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The Government has not charged defendant with a violation of paragraph 4's 90-day refund requirement and, for the purposes of this discussion, the Court assumes that the refund program operated by Bestline complied with the Consent Order.13 Given that assumption, and given the requirement in paragraph 4 that Bestline refund the full cost of initial inventory (less reasonable shipping costs and the value of product used or damaged), the only conclusion logically permissible is that the amount refunded – $2,026—represented the full cost of product inventory. In that case, defendant's contention that the $441 charge was but a part of product cost necessarily fails.

Accordingly, the Court concludes that the requirement that a prepurchase Direct Distributor pay $441 for “administrative and processing costs” violated paragraph 4 of the Consent Order in that that payment was consideration required for participation in Bestline's marketing program. The Court holds that for the reasons set forth above, defendant failed to comply with paragraph 4 of the Consent Order during the period November 3, 1971, to July 31, 1973.

C. Paragraph 5 [16] As set forth in footnote 2 herein, paragraph 5 of the Consent Order prohibited respondents from using a multi-level marketing program wherein the compensation or profit inuring to participants was "dependent on the element of chance dominating over the skill or judgment of the participants”; or where “no amount of judgment or skill exercised by the participant has any appreciable effect” upon his compensation; or where "the participant is without that degree of

13 The Court notes in passing, however, that the evidentiary materials presently before the Court appear to establish a firm basis upon which to found non-compliance with the 90-day refund requirement. The Government and defendant agree that that issue is not before the Court at this time; it was mentioned neither in the First Amended Complaint, nor in the Government's Motion for Partial Summary Judgment, nor at oral argument. Nevertheless, the affidavit of Mr. Hisler strongly suggests that Bestline's refund program did not comply with the Consent Order until March, 1978.

As outlined in the text, under the first revised marketing program, neither the $441 paid for administrative and processing costs nor the $528 paid to the sponsoring General Distributor were refundable. At a minimum, it would seem that paragraph 4, which required the repurchase of initial inventory "at full cost”, mandated that the amount allocated for the General's commission be refunded to the participant if he elected to exercise the 90-day refund option clearly afforded him by the Consent Order.

Furthermore, under the program in effect from February, 1972 to February, 1978, the Candidate Direct Distributor initially purchased $600 of product and then, after a minimum seven-day period, submitted a Direct Distributor application together with $2,995 for additional product. Once the second purchase was made, the sums paid to Bestline became non-refundable. The Court surmises that the split purchase procedure utilized in the second revised marketing program may well have been adopted in reliance upon the final clause of paragraph 4, which provided that

“if inventory costs reach $500 or more, within said 90 day period, then said obligation to repurchase shall cease

immediately upon participant's tendering a subsequent order to purchase the product." This Court seriously doubts whether the refund procedures utilized between February, 1972 and February, 1978– which appear to have been tailored solely to subvert the spirit, if not the very letter, of paragraph 4-would be deemed in compliance with the Consent Order. It was not until March, 1973, when the third revised marketing program took effect, that a Direct Distributor was entitled to refund of the full amount paid for wholesale inventory. Affidavit of James Hisler, at 2

In light of these facts, the Court utterly fails to comprehend the Government's inexplicable failure to charge defendant with a violation of the 90-day refund requirement set forth in paragraph 4 of the Consent Order.

control over the operation of such plan as to enable him substantially to affect the amount" of his compensation. The Government charges a violation of paragraph 5 in that, as Bestline's marketing programs were structured, [777] Two factors, over which the participant exercises no control, are vitally significant in assessing one's chances of achieving large financial rewards—(1) time of entry into the marketing program; (2) intensity of pre-entry recruitment efforts. Since a participant cannot exercise control over these two components of profit, the element of chance dominates over skill and judgment in determining a participant's profits. Plaintiff's Motion for Partial Summary Judgment against Defendant Bailey, at 38.

In effect, the Government argues that any program which permits the number of participants to increase geometrically through continued recruitment inevitably results in an increasingly saturated market; that the more highly saturated the market, the more difficult it is for a participant to gain financially; and that the particular level of saturation confronting a participant is a function of factors over which he has no control.

