This is one of two documented cases (the other is Gommeringer v. Amway) in which Amway Corporation has violated the spirit and/or letter of its own rules in order to take someone's distributorship, or part of their distributorship, away from them.
Of particular note is the statement made by an Amway vice president at the end of the following article from the Grand Rapids Business Service Press Summary:
On August 31, 1995, a Grand Rapids, Michigan jury ruled unanimously in favor of Amway distributors, Joan Baker and Shirlee Michaels, in a breach of contract lawsuit against Amway Corporation. The amount of the verdict with interest and attorneys fees is in excess of $1,000,000. The jury had been considering the case since August 7, 1995.
The case involved the transfer of 30 distributorships (representing annual business of approximately $55,000, plus other bonuses) from the Baker's and Michael's organization without their permission or knowledge. Baker and Michaels contended, and the jury agreed, that Amway violated its Business Reference Manual which contains the contract between Amway and its 2 Million Distributors. Baker and Michaels stated:
"We are pleased that our jury told Amway it cannot change 'the deal' in midstream. The contract provision that gives Amway the right to make new rules for future application doesn't allow Amway to violate existing rules. We think this verdict sends Amway a strong message that they were wrong. We would have liked a larger award, but once we understood how the jury calculated damages, we think they reached a fair result. We were very anxious about filing a lawsuit against a $6 Billion company in their home town but our Attorney asked the jury to be fair and they were."The dispute goes to the heart of the Amway Business Plan which states that business which is built by distributors belongs to them, can be passed on to their heirs and can not be arbitrarily taken from them.
The Amway Vice President who made the transfer of the Baker/Michaels Distributors to another Amway organization contended that he "has the authority to waive Contract Rules and would do it again."
Despite the unanimous verdict, an Amway spokesperson said they are considering an Appeal..
STATE OF MICHIGAN
JOAN BAKER,
Plaintiff Case No.: 91-72761-CK
vs Honorable George S. Buth
AMWAY CORPORATION, a COMPLAINT AND DEMAND FOR JURY TRIAL
Michigan corporation,
Defendant.
John C. Buchanan (P-11341)
Bradley K. Glazier (P-35523)
BUCHANAN & BOS
Attorneys for Plaintiff
600 Frey Building
300 Ottawa Avenue, N.W.
Grand Rapids, Michigan
(616) 458-1224
Plaintiff, Joan Baker, by her counsel, Buchanan & Bos, states the
following as her complaint against Amway Corporation:
GENERAL ALLEGATIONS
1. Plaintiff, Joan Baker, is a current Amway distributor and a
resident of Redlands, California.
2. Defendant, Amway Corporation ("Amway"), is a Michigan
corporation with its principal place of business in Kent County,
Michigan.
3. The amount in controversy in this action exceeds $10,000.
4. Amway sells a variety of consumer products through a network
of distributors who in turn purchase and sell Amway's products to other
distributors.
5. Joan Baker has been an Amway~distributor since 1975.
6. Amway markets its distributorships as a "business opportunity"
and classifies its distributors as independent contractors. Amway
commits to its own prescribed code of ethics and rules of conduct in its
dealings with distributors. The Code of Ethics and Rules of Conduct are
set forth in Amway's Business Reference Manual, a copy of which is
attached as Exhibit A.
7. Income is earned through Amway's business opportunity based
upon a mark-up in the prices at which the Amway distributor purchases
the Amway product and the price at which he or she sells the product.
8. Amway distributors also earn income through a monthly
performance bonus on the Amway products purchased. Amway assigns a
point value ("PV") to the dollar amount of products purchased and uses
the PV and business volume ("BV") to determine a distributor's
performance bonus bracket and the amount of the performance bonus. The
performance bonus varies depending upon the total monthly PV. The
performance bonus can vary from three percent (3%) to twenty-five
percent (25%) of the monthly BV.
9. Amway encourages its distributors to build their independent
business by sponsoring new Amway distributors. The "sponsors" of new
distributors receive credit for the Amway product purchases of those
whom they sponsor. Additional bonuses are paid to persons who qualify
as "direct distributors." Direct distributors purchase products from
Amway and achieve that status by generating a PV of 7,500 for any six
months within Amway's fiscal year, or meeting other sponsorsnip
requirements set forth in Amway's Business Reference Manual.
10. To encourage sponsorship of new distributors, Amway prohibits
the sale or transfer of a distributorship out of the line of
sponsorship, except in accordance with limitations set forth in the
Rules of Conduct. Section E, Rule 6 of the Rules of Conduct provides
limited exceptions to the rule that a transfer of a distributorship out
of the line of sponsorship is not permitted. (Exhibit A at 53-54).
