Like the Hanrahan lawsuit, this suit alleges that high level Amway distributors are engaging in fraud and racketeering related to their highly profitable motivational "tools" businesses. The Touchton suit goes further in alleging that the Touchton's upline attempted to "squeeze them out" by selling Amway and non-Amway products to their downline, and also disparaging them to their downline and upline…practices described to me by other ex-distributors and discussed by Steven Butterfield in his book Amway: The Cult of Free Enterprise. It also alleges that the "tools" business constitutes an illegal pyramid scheme, something that Rich Devos himself admitted more than ten years ago (see Directly Speaking article).
IN THE STATE COURT OF RICHMOND COUNTY
DON TOUCHTON AND )
SUE ELLEN TOUCHTON, )
)
PLAINTIFFS, )
) CIVIL ACTION FILE
VS. ) NO.: 96-RC5C-264
)
AMWAY CORPORATION; DEXTER )
YAGER, INDIVIDUALLY AND D/B/A )
YAGER ENTERPRISES; HAL GOOCH )
AND SUSAN GOOCH; AND SAM )
FLANERY AND JACALYN FLANERY, )
)
DEFENDANTS. )
COMPLAINT
NOW COME PLAINTIFFS, DON AND SUE ELLEN TOUCHTON, and for
their complaint against Defendants show as follows:
INTRODUCTORY STATEMENT
1. Plaintiffs are citizens and residents of the State
of Georgia.
2. Defendant Amway Corporation ("Amway") is a Michigan
corporation, which is engaged in the manufacture, distribution, and
sale of Amway products, and the promotion of Amway distributorships
within the state of Georgia. Amway ' s registered agent for service
of process is C. T. Corporation Systems at 12 O1 Peachtree Street
N. E., Atlanta, Georgia 30361.
3. Defendant Dexter Yager, individually and D/B/A Yager
Enterprises ("Yager"), is a distributor of Amway products who is
involved in the promotion of Amway distributorships, the
distribution of Amway products, the production and distribution of
motivational materials for use by Amway distributors, the sale of
motivational materials to Amway distributors, and the organization
of motivational rallies for attendance by Amway distributors.
Yager may be served at 12201 Steel Creek Road, Charlotte,
North Carolina 28273.
4. Defendants Hal and Susan Gooch (collectively
"Gooch") are residents of the state of North Carolina and are
distributors of Amway products who are involved in the promotion
of Amway distributorships, the distribution of Amway products, the
production and distribution of motivational materials for use by
Amway distributors, the sale of motivational materials to Amway
distributors, and the organization of motivational rallies for
attendance by Amway distributors. Gooch may be served at 6 Curtis
Court, Thomasville, North Carolina 27360.
5. Defendants Sam and Jacalyn Flanery (collectively
"Flanery") are residents of the state of North Carolina, and are
distributors of Amway products who are involved in the promotion
of Amway distributorships, the distribution of Amway products, the
distribution of motivational materials for use by Amway
distributors, and the organization of motivational rallies for
attendance by Amway distributors. Flanery may be served at 400
Sugar Loaf Road, Hendersonville, North Carolina 28792.
JURISDICTION AND VENUE
6. Defendant Amway, a Michigan corporation, is
registered and authorized to transact business in Georgia, and
transacted business out of which the subject cause of action arose,
with Plaintiffs in Richmond County, Georgia. All other Defendants
are subject to the jurisdiction of this court under the Georgia
Long-Arm Statute, in that they are non-residents of the State of
Georgia who have (a) transacted, and continue to transact business,
and have engaged in purposeful activity within the State of
Georgia, and that the claims of Plaintiffs arise out of said
business and activity, (b) committed a tortious act or acts or
omissions within Georgia against Plaintiffs, and/or (c) committed
a tortious injury or injuries in Georgia against Plaintiffs caused
by acts or omissions outside of Georgia, and have regularly done
or solicited business in Georgia, engaged in a persistent course
of conduct within Georgia and derived substantial revenue from
goods used or consumed in Georgia. Furthermore, certain of the
actions of all Defendants here complained of were transacted in
Richmond County, Georgia, and venue properly lies in this court.
