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MLM: Major Victory for Distributor Rights – substantive unconscionability terms

Mark this day in History when the granddaddy (Quixtar Inc., the successor-in-interest to Amway Corporation), of the MLM Industry gets smacked down on appeal for unconscionable contract terms.

Kudo’s go out to JEFF POKORNY; LARRY BLENN; and KENNETH BUSIERE, Quixstar IBO’s who had the fortitude to hang on to their belief’s and claim since 2007 and through appeal which finally ocurred on April 20, 2010

It’s a Great Day for all MLM Distributors who have been burned by the unconscionable contracts that permeate their careers in MLM/Network Marketing and the unfair requirement to arbitrate vs. litigate when complaints come up.  Some of the substantial decisions of this case follow:

Page 13:  “the more substantively oppressive the contract term, the less evidence of procedural unconscionabilityis required to come to the conclusion that the term is unenforceable, and vice versa.”


An agreement or any portion thereof is procedurally unconscionable if “the weaker party is presented the clause and told to ‘take it or leave it’ without the opportunity for meaningful negotiation.”

Page 14: This oppressive behavior is the quintessential characteristic of a procedurally unconscionable agreement. See Szetela, 118 Cal. Rptr. 2d at 867.

In addition, those rules were subject to unilateral amendment by Quixtar at any time. Thus, Plaintiffs were not even given a fair opportunity to review the full nature and extent of the non-binding conciliation and binding arbitration processes to which they would be bound before they signed the registration agreements or the BSMAA. These problems multiply the degree of procedural unconscionability of the ADR agreements. See Harper, 7 Cal. Rptr. 3d at 422-23

Page 15:  The fact that Plaintiffs signed or renewed registration forms containing the Agreement to Arbitrate does not assist Defendants.  The forms incorporated by reference the Rules of Conduct over which Plaintiffs had no say. Plaintiffs signatures thus served to make each a party to a contract they now challenge as unconscionable.

Page 17: The court identified three aspects of this ADR agreement that it concluded rendered it substantively unconscionable.  Id. at 307-08. First, the agreement lacked mutuality because only the plaintiff was required to resolve his claims through the ADR process, and no similar requirement bound the defendant. Id. at 307. Second, by “requiring [the] plaintiff to submit to an employer-controlled dispute resolution mechanism
(i.e., one without a neutral mediator),” the defendant “would receive a ‘free peek’ at [the] plaintiff’s case, thereby obtaining an advantage if and when [the] plaintiff were to later demand arbitration.” Id. And third, the ADR agreement placed stringent time limitations on the plaintiff’s assertion of any claims against the defendant without placing any similar limitations on the defendant’s right to bring claims against the plaintiff. Id. at 307-08.

All of the obligations and procedures relating to the non-binding conciliation process refer directly to IBOs, not Quixtar.  Conspicuously absent from this purpose is the creation of any duties or responsibilities for Quixtar.

Page 18:  Quixtar reserved to itself “the sole right to adopt, amend, modify, supplement, or rescind any or all of these Rules, as necessary with respect to cases of Rules enforcement.”

It was for this very reason that the Fifth Circuit held that a similar ADR scheme in a prior version of the Rules of Conduct promulgated by Quixtar’s predecessor Amway was illusory and unenforceable under Texas law. See Morrison v. Amway Corp., 517 F.3d 248, 254-57 (5th Cir. 2008).

Page 19:  As the district court concluded, the Rules of Conduct are “self-perpetuating”and therefore “inherently biased” against an IBO that seeks to challenge them.

Page 20:  This lopsided advantage enjoyed by Quixtar is precisely the type of one-sidedness that the doctrine of substantive unconscionability is designed to protect against. See Harper, 7 Cal. Rptr. 3d at 423.

Page 21:  Thus, as the district court pointed out, although Quixtar may be forced into binding arbitration when an IBO initiates the dispute, Quixtar is free to initiate and litigate any claim it has against an IBO in court without ever submitting the claim to binding arbitration.

