St. Joe firms among those suing Amway for millions

St. Joseph News-Press/September 9, 2003
By Marjie Kosman

A federal lawsuit filed last month by a St. Joseph law firm is seeking millions of dollars in damages from multilevel marketing company Amway Corp.

The suit, which names St. Joseph companies Netco Inc. and Schmitz & Associates among its plaintiffs, alleges that Amway essentially blacklisted lower-level distributors through a separate motivational materials business.

According to the suit, high-level distributors made much of their profit not from selling Amway products, but from selling motivational materials, or "tools and functions" such as books, videos, cassettes and conventions to lower-level distributors.

This tool-and-function business was controlled by a few elite distributors which the suit dubs "kingpins," according to documents filed by the law firm Shughart, Thomson, Kilroy, Watkins & Boulware.

Companies that fell out of favor with the "kingpins" were subjected to "group boycotts," which forced them out of business.

The St. Joseph companies involved in the lawsuit, filed in U.S. District Court in Kansas City, declined to comment.

Amway officials also declined to comment on the lawsuit, but have issued a statement.

"The plaintiffs appear to be blaming our companies for the breakdown in their long-term business relationship with other independent business owners for the sale and distribution of business-support materials and meetings. We believe the lawsuit to be without merit and will provide a vigorous defense," the company said in an e-mailed statement.

The most recent lawsuit is similar to several lawsuits over the years filed by former Amway distributors who identify the company as a glamorized pyramid scheme in which individuals earn money by recruiting others and receiving a percentage of each new recruit's profits.

Shughart, Thomson, Kilroy, Watkins & Boulware has filed a total of four lawsuits against Amway.

Amway and high-level distributors for the company have come under fire for the tool-and-function business since the early 1980s when the practice grew rapidly.

Although Amway claims the tool-and-function business as a "separate and distinct business in and of itself," the company disregarded the problems with the system, according to the recent lawsuit in Kansas City.

"Amway 'closed its eyes' and ignored what they considered to be a business rampant with abuse because Amway had become inherently dependent on the tool-and-function business to sustain its growth and profitability. Greed overcame principles," the suit claims.

Amway aided the "kingpins" by misrepresenting the potential of the business to low-level distributors. The company flaunted the lavish lifestyle of its high-level distributors, leading distributors to believe wealth was attainable by selling Amway products, according to the complaint.

"But in fact, it is only through the participation in the tool-and-function business that one can attain the riches like those of the Amway kingpins," claimed the suit. "New distributors were not told this. Instead, they were led to believe that the riches were in the Amway business. Amway knew this. Amway permitted it and encouraged it."

Defendants in the suit include Amway, its parent company Alticor Inc. and Quixtar Inc., an e-commerce company also owned by Alticor. Amway is based in Ada, Mich.

Other plaintiffs in the federal lawsuit in Kansas City are two Springfield companies and one company in Jacksonville, Fla. All of the plaintiffs have filed separate lawsuits in Missouri and Florida.