AUS: Woods v. Amway

Amway: The Untold Story

Woods v. Amway

David Woods and Jan Woods v. Amway Corporation, Bill Britt and Peggy Britt et al, Circuit Court of Lauderdale County, Alabama, 8/26/98

IN THE CIRCUIT COURT OF LAUDERDALE COUNTY, ALABAMA

Case Number: CV 98-511

DAVID WOODS and JAN WOODS,

Plaintiffs,

AMWAY CORPORATION, BILL BRITT and PEGGY BRITT, PAUL MILLER and DEBBIE MILLER, TOM COOPER and CONNIE COOPER, BARRY GROVE and PAT GROVE, STEVE LUCKS and JULIE LUCKS, PETE LAMBERT and PEGGY LAMBERT, individuals, and FICTITIOUS PARTIES A - Z,
A - J, whether singular or plural being those persons, employees, firms, or entities responsible for the production, sales, or distribution of video tapes, audio tapes, pamphlets, magazines, or other motivational material as described herein the Plaintiffs Complaint;
K - S, whether singular or plural being those persons, employees, firms, or entities responsible for the oversight, management, or control of those parties recruiting, enlisting, or management or individuals to sell any product or service in the Amway product line;
T - Z, whether singular or plural, being those persons, employees, firms, or entities, other than those individuals or entities described above whose actions or inactions caused the damages that are the basis of the Plaintiffs' Complaint; Plaintiffs aver that the identities of the fictitious party Defendants herein are otherwise unknown to the Plaintiffs at this time, or, if their names are known to the Plaintiffs, their identities as proper party Defendants are not known to the Plaintiffs at this time and their true names will be substituted by amendment when ascertained,

Defendants.

COMPLAINT

COME NOW the Plaintiffs, David Woods and Jan Woods [collectively "the Woods"] to bring this Complaint before this honorable Court and for such cause states as follows:

1. The Woods are both over the age of 19 years and resident citizens of Lauderdale County, Alabama for over six months.

2. Amway Corporation ["Amway"] is a Michigan corporation registered and doing business in the state of Alabama.

3. The Defendants Bill and Peggy Britt [collectively "the Britts"] are both over the age of 19 and are resident citizens of the state of Florida, but do business in the state of Alabama through their Amway distributorship.

4. The Defendants Paul and Debbie Miller [collectively "the Millers"] are both over the age of 19 and are resident citizens of the state of North Carolina, but do business in the state of Alabama through their Amway distributorship.

5. The Defendants Tom and Connie Cooper [collectively "the Coopers"] are both over the age of 19 and are resident citizens of the state of Virginia, but do business in the state of Alabama through their Amway distributorship.

6. The Defendants Barry and Pat Grove [collectively "the Groves"] are both over the age of 19 and are resident citizens of the state of Tennessee, but do business in the state of Alabama through their Amway distributorship.

7. The Defendants Steve and Julie Lucks [collectively "the Lucks"] are both over the age of 19 and are resident citizens of the state of Tennessee, but do business in the state of Alabama through their Amway distributorship.

8. The Defendants Pete and Peggy Lambert [collectively "the Lamberts"] are both over the age of 19 and are resident citizens of the state of Alabama. [The Britts, Millers, Coopers, Groves, Lucks, and Lamberts are hereinafter collectively referred to as "Defendant Distributors;" all Defendants named in this complaint, including the Amway, Defendant Distributors and Fictitious Parties are hereinafter referred to collectively as "Defendants"].

9. Fictitious parties A - Z, A - J, whether singular or plural being those persons, employees, firms, or entities responsible for the production, sales, or distribution of video tapes, audio tapes, pamphlets, magazines, or other motivational material as described herein the Plaintiffs Complaint; K - S, whether singular or plural being those persons, employees, firms, or entities responsible for the oversight, management, or control of those parties recruiting, enlisting, or management or individuals to sell any product or service in the Amway product line; T - Z, whether singular or plural being those persons, employees, firms, or entities, other than those individuals or entities described above whose actions or inactions caused the damages that are the basis of the PlaintiffS' Complaint; Plaintiffs aver that the identities of the fictitious party Defendants herein are otherwise unknown to the Plaintiffs at this time, or, if their names are known to the Plaintiffs, their identities as proper party Defendants are not known to the Plaintiffs at this time and their true names will be substituted by amendment when ascertained,

