Cairns, et al, v. Amway, et al, U.S. District Court, Southern District of Ohio, 1984
This case is dicussed in some detail in "Organizational Deviance in the Direct Selling Industry: A Case Study of the Amway Corporation." It was settled out of court and the plaintiffs were awarded a large sum of money. (The outcome of the case was not noted in Dr. Juth's dissertation because the suit hadn't yet been settled at the time she wrote it.)
This is interesting stuff, and touches on a number of issues that have been raised regarding Amway, specifically the coerced sale of motivational tools, and the fact that Amway Corp. was aware of it and did little to stop it. The distributor who sparked this lawsuit, Siciliano, was (is?) in the Yager/Britt line of sponsorship.
Here is Dr. Juth's discussion of the case.
A law suit now pending in the United States District Court, Southern District of Ohio, against the Amway corporation, Van Andel, DeVos, some of Amway's largest distributors organizations in the country (the Yager, Britt, Renfrow, et al., lines of sponsorship) and some of the distributor's non-Amway businesses (American Multimedia, Inc., an so). The suit, initiated in 1984 by 79 Amway distributors from a five state region, charges Amway and the co-defendant lines of sponsorship with restraint of trade and corrupt organization. Although the law holds that Amway distributors are independent contractors operating independent businesses, the distributors filing the complaint argue that they were coerced into purchasing motivational materials produced by the defendants.
"Each of the Plaintiffs was...coerced to purchase ever larger amounts of Defendants motivational materials as a condition of continuous maintenance of their lines of sponsorship, or further advancement to higher levels of the Amway distributorship organization. Each plaintiff was further restrained from producing their own motivational materials and aids or purchasing same from third parties" (Cairns, et al v. Amway Corporation, et al., 1984).In addition to the complaint that the plaintiffs were prevented from selecting, producing or purchasing motivational materials of their own choosing, the plaintiffs claimed that the prices they were forced to pay for these unwanted materials were fixed. "Plaintiffs businesses were likewise restrained by the Defendants' practice of controlling the resale price of cassette tapes distributed for motivational purposes." (Cairns, et al v. Amway Corporation, et al., 1984).
The Ohio case further alleges that the defendants made false statements and claims when saying their large incomes were the result of the sale of Amway products. The plaintiffs argue that the "Defendants were not making such profits from the marketing of Amway products but, in fact, the profits they derived were from the forced and coerced sales of motivational materials" (Cairns, et al v. Amway Corporation, et al., 1984). One hundred thousand (100,000) cassette tapes were sold by the Yager/Britt/Renfrow organization (defendants) each month at a cost to the ultimate distributor of $3.50. These sales garnered the up-line organizations a gross of $1,400,000 per month. Other documents reveal the fact that "monthly, weekend rallies of 1,000 people at $8.00 per ticket could net $8,000" (Cairns, et al v. Amway Corporation, et al., 1984). In 1982 one of the distributors in the Yager, Britt, Renfrow, et al. line of sponsorship grossed $59,000 from the sale of Amway products and an additional $500,000 from the sale of non-Amway motivational aids. In essence, each of the Plaintiffs felt they had entered into
"contracts with Defendant Amway with the understanding that the objective of the Amway distribution system was the marketing of consumer products. In fact, each of the Defendants conspired to pervert the system and established, conducted and participated in enterprises in order to utilize the sale of Amway products as a facade for the true objective of the system: to foist unwanted and unnecessary motivational materials on unsuspecting business neophytes, aspiring to operate their own businesses."[deleted--section on how Devos and Van Andel do not directly benefit from sale of tools]
In limiting its contacts to a small segment of the distributors (Direct Distributors and above) and by rewarding those who attain these levels, Amway is able to foster a high degree of loyalty within this segment of the organization. As Direct Distributors achieve higher levels within the organization, their contacts and meetings
with Corporate officials and each other increase via meetings of the Diamond Club and other seminars. There is evidence to indicate that as distributors move up the ladder of success in the Amway organization a unique socialization process occurs--distributors "learn" how to be more successful. Case documents reveal:
"As the plaintiffs moved up in the organization, some of them reached a level at which they were admitted into the inner circle, at which time the secret of making money through Amway was revealed. What they learned was that the real money was not in soap but rather people--that each person in one's organization could be a source of profit. Each Amway distributor was a potential customer of his upline for motivational cassette tapes and tickets. Riches beyond the plaintiff's wildest dreams were held out as the inducement, and more and more sales of tapes and tickets was claimed to be the key that would unlock the door to the upper levels of Amway. For those who resisted and desired to concentrate on selling soap, the stick was threats to take away one's downline organization." (Cairns, et al v. Amway Corporation, et al., 1984)While it is not clear what Amway's role in the "socialization process" described above was/is, available evidence indicates that Amway was aware of the pressure and coercion used by some distributors to have their down-lines purchase large amounts of non-Amway produced materials. Amway was also aware of the fact that large amounts of such sales of materials without an end consumer was illegal. The data which follows comes primarily from a cassette tape made by DeVos and entitled "Directly Speaking" produced by the Amway corporation in January 1983 and made available only to Direct Distributors. [See the Directly Speaking article for the complete transcripts of these tapes.]
