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.”

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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Want to know how to Locate the Best MLM Prospects?

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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Your MLM Prospects want Extra Cash and YOU can Help

“It is not what we read, but what we remember, that makes us learned. It is not what we intend, but what we do, that makes us useful. It is not a few faint wishes, but a life long struggle, that makes us valiant.”  – Henry Ward Beecher, 19th century

Here we are in the 21st Century—and isn’t that still True today?  Wisdom of the decades.  Are you learning?  Are you growing?  Because if you’re not you’re falling backwards. 

For things to change, you have to change and for things to get better, you have to get better.  Because if you continue to think the way you’ve always thought you’ll continue to get what you’ve always got!  Is that enough?

Just consider the impact you could make on your MLM Prospects life — and which you could also share:

The internet allows You to have an impact on any MLM leads  financial life… today. Read the rest of this entry »

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Convert Interested MLM Prospects into Paying MLM Customers

Getting lots of inquiries from potential customers is great. It means that you are well known in your chosen market. But all this popularity won’t do you much good if it doesn’t generate sales. 

The most common complaint I hear from MLM Distributors is that their MLM prospects just won’t part with their money. Potential customers are accused of being slow to make decisions, reluctant to change their thinking or just behind the times. 

While this can be frustrating, it is a big mistake to blame the prospective MLM customer for not taking action. Look closer to home for the real reason why your conversion rate is disappointingly low. The reality is that you actually have a lot of control over this issue. But you have to be proactive.

The general rule is :  Read the rest of this entry »

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Network Marketing: MLM Suspect or MLM Prospect

It’s NO secret that our business requires we talk to people…new people…everyday! 

I’ve never had to buy MLM leads because I have the internet at my fingertips and it’s easy to start conversations anytime you want!  I actually have a voice room, so I don’t even need to pick up the phone!  30 minutes here and there can create all the MLM leads of opportunity seekers you’ll ever need.  They are ALL over the net. 

So when you begin building your MLM business, you don’t want to *think* everyone should be in it, you just want a Few Key People.  The best way to determine who is Key is by using a Pre-Approach. This is the qualification step – the one that determines whether you have a suspect or an actual prospect. Read the rest of this entry »

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