### Amway: The Untold Story

Baker v. Amway

Joan Baker v. Amway Corporation, Circuit Court, County of Kent, State of Michigan, 6/28/91
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`

`IN THE CIRCUIT COURT FOR THE COUNTY OF KENT`

`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.`