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Bitter Amway Fight Has Local Tie PDF Print E-mail
Shughart's Poyfair Arguing For Restraining Order
Law Week Colorado
By Don Knox
Week of September 3, 2007

DENVER — An attorney in the Denver office of Shughart Thomson & Kilroy is lead trial counsel in a noisy and potentially pivotal case that pits multi-level marketing giant Amway Corp. against 15 of its biggest independent distributors.

Next week, the attorney, D.J. Poyfair, will argue at a preliminary injunction hearing in Los Angeles something that's periodically been said about Amway and many other MLM companies – that they are essentially Ponzi schemes where old distributors make money not by selling goods but by recruiting new distributors.

“The complaint alleges that Amway has knowingly operated a pyramid scheme for a number of years, and it fails to disclose that fact to the public at large and to its own distributors,” said Poyfair, reached last week at his Denver office.

Poyfair's clients seek no money in the dispute. Instead, they want a court to declare invalid a six-month non-compete and two year non-solicitation agreements signed by their companies and by 700,000 other independent distributors. The reason? The companies presumably want to sell goods and services from a more legitimate provider. Amway, owned by two of America's richest families, counters that the distributors actually seek to create their own company to compete with it.

Other Battles
It's not Grand Rapids, Mich.-based Amway's only fight. The company, which until last week was known as Quixtar Corp., is facing down superlawyer David Boies in a San Francisco case that seeks money damages on behalf of a prospective class of Amway distributors.

At his former fi rm, Cravath Swaine & Moore, Boies helped defend IBM in the antitrust cases brought by the Justice Department and many private competitors. He later famously took the “other side” by representing the Justice Department in United States v. Microsoft.


Poyfair cited two differences between his case, styled as Woodward et al. v. Quixtar, and Boies' case.

“The primary one is our clients were insiders for years and accumulated e-mails, letters, statements from top management and the owners which showed their knowledge” of a pyramid scheme. Instead of simply alleging knowledge, “We provide proof in our complaint.”

The second is the Woodward plaintiffs seek a declaratory judgment, not cash. The Woodward case was filed only about a month ago.

Overpriced Products?
Many of Poyfair's clients have had close relationships with Amway's founders as well as executive management for nearly three decades and have regularly pleaded with management to address what they called “the overpriced nature” of Amway products.
The distributors say Amway requires a 300 percent markup to make a profit, boosting retail prices well beyond that of the competition.

“The complaint clearly illustrates that (the company) has acknowledged that distributors cannot sell the company's products retail on the open market while encouraging them to recruit new distributors,” Poyfair said.

The lawsuit was filed in federal district court, central district of California, western division. The proposed class representatives
are a group of 15 distributors, one of whom has been an Amway and/or Quixtar distributor since 1973, and many of whom have been distributors since the 1990s.

Quixtar, an e-commerce company founded by Amway in 1999, is a unit of Alticor, Inc., which is owned by Amway's founding DeVos and Van Andel families. It essentially is the U.S. operation of the old Amway operation, which no longer operates under that name in
the U.S. Alticor also is the parent of Amway, which before this week operated under that name only outside the U.S., as well as Access Business Group, LLC, which made products sold by both Quixtar and Amway.

Internet Noise, Heat
The nature of the litigants — a consumer product company battling hundreds of thousands of its independent distributors — has made this recent skirmish a phenomenon on the Internet.

“We've hired media consultants to help manage the Internet traffic on this topic as well as press releases to the rank-and-file press,” Poyfair said.

The media today is a lot different than the media a few years ago, he said. Then, a press release went out, and it was picked up by print and electronic media outlets, which sometimes wrote stories and sometimes didn't.

“Now you've got the Internet release – some authorized, some not – and the wacky world of bloggers out there that are managed
on all sides. It's sometimes educational to look at what's being written about this suit and others like it, and sometimes it is borderline comical.

“Some of this is entirely accurate, some of this is fair comment and opinion protected by the First Amendment, and some of it has no truth whatsoever.”

Poyfair said he has only a limited number of distributor clients, and there's “very little if any” public statements made by them.
One who has talked is Billy Florence, an Athens, Ga.-based distributor for the company since 1974.

“We are not seeking damages against Quixtar, or to shut Quixtar down,” said Florence, citing recent regulatory inquiries into Amway in India and the U.K.

A spokesman for Amway parent Alticor has said the company isn't worried about the litigation.
 

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