Page 22: Soltani recognized that lack of mutuality is relevant to assessing substantive unconscionability, 258 F.3d at 1043, and relied on West v. Henderson, 278 Cal. Rptr. 570, 575-76 (Ct. App. 1991), which held that lack of mutuality makes contractual provisions “suspect” and upheld a nonmutual provision only after finding that it was supported by a specific justification. Particularly in situations like this one, where no special circumstance necessitates a non-mutual provision, a unilateral reduction in the statute of limitations is an indicator of substantive unconscionability. See Nyulassy, 16 Cal. Rptr. 3d at 307-08.

Another indicator of substantive unconscionability is the confidentiality requirement in the Rules of Conduct. This prohibits IBOs engaged in the arbitration process from disclosing “to any other person not directly involved in the conciliation or arbitration process (a) the substance of, or basis for, the claim; (b) the content of any testimony or other evidence presented at an arbitration hearing or obtained through discovery; or (c) the terms [or] amount of any arbitration award.”  Because the confidentiality clause swept so broadly, we concluded that it was substantively unconscionable. Id. at 1078, 1084.

Page 24: Thus, while handicapping the Plaintiffs’ ability to investigate their claims and engage in meaningful discovery, the confidentiality provision does nothing to prevent Quixtar from using its continuous involvement in the Quixtar ADR process to accumulate “a wealth of knowledge” on how to arbitrate future claims brought by IBOs.

Also contributing to the total substantive unconscionability of the binding arbitration provisions is the arbitration selection procedure mandated by the Rules of Conduct.

Page 26:  The use of Quixtar-trained arbitrators is to Quixtar’s advantage, and the IBOs who receive the letters are not informed of that pertinent fact.

Page 27:  As the district court succinctly stated, an IBO “should not have to pay extra” to avoid the unfairness created by Quixtar’s orientation program. The district court therefore properly determined that the arbitration selection process is substantively unconscionable.

Finally, the Rules of Conduct include a fee-shifting clause that unfairly exposes IBOs to a greater financial risk in arbitrating claims than they would face if they were to litigate those same claims in federal court.

Page 28:  Here we have an arbitration agreement that actually includes a fee-shifting provision and that places those costs on the IBO if it loses in a process already stacked against it.

Thank you, Judge Schroeder for your CONCLUSION:   For the foregoing reasons, we hold the district court properly determined that the Quixtar ADR agreements are unconscionable and therefore unenforceable under California law.  We deny Plaintiffs’ request for judicial notice as moot. We affirm the order of the district court denying Defendants’ motion to dismiss or to compel arbitration.  AFFIRMED.

Now there is precendence for ALL MLM/Network Marketers to hold out for their Companies and stop the substantively oppressive, lacking mutuality, inherently biased, one-sidedness type Contracts that usually force GOOD people to leave our opportunities or never consider it at all.

Let me know What you Think about this occurring, post your comments, I’d love to hear from you.

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How To Make Your Wildest MLM DREAMS A Reality

According to Bill Gates there are 3 keys to success in any new venture:

1) Being in the right place at the right time. (You could well be already there!)

2) Have a vision of where the industry/business you’re working in is going!

3) Taking Massive and Immediate Action! (It is time to act!)

“The future belongs to those who believe in the quality of their dreams.”  It was Johann Wolfgang Von Goethe, the famous German poet and philosopher who said those wise words.

Here are my 15 steps to fulfilling my wildest MLM dreams…

Know and accept your weaknesses and faults (we all have them), but even more so your strengths, abilities and gifts.  Build on your strengths and try to minimize or improve on your weaknesses. An honest, objective analysis of yourself is the first step in preparing you for MLM success and realizing
your dreams. Celebrate you for just being you, a unique creation. Read the rest of this entry »

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10 Basic MLM Network Marketing Business Principles

“How can I get a hold on my marketing efforts so I can increase my client base?”  This is the question I got from one of my distributors recently.  As we talked a little more about the issues he was facing, marketing wasn’t where he needed help initially.  He needed help with being clear about what business he is in and who would pay for the MLM products he offered.  We also found that his Business Foundation wasn’t solid enough to support the goals of his business; therefore his marketing efforts were not efficient.

