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LITIGATION | 12 Months Ended
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Dec. 31, 2011
Notes To Financial Statements [Abstract] |
Litigation | NOTE 13: LITIGATION Business Arbitration and Litigation Marinova Pty. Limited v. Mannatech, Incorporated & Mannatech (International) Limited, Case No. 50-122-T-00635-09, International Centre for Dispute Resolution, a division of the American Arbitration Association On December 10, 2009, Marinova Pty. Limited (“Marinova”) filed a Notice of Arbitration and Statement of Claim with the International Centre for Dispute Resolution, which is a division of the American Arbitration Association, against the Company and its subsidiary, Mannatech (International) Limited. Marinova’s claims stem from the parties’ April 27, 2007 purchase agreement, which was entered into between the parties. Through the purchase agreement, Marinova agreed to sell and the Company agreed to buy set quantities of glyconutrient powder that the Company uses to manufacture some of its products. Marinova claims that the Company breached the purchase agreement by not buying the specified quantities of Marinova’s product and by prematurely terminating the agreement. Marinova further claims, based on the Company’s alleged breach of contract, that Marinova suffered lost profits damages in the amount of $6,500,000, as well as attorneys’ fees and costs. On January 15, 2010, the Company filed its Answering Statement and Counterclaims, through which the Company asserted affirmative defenses in response to Marinova’s claims. The Company also filed a counterclaim for breach of contract, through which the Company alleged that Marinova sold the Company non-conforming powder and then refused to reimburse the Company the amount it paid for the non-conforming powder, thereby breaching the purchase agreement and entitling the Company to properly terminate the purchase agreement. The Company further alleged that Marinova separately breached the purchase agreement by marketing its powder to one or more of the Company’s competitors in violation of the purchase agreement’s exclusivity clause. Based on its counterclaim, the Company sought damages in the amount of $618,750 representing the price paid for the non-conforming product, as well as attorneys’ fees, and costs. Following extensive discovery and motion practice, the case proceeded to a Final Hearing before a three-person arbitration panel. That hearing occurred on February 1-3, 2012. Following the Final Hearing, the parties submitted post-hearing briefs. On March 16, 2012, Mannatech and Marinova entered into a binding settlement agreement that fully disposes of the claims and controversies between them. Pursuant to that settlement agreement, Mannatech forgave the $618,750 payment owing and made a one-time payment of $2,600,000 to Marinova, which has been recorded in the December 31, 2011 financial statements. The settlement also includes a full release of both parties and a covenant not to sue. Product Liability Litigation Susan Chon vs. Mannatech, Inc. dba Mannatech Dietary Supplements; Eun-Sook Cho; Gina Park; Good News Acupunture/Couples Acupuncture, Case No. BC460029, Los Angeles County Superior Court On April 21, 2011, Susan Chon, an individual, filed suit against the Company in Los Angeles County Superior Court. The plaintiff is one of the Company’s former independent associates and has alleged sustaining injuries and enduring complications from breast cancer as the result of taking Ambrotose®, one of the Company’s products. The plaintiff also alleges that co-defendants En-Sook Cho, Gina Park and Good News Acupuncture represented to her that the Ambrotose® product cured serious medical problems. Unspecified damages are sought against all defendants. The Company tendered this matter to its insurance carrier and retained outside counsel. The Company filed an answer on June 16, 2011. Co-defendant Gina Park separately filed an answer on June 8, 2011. The parties are engaged in the initial stages of written discovery. The plaintiff has partially responded to the Defendants’ original discovery requests, and on October 7, 2011 promulgated her initial discovery requests. On March 1, 2012, the parties engaged in a private mediation session, and a settlement was reached resolving all outstanding issues between the parties. The Court has been notified of the outcome of the mediation, and it is anticipated that all settlement documents will be executed and a motion to dismiss the litigation with prejudice will be filed with the Court within the next thirty (30) days. Administrative Proceedings Our 2005-2009 tax years remain subject to examination by the IRS for U.S. federal tax purposes. On May 26, 2011 the IRS issued a Revenue Agent’s report (“RAR”) detailing proposed adjustments for the tax years under examination. The net tax deficiency associated with the RAR is $8.5 million plus penalties of $1.5 million. On July 8, 2011, the Company filed a protest letter challenging the proposed adjustments contained in the RAR and are pursuing resolution of these items with the Appeals Division of the IRS. There are other ongoing audits in various international jurisdictions that are not material to the Company’s financial statements. Litigation in General The Company has incurred several claims in the normal course of business. The Company believes such claims can be resolved without any material adverse effect on its consolidated financial position, results of operations, or cash flows. The Company maintains certain liability insurance; however, certain costs of defending lawsuits are not covered by or only partially covered by its insurance policies, including claims that are below insurance deductibles. Additionally, insurance carriers could refuse to cover certain claims in whole or in part. The Company accrues costs to defend itself from litigation as they are incurred or as they become determinable. The outcome of litigation is uncertain, and despite management’s views of the merits of any litigation, or the reasonableness of the Company’s estimates and reserves, the Company’s financial statements could nonetheless be materially affected by an adverse judgment. The Company believes it has adequately reserved for the contingencies arising from the above legal matters where an outcome was deemed to be probable, and the loss amount could be reasonably estimated. While it is not possible to predict what liability or damages the Company might incur in connection with any of the above-described lawsuits, based on the advice of counsel and management review of the existing facts and circumstances related to these lawsuits, and related legal fees, the Company has accrued $3.1 million as of December 31, 2011 for these matters, which is included in accrued expenses in its Consolidated Balance Sheet.

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