Defendant quite rightly points out that the Government's position is entirely abstract and theoretical. There is nothing before the Court tending to establish the saturation level of any identifiable geographic market at any one point in time or across time. It may well have been the case that the per capita distribution of Bestline participants remained relatively constant over time and, therefore, that time of entry into the Bestline marketing programs had no effect upon a participant's financial gain. Certainly there is nothing to establish that the number of participants increased exponentially. In short, in the absence of any showing of the actual market saturation, there is no basis for holding, as a matter of law, that Bestline's marketing programs as structured violated paragraph 5 of the Consent Order.

D. Paragraph 6(a) The Government contends that Bestline's revised marketing programs failed to comply with paragraph 6(a) of the Consent Order in several respects:

1. Participants were not orally informed that a contract of participation in the program could be cancelled for any reason by notification to Bestline within three working days from the date of its execution;

2. All written contracts did not contain notice of the three day cancellation right; and

3. Participants were not, in fact, afforded such a right. Defendant takes issue with each of these contentions.

First, with respect to the oral disclosure requirement, the Govern

ment relies primarily upon the fact that none of the scripts utilized at opportunity meetings instructed the speaker to inform prospective participants of the cancellation right. Defendant, however, stresses that the scripts specifically directed the speaker to refer the members of his audience to pages 14 and 15 of the Bestline Business Opportunity Booklet, 14 entitled “Policies and Procedures Affecting Distributors, where it was stated that

Any distributor may for any reason, cancel his contract of participation within three (3) working days from the date such contract was signed, upon written notice to Bestline. Full refund of all monies will be made upon written notice.

The oral reference to that written statement, in defendant's view, satisfies the oral disclosure requirement of paragraph 6(a).

Furthermore, defendant contends that the Government has by no means estab[778 ]lished that participants were not in fact orally informed of their cancellation right. Defendant admits that the opportunity meeting scripts “were generally adhered to at opportunity meetings.” Defendant Bailey's Memorandum in Opposition to Plaintiff's Motion for Partial Summary Judgment, at 60. However, he denies that they were “slavishly adhered to” and maintains instead that speakers “often if not always" informed those who attended the meetings of the three-day cancellation right. Id. at 60. In support of this contention, defendant has submitted the affidavit of Toro Ikeda, a Bestline officer, who stated, at page 3, that at the opportunity meetings he attended he affirmatively told the audience of the threeday cancellation right. Defendant has also submitted the affidavit of Stephen Meyers, a Bestline General Distributor, who stated, at page 3, “At least 90 per cent of the times I heard it stated at these opportunity meetings that there was a three day cancellation right.” These affidavits clearly establish, in defendant's view, that a genuine issue of material fact remains as to whether oral disclosure of the cancellation right was made to all prospective participants.

[17] The Court is not persuaded by defendant's reasoning. In the Court's opinion, an oral exhortation to consult a written publication, at that time not yet even in the hands of the listener, does not as a matter of law satisfy the oral disclosure requirement of paragraph 6(a). Were such an oral cross-reference to be held to constitute oral disclosure, it would seriously dilute the additional emphasis the Commission intended, and defendant consented, to give to the three-day cancella

14 The script utilized until February, 1972 contained no such passage. However, the second revised opportunity meeting script included the following language at page 8:

“Before attending tomorrow's meeting, each of you will want to read the Bestline Business Opportunity Booklet which will be handed out this evening. The booklet contains not only an explanation of some of the things we discussed this evening, but on pages 14 and 15, the rules and regulations which affect all

distributors." The script utilized after February, 1973 contained a virtually identical passage at page 7.

tion right by requiring both written and oral disclosure of that important contractual right.

[18] The Court is similarly unpersuaded by defendant's contention that a genuine issue of material fact remains as to whether participants were informed orally of the three-day cancellation right. Paragraph 6(a) of the Consent Order imposed upon defendant the affirmative obligation of operating a marketing program wherein all participants would be notified orally and in writing of that right. The simplest manner to assure compliance with that requirement clearly would have been to include in the opportunity meeting scripts an explicit, unambiguous statement setting forth the existence of that right. This defendant chose not to do, relying instead upon the hope that all speakers would deviate from the prepared script and inform participants of their cancellation right. That his decision was risky, and ultimately ill-advised, is highlighted by the evidentiary materials defendant himself has submitted, for even his own affiant, Stephen Meyers, has implicitly conceded that at a certain percentage of the opportunity meetings he attended-perhaps as many as 10 per centhe cannot recall hearing the required oral disclosure. This evidence alone is sufficient to establish a violation of paragraph 6(a), which requires unequivocally that “all participants” shall be informed orally of the three-day cancellation right.

