ORIGINAL

SEP – 9 2004
CENTRAL DISTRICT OF CALIFORNIA
BY DEPUTY

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ROBERT C. SCHUBERT (# 62684)
JUDEN JUSTICE REED (# 1573748)
AARON H. DARSKY (#21229)
Two Embarcadero Center, Suite 1660
San Francisco, California 94111
Telephone: (415) 788-4220
Facsimile: (415) 788-0161

DOUGLAS M. BROOKS
GILMAN AND PASTOR LLP
999 Broadway, Suite 500
Saugus, MA 01906
Telephone: (781) 231-7850
Facsimile: (781) 231-7840
Attorneys for Plaintiffs
Co-Lead Counsel for Lead Plaintiff
Annette Sanchez and the Proposed Class

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES DIVISION

NANCY JACOBS and ANNETTE M. SANCHEZ, Individually On Behalf of Themselves and All Others Similarly Situated, and on Behalf of the General Public,

Plaintiffs,

v.

HERBALIFE INTERNATIONAL, INC., HERBALIFE INTERNATIONAL OF AMERICA, INC., DREAM BUILDERS & ASSOCIATES INTERNATIONAL, INC., H.B. INTERNATIONAL GROUP, INC., ANTHONY POWELL, DORAN ANDRY, CRAIG M. TSUTAKAWA, CAROLINE TSUTAKAWA, TARUN JUNEJA, JOHN BEALL, BRETT BARTHOLOMEW, LEAH SINGLETON, STEPHEN COMBS AND DEBRA COMBS,

Defendants.

No. 02-01431 SJO (RCx)

DECLARATION OF DOUGLAS M. BROOKS IN SUPPORT OF (1) FINAL APPROVAL OF SETTLEMENT AND (2) APPLICATION FOR AWARD OF ATTORNEYS’ FEES AND REIMBURSEMENT OF EXPENSES

Date: September 13 27, 2004
Time: 1:30 p.m.
Place: Courtroom 1600, Spring Street Courthouse
Judge: Hon. S. James Otero

DOCKETED ON CM
SEP 17 2004
BY _____ 014

232

00003190.WPD ; 1

I, Douglas M. Brooks, declare as follows:

1. I am an attorney duly admitted to practice in the Commonwealth of Massachusetts, Board of Bar Overseers No. 058850, and admitted in this Court pro hac vice. I am Of Counsel in the law firm of Gilman and Pastor, LLP (“G&P”), Co-Lead Counsel for the plaintiffs in the above-captioned action.
2. I have participated actively in all material aspects of this litigation. Unless otherwise indicated, I have personal knowledge of the facts set forth herein and if called upon to testify I could and would testify competently thereto. The purpose of this affidavit, which summarizes our work on the case, is to support both:
(a) Plaintiffs’ Motion for Order Granting Final Approval of Class Action Settlement, which provides a Settlement Fund of $3 million, a Refund Pool of $1 million, and up to $2 million in product rebates, as well as significant changes in Herbalife’s distributor rules;
(b) the Plan of Allocation set forth in the Stipulation of Settlement; and
(c) Co-Lead Counsels’ application for an award of attorneys’ fees in the amount of $1.4 million and reimbursement of expenses in the amount of $62,019.20.
3. Co-Lead Counsel believe that this is an excellent settlement, and constitutes a fair and reasonable compromise of disputed claims. For all of the reasons discussed below and in Plaintiffs’ Motion for Final Approval of Settlement, Co-Lead Counsel believe that the Settlement is in the best interest of the class and should be approved.
4. Co-Lead Counsel also believe that the proposed award of attorneys fees and reimbursement of expenses is appropriate given the results obtained and the work involved. The investigation and prosecution of this case has consumed a substantial portion of our time over the past two and a half years, as well as substantial unreimbursed expenses. Our efforts and investment of time and money have produced an excellent recovery in the face of significant obstacles. We collectively devoted more than 2885 hours to this case and undertook significant risk in pursuing this litigation on an entirely contingent basis.
5. More than 8700 class members have been notified of the proposed settlement and fee application. To date, approximately half-way through the claims period, the notice and claims administrator has received approximately 690 claims. There have been only eleven (11) objections to the settlement (five (5) of which are moot or not properly termed objections, as discussed below), and no objections to the proposed fee award. Furthermore, only seven (7) members of the class have opted out of the Settlement. The small numbers of objections and opt outs (which total less than 2/10 of 1% of the class), and the relatively large number of claims, constitute a ringing endorsement of the Settlement.

