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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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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When Your Dream is Big Enough… You’re Rich!


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What will keep you charging in your MLM Multi Level Network Marketing business when you have a bad day? Think about it. People in traditional businesses have two primary advantages over us networkers: 

#1) They have a lot of money invested; therefore, when they have a bad day, they are not likely to throw in the towel and quit. Sure they may think about it, but they will also think about the mortgage they have on their home, and the money they borrowed from friends and family members. This usually will keep them in their business even when someone returns the only product that they sold for the day or when they have to use their Visa to pay off MasterCard. Read the rest of this entry »

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It’s Time to write a Check


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Don’t let that subject line scare you, I’m going to explain in a minute.

There’s a world of difference between wanting something and absolutely having to have something.  Have you ever noticed that people always seem to earn just enough money to cover their expenses?  Whatever they GOT To Earn, they will earn.  Why don’t most people earn more than just enough to cover their expenses? Because they don’t have to!

If you want to do better in life, you have to make living a certain lifestyle and achieving a certain level of financial independence a personal GOT TO.  Right now, you probably want many things.  But wanting isn’t going to do it.  You’ve probably wanted them a long time…which is why you haven’t got them.  And you won’t get them until you convert your wants into “magnificent obsessions”.  Until you are filled with a Fervent Desire and a Burning Need to have more, you are always going to have about what you’ve currently got.  To have More, you not only have to BEcome more; you also have to require more. Read the rest of this entry »

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11 Factors stopping You from signing up your MLM Leads


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Have you ever been certain an MLM lead was going to join your group, only to have him turn you down? Do you struggle to bring people into the business, while others in your company have much higher success rates? Have you ever wondered why some people, who are obviously “perfect” for the business, never even seriously consider it?

The answer to all these scenarios may be one or more of the 11 little-known but critical factors in play throughout your recruiting process. Each of these 11 factors has a serious effect on the ways prospects view both you and your MLM opportunity.  In fact, if you didn’t cover these with your current Reps, you will see they come in play there, too!

Some of them may be addressed by your website or personal meeting, others during a telephone call (with or without your sponsor); still others may be handled in the follow-up emails they receive; but they all must be addressed someplace, or your results will suffer.

For each of these factors that you don’t deal with correctly, you will meet with a corresponding decrease in the number of qualified people you sign up. By this, I mean that you will miss signing up good people, who would do well in an MLM business if they did join. The more of the 11 factors not addressed in your system, the more good people you’re missing. Read the rest of this entry »

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Network Marketing: Great Reasons for Optimism


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People ask me all the time about how long they can expect to work before they reach the “PAY-OFF” in MLM.

Let’s look at this from the traditional perspective of what you’d be doing if you weren’t an MLM Distributor.

The forty-year plan is the best that folks can hope for in traditional businesses. So, what’s the forty-year plan, you ask? By age twenty-five, most people have an idea of what profession they’ll enter, anything from a fishing guide to a surgeon. Read the rest of this entry »

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