for paying jury
awards if it loses.
As of Dec. 1, Metabolife had spent about $20 million in legal
fees and costs defending the lawsuits. Meanwhile, sales of
the company's products have plummeted. In 2003, revenue had
fallen to less than $90 million and the company had an operating
loss of $20 million, according to court documents.
Metabolife had more than $350 million in revenue and a profit
of $24 million in 1999, the company said in the court filing.
Jan Strode, a spokeswoman for Metabolife, said the settlement
is an "efficient" way to resolve the litigation.
"Metabolife has made the sound business decision, in
light of the cost of defending many baseless lawsuits, to
resolve its ephedra litigation via a class-action settlement,"
Strode said.
It does not propose an amount to settle claims; instead it
would use a formula to resolve them according to severity.
Factors such as a consumer's age or pre-existing health problems
would reduce payouts.
The most a consumer could receive under the settlement would
be $1.05 million, according to Arnold Levin, a Philadelphia
lawyer who negotiated the proposed settlement on behalf of
consumer plaintiffs.
Levin acknowledged Metabolife's claim that its financial
resources could be exhausted by litigation if the settlement
is not approved, posing a risk of the company going under
and consumer litigants getting nothing.
"Metabolife is not Wyeth. They're not Pfizer or Johnson
& Johnson, so there is that problem," Levin said.
"But I think the figures are fair and equitable anyway,
even if the company was not in some dire straits, as they
say they are."
A New York judge will hold a preliminary hearing on issues
associated with the proposed settlement next month, though
a decision on whether to approve it is not likely to come
before March, according to Levin.
While a settlement could ease some of Metabolife's legal
and financial woes, the company and its owners still face
serious legal problems.
Federal prosecutors accuse Metabolife and Ellis of covering
up Metabolife 356's alleged safety problems, which consumers
complained about to the company as early as 1997.
Yet Metabolife told regulators in 1998 that the company had
never received any notice from a consumer of a serious health
problem because of Metabolife 356, and repeated the claim
in 1999.
It wasn't until 2002, under pressure from the FDA and the
Justice Department, that Metabolife turned over about 13,000
consumer health complaints to federal regulators.
In a separate probe, the Internal Revenue Service is investigating
allegations of tax evasion by Ellis and Metabolife's other
owners, Michael Blevins and William Robert Bradley.
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Penni Crabtree: (619) 293-1237; penni.crabtree@uniontrib.com
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