Amway case to proceed

Kansas City Star/July 17, 2006

The 8th U.S. Circuit Court of Appeals has upheld a lower court's refusal to force an antitrust case against Amway Corp. into arbitration.

The plaintiffs in the case are so-called tools businesses that use motivational tapes, lectures and rallies to recruit Amway distributors and encourage them to sell as many Amway products as possible. Each tools businesses is owned by a distributor that also operates an Amway products business.

The case, which was filed in 2003 in St. Joseph, seeks millions of dollars in damages. The plaintiffs describe Amway as a pyramid-type scheme in which distributors earn money by recruiting other distributors, with a percentage of each distributor's revenues passed along to higher-ups in the pyramid.

Like other lawsuits filed in recent years by Amway distributors, the lawsuit says that most of Amway's profits come not from selling products but from selling the motivational materials to distributors.

Many of the lawsuits allege that Amway exaggerates the profits to be made by selling its products and pressures distributors into buying its motivational materials. The St. Joseph action charges that a few Amway 'kingpins' - those who bought into Amway early on - control thousands of down-line distributors and make most of their money by selling them the motivational materials.

The lawsuit says that Amway helped the few big players monopolize trade in the motivational arena, using it to subsidize the rest of its business.

Amway has denied the allegations and tried to force the case into arbitration. The company argues that, while none of the tools businesses had signed the arbitration agreement, each was owned by a distributor whose products business had signed it.

In September, U.S. District Judge Richard Dorr ruled that the arbitration agreement was 'unconscionable' because it was offered on a 'take it or leave it' basis and because Amway hand-picked the arbitrators and trained them.

Last week, the 8th Circuit agreed. The court found that, contrary to Amway's assertions, the tools businesses were not entitled to any rights or benefits under Amway rules of conduct, were not agents of the products businesses, and couldn't be forced into arbitration under the 'community of interest doctrine.' Amway had invoked the doctrine to argue that, because the interests of the plaintiffs were directly related to those of Amway, ordering arbitration was the only way to prevent evisceration of the arbitration agreement.

The 8th Circuit's decision means the case will go forward in federal court.

The plaintiffs are represented by Shughart Thomson & Kilroy.