This case involves the practice of "buying" one's way to a particular pin level by purchasing large amounts of inventory, something that, according to a Direct Distributor I spoke with, still goes on in Amway. A distributor who is willing to spend enough money can even buy his or her way to the Diamond level. Why would someone do this? Because once at the higher pin levels, a distributor can participate in the lucrative "tools" business and receive money from motivational tapes & books, rally tickets, and speaking fees.
It is also concerned with the practice of an upline "squeezing out" an uncooperative downline distributor by dealing directly with that distributor's downline, thereby effectively destroying the business of the uncooperative distributor. This also still goes on today (see Touchton lawsuit). The following information on the Bartlett case is taken from Juth.
In California Amway distributors, the Bartletts, have filed suit in California against their up-line sponsors, the Pattersons, and other distributors, the Amway corporation and three of Amway's officers: Van Andel, DeVos and Mix. The Plaintiff's are charging among other things: breach of contract, fraud, deceipt, conspiracy, infliction of emotional distress, interference with prospective economic advantage, and racketeering.
Case documents show that the Bartletts joined the Amway organization under the sponsorship of the Patterson's in January, 1979. Between January, 1979 and February, 1983 the Bartlett's purchased approximately $50,000 of Amway products believing that: (a) this action would help them realize their goal of financial success by becoming a Direct Distributor; and (b) that if such actions were not successful that Amway, according to its own statements and policies would repurchase the unsold stock worth about $20,000. The Bartlett's claim that they took this action around March, 1980, when their own group consisted of 20 distributors, because the Patterson's
advised plaintiffs that there was a shortcut to success, that it was sure and certain, and that Plaintiffs should take advantage of it by the expedient of buying enough Amway products to qualify as "Direct Distributors," ignoring the fact that Plaintiff's then-existing Amway sales organization could not reasonably be expected to market such a quantity of products. Plaintiffs were told by Defendants THE PATTERSONS … that Plaintiffs … owed a duty of loyalty to the persons they had recruited to act in the best interests of such persons by taking such steps as might be necessary to become Direct Distributors immediately (Bartlett v. Patterson, et al., 1985)
The Bartletts were "sworn to and honored a secrecy regarding the true method my which they had become Direct Distributors; they recopied in their own handwriting and submitted reports prepared for them by the Pattersons" (Bartlett v. Patterson, et al, 1985). In 1981 the Bartletts learned that other distributors sponsored by the Pattersons had also been made Direct Distributors in the same manner i.e. they had "purchased" their distributorships by buying large quantities of Amway products (Bartlett v. Patterson, et al, 1985).
Around June, 1982, the Plaintiffs notified the Pattersons that "they had come to realize the folly of 'buying' their Direct Distributor status" (Bartlett v. Patterson, et al, 1985). At this point in time the Bartlett's organization was still viable and the Plaintiffs hoped that future sales to their organization would reduce their inventory stock. However concerned about the Bartlett's misgivings, the Pattersons informed the distributors in the Bartlett line of sponsorship that they should now do business with them (Pattersons). Some of the distributors in the Bartlett organization complied with the Patterson request. The Bartletts argue that this action by the Pattersons was maliciously done and that it damaged their business.
In February 1983 the Bartletts requested the defendants to repurchase the inventory as they planned to leave the Amway business. During the summer, around July 19, 1983, the defendants, including the Amway Corporation, "refused, and have continued to refuse, to repurchase from Plaintiffs at full purchase price said remaining products sold by Amway Corp. to Plaintiffs for resales" (Bartlett v. Patterson, et al, 1985). The case is still pending.
While the heart of the case revolves around the question of inventory loading, other actions revealed in the case documents are similar to other illegal and deviant activity already cited: i.e., conspicious displays of wealth calculated to show other distributors that financial success is achievable through Amway; coercion, or pressure, to purchase unwanted goods; and threats to a distributor's Amway business if the distributor fails to cooperate with an up-line sponsor.
This California case illustrates the point that pressures to obtain organizational goals which cannot be achieved through normative channels may result in illegal and deviant conduct on the part of the organization. The Patterson's goal of achieving a higher rank in the Amway distributor organization was dependent upon their successful sponsorship of a number of Direct Distributors. Finding that those they sponsored were not achieving this level, pressure was exerted upon those down-line distributors to "buy" their Direct Distributor status. The potential for victimizing a down-line may be inherent in multilevel organizations particularly when the direct selling corporation does not enforce its own rules.
We also have this account of the suit from the 8/24/84 edition of the Grand Rapids Press:
California Couple Sues Amway for $10.5 Million
SANTA ANA, Calif. (AP)—An Orange County couple has filed a $10.5 million lawsuit against Amway Corp., one of the nations largest direct sales companies, alleging fraud and misrepresentation, an attorney said.
Jeff and Grisell Bartlett claimed in their Orange County Superior Court suit that Amway refused to buy back some of the $50,000 in unsold products the couple bought between 1979 and 1983 while working as Amway "direct distributors," their attorney, David G. Vest, said Tuesday.
Vest said the Bartletts went heavily into debt and mortgaged their home to buy enough products so they could distribute Amway merchandise. According to the complaint, the Bartletts were induced to buy far more products than they could sell because that was the "short-cut to success" at Amway.
Officials at Amway's Ada headquarters had not seen the suit and did not wish to comments Wednesday, company spokesman Casey Wondergem said.
The suit claims the Bartletts were assured by a Mission Viejo couple, Harold and Dorothy Patterson, who are co-defendants in the complaint, that they "could not possibly lose any money" because Amway would buy back all unsold inventory.
The Bartletts still possess $20,000 worth of Amway food bars and other discounted products, Vest said.
However, the Pattersons said the Bartlett's allegations were untrue.
The Bartletts felt "they came under the spell of some people who were highly persuasive," Vest said. "According to the Pattersons and Amway's literature, becoming a Direct Distributor is the be-all and end-all of the operation."
Direct distributors are responsible for consumer sales and recruiting new distributors, the suit said. Direct distributors take commissions from sales made by distributors they sponsored.
It should be pointed out that the Pattersons (or any upline sponsor who employs these tactics) also stand to benefit if they can convince one of their downline to buy their way to a higher pin level. The upline's own group volume is likewise increased and may also push them to a higher pin level; and of course they earn a commission on the inventory purchased by their downline.
It's also significant that Amway's "70%" rule, which is supposed to prevent inventory loading, is shown, by the practice of distributors buying into a higher pin level, to be obviously ineffective. The existence and enforcement of the "70%" rule, the "10 customer" rule, and the "buy back" rule was cited by the FTC in 1979 as the basis for their decision that Amway is not an illegal pyramid scheme.