11. In accordance with the terms of Amway's Business Reference
Manual, plaintiff sponsored Mary and Maurice Van Dusen and Marlis and
Donald Shamblin as Amway distributors in 1975 and 1977 respectively.
12. Mary and Maurice Van Dusen in turn sponsored George C. Simmons
in 1977 and Marlis and Donald Shamblin sponsored Lilian S. Cummings in
1981.
13. Pursuant to the Amway Sales Plan, the product purchases of
George C. Simmons and Lilian S. Cummings, and the down-line distributors
sponsored by Simmons and Cummings, generated bonus income for the
plaintiff.
14. On December 31, 1990, George C. Simmons advised the plaintiff
that he was resigning his Amway distributorship effective January l,
1991, and that all persons whom Mr. Simmons had sponsored were also
resigning from the company.
15. On February 28, 1991, Lilian S. Cummings advised plaintiff
that she was resigning her Amway distributorship effective February 28,
1991, and that all persons whom Ms. Cummings had sponsored were also
resigning from the company.
16. Pursuant to Section E, Rule 5 of Amway's Rules of Conduct, a
distributor who terminates his or her distributor relationship must
remain inactive for a period of six or more consecutive months before
reapplying as a new distributor.
17. Pursuant to Section E, Rule 6, a distributor who reapplies
under a new line of sponsorship has no right to sponsor into his or her
new line of sponsorship any distributor who was previously a distributor
anywhere in his or her original line of sponsorship, unless the
distributor has been inactive for a period of two years.
18. Pursuant to Section E, Rule 5, Amway must notify the original
direct distributor when a downline distributor reapplies to become an
Amway distributor under a new sponsor.
19. Amway accepted George C. Simmons and Lilian Cummings as new
distributors, despite the lack of any period of inactivity following
their resignations in violation of Amway's Rules of Conduct.
20. Amway permitted Simmons and Cummings to retain the
distributors whom they had sponsored before their resignation, despite
the two year period of inactivity required under Amway's Rules of
Conduct.
21. Amway permitted Simmons and Cummings to transfer to the down-
Line of a distributor other than the distributor who had sponsored them
in violation of Amway's Rules of Conduct.
22. Amway permitted Simmons and Cummings to transfer to the down-
Line of a distributor other than the distributor who had sponsored them
without notifying plaintiff in violation of Amway's Rules of Conduct.
23. Plaintiff has made numerous requests to Amway to reinstate
Simmons and Cummings to their down-line, but Amway has refused
Plaintiff's requests.
COUNT I,
BREACH OF CONTRACT
24. Plaintiff hereby incorporates Paragraphs 1 through 23 of the
General Allegations as if fully restated herein.
25. Plaintiff and defendant have entered into a contract, the
terms of which are governed by oral representations, the course of
dealings between the parties and Amway's Rules of Conduct.
26. Plaintiff has, at all times pertinent to this suit, performed
her obligations under the contract.
27. Amway has breached its contract with plaintiff by permitting
and approving the transfer of plaintiff's down-line distributors, George
C. Simmons and Lilian Cummings, to the down-line of another Amway
distributor.
28. As a consequence of Amway's breach of its contract, plaintiff
has lost and continues to lose the bonuses generated by the
distributorships of George C. Simmons and Lilian Cummings, and has
additionally lost the bonuses generated by the down-line distributors of
Mr. Simmons and Ms. Cummings.
WHEREFORE, plaintiff respectfully requests the court to grant the
following relief:
a) grant a temporary injunction compelling Amway
to reinstate George C. Simmons and Lilian
Cummings and their down-line distributors as
down-line distributors under the sponsorship of
the plaintiff and to direct that all bonuses
earned through those distributorships be paid
to the plaintiff.
b) grant a permanent injunction compelling Amway
to reinstate George C. Simmons and Lilian
Cummings and their down-line distributors as
down-line distributors under the sponsorship of
the plaintiff and to direct that all bonuses
earned through those distributorships be paid
to the plaintiff,
c) award plaintiff the damages incurred in
connection with the breach of her agreement
with Amway, including loss of past and future
bonus revenues, damages for loss of plaintiff's
professional reputation, interest, attorney's
fees and all other relief deemed proper and
appropriate by this Court.
