Be careful….last time I posted a pleading it was a hoax It appears that Amway is going to be required to litigate the California class action case in Federal District Court. This is significant because it means the facts obtained during discovery will be made publicly available.

This is a big case with large consequences for the entire network marketing industry. The case hinges on the definition of “retail sales” and relies on the premise that a company is required to rack up customer sales from nonparticipants. As you already know, I’m a big proponent in having hard rules that require customer sales. It’s what’s best for the industry.

Additionally, this case is about tool companies and their place in the network marketing industry. There’s a host of companies in the industry that allow its distributors to produce and sell tools to their distributors. With some of these companies, the participants receive the opportunity to share in the tool profits once certain performance milestones are achieved. This largely leads to a sales force where the lower level participants expend tremendous effort to move tools with the hopes of someday profiting from their efforts. Since the majority of the participants never reach the milestones (we have high attrition in this industry), it essentially amounts to a large, unpaid sales force. This issue will be litigated if the case proceeds.

The attorneys for the plaintiffs have a tough job ahead of them. Amway is literally undefeated in these types of cases and has escaped numerous near death experiences. The plaintiffs’ attorneys will need to certify the class, which I’m not sure has been done yet. Since they’ve sued multiple tool companies, Amway can argue that a lot of the class members had different experiences with Amway via their different associations amongst the tool companies. This might lend itself as a good argument against class certification.

If Amway litigates this case and loses, there would be an immediate impact on the entire industry. They’ll need to assume that the law in California requires external sales and demonstrate that those sales are present. My prediction: this case never sees a courtroom and the plaintiffs’ lawyers just won the lottery. But does it end here? If Amway settles, I can almost guarantee that some of the other larger network marketing companies will be sued with similar allegations. The Pokorny attorneys might target other companies. Who knows.

The crux of the Pokorny lawsuit can be gleaned from the two paragraphs below (taken from the Opinion below):

“Further, once a new recruit becomes an IBO, the recruit is instructed to purchase Quixtar products only for the new recruit’s personal use and to focus on recruiting and registering new IBOs, rather than to market and resell products to retail customers.

Second, Plaintiffs contend that Quixtar and its senior IBOs fraudulently induce junior IBOs to purchase BSM by telling them the BSM are necessary to the success of an IBO business and will help them realize tremendous wealth. But the main purpose of the BSM is actually to teach junior IBOs how to recruit and register new IBOs, not to assist IBOs in conducting their own successful Quixtar business. Although this business model leads to great profits for Quixtar and its most senior IBOs, Plaintiffs allege it results in significant losses to junior IBOs”

Stay tuned on this one. It’s heating up.

Pokorny et al vs. Amway, re. arbitration