[19] As for the written contracts of participation Bestline used, the Court does not agree with the Government that the failure to include the three-day cancellation right directly in the General Distributor Agreement used during the first revised marketing program was a violation of paragraph 6(a). That agreement specifically incorporated by reference both the terms of the Direct Distributor contract and of the Bestline Business Opportunity Booklet. General Distributor Agreement, 11 23 and 26. Both of those documents contained the requisite three-day cancellation clause. See Direct Distributor Agreement, 1 14(c); Bestline Business Opportunity Booklet, at 15. In the opinion of the Court, the written contracts of participation Bestline used prior to February, 1972, complied with paragraph 6(a) of the Consent Order.

Such is not the case, however, with the Direct and General Distributor Agreements utilized subsequent to February, 1972, because each of those Agreements was made [779) self-executing:15 The inclusion of a self-executing provision completely undermined the

15 The Direct Distributor Agreement used in the second revised marketing program provided in paragraph 13(c) that for all purposes, including the three-day cancellation right, the contract “shall be considered to have been executed two (2) days after the date on which it is mailed, duly executed on behalf of the Company, by certified mail to the prospective distributor's last known address.” The General Distributor Agreement used during the same time period contained similar language in paragraph 16(c).

In the third revised marketing program the self-executing clauses in both the Direct and General Distributor agreements were changed to provide that the date of execution would be three days after the mailing date.

three-day cancellation right defendant agreed to accord all participants. The fatal defect was not, as the Government maintains, that the contract might have been delayed in the mail, thereby reducing the -time in which the cancellation right could be exercised to something less than three days. Rather, a self-executing contract of the type used in the second and third revised marketing programs rendered a prospective participant absolutely bound by the terms of the contract, with no right to cancel, even if he merely chose to ponder his decision and did nothing to execute the contract during the five (later six) day period following the date on which the contract was mailed to him.

This is clearly not the situation envisioned by the Consent Order. Paragraph 6(a) provided that the three-day cancellation period would run “from the date of execution of such contract." If that language is to be given its natural and common sense meaning, it contemplates that any participant would have an absolute right to cancel the contract for three days following his decision to participate in Bestline's marketing program, that is, from a layman's perspective, his decision to sign on the dotted line. Indeed, the Bestline Business Opportunity Booklet promised no less: it assured all prospective participants that they would have the right to cancel the contract within three days of the date the contract was signed, and this is the precise language contained in the Direct Distributor agreement used during the first revised marketing program.16 If, as defendant maintains, Bestline was genuinely concerned that the company not accept a prospective Direct Distributor's offer, cash his check, commit itself by paying the commission to the sponsoring General Distributor, and ship the product to the new participant, only to discover at some remote date that the prospective Direct had only then signed the contract and within three days had exercised his cancellation right, Bestline could easily have refrained from taking any of those actions until the contract was finally binding, as any prudent businessman would have done. And, if Bestline was concerned that a prospective Direct “could sit on top of the Direct Distributor Agreement without executing it,” Defendant Bailey's Memorandum in Opposition to Plaintiff's Motion for Partial Summary Judgment, at 66, the contract could easily have provided that the failure to execute the contract within a given period of time would constitute a revocation of the offer. But instead, defendant approved a self-executing provision. By including such a provision in all contracts used after February, 1972, defendant attempted-perhaps successfully in some cases-utterly to frustrate the exercise of a prospective participant's three-day cancella

18 Paragraph 14(c) of that contract provided as follows:

“This contract may be cancelled for any reason, within three (3) working days from the date such contract was signed, upon written notice to Bestline Products, Inc., P.O.Box 6416, San Jose, California 95150."

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