10. Amway manufactures a wide variety of consumer household products which it sells along with the products of other manufacturers worldwide through hundreds of thousands of distributors, many of them in Alabama. Amway's sales plan, known in business parlance as "multi-level marketing," is a marketing scheme whereby any purchase or sale of Amway goods by a distributor financially benefits not only Amway, but also those Amway distributors who qualify and occupy levels of the Amway distributorship network higher than that of the selling distributor. Persons who occupy positions below a distributor in each branch of the network are called that distributor's "downline." Those persons who occupy positions above a distributor in each branch of the network is called that distributor's "upline." In order to earn significant profits as an Amway distributor, one must develop a sizeable downline organization by recruiting and sponsoring other distributors into the Amway sales organization. Recruiting is of paramount importance to Amway and all of its uplines, and the company places a great deal of planning and effort in this recruitment process.

11. Amway considers its distributors independent contractors and independent businessmen and women. Such distributors earn money by the mark-up they make on Amway and other related products sold to customers who are not Amway distributors and to other distributors in the seller's direct downline organization. Distributors also earn money through a complicated system of commissions, cross-commissions, bonuses, refunds, discounts, dividends, and other considerations in the Amway program as a result of the sale of such goods or services to "downline" distributors and/or the recruitment of additional participant distributors. Distributors are also encouraged and even expected to purchase and personally consume Amway products.

12. Once a distributor reaches a certain volume level of business generated by the sale of Amway products to either their downline Amway distributors or to customers who are not Amway distributors, that distributor may qualify as a "direct distributor" and may begin buying their products directly from Amway and not purchase products from their upline distributor as they formally had done before they reached direct distributor level. As a direct distributor continues to recruit and develop downlines, they are no longer compensated directly for the sales made by those who have also reached direct level in their organization, but rather, Amway itself compensates them because of the increased volume that a direct distributor's organization then creates. Because it is virtually impossible for one person to generate a large amount of profit from the sale of individual products, the overwhelming incentive in the Amway organization and the Amway plan is to recruit more and more distributors into one's downline to increase the volume of products sold in the downline organization by other distributors, whether direct or not direct, and thereby maximize the bonus and reward potential to be paid to the person at the top of this downline organization by Amway.

13. The multilevel marketing idea works much like a pyramid, with bases of support extending and exponentially expanding away from the center and top level. The greater the number of individuals at the base, the greater the reward for the person or persons sitting at the top. In Amway, the most highest level of direct distributors are categorized "Diamond Direct Distributors." The highest of all Diamond Direct Distributors is called a "Crown Ambassador Direct Distributor." The Britts and the Millers are Crown Ambassador Direct Distributors and the other Defendant Distributors, except the Lamberts, are at the Diamond level.

14. On or about Spring, 1991, David Woods was recruited by the Lamberts to work in the Lamberts' Amway organization Later, working together with as a married couple, the Woods began to develop their own downline organization, while actually selling Amway-offered products and personally consuming as much of said products as they possibly could. They were constantly challenged by their uplines to go "direct" and to retire from their day-to-day employment so that they could dedicate themselves entirely to their Amway business. They were shown and sold a book called "Profiles of Success" which showed the lavish lifestyles of highly successful Diamond level distributors in the Amway organization. They were also sold materials, tapes, and other documents which indicated that if a person worked hard there would be no limit to the amount of financial reward that a person could find as an Amway distributor. They were also told that if they did not participate in the tape program, didn't buy all the other motivational material, and did not invest their own funds in attending meetings and rallies [collectively known as "Tools"], then they were not going to succeed in the business and that they would not receive the help needed to succeed.

15. The Woods were led to believe by their uplines, the Defendant Distributors, that success lay in the using of "the System" meaning buying motivational tapes and material, attending rallies, and recruiting new members. The Amway scheme was wrapped in patriotism and religion, and challenged each participant's own American value system, that being, that with enough hard work and sacrifice that those like the Woods would achieve success like the Defendant Distributors.

