‘Vendetta’ Alleged in Diet Pill Investigations
World Communications Inc., in the strongest defense yet of its controversial Grapefruit 45 diet pill, on Wednesday alleged that the U.S. Postal Service’s detention of nearly $4 million in Grapefruit 45 orders earlier this year was at least partly motivated by a personal vendetta by a San Diego postal inspector.
In a lawsuit filed in federal court in Reno, Nev., the Carlsbad-based entertainment and marketing company also charges the Postal Service with conspiracy to violate the company’s rights and with six other counts of government misconduct and abuse of authority.
The action demands that nearly $4-million worth of detained checks and money orders from Grapefruit 45 customers be returned to World Communications and that the company be awarded $1 million in damages.
The 26-page lawsuit argues that nationally televised Grapefruit 45 commercials became the target of Postal Service authorities only after Postal Inspector Thomas Taylor of San Diego was officially reprimanded by his superiors for disclosing “confidential and proprietary information” about World Communications in a Virginia newspaper article in May, 1984.
“We have legitimate complaints, and we’re asking a federal judge to look at our case,” said Jerome R. Smith, World Communications’ in-house legal counsel. He called the company’s allegations “just the tip of the iceberg. We’re concerned with setting a blueprint for the Postal Service’s next lawsuit.”
Company President Jay M. Kholos, who has made fighting the Postal Service’s actions in the case something of a cause celebre, said he is worried that postal authorities “will really go after me because we name names” in the lawsuit.
Named in the lawsuit, in addition to Taylor, are the Postal Service, Postmaster General Paul Carlon, Carlsbad Postmaster Mike Trost, and local Postal Inspectors John Neff and Robert Grudek. The defendants would not comment on the lawsuit.
The Postal Service “knowingly and willfully conspire(d) and agree(d) among themselves to deprive (World Communications) of their contractual and constitutional rights . . ., “ the lawsuit charges.
Postal Service officials have denied that the agency’s actions against World Communications’ Grapefruit 45 were motivated by a personal vendetta.
“That’s absurd,” James Harbin, a Postal Service attorney in San Francisco, said in an interview earlier this week. “The case is about misleading people about their product. This is just a subterfuge to try and cloud the issue, which is false representation charges. And that’s why the mail is being returned.”
Contention Discounted
Postal Service attorney Nan Kalthoff, who has headed the Grapefruit 45 litigation, maintained in an interview earlier this week that “companies always claim there is a personal vendetta. But believe me, if we could settle this case so we don’t have to go back to further litigation, we’d be more than happy to.”
In a three-month period last spring, the Postal Service seized $4 million worth of orders for the Grapefruit 45 diet pill plan. The mail detention followed authorities’ contention that World Communications had violated a 1984 consent agreement with the Postal Service that prohibited the company from advertising claims about any orally ingested weight-loss product. That agreement dealt with the diet product the firm was selling at that time, called Energizer.
About $2 million in money orders and another $2 million worth of personal checks from nearly 160,000 Grapefruit 45 customers remain in Postal Service possession. The products filling those orders have been shipped, meaning that World Communications has paid for both the product and the Postal Service shipping fees without any reimbursement.
Last summer, following a weeklong hearing, a Postal Service administrative law judge upheld the mail detention but delayed implementing it pending World Communications’ appeal, which was filed late last month.
Wednesday’s lawsuit is an amended complaint to last month’s appeal, and it includes previously undisclosed allegations against the Postal Service.
If a personal vendetta were in the works, Postal Service officials maintain, it would have been unveiled long before the case was litigated.
Nonetheless, World Communications officials contend that a series of events lends credence to their allegations.
In July, 1984, one month after Taylor’s reprimand, his colleague, John Neff, instructed his wife to videotape a Grapefruit 45 “fat burner” television ad. Because the Postal Service had not received any consumer complaints about Grapefruit 45, World Communications officials see this action as evidence of a “personal vendetta.”
“(We) believe that the sole reason Neff recorded . . . (the) commercial was to commence proceedings against (us),” the company’s lawsuit charges.
World Communications also claims that a false affidavit was used against it in the weeklong hearings earlier this year, and that an expert witness for the Postal Service had business ties to a Grapefruit 45 competitor.
Company officials are also skeptical of why Administrative Law Judge Quentin Grant reversed his August, 1985, ruling that Grapefruit 45 commercials made claims about the diet plan but not about the pills themselves. That ruling was seen as something of a victory for the Carlsbad marketing company.
In September, however, Grant, at the urging of Postal Service attorneys, changed his ruling, determining that the commercials were indeed making false promises about the pill itself.
“We asked (Grant) for a clarification of what he meant in his decision,” Kalthoff said. “There were a couple of things that were unclear that could have had (precedent-setting) implications.”
Finally, World Communications officials suggest that the Postal Service is earning about $200,000 a year in interest on the detained Grapefruit 45 money orders, in addition to the $425,000 in c.o.d. fees it has already collected.
“We were making a lot more money by letting them use the c.o.d. system,” Kalthoff countered. “If money were the issue, we’d still be letting them (sell that product).”
Interestingly, if World Communications had simply yielded to the Postal Service’s demands, stopped running the commercials and started another series under a different name, then authorities would not have been able to keep up with them, one law enforcement source suggested. It would have been “years before (authorities) caught up with them,” the source said.
Grapefruit 45 accounts for less than one-third of World Communications’ expected $50 million in revenues this year, according to Kholos.
The company, which employs 225 people, also operates in the fields of telemarketing, direct mail marketing and television programming production and distribution. Sales next year are predicted to reach $75 million.
Ironically, while the Grapefruit 45 diet plan has been mired in controversy, World Communications’ other products have skyrocketed in popularity. Earlier this month, its “Christmas Classics” album, featuring about a dozen well-known performers, became the largest-selling television-advertised Christmas album ever.
Typically, most entrepreneurs and small-business operators quickly settle their disputes with the Postal Service, fearing both the legal and psychological costs of doing battle with a large government agency.
World Communications officials say they’ve already spent more than $350,000 in legally related costs during their Grapefruit 45 fight, and they estimate that the Postal Service has spent at least $200,000.
But the success of the company’s other products has allowed Kholos the luxury of keeping the fight alive.
“I’d love to have all this behind us,” the 45-year-old veteran marketing executive said. “But I can’t operate without some ground rules.”
That day may be some time in coming, however: According to Kalthoff, the new, toned-down commercials for Grapefruit 45 are under investigation by Postal Service authorities.
