Antitrust Law Daily Wrap Up, RICO NEWS: Weight-loss system franchisees charged with conspiring to contaminate franchisor's products, (Apr 22, 2016)

By Edward L. Puzzo, J.D.

A number of franchisees of Nutrimost's proprietary weight loss system conspired to contaminate its products with banned substances in order to use the contamination as a pretext to break their franchise agreements, according to a complaint filed in the federal district court in Pittsburgh by the franchisor (Nutrimost Doctors, LLC v. Sterling, April 20, 2016).

Nutrimost Doctors LLC, a franchisor of a proprietary weight loss system offered in over 160 locations in 30 states, utilized a proprietary computer analysis of scan device results to determine the proper nutritional supplements to administer to weight loss patients. Nutrimost brought claims against a number of its franchisees and others, alleging that they had engaged in a fraudulent scheme to adulterate Nutrimost supplements with banned substances, in order to create a pretext for voiding their franchise agreements, so that they would be free to establish a competing weight loss enterprise. Nutrimost charged that the defendants, having carried out their contaminated supplement scheme, unlawfully competed with Nutrimost using Nutrimost's intellectual property, trademarks and trade secrets.

RICO. Nutrimost alleged that the defendants—by conspiring to intentionally contaminate Nutrimost products, submitted them to a lab for testing, threatened to report the lab results to the FDA unless Nutrimost released them from their respective franchise agreements and paid $600,000 to one defendant—had engaged in an enterprise involving the criminal conduct of extortion, in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). They further alleged that defendants' misappropriation of Nutrimost's name, marks, goodwill, and proprietary programs was a civil conspiracy in violation of RICO.

Lanham Act. In addition to charges of fraud, breach of contract, trademark infringement, commercial disparagement, and violation of Pennsylvania's Trade Secrets Act, Nutrimost alleged that defendants had engaged in unfair competition in violation of the Lanham Act. They alleged that defendants offered for sale goods that did not originate from and were not authorized by Nutrimost, that bore Nutrimost's trademarks or marks confusingly similar to Nutrimost's marks, and those false designations of origin and false descriptions violated the Lanham Act. Nutrimost sought injunctive relief against defendants’ continued sale of those products and use of its marks and treble damages for defendants' acts of willful unfair competition.

Nutrimost asked for a judgment declaring that defendants' franchise agreements were valid and that defendants had breached those agreements by fraud and conspiracy; enjoining defendants from using any of Nutrimost's trademarks; and awarding treble and compensatory damages, costs of the lawsuit and attorneys' fees.

The case is No. 2:16-cv-00479-MRH.

Attorneys: Daniel M. Taylor, Jr. and Kyle T. McGee (Margolis Edelstein) and Jeffrey R. Owen (Cooper Owen & Renner, PC) for Nutrimost Doctors, LLC.

Companies: Nutrimost Doctors, LLC; Idaho Fat Loss Twin Falls, LLC; Idaho Fat Loss Idaho Falls, LLC; Idaho Fat Loss, Inc.; Sterling Clinics, LLC; Complete Health & Wellness, LLC; Customized Health & Wellness, LLC; Doctors Health & Wellness, LLC; New Life Chiropractic Center, Inc.; New Life Health & Wellness Southwest, LLC; Custom Fat Loss, Inc.; Custom Chiropractic and Wellness, Inc.

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