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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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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Don’t Feel Guilty For Being Selfish


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Recently one of my distributors asked me what she should do about all the guilt she is feeling.  It seems she was getting feedback from some friends that she was so focused on her MLM business that she wasn’t spending as much time with them.  When she talked about what she was doing you could just hear her enthusiasm, her desire to learn and grow and how excited she was about the future.  She is still a fairly new distributor and when we initially talked she had mentioned her extensive friendships and all the good times they have had together. 

Whatever situation you are in – you must always look ‘after number one’ (yourself) first.

We weren’t put on this earth to be unhappy and miserable because of how other people affect us. We are here to enjoy ourselves, to have fun, and to make the most of what natural talents we have been given. Read the rest of this entry »

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If You Don’t Attempt The Shot, You Can’t Score in MLM Network Marketing


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It is a well-documented fact that the players who hold the record for the highest goals, hits, or baskets also miss more than other players.

Some even hold the record for both!

Why? Well, they know that the only way they are going to ‘score’ is by attempting to in the first place. They know that they WILL score on a certain percentage of their efforts – so they shoot as much as they can.

Remember…missing only means that you are one step closer to scoring.

Network Marketers can be challenged Read the rest of this entry »

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Want to know how to Locate the Best MLM Prospects?


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In his brilliant book, “A Brief History of Time,” Professor Stephen Hawking opens with the story of a well-known scientist who gave a public lecture on astronomy. The scientist described how the moon orbits the earth, the earth orbits the sun, and how our solar system orbits around the center of the galaxy. When he finished, a little old lady got up and said, “What you have told us is rubbish. The world is really a flat plate supported on the back of a giant tortoise.”

The scientist gave a knowing smile and replied, “What is the tortoise standing on?”

“You’re very clever, young man, very clever,” she replied. “But it’s turtles all the way down!”

We all know people like that little old lady. The point is, why try to convince them otherwise? If they believe that the universe is a big stack of turtles—or that all network marketing opportunities are illegal pyramids—nothing you present to the contrary is going to change their belief. Read the rest of this entry »

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Achieving BIG MLM Goals… And Three Steps You Can Take


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Goals are supposed to be motivating, aren’t they?

But if you’re not careful, there is one trap that can transform a magnificent goal into an overwhelming obstacle.  I know all too well, because I’ve been trying to blast through, climb over, or go around one of those obstacles myself for the last few months.

Many times goals are pretty straightforward and require little more than your consistent commitment to action. Then there are times when we set BIG, complex goals that take us where we’ve never been before. Those goals that have us blazing a path where no one has gone before require us to gather a team of experts to bring the goal to reality.   Look to your upline (s) and even your MLM Company for that team of experts.

The same trap is always there, but with these BIG goals this stumbling block can become like a black hole that sucks anything nearby into the abyss – including your energy, motivation and momentum. Read the rest of this entry »

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