COUNT II
MICHIGAN CONSUMER'S PROTECTION ACT
29. Plaintiff hereby incorporates Paragraphs 1 through 23 of the
General Allegations and Paragraphs 25 through 28 of Count I as if fully
restated herein.
30. Defendant, Amway Corporation, is a Michigan corporation
licensed to conduct business in Kent County, Michigan and places into
the stream of commerce goods, property, or services for sale, lease or
distribution.
31. Amway represented to plaintiff that the Amway business
opportunity had the approval, characteristics, uses, or benefits which
it did not have, in that, despite Amway's Rules of Conduct which
specified that persons who were sponsored into plaintiff's down-line
organization would remain in the down-line organization unless the
distributorship was transferred in accordance with the limitations set
forth in Rule 5 of the Rules of Conduct of Amway Distributors, Amway
permitted the transfer of George C. Simmons and Lilian Cummings to a new
distributorship line, all contrary to MCLA 445.903, Section 3(1)(c).
32. Amway failed to reveal to plaintiff a material fact with
regard to the Amway business opportunity, tending to mislead or deceive
plaintiff, which fact could not be reasonably known by plaintiff in that
she relied upon the Business Reference Manual promulgated by Amway which
specifies that distributors may not transfer their distributorship out
of the line of sponsorship, except in accordance with specific
limitations and Amway permitted the transfer to a different line of
sponsorship in violation of its own rules and regulations, all contrary
to MCLA 445.903, Section 3(1)(s).
33. Amway made a representation of fact or statement of fact
material to the transaction such that plaintiff reasonably believed that
the represented or suggested state of affairs to be other than was
actually true in that she relied upon the Business Reference Manual
promulgated by Amway which specifies that distributors may not transfer
their distributorship out of the line of sponsorship, except in
accordance with specific 1imitations and Amway permitted the transfer to
a different line of sponsorship in violation of its own rules and
regulations, all contrary to MCLA 445.903, Section 3(1)(bb).
34. Amway failed to reveal facts to plaintiff which were material
to the transaction in light of representations of fact made in a
positive manner in that Amway failed to disclose that it was free to
create new exceptions to its rules regarding limitations on the transfer
or to waive such 1imitations at Amway's whim, a11
contrary to MCLA 445.903, Section 3(1)(cc).
35. As a result of defendant's conduct, violating the Consumer
Protection Act, plaintiff has suffered damages, including loss of the
bonuses generated by the distributorships of George C. Simmons and
Lilian Cummings, and has additionally lost the bonuses generated by the
down-line distributors of Mr. Simmons and Ms. Cummings.
WHEREFORE, plaintiff demands judgment against defendant in the
amount of the actual damages sustained, plus Two Hundred Dollars
($200.00) per violation of the act, interest, costs and actual
attorney's fees permitted to be recovered under the Michigan Consumer
Protection Act and all other relief deemed proper and appropriate by
this court.
COUNT III
FRAUD - MISREPRESENTATION
36. Plaintiff hereby incorporate Paragraphs 1 through 23 of the
General Allegations, Paragraphs 25 through 28 of Count I and Paragraphs
30 through 35 of Count II as if fully restated herein.
37. At the time plaintiff first became an Amway distributor and
throughout her relationship with Amway, Amway represented to plaintiff
that the transfer of distributorships out of the line of sponsorship was
permitted only in accordance with the strict limitations set forth in
the Rules of Conduct of Amway Distributors. Those representations were
false because Amway departed from its own rules and regulations at its
whim.
38. Amway knew or should have known and had reason to know, that
its representations regarding the limited circumstances under which a
sale or transfer of a distributorship out of the line of sponsorship was
permitted were false.
39. Amway made representations regarding the limited circumstances
in which a distributor could transfer out of the line of sponsorship
with the intent that plaintiff rely upon it.
40. In reasonable reliance upon the representation, plaintiff
signed a distributorship agreement with Amway and sponsored numerous
distributors, including Mary and Maurice Van Dusen, who in turn sponsored
George C. Simmons, and Marlis and Donald Shamblin, who in turn sponsored
Lilian Cummings.
41. As a result of the misrepresentations by defendant, plaintiff
has suffered damages in the amount of the past and future bonuses
generated by George C. Simmons and Lilian Cummings, damage to
plaintiff's professional reputation, costs and attorney's fees.
Joan Baker, being first duly sworn, states that she has reviewed
the allegations in plaintiff's Complaint and the allegations are true to
the best of her knowledge.
Subscribed and sworn to before me, a Notary Public, this 28th day of June, 1991.