Amway suit aims at training materials

Federal allegations pending include antitrust violations.

News-Leader.com/August 29, 2003
By Ryan Slight

A Greene County lawsuit involving a Rogersville man accused of conspiring against Amway-related distributors and unfairly cutting them out of business could get settled out of court.

However, similar legal action against Amway, a Michigan-based multilevel marketing business that sells a variety of products worldwide, just started in federal court.

Circuit Judge Miles Sweeney indicated Thursday he may soon decide whether to send the Greene County case against Jimmy V. Dunn and other defendants to arbitration. The lawsuit has been pending since December 2001.

St. Joseph attorney Dan Boulware, who represents plaintiffs in the Greene County case, also filed a federal lawsuit on Aug. 15 against Amway's corporate parent and a subsidiary, Amway and Quixtar, accusing the companies of antitrust violations.

Boulware said his firm could pursue a class action in addition to the current five plaintiffs, which include two companies, Nitro Distributing Inc. and West Palm Convention Services, both operated by Amway superdistributor and former Greene County resident Ken Stewart.

"We have received numerous contacts concerning whether we are pursuing a class action," Boulware said, noting that dozens of potential plaintiffs have contacted his firm.

"We haven't made a decision. We will continue to deliberate on the requests and contacts," he said.

Amway officials deny that the company and its subsidiaries committed antitrust violations and other allegations detailed in the federal case.

Robin Luymes, Quixtar public relations manager for an Amway distributor, said the company's attorneys received and are reviewing the suit, but have not filed a written response. He declined to comment except for releasing a written statement.

"The plaintiffs appear to be blaming our companies for the breakdown in their longterm business relationships with other independent business owners for the sale and distribution of business support materials and meetings," the statement said.

"We believe the lawsuit to be without merit and will provide a vigorous defense."

The lawsuit, which was filed at the U.S. Courthouse in St. Joseph, accused Amway of abuses within the "tool and function business," which trains and motivates Amway distributors.

"Tools" refers to tapes, books and literature while "functions" involve seminars, rallies and conventions.

The document claimed that the motivational materials that Amway distributors buy and the functions they pay to attend generate enormous profits - even more than Amway businesses.

"Simply put, the money is not in the Amway business; it is in the hype of the Amway business," the petition said.

The lawsuit accused high-level Amway distributors who reached the "pin level" of diamond or above of seizing control of the "tool and function" business in recent decades to profit from the training of new distributors.

Several Amway "kingpins" engage in selling marketing materials and marketing functions through their separate companies, the lawsuit alleged.

Amway helped facilitate a "boycott" of Nitro and West Palm by referring distributors to Dunn instead of those companies, it said.

As a result of Amway's alleged actions, the plaintiffs have "sustained damages in the millions of dollars," the suit claims.

Nitro Distributing, a Missouri corporation owned by Stewart, filed the Greene County suit in December 2001 against Dunn and other defendants, including "other unknown conspirators," it accused of conspiring to cut it out of the tool and function business. The defendants denied the allegations in court documents.

West Palm Convention Services was also named as a plaintiff in the Greene County suit, which did not specifically name Amway.

Nitro Distributing and West Palm Convention Services are not Amway businesses, but had worked "in tandem to build, support and enhance Amway."

Stewart, who achieved the prestigious "crown" status within the Amway distributor network, "became well-known and popular within the Amway network of distributors and, at one time ... was in great demand as a motivational speaker at rallies, major functions and conventions."

He owned a $4.5 million, 20,000-square-foot mansion - named Shaldrake after an English manor - on a 50-acre estate east of Springfield until 1996, when West Palm was incorporated in Tequesta, Fla.

The lawsuit alleged that the defendants breached agreements, interfered with contracts and business agreements, attempted to spread "falsehoods" about Stewart to get distributors to boycott him, and tried to exclude Stewart from their functions.

West Palm's functions significantly declined in attendance between 1995 and 1998, prompting West Palm to stop sponsoring major functions. Boulware attributed the sharp decline to the defendants' attempts to "blackball" Stewart in the petition.

Springfield attorney Larry K. Bratvold, who represents Dunn, said neither he nor his client would comment on the lawsuit. Efforts to reach Dunn for comment were unsuccessful.

However, Bratvold denied in a written answer filed within court accusations that Dunn had tried to "monopolize" the tool and function business or boycotted Stewart's companies.

Bratvold also filed a counterclaim against Stewart's companies for breach of contract and other accusations, including terming Boulware's lawsuit "frivolous" with an intent to harass Dunn and others.

"The conduct of (Stewart) was outrageous and based on an evil motive or reckless indifference to the rights of others," he said in his counterclaim.

Bratvold alleged that Stewart's company Stewart and Associates - an "alter ego" of Nitro and West Palm - had agreed to submit any dispute to arbitration under Amway's rules of conduct.

Far from being blackballed by Dunn and others, the counterclaim alleged that Stewart's companies failed to provide adequate leadership, guidance and support to distributors.

"Although the Stewart Organization's decline in its businesses was a direct result of Stewart's inability to serve as a satisfactory role model and the Stewart Organization's failure to support their downline distributors, the Stewart Organization has consistently refused to accept that its businesses suffered from Stewart's own actions and inactions," Bratvold argued in his counterclaim.

According to its company Web site, Amway offers more than 450 different products such as vitamins and cosmetics. Founded in 1959, the company's global sales reportedly totaled $4.5 billion in the past fiscal year.

To get an Amway business, a person is sponsored by an Amway Independent Business Owner and obtains a business kit containing basic Amway products and literature.

The person is expected to start developing customers - non-business owners who buy products - and other IBOs.

A successful business owner may develop a "group," or a team of IBOs, and earn income when group members earn extra money.

As more IBOs in one's group become successful, one can earn incentive pins marking various achievement levels. Each pin, ranging from ruby and pearl to diamond and crown, represents a set of incentives and rewards.

"Everyone starting an Amway business gets in at the same level, and each IBO has the same opportunity to surpass the most successful IBO," according to literature on Amway's Web site.

However, Boulware contended that was a myth, arguing that a person cannot attain the wealth level of Amway's elite just by selling products.