A CALIFORNIA BUTT-KICKING

Quixtar continues to get pounded in courts across America. The latest fissure was opened by a decision handed down on March 31st in United States District Court for the Northern District of California. The decision, rendered by Senior Judge Samuel Conti, found Quixtar's arbitration process to be "procedurally and substantively unconscionable, and therefore unenforceable."

Judge Conti's written opinion was very comprehensive and quite impressive. Judge Conti meticulously detailed why each and every part of Quixtar's arbitration and dispute resolution process is inherently flawed and unfair.

The motion ruled on by Judge Conti was the result of a suit brought by former IBO Jeff Pokorny. Pokorny and others alleged the Quixtar is an illegal pyramid scheme. It appears that the California suit filed by the TEAM affiliated IBOs and Pokorny's class action suit are very similar. If you recall Quixtar has yet to refute any of the allegations claimed in the suit filed by Woodward and company. Pokorny's suit also named Bill Britt, Ron Puryear and their related tools organizations. Quixtar, Britt, and Puryear all made motion to have the suit removed from court and into arbitration where they can hide their mischief.

The Court attacked Quixtar's arbitration clause on the basis of how it is procedurally applied. The Court stated:

To determine whether a contract provision is procedurally
unconscionable, the Court looks for oppression or surprise, where oppression "'arises from an inequality of bargaining power that results in no real negotiation and absence of meaningful choice.'"

As most of you know by now the arbitration clause was added to distributor agreements in 1998. Quixtar then added the non-compete and non-solicitation clauses in the same underhand way in 2004. In both of these instances IBOs were not fully disclosed the information nor were they given any ability to opt out or negotiate. Again the unilateral actions of Amway / Quixtar will likely result in the striking down of the Quixtar's non-compete and non-solicitation clauses on the same grounds Judge Conti notes here.

What is interesting is that Quixtar admits that there is no negotiation but instead claims that the IBOAI is the "voice of IBOs." Judge Conti noted that IBOs have the option to join the IBOAI or not but that those that do join aren't allowed to vote until reaching the level of "Platinum." Quixtar did not present any evidence to suggest that the IBOAI did represent the best interests of IBOs. As we know the IBOAI failed miserably to represent IBOs. Outside of the 15 martyrs led by Woodward, the rest of the IBOAI laid down with the company over pricing issues as well as the dreaded name change to the notorious AMWAY. Judge Conti also noted that in Pokorny's case he was not only suing Quixtar but those in his upline and that believing the IBOAI would act in his interest was described as:

In such a scenario, allowing the most senior IBOs to "negotiate" the rights of all other IBOs would be leaving the proverbial fox in charge of the henhouse.

Pokorny's attorneys raised the following issues with Quixtar's arbitration process and all of the steps required leading to arbitration:

Plaintiffs, however, advance a number of problems with the
Conciliation stages of the Quixtar process, and argue that the
agreement is not enforceable. The specific defects Plaintiffs
allege are:

1. The Hearing Panel must make recommendations that promote
the RoC being challenged here.

2. The Conciliation requirement is not mutual. IBOs must
bring claims against Quixtar using the Quixtar ADR
process, but Quixtar is not required to do so.

3. The Conciliation process is not neutral because the
IBOAI board is dominated by the "Kingpin" IBOs that
Plaintiffs allege are part of the same unlawful
enterprise as Quixtar.

4. At most, the Hearing Panel or IBOAI board can make a
recommendation, which Quixtar may accept, reject, or
modify at its discretion.
5. Quixtar may unilaterally modify the RoC.

6. The procedure is burdensome, time-consuming, and
designed to encourage compliance with the very rules
Plaintiffs are challenging here.

7. IBOs must initiate all arbitration proceedings within 2
years, even if the applicable statute of limitations is
longer.

Judge Conti covers in great detail the short comings of the pre-arbitration procedures IBOs are forced to endure. Judge Conti sums it up as follows:

The Court finds, without reaching every possible defect
identified by Plaintiffs, that the RoC requirement that an IBO
engage in Informal and Formal Conciliation prior to arbitration is
substantively unconscionable, and exceedingly so. The ADR deck
could not possibly be stacked more in Quixtar's favor than it is
here. Having already concluded that the agreement is procedurally
unconscionable because the Plaintiffs did not have a chance to
negotiate its terms, the Court holds that the pre-arbitration
provisions of the agreement are unconscionable, and declines to
enforce them.

Quite frankly there is just too much quotable information to note in one post. I strongly urge you to read the attached opinion from Judge Conti. In item after item addressed by the judge, Quixtar and its processes and actions, all were found to be blatantly unfair. Even the issue of severability, where the judge can strip away parts that are unconscionable and leave the clause mostly intact, Quixtar failed to convince. In fact Judge Conti found the entire process so afoul of due process that he noted:

The Quixtar arbitration agreement is simply too tainted to be
saved through minor adjustments. Therefore, though mindful of the
strong state and federal policies favoring arbitration, the Court
holds that the entire Quixtar ADR scheme is unconscionable and
unenforceable.

In the end Judge Conti denied the motions of the defendants Quixtar, Britt, and Puryear. Judge filed his conclusion as follows.

For the foregoing reasons, the Court finds that the
arbitration agreement contained in the Registration, the BSMAA,
and the DM Terms and Conditions, and incorporating the RoC, is
procedurally and substantively unconscionable, and therefore
unenforceable. The Court therefore ORDERS as follows:

1. Quixtar's Motion to Dismiss or Stay and Compel
Compliance With Dispute Resolution Agreement is DENIED.

2. The Britt Defendants' Motion to Dismiss and Compel
Compliance With Dispute Resolution Agreement is DENIED.

3. The Puryear Defendants' Motion in Support of Joinder in
Quixtar's and Britt's Motion to Dismiss or Stay
Litigation and Compel Compliance With Dispute Resolution
Agreement is DENIED.

4. Plaintiffs' Motion to Strike Quixtar's Reply Re:
Statement of Recent Decision is VACATED AS MOOT.

IT IS SO ORDERED.

THE ENTIRE OPINION CAN BE READ HERE.