16. Unbeknownst to the Woods, The Defendant Distributors, along with Amway's tacit approval or intentional ignorance, were actually deriving much of their revenue not from the sale of Amway products but from the business of selling Tools to their downlines. Again, much like the 'legitimate' business of selling Amway products, the further downline a person was, the less revenue from the Tool business you receive as long as you were of a certain level of the pyramid which qualified you for the benefits. The Tool business had become much more lucrative than the mainline business, but this was never disclosed to the innocent downlines, like the Woods, who were continually cajoled with promises that if they would just buy the Tools, then they could be wealthy too.

17. The Defendant Distributors continue to represent that a fortune can be made through the sale of Amway products and the recruitment of other Amway distributors, when in fact, the Defendant Distributors know, but in no way disclose, that the vast majority of their own revenue is derived from the selling of Tools reaping proceeds from functions such as seminars. Such income opportunities are not truly available to all to whom the dream of becoming independently wealthy through Amway is wrapped, presented, and sold.

18. The System and the Tools business is an illegal pyramid scheme which has co-oped and corrupted the very basics of what has been a phenomenally successful Amway sales and marketing plan built over the last thirty years. This has been done with Amway's knowledge, support, and consent. It has been blessed by Amway in the name of greed and in the simple pursuit of greater profits for the company.

19. Meanwhile, because of the scope and size of the organization that the Defendant Distributors represent, any rule or regulation against such misuse of the original, virtuous Amway marketing plan is moot. Amway is powerless to resist the Tools business because of the threat that the entire Defendant Distributors organizations could be pulled away from the company. On the other hand, it is in Amway's own economic self-interest to permit such misrepresentations and rules violations to continue. After all, the larger the base of the pyramid, the more built-in consumers of legitimate Amway products are captured. Amway is totally aware of the misuse of the business, but has made no effort to terminate any distributorship, whether named herein as a Defendant Distributor or not.

20. The Woods have been financially, personally, and emotionally damaged by the acts of the Defendants.

COUNT 1
Fraud

21. The Defendants made or caused to be made knowingly false and fraudulent misrepresentations to the Woods and others as set out above, when in fact, the Defendants were part of and engaged in a systematic violation of Amway rules and were operating an illegal scheme for their own profit through the sales of motivational materials and the conduct of rallies, seminars, and other events.

22. The Defendants made the statements and representations to the Woods in order for them to expend their own time and money to chase a dream that could not come true.

23. The Plaintiffs were damaged by their reasonable reliance on the statements made by the Defendants.

WHEREFORE, PREMISES CONSIDERED, the Woods ask this Court to grant them a judgment against the Defendants, jointly and severally, and award them compensatory and punitive damages, along with costs and fees, in an amount that trier of fact deems is just and fair.

COUNT 2
Breach of Contract

24. The Woods reallege and reaver paragraphs one through 23 as if set out in full herein.

25. The Woods entered into and renewed distributors agreements with Amway, based in significant part upon representations made to them concerning the Amway marketing system, including the rules and regulations promulgated by Amway.

26. Amway's failure and refusal after notice of numerous violations to enforce the rules and regulations promulgated by it to govern its marketing system and its acts of collusion in improper actions against the Woods by the Defendant Distributors was a direct breach of contract between Amway and the Woods.

27. The Woods have been damaged economically and personally by Amway's breach.

WHEREFORE, PREMISES CONSIDERED, the Woods ask this Court to grant them a judgment against Amway, and award them compensatory and punitive damages, along with costs and fees, in an amount that trier of fact deems is just and fair.

COUNT 3
Civil Conspiracy

28. The Woods reallege and reaver paragraphs one through 27 as if set out in full herein.

29. The Defendants actions described more particularly above were repeated acts of collusion and conspiracy, all determined to pick the pockets of those unfortunate mass of downlines who were in the same position as the Woods: (a) naive enough to believe a dream, (b) malleable enough to browbeat into submitting to the System and the purchase of time and money wasting Tools, (c) controllable enough to buy lock, stock, and barrel into the preaching of "the Amway (read "American") way" which was a combination of love of country, love of God, and a solid work ethic, that in reality, was really a bunch of hooey, and finally, (d) not high enough on the pyramid to actually enjoy the real fruits of the System, that being, to share the wealth brought in through the sale of Tools.