After working with him to build a solid foundation, he was able to create a solid marketing plan and increased his MLM prospect base immediately. 

I’m sharing this story with you because 80% of business is marketing.  If you think about it, most activites that we do in our MLM business are focused on getting new business in one form or another–your target market is the CORE of marketing.  If you don’t have customers you don’t have a business.  Since marketing is such a critical ingredient for business, one must understand business to understand marketing.

When you understand business your marketing efforts will be effortless.  To understand business I’ve listed the 10 Basic MLM Business Principles that a small business owner should know and understand.  It will help give you clarity in your business so that you will have clarity in your marketing. Read the rest of this entry »

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A simple Formula for MLM success that anyone can follow

I ran across an interesting little distinction that, when fully understood and properly applied, will forever change the way you think, act, and teach the art of building your MLM business.

Interested? Thought you might be…

“To develop your potential for effective leadership, begin with the strengths and abilities you already possess. [Because] You are always stronger when you keep your successes and strengths in mind.”

Vince Lombardi, who coached two teams to World Championships, observed that when football games were over, it always seemed that errors got more attention than successes. The newspaper and television media would highlight, analyze, and discuss the mistakes. One day, Lombardi decided, ‘From now on, we are only going to replay our winning plays.’ And look what happened to him and his team—his theory worked!

Only replay our winning plays… Interesting concept.

How about you? What plays are you running over, and over, and still over again on that all too familiar screen inside your head? Read the rest of this entry »

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Playing Monopoly for Real

Do you remember playing Monopoly the board game? With its little green houses and red hotels.   (Unless you have the Collectors edition in which case the houses are silver and the hotels are gold).

Do you remember collecting rent from people who landed on your property… Do not pass go… Get out of jail cards… Community Chest cards and all that?

It came to me in a flash today, that building a financial empire on the web is a lot like that.  This can really supercharge your MLM business online from both the opportunity and the products or services you provide.

In Monopoly, you start the game with just a little bit of money (just like MLM network marketing industry).  You land on properties and decide to buy them, if you can afford them. Eventually you add houses to your properties and then hotels.

Most people start online with little money and buy a property. It’s called “getting a domain name and hosting”.
Eventually they start to develop the property by adding web pages, or “houses” to the property. Read the rest of this entry »

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Accept no Limits in Yourself or Your Business

“A person is limited only by the thoughts that he chooses.”
-James Allen, As A Man Thinketh

You are not limited to the life you live right now. It has been accepted by you as the best you can do at this moment. Any time you’re ready to go beyond the limitations currently in your life or your MLM Business, you’re capable of doing that by choosing different thoughts.

We each earn the income we do today because that is the amount we have limited ourselves to earn. We could easily earn 5, 10, 20 times more if we did not limit ourselves through the thoughts we maintain and the things we do.

Don’t believe that’s true? Surely you know people who earn much more than you who don’t have your education, your skills, or your intelligence. So why do they earn more than you? Read the rest of this entry »

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Your Guide to Masterful MLM Sponsoring

Think about it: If you knew why people say “yes,” don’t you think you could sponsor more people? What is the common denominator among the people who sign up and those who don’t?

The answer? It is their belief. If they believe it, that they will make money in your business, they will sign up. The opposite is also true: if they do not believe they will make money in your business, they won’t sign up!

Think about all the people you have met with who, for one reason or another, did not sign up. Ask yourself one question: Did they believe they would make money with your MLM business? Did they truly believe that within a short time they could be earning $3,000 or $5,000 a month?

No. If they had believed, they would have signed up, wouldn’t they? Read the rest of this entry »

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