On the tape DeVos warns the Direct Distributors about their misconduct and abuse of the business. Because of the nature and length of the tape large sections are quoted to provide exact wordings in order to avoid the possibility of misinterpretation. DeVos states:
"Let me talk to you about the legal side, beyond price fixing, that deals with pyramids, that deals with the illegal operation of a business that does not have an end consumer, where the product is not retailed. That would include all books and tapes. The sad news, folks, is that when those things go out that way and they become excessive, beyond my ten or twenty percent theoretical guideline, ... then it becomes an out and out illegal pyramid." (DeVos, 1983).In an attempt to control the amount of sales and profits made by distributors on their sales of non-Amway tapes, the Amway Corporation moved to allow distributors to accumulate Business Volume (BV) on the cassette tapes purchased directly from the Corporation. This action by the Corporation caused considerable controversy among some of the distributors. The tape "Directly Speaking" addresses this and other issues.
"I'd like to get through some of the kind of negative stuff that's come on my desk, ... I also have a lot of horror stories; stories that must have been swept under the rug or hid behind the curtains, that should have been brought to our attention a long time ago--and I know, in some of the cases, they were brought to our attention, and we did nothing about it; ... Maybe we overlook some thing, maybe we are blind and maybe we swept some things under the rug, too, and thought it would just sort of go away. Only some of these things did not go away; they just got worse...The tape continues in the same vein on side two. What is most interesting is that while DeVos is acutely aware of the deviance within the distributor organizations he does not suggest that such distributors be terminated. Rather, he expresses some vague hope that things will improve--"You know, folks, it's time we got back to the fundamentals of this business. There is no way to put a lot of money in this Plan, other than a very simple one. ... I can show 'em how to get an extra fifty or sixty percent if they'll get out and sell some merchandise. I guess if I'd been told all those years you don't have to sell the product, all you have to do is wholesale it to people, then I guess maybe I wouldn't pay any attention to pricing either. But that's an illegal business. And those of you that preach it and foster it and talk about it are operating illegally. ... The problem is, some of you are trying to figure out how to make a lot of money without getting the volume that you need. ... The Board is, indeed, and organization that represents your viewpoints. It indeed does visit with us on this business. But some of your so-called experts ... don't know, is that for this company to discuss with the Board pricing on any product is a federal offense. It is known as price fixing. And we have a little experience with that and the FTC, by the way, that maybe your leader didn't tell you about or he forgot about it ...
"We didn't start out with BV on tapes ... We put it in by the way, to be a competing force and to draw your attention to the kind of potential abuse that we thought was there, which we know is there, with a kind of power and pressure I never believed; and I am not going to take all afternoon to read you the horror stories of the people who say, 'I'm connected with such and such a system. I have $8,000 worth of their tapes in my basement. They will not take them back.' and the others who were told to mortgage their houses, cash in their life insurance, told to go to the bank to borrow because this big weekend seminar was so important. Well, that's extracting money.
"... We ... didn't take it to the Board, by the way, because we didn't really want to put a Board member on the spot. We have Board members who operate pretty big systems. It would have been a kind of embarrassment to put him in the crossfire;" (DeVos, 1983).