FACTUAL STATEMENT
7. Amway manufactures a wide variety of consumer
household products which it sells nationwide through hundreds of
thousands of distributors, many of whom are in Georgia.
8. The Amway sales plan 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 in the Amway distributorship network
higher than that of the selling distributor. In Amway parlance,
those persons who occupy positions below a distributor in his
branch of the network are called the distributor's "downline".
Those persons who occupy positions above a distributor in his
branch of the network are called the 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.
9. Amway sells, distributes, or otherwise supplies for
a valuable consideration, goods through independent agents or
distributors at different levels, wherein such distributors may
recruit other distributors and wherein commissions, cross-
commissions, bonuses, refunds, discounts, dividends, or other
considerations in the program are or may be paid as a result of the
sale of such goods or services or the recruitment, actions, or
performances of additional participant distributors.
10. Defendant Yager occupies a position at the top of
his own vast Amway distributorship network. The Amway
distributorship network Defendant Yager runs is comprised of tens
of thousands of downline distributors and, upon information and
belief, earns millions of dollars annually through his Amway
business organizations.
11. In September 1986, Plaintiffs became Amway
distributors Within the Yager organization, by entering into a
distributorship agreement with Amway, whereby they acquired the
right to sponsor new Amway distributors, and to sell Amway products
primarily to their sponsored distributors.
12. Defendants Gooch and Flanery are Amway distributors
within the Yager organization upline of the Plaintiffs.
13. The success of the individual Defendants herein is
integral to the success of Defendant Amway. Amway directly
benefits financially from the sponsorship of each Amway distributor
within the Yager organization, and from the sale of Amway products
to each Amway distributor within the Yager organization.
14. Defendants Yager, Gooch, and Flanery have created
their own businesses that publish and/or distribute motivational
materials, such as books and audio-cassette tapes, and that
organize and promote motivational rallies for Amway distributors
throughout the United States. Through these businesses, Defendants
Yager, Gooch, and Flanery sell vast quantities of motivational
materials to their respective downline distributors and hold
rallies throughout the United States that their downline
distributors must pay to attend.
15. Defendants Yager, Gooch, and Flanery derive a
substantial portion of their incomes from the sale of non-Amway
motivational materials to persons in their downlines and from the
money earned through their motivational rallies.
16. Defendants Yager, Gooch, and Flanery regularly
represented or caused to be represented to Plaintiffs that their
success as Amway distributors was contingent upon the purchase of
motivational materials published and/or distributed by Defendants
Yager, Gooch, and Flanery, and attendance at meetings sponsored by
them, and that without such materials and attendance at meetings,
Plaintiffs would be unable to build and maintain successful Amway
distributorships. Defendants Yager, Gooch, and Flanery further
represented or caused to be represented to Plaintiffs that they
should purchase only those motivational materials produced and/or
distributed by Defendants Yager, Gooch, and Flanery.
17. Defendants Yager, Gooch, and Flanery further
represented to Plaintiffs that they should purchase a weekly supply
of Defendants' motivational audio tapes through a tape-of-the-week
program that Defendants Yager, Gooch, and Flanery described as the
"standing order" tape program ("S.O.T."), and, moreover, Defendants
represented that such weekly purchases of Defendants' audio tapes
were essential to Plaintiffs' success as Amway distributors.
18. Defendants Yager, Gooch, and Flanery further
represented to Plaintiffs that their paid regular attendance at the
motivational rallies organized and promoted by Defendants was
essential to Plaintiffs' success as Amway distributors.
19. Defendants Yager, Gooch, and Flanery further
represented to plaintiffs that the only way plaintiffs could be
successful Amway distributors was to buy motivational and
promotional materials prepared by said Defendants, to pay to attend
meetings and conferences sponsored by them, and to recruit and
sponsor other distributors (and convince them to buy tapes and to
pay to attend conferences); and most importantly, to avoid wasting
time trying to develop retail sales, which they continually
stressed were unimportant.