Experience and Qualifications of Co-Lead Counsel Gilman and Pastor, LLP

6. As appears from our firm resume, a copy of which is attached hereto as Exhibit A, Gilman and Pastor, LLP has substantial experience in the prosecution of class actions involving securities fraud and consumer protection. In particular, we have substantial experience in complex litigation involving multi-level marketing (MLM) programs, sometimes referred to as “network marketing.” We were one of the two firms appointed as class counsel in the litigation against the MLM f’nan Omnitrition International, Inc., which resulted in a significant decision in Webster v. Omnitrition International, Inc.,79 F.3d 776 (9th Cir.), cert. denied, 136 L.Ed. 2d 115 S.Ct. 174 (1996), in which the Ninth Circuit explained the circumstances under which an MLM program would be considered to be an inherently fraudulent pyramid scheme.
7. In addition to prosecuting litigation involving fraudulent MLM schemes, I serve as an unpaid adviser and consultant to several consumer information organizations and Internet web sites devoted in whole or in part to the MLM industry, including Pyramid Scheme Alert (www.pyramidschemealert.org), www.MLMSurvivor.com, Quackwatch (www.quackwatch.org and www.MLMWatch.org) and the Ross Institute for the Study of Destructive Cults, Controversial Groups and Movements (www.rickross.com), and have provided pro bono legal services to several of these organizations. In connection with proposed revisions to the Federal Trade Commission’s Franchise Disclosure Rule (16 CFR §436.1), I have provided written testimony advocating in favor of expanding the Rule to cover the MLM industry or to promulgate other regulations governing disclosure and conduct of the MLM industry, and I am actively involved in efforts to enact legislation and regulations protecting the victims of fraudulent MLM schemes.

Background of the NWTW Litigation

8. This litigation involves a promotional system known as the ‘Newest Way to Wealth” (“NWTW”), which was developed and sold by the NWTW Defendants to Herbalife distributors for the ostensible purpose of promoting their. Herbalife distributorships. Herbalife International, Inc. is an MLM firm that has been in business for many years, claims to have sales in the billions of dollars annually, and approximately one million distributors in the United States and many foreign countries.
9. Early in December, 2001, G&P was contacted independently by several groups of Herbalife distributors who had been involved with the NWTW promotional or “lead generation” system. All of these distributors claimed to have lost substantial amounts of money, ranging from $10,000 to $50,000, as a result of their participation in Herbalife and NWTW. We were retained, on a contingent fee basis, to investigate the possibility of prosecuting a class action in order to recover these losses. For the next several months we spent a considerable amount of time meeting with these individuals, both in person and by telephone, interviewing other distributors and analyzing the documents they provided to us, consulting with experts on the MLM industry and pyramid schemes, doing additional research on the Intemet and reviewing Herbalife’s securities filings (as Herbalife was a publicly held corporation at that time).
10. Our investigation revealed that while the NWTW promotional scheme appeared to be fraudulent and deceptive, and appeared to violate Herbalife’s own rules regarding the activities of its distributors, the distributors who ran NWTW appeared to have the backing of high-level Herbalife officials, and their activities were tacitly condoned by Herbalife. We determined that thousands of Herbalife distributors had participated in NWTW, that most of them had lost or would inevitably lose most of their investments, and that the collective damages would be in the millions of dollars.
11. We researched potential legal claims, and drafted a class action complaint. We determined to proceed with a lawsuit, although the obstacles were formidable and, based on our past experience with MLM litigation, we could anticipate that Herbalife and its high level distributors would defend themselves aggressively. In particular, we determined that in order for the class to obtain significant relief, it would be essential to prove Herbalife’s active involvement in the NWTW scheme, and many of our investigative efforts were directed to that end.

History of the NWTW Litigation

12. On or about February 19, 2002, we filed a lawsuit on behalf of Nancy Jacobs (“Jacobs”) and a putative class of others similarly situated and the general public, naming the NWTW Defendants and the Herbalife Defendants. Jacobs, a former Herbalife supervisor and participant in the Newest Way to Wealth System, alleged the following claims for relief: (1) violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) (18 U.S.C. § 1962(c) and (d)); (2) common law fraud and deceit; (3) violation of Califomia’s endless chain scheme law (Cal. Penal Code § 327); (4) violation of Califomia’s seller assisted marketing plan laws (Cal. Civ. Code § 1812.200 et seq.); .and (6) violation of California Business and Professions Code Section 17200 et seq. Jacobs’ complaint sought, among other things, injunctive relief, rescission of the class members’ contracts with Herbalife and recovery of the contract consideration paid by them, compensatory, treble, exemplary and punitive damages in an unspecified amount, disgorgement of earnings and profits, costs, interest, attorney’s fees and other relief.