"I don't know what I'm going to do next. ... I do not wish to control your actions, your day-to-day work; but I don't want anybody else out in the field controlling them for you either. ... I need your help folks. We must clean it up;..." (DeVos, 1983).There is some evidence to indicate that the Amway Corporation does try to correct and control some of the more blatant abuses in its distributor organizations. The distributor alluded to earlier (see page 185) who grossed $59,000 from the sale of Amway products and another $500,000 from the sale of motivational aids in 1982 became the subject of disciplinary action by the Amway Corporation in 1983. In June 1983, Amway had obtained affidavits from 16 distributors stating that the distributor in question, Siciliano, used pressure to sell motivational products to his down-line and had engaged in other deviant practices as well. Case documents allege that the questionable behavior of Siciliano included:
"threatening loss of favor, withdrawal of support, interference with achievement levels, and physical intimidations. In addition, Siciliano coerced female downline distributors to engage in sexual acts with him under the guise that such activity was a necessary show of support and loyalty to Siciliano, to their husband's distributors, and to the "Amway" system, when, in fact, Siciliano knew that such representations were false."On August 15, 1983 the Amway Corporation terminated Siciliano's distributorship due to violations of the Amway Code of Ethics. Siciliano appealed Amway's decision to the Board of the Amway Distributors Association (ADA). The Board of Directors reversed the decision of the Amway Corporation and Siciliano was reinstated as a Direct Distributor subject to undisclosed disciplinary actions. The 1983-84 Board which was responsible for hearing the Siciliano case included: Van Andel, DeVos, Britt who was serving as President, and Yager who was serving as Treasurer. However it must be noted that at the Board meeting where the decision to reinstate Siciliano's distributorship was made DeVos, Van Andel, and Yager were absent and Britt was present but not able to vote. It is important to note that both Britt and Yager are up-line of Siciliano. This action by the ADA Board to reinstate Siciliano's distributorship prompted the original complaintants to seek redress in the courts.
We also have this account from the 5/17/84 edition of the Grand Rapids Press:
Amway Denies Ties To Sales Aids Cited In Distributor's Suit
By Jim Hager
Amway distributors who have claimed they were forced to buy motivational materials are complaining about Amway distributors who sold materials not authorized by Amway Corp., company spokesman Casey Wondergem said Wednesday.
The Ada-based firm was named in a lawsuit filed by some 77 couples and individuals who were Amway dealers in Cincinnati and surrounding areas of Ohio, Kentucky and Indiana.
Amway Corp., the nations second largest direct sales firm, markets its products through a network of independent distributors.
The suit, filed Tuesday in U.S. District Court at Cincinnati, seeks $120 million in damages from Amway and a Cincinnati-area distributor's group.
"The lawsuit ... actually stems from the operations of an independent Amway distributors' group," Wondergem said in a prepared statement.
"What is really involved in the Cincinnati case is the sale of non-Amway motivational books and audio tapes. These materials were never authorized, produced, sold or shipped by Amway Corp."
In the suit the distributors claim they were told by the defendants they had to buy the materials if they wanted to keep their growing business or advance within the distributor organization.
The sale of Amway products masked the defendant's real mission, the suit claimed, which was "to foist unwanted and unnecessary motivational materials on unsuspecting business neophytes aspiring to operate their own businesses."
Wondergem said Amway never has demanded that its distributors buy the motivational materials it promotes and sells.
"Amway Corp. has stressed repeatedly, in the strongest possible terms, that motivational materials are to be offered only on a voluntary basis," said Wondergem. "The fact is, Amway has consistently cautioned its distributors from requiring anyone they sponsor to buy specific tapes, books, literature or sales aids."
Wondergem added that Amway offers a money-back guarantee for motivational materials it sells.
Amway distributors, operating as independent businesses, sell about 300 Amway products, which range from soap and detergents to cosmetics and fire alarms. It has distributorships in some 40 foreign countries and last year reported total sales of $1.13 billion.
Thomas R. Koustmer, a Cincinnati lawyer who filed the
lawsuit for the plaintiffs, declined to comment on the case Wednesday.