20. Defendants Gooch and Flanery further represented to
Plaintiffs that despite anything the Amway organization might say,
the Amway rules and regulations were irrelevant and should be
disregarded, and that Amway would not dare interfere with the way
the Yager organization was run, because Yager could always pull his
downline organization out of Amway, which would significantly harm
Amway.
21. In fact, the motivational materials produced and/or
distributed by Defendants Yager, Gooch, and Flanery and the
motivational rallies organized and promoted by Defendants Yager,
Gooch, and Flanery were unnecessary to the success of Amway
distributors, which fact was well known to Defendants Yager, Gooch
and Flanery, and Plaintiffs lost money as Amway distributors.
22. At all times relevant hereto, Amway was aware that
the aforesaid misrepresentations regarding Defendants Yager, Gooch,
and Flanery's motivational materials and motivational rallies were
being made to Amway distributors, and that in practice, sales of
such materials within the Yager organization were consistently
being conducted in violation of Amway's rules, including without
limitation, Section B, Rule 4. It was in Amway's economic self-
interest to permit such misrepresentations and rules violations to
continue, and although Amway has been aware of such practices for
years, Amway has never terminated the distributorships of
Defendants Yager, Gooch, or Flanery, or made any credible effort
to halt their practices in violation of Amway's rules.
23. In reliance upon the misrepresentations of
Defendants Yager, Gooch, and Flanery, Plaintiffs purchased large
quantities of Defendants Yager, Gooch, and Flanery's motivational
materials and attended Defendants Yager, Gooch, and Flanery's
motivational rallies as recently as early 1993.
24. In addition to the foregoing, Flanery, with the
knowledge of Gooch, and ultimately Yager and Amway, engaged in a.
regular practice of interfering with Plaintiffs' downlines, cutting
out the Plaintiffs from the distributorship scheme.
25. On various occasions, Defendants herein sold or
caused the sale of Amway and non-Amway products directly to
Plaintiff's downline distributors, thereby interfering with
Plaintiffs' distributorship relationships.
26. On numerous occasions Defendants Gooch and Flanery
disparaged Plaintiffs to Plaintiffs' downline distributors and
Plaintiffs' upline, in an effort to interfere with Plaintiffs'
downline distributorship relationships, and to isolate Plaintiffs
from upline support.
COUNT I
VIOLATION OF O.C.G.A. §10-1-410, ET SEQ.,
RELATING TO MULTIILEVEL DISTRIBUTION COMPANIES
27. The allegations contained in paragraphs numbered "1"
through "26" are incorporated here in by reference.
28. Defendants either constitute, operate, and/or
directly or indirectly participate in the operation of a multilevel
marketing program, within the meaning of Georgia law.
29. Defendants Yager, Flanery and Gooch, with the
knowledge of Amway, manage and/or participate in an organization
(the Yager organization) wherein, through the persuasive and
coercive actions of said individual defendants, the financial gains
to the participants are primarily dependent upon the continued,
successive recruitment of other participants, and where sales of
Amway goods to non-participants are not required as a condition
precedent to realization of such financial gains.
30. Defendants have failed to comply with the
requirements of O.C.G.A. §10-1-413, and have engaged in practices
prohibited under O.C.G.A. §§ 10-1-411 and 10-1-414, and
accordingly, are guilty of unfair or deceptive acts or practices
in the conduct of consumer transactions.
31. Plaintiffs have been injured in their persons and
property by the acts of Defendants in violation of O.C.G.A. §10-
1-410, et seq., and Plaintiffs are entitled to recover their
general as well as exemplary damages occasioned by such injuries
against all Defendants, jointly and severally.
32. Plaintiffs are entitled to an award of three times
their actual damages under O.C.G.A. §10-1-399(c), as well as
reasonable attorneys' fees and expenses of litigation under
O.C.G.A. §10-1-399 (d).
COUNT II
VIOLATION OF THE GEORGIA RACKETEER INFLUENCED
AND CORRUPT ORGANIZATIONS ACT (AGAINST
DEFENDANTS YAGER, GOOCH AND FLANERY)
33. The allegations contained in paragraphs numbered "l"
through "32" are incorporated herein by reference.