COUNT 4
Tortuous Interference with Business Relationships

30. The Woods reallege and reaver paragraphs one through 29 as if set out in full herein.

31. The Defendants, individually and conspiring among themselves, and acting for their own financial benefit, continually drained money out of those individuals like the Woods, who without such interference, could have established a supplemental source of income out of simply selling Amway's legitimate products, or could have used the money to go back to school for further education to qualify for higher paying jobs. However, more education was forbidden by uplines since the Defendants preach that there is no such thing as a "good" job.

COUNT 5
Outrage

32. The Woods reallege and reaver paragraphs one through 31 as if set out in full herein.

33. The Defendants engaged in devious and reprehensible conduct that shocks the general public's sense of fairness and decency.

34. Such acts of the Defendants were intentional malicious, and malevolent, and were simply a heinous attempt to abuse the good-natured trust of those like the Woods.

COUNT 6
Breach of Implied Contract and Express and Implied Warranties

35. The Woods reallege and reaver paragraphs one through 34 as if set out in full herein.

36. The Defendants perpetuated their fraud to insure their access to the pockets of the Woods and did so solely for their own financial enrichment and to the financial, psychological and spiritual detriment of those individuals like the Woods. When the Woods entered into the Amway business, they were told that it was important to rely on the System and the Amway business and its associates. It was very important, in fact it was the key to success to develop a relationship with their uplines that would put them beyond being categorized as simple business associates, rather, that those above the Woods on the pyramid were personal financial, and spiritual advisers. They were told not to make any life changing decisions without consulting the uplines. This cult-like attitude extended even further. Those like the Woods were told that they must show others that they were being successful at the business, and that outward trappings of wealth and success were extremely
important. The Defendants encouraged the Woods to quit or retire from their regular, day-to-day employment for the sake of their Amway organization The Defendants advised those like the Woods on whom they could associate and with whom they could not, on the sale of businesses, the borrowing of money, and virtually every aspect of their lives.

37. Because of these detailed activities, the Defendants established a fiduciary duty and special relationship with the Woods which gave rise to an extraordinary duty on the part of Defendants to give accurate and sound advice that would benefit the Woods and not necessarily be beneficial to the Defendants. This the Defendants intentionally failed to do. The Defendants acted in roles defined as attorney, accountant, business advisor, financial consultant, personal psychologist, and minister, all for the purpose of enriching the lives and pockets of the Defendants and at the detriment of those individuals who had invested with their trust, Like the Woods.

38. All of the actions and duties assumed by the Defendants gave rise to a significant and extraordinary high duty of care on the part of the Defendants to those Like the Woods, giving rise to an implied contract and express and implied warranty of care, all of which the Defendants by their acts thoroughly and spectacularly breached.

COUNT 7
Breach of Fiduciary Duty

39. The Woods reallege and reaver paragraphs one through 38 as if set out in full herein.

40. The relationship developed in the Amway business, as detailed above, is a relationship of trust and confidence. The corporation, as well those situated as ones upline, have a position of importance, respect, and superior knowledge to those who are downline and situated like the Woods.

This position establishes and imposes a fiduciary obligation and responsibility upon the organization and those in the organization, encapsulated in "The Code of Ethics of the Amway Distributor."

41. The Defendants have breached this special relationship, doing harm to situated like the Woods, causing financial emotional and personal injury.

COUNT 8
Intentional Infliction of Emotional Distress

42. The Woods reallege and reaver paragraphs one through 41 as if set out in full herein.

43. The acts of the Defendants were intentional, reckless, outrageous, wanton, and designed to damage the Woods, and those similarly situated.

44. The Woods suffered emotional and psychological damage because of the acts of the Defendants.

A TRIAL BY STRUCK JURY IS HEREBY DEMANDED.

Respectfully submitted,

Michael A. LeBrun
Attorney for David and Jan Woods

OF COUNSEL:
Potts & Young Attorneys, LLP
107 E. College Street
Florence, Alabama 35630
256-764-7142