MLM: Major Victory for Distributor Rights – substantive unconscionability terms


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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.”

AND

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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Are you clear on where your MLM business is headed


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When you get to where you’re going, where will you be?

If you can’t answer this question, you may need to ask yourself a different question:  Why are you in business?

Anyone can start a home-based business in the MLM Network Marketing industry, but to be one of those businesses that succeeds and continues to flourish isn’t so easy.  As a small business owner, it’s essential that you establish a vision for your business in order to understand where your MLM business is headed.

Another way to look at it, do you want to be in business for the long-term or short-term?

Here are 7 areas to review to have a complete picture of where your business is headed: Read the rest of this entry »

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Have you heard that MLM Leaders are Readers?


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All of the books that we will ever need to make us as rich, and healthy, as happy, as powerful, as sophisticated and as successful as we want to be have already been written.

People from all walks of life, people with some of the most incredible life experiences, people that have gone from pennies to fortune and from failure to success have taken the time to write down their experiences so that we might share in their wealth of knowledge. They have offered their wisdom and experience so that we can be inspired by it and instructed by it, and so that we can amend our philosophy by it. Their contributions enable us to reset our sail based upon their experiences. They have handed us the gift of their insights so that we can change our plans, if need be, in order to avoid their errors. We can rearrange our lives based on their wise advice.

All of the insights that we might ever need have already been captured by others in books. The important question is this: In the last ninety days, with this treasure of information that could change our lives, our fortunes, our relationships, our health, our children and our MLM business for the better, how many books have we read? Read the rest of this entry »

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Don’t believe the MLM Hype that you should “Fake It ‘TiL You Make It”


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I believe it’s time for us to retire this well-worn phrase. It represents an old way of thinking about enrolling people and sharing your MLM business. In essence, telling people to “fake it ’til you make it” is teaching dishonesty, and the language of “faking” does not imply personal evolution or personal change, but presents something that’s not really you.

I’m not saying this is the intention of Networkers who use this phrase. I can understand what’s behind it. It’s an intention to have people be out there stretching themselves even though they may be fearful. It’s the idea that acting like you’re a success will create the behavior that really will lead to success. People also say this in an effort to get new distributors off the idea that until they know everything they can’t take action. You know the cliche — the ultra-educated Networker who’s never sponsored someone. Read the rest of this entry »

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Every discipline in your MLM, can reap Multiple Rewards


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For every disciplined effort you put into your MLM business, there are multiple rewards. That’s one of life’s great arrangements. In fact, it’s an extension of the Biblical law that says that if you sow well, you will reap well.

Here’s a unique part of the Law of Sowing and Reaping. Not only does it suggest that we’ll all reap what we’ve sown, it also suggests that we’ll reap much more.

Life is full of laws that both govern and explain behaviors, but this may well be the major law we need to understand: for every disciplined effort, there are multiple rewards. Read the rest of this entry »

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How are you using Boundaries to build your MLM business?


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Good fences make good neighbors, but do good personal boundaries make good Networkers?

Yes.

While many  Network Marketers have been conditioned to get “close” to the prospect, the real goal is to build strong, lasting relationships. The more distinct the boundaries of a relationship, the easier it is for upline and downline to know, like, and trust each other — which is essential to starting and building a business together. Boundaries are key to maintaining both strong relationships and individual strength through the inevitable ups and downs of our business.

What exactly is a Boundary and How can You Use One?

In simplest terms, a boundary sets limits, makes distinctions, informs you as to what is you and what is not you. A boundary makes clear the distinction between you and others, and tells you where one thing ends and another begins. It lets you know that another’s ideas, values, and feelings are not necessarily yours. A boundary is flexible and permeable, letting information flow back and forth.  It allows you to actively listen without having judgments. Read the rest of this entry »

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Building your MLM business naturally with your List


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When you began your MLM business you probably started by making a list of people you know.  That is always a good start because you are only looking for a few Key People and it should come from those you Know, Like and Trust. 

I have always found that after making the list I prefer to categorize people because some on my list I wouldn’t want to work with.  That should not preclude you from sharing the product with them (I don’t believe anyone would be offended if you make some money because they made a purchase of something they’d never know about if you didn’t tell them!)  Everyone you know can benefit from the products or service, but they may not make a great MLM business partner or Team mates.  That is YOUR decision and it is important you understand the responsibility you have each time you choose to enroll someone on your MLM Team!

When your talking to people, you will find some are naturally a perfect fit for your MLM product/service and you just aren’t sure if they would make a good fit for your MLM Team.  In fact, they might be quite anxious to get started with your MLM Product and you aren’t necessarily ready to discuss a partnership with them. 

Let’s get back to the list you made Read the rest of this entry »

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