34. The actions of Defendants Yager, Gooch, and Flanery
alleged above, constitute racketeering activity within the meaning
of O.C.G.A. §16-14-3, in that they constitute a violation of 18
U.S.C. §§ 1343 and 1341, wire and mail fraud. Defendants Yager,
Gooch and Flanery's participation in the affairs of the enterprise
consisted of their guiding, managing, directing or otherwise
exercising some control over the affairs of the enterprise.
Through acts of mail and wire fraud Defendants Yager, Gooch, and
Flanery participated in the affairs of the RICO enterprise which
was comprised of a large international corporation (Amway) and its
vast network of hundreds of thousands of individual distributors.
The cloak of legitimacy provided to Defendants Yager, Gooch, and
Flanery by this seemingly legitimate enterprise afforded said
Defendants access to and influence over huge numbers of Amway
distributors, thus enabling Defendants Yager, Gooch, and Flanery
to exercise their scheme to defraud Plaintiffs and others through
an illegal pyramid distributor scheme as described at length
herein.
35. Defendants Yager, Gooch, and Flanery's pattern of
racketeering activity, which consisted of mail and wire fraud, was
perpetrated through direct telephone communications, the Amvox
Telephone Voice Mail System, and the mails, pursuant to and for the
purpose of executing Defendants' scheme to defraud Plaintiffs and
others by communicating false and fraudulent information, including
but not limited to:
a) statements that fraudulently represented that
Plaintiffs' success as Amway distributors was contingent upon
purchasing substantial quantities of the motivational materials
produced and/or distributed by Defendants Yager, Gooch, and
Flanery; and
b) statements that fraudulently represented that
Plaintiffs' success as Amway distributors was contingent upon
attending motivational rallies organized and promoted by Defendants
Yager, Gooch, and Flanery.
36. Defendants Yager, Gooch, and Flanery conspired and
endeavored to conduct or participate in, directly or indirectly,
the said enterprises through a pattern of racketeering activity,
and to acquire money.
37. Defendants Yager, Gooch, and Flanery conspired and
endeavored to acquire or maintain directly or indirectly, an
interest in said enterprises and to conduct or participate,
directly or indirectly, in said enterprises through a pattern of
racketeering activity, in order to acquire money.
38. Plaintiffs are persons injured by reason of
Defendants Yager, Gooch, and Flanery's violation of O.C.G.A. §15-
14-4, and are entitled to three times their actual damages
sustained, as well as punitive damages and attorney fees.
COUNT III
FRAUD
39. The allegations contained in paragraphs numbered "1"
through "38" are incorporated herein by reference.
40. Defendants Yager, Gooch; and Flanery made or caused
to be made knowing and fraudulent misrepresentations to Plaintiffs
at the time they were recruited and sponsored to become Amway
distributors by misrepresenting the nature of the business
opportunity as being "the Amway system", when in fact, these
Defendants were engaged in a systematic violation of the Amway
rules, and were operating an illegal pyramid sales scheme for their
own profit through the sales of motivational materials, and conduct
of rallies.
41. Defendants Yager, Gooch, and Flanery made or caused
to be made knowing and continuing fraudulent misrepresentations as
recently as early 1993 to Plaintiffs that the proper and only way
to succeed in the Amway business was to put their full efforts into
the sale and distribution of motivational materials produced by
said Defendants, and into recruiting and sponsoring additional
distributors to whom additional motivational materials would be
sold, rather than into developing and expanding retail sales of
Amway products.
42. Defendants Yager, Gooch, and Flanery made or caused
to be made knowing and continuing fraudulent misrepresentations as
recently as early 1993 to Plaintiffs that their success as Amway
distributors was contingent upon the purchase of motivational
materials produced and/or distributed by Defendants, and upon
Plaintiffs' inducement of their downline to do the same.
43. Defendants Yager, Gooch, and Flanery made or caused
to be made knowing and continuing fraudulent misrepresentations as
recently as early 1993 to Plaintiffs that their success as Amway
distributors was contingent upon attending their motivational
rallies, and upon Plaintiffs' inducement of their downline to do
the same.
44. Defendants Yager, Gooch, and Flanery failed to make
to Plaintiffs and others various disclosures required under Georgia
law, including without limitation O.C.G.A. §10-1-410, et seq.
45. Defendants Yager, Gooch, and Flanery made or caused
to be made the aforesaid and above-described misrepresentations of
material fact and failed to disclose the aforesaid material facts,
intending that the Plaintiffs become and continue as Amway
distributors, not for the purposes of generating Defendants'
profits solely through the "Amway system", but rather for the
purpose of generating larger profits for these Defendants from
their illegal pyramid selling scheme which was prohibited by the
Amway rules.
46. Defendants Yager, Gooch, and Flanery made or caused
to be made the aforesaid misrepresentations of material fact
intending that Plaintiffs purchase Defendants Yager, Gooch, and
Flanery's motivational materials, and expend money to attend their
motivational rallies, and induce their downline to do the same, in
the fraudulently induced belief that such expenditures were
necessary to Plaintiffs' success as Amway distributors.
47. Defendants Yager, Gooch, and Flanery made or caused
to be made the aforesaid misrepresentations intending that as soon
as profits from motivational materials and rallies were generated
through Plaintiffs' efforts, they would have the ability to cut
Plaintiffs out so Plaintiffs could not participate in the profits
from the sales of such materials, and said Defendants could deal
directly with their downline.
48. But for the aforesaid fraudulent representations,
upon which Plaintiffs justifiably relied to their detriment, and
but for the aforesaid omissions of material facts, Plaintiffs would
not have entered into or maintained their Amway distributorship.
49. But for the aforesaid misrepresentations of material
fact, upon which Plaintiffs justifiably relied to their detriment,
Plaintiffs would not have purchased substantial quantities of
Defendants Yager, Gooch, and Flanery's motivational materials and
would not have expended significant amounts of money traveling to
and attending Defendants Yager, Gooch, and Flanery's motivational
rallies, which motivational materials and rallies were in fact
unnecessary and actually detrimental to Plaintiffs' success as
Amway distributors.
50. Plaintiffs, in justifiable reliance upon Defendants
Yager, Gooch, and Flanery's fraudulent misrepresentations, were
damaged in an amount in excess of $100,000.00, in that Plaintiffs
entered into and continued to operate their unprofitable Amway
distributorship, in the process expending significant amounts of
money on unwanted and unnecessary motivational materials and
rallies. Plaintiffs are entitled to recover from Defendants Yager,
Gooch, and Flanery compensatory damages, punitive damages, costs
and attorney fees, and such other relief as this court deems just.
51. At the time Plaintiffs were recruited to become
Amway distributors, and throughout their time as active
distributors, they made their decision to become and continue as
distributors based in large part upon their reliance on the
representations made and published by Defendant Amway in various
introductory and promotional materials, concerning the "Amway
System", including the Amway rules and regulations and Amway's
alleged commitment to enforcing them, when in fact Amway knew that
the Yager organization had been and continued to operate in
violation of the rules promulgated by Amway, which Amway chose not
to enforce, and that what Plaintiffs were actually investing in was
not the "Amway System", but the Yager organization, an improper
pyramid scheme.
52. Amway knew or should have known that a large portion
of the activity taking place within the Yager organization was in
contravention of Amway's rules, and was in fact something entirely
different from the "plan" it has continued marketing.
53. Because of the enormous profits generated for it by
the Yager organization, and the fear of the possibility of that
organization leaving the Amway system, Amway has deliberately
chosen not to enforce its rules against such improper practices,
has denied their existence, and continues to publish materials
extolling the virtues of the Amway System in order to entice more
persons to become distributors.
54. Amway's representations contained in its literature
prepared for the purpose of enticing persons into becoming Amway
distributors and its promotional materials concerning the Amway
system and the rules and regulations supporting it fraudulently
misrepresent the nature of the actual distribution system in
practice.
55. Plaintiffs justifiably relied upon Amway's
fraudulent misrepresentations in becoming and continuing as Amway
distributors, and said misrepresentations were the proximate cause
of considerable damage to Plaintiffs.
COUNT IV
BREACH OF CONTRACT
56. The allegations contained in paragraphs numbered "1"
through "55" are incorporated herein by reference.
57. As more particularly described above, Plaintiffs
entered into and continued in the renewal of a distributorship
agreement with Defendant Amway based in significant part upon
representations made to them concerning the Amway marketing system,
including the rules and regulations promulgated by Amway.
58. 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 purporting to preclude improper
actions against Plaintiffs by Plaintiffs' upline distributors,
including Defendants Yager, Gooch, and Flanery, which actions were
in direct violation of Amway's rules and regulations, constitutes
a breach by Amway of its contract with Plaintiffs, as a direct
result of which Plaintiffs suffered considerable economic loss, for
which Amway should be held liable.
COUNT V
TORTIOUS INTERFERENCE (AGAINST
DEFENDANTS YAGER, GOOCH, AND FLANERY)
59. The allegations contained in paragraphs numbered "1"
through "58" are incorporated herein by reference.
60. In direct contravention of the rules promulgated by
Defendant Amway, the enforcement of which Plaintiffs by contract
had a vested interest, Defendants Yager, Gooch, and Flanery
tortiously interfered with Plaintiffs' contractual relationship
with Amway, by selling both Amway and non-Amway products directly
and without Plaintiffs' permission, to Plaintiffs' downline
distributors. Defendant Flanery, in particular, sold Amway and
non-Amway products to Plaintiffs' downline on numerous occasions,
even though those downline distributors had access to products
directly from Amway. Defendant Flanery also sold motivational
materials produced by corporations or organizations controlled or
operated by Defendants Yager and Gooch to Plaintiffs' downline.
61. In direct contravention of the rules promulgated by
Defendant Amway, Defendants Yager, Gooch, and Flanery tortiously
interfered with Plaintiffs' contractual relationship with Amway,
by contacting Plaintiffs' downline distributors for the purpose of
making false and damaging statements to them about Plaintiffs, of
instructing them to disregard retail sales (except for personal
consumption) and concentrate instead on promotional functions and
materials, and recruitment and sponsorship of new distributors.
62. Plaintiffs had a legitimate, continuing expectation
of business relationships with their downline distributors premised
upon the "Amway System". Defendants ~ interference with those
relationships has resulted in actual damages suffered by
Plaintiffs.
63. In committing the acts to which reference is made
in this Complaint, Defendants Yager, Gooch, and Flanery have acted
willfully, maliciously, wantonly, oppressively, intentionally,
knowingly, fraudulently, in bad faith, and with reckless disregard
of the consequences, and with such entire want of care as raises
the presumption of conscious indifference to the consequences, such
as to entitle Plaintiffs to punitive damages under Georgia law,
including O.C.G.A. §51-12-5.1, and further such punitive damages
are not subject to limitation provided by O.C.G.A. §51-12-5.1(g),
because Defendants acted with a specific intent to cause harm to
Plaintiffs.
64. In acting as alleged in the preceding paragraph,
Defendants Yager, Gooch, and Flanery have acted in bad faith, have
been stubbornly litigious, and have caused Plaintiffs unnecessary
trouble and expense, whereby Plaintiffs are entitled to recover
their expenses of litigation, including reasonable attorney fees.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs demand trial by jury on evidence may
show, treble damages pursuant to Georgia statute as alleged all counts,
and judgment for money damages against all defendants jointly and
severally, in such amount for actual damages as the above,
punitive damages sufficient to deter Defendants from such actions
in the future, and reasonable attorneys' fees and expenses of
litigation, together with all costs of court and such other and
further relief as the court may deem equitable and just.
This 28th day of March, 1996.
E. L. CLARK SPEESE
Georgia State Bar No.: 670720
ROBERT C. THRELKELD
Georgia State Bar No.: 710760
ATTORNIES FOR PLAINTIFFS
699 Broad St., #1500
Augusta, Georgia 30901-1454
(706) 722-7543
OF COUNSEL:
WARLICK, TRITT & STEBBINS