Alticor, IBOAI, and Insider falsely predicted
the fallout from the Morrision appeal.

"And another important point: Contrary to some of the spinners out there, the ruling
hinges on the fact that the dispute is so very old—beginning before 1998, before we even
had an arbitration program. Therefore, the effect of this ruling on our current arbitration
program and current cases (a shrinking list, given the Nitro dismissal) is virtually zero.
If someone’s telling you otherwise, don’t buy the hype." Alticor Media Blog

There are already false rumors online about an appeals court decision in the
Morrison v. Amway Corp. case.  The decision, which is not yet final, and could be
changed in future court proceedings, does not apply to current arbitration rules,
which can't be changed except by mutual agreement of Quixtar and the IBOAI, and
it also doesn't apply to disputes that arose after arbitration became part of the IBO
contract in 1998.  This ruling therefore should not affect any current case (the
Morrison case was more than ten years old). IBOAI Blog

It will be interesting to see if there is any response on the Alticor Media Blog. Back in
February, the blog stated that the Morrison decisions effect on current cases was "virtually zero".
As it happens, I agreed with them, as the Morrison decision seemed to hinge on the fact that
the issues in the case occurred before the relevant changes to the Quixtar and Amway contracts.
Amway zealot David Steadson

It seems Amway and the IBOAI have been caught doing their own spinning on the decision in the Morrision appeal.   In an event that Alticor and the IBOAI "predicted to be virtually zero" after the Morrison ruling in Feb. 2008, has within just five months come to pass.  Even Amway zealot David Steadson, the host of multiple Amway websites, admits he misjudged the impact of the Morrison decision on current cases.

On Friday, May 23, 2008, the Federal Court for the Eastern District of Texas ruled that the Quixtar Rules of Conduct are unenforceable because they are on their face illusory. Simmons et. al. v. Quixtar Citing the fact that Rule 1 of the Rules of Conduct reserve in the Corporation the right to change or amend the rules at any time, the court held that on their face the Rules are but an illusion that cannot be enforced.

The court relied heavily on the Fifth Circuit Court of Appeals decision issued in February, 2008 in the case of Morrison et. al. v Quixtar, et. al. wherein the court, reviewing facts related to the arbitration clause of the Rules of Conduct as the clause existed in 1997, similarly concluded that because the Rules of Conduct permitted Amway to alter or amend the contract at any time for any reason, the contract was unenforceable.  Both the Fifth Circuit and the Eastern District of Texas rejected Quixtar’s argument that Quixtar must run all changes by its trade association, the IBOAI (formerly the ADA), and concluded that the Rules are clear on their face and on their face reserve the right of amendment, alteration and change to the Corporation itself, rendering the Rules of Conduct unenforceable.   During the hearing, Judge Bush alerted the parties that he would be deciding which issues remained and would actually be tried.  He announced that there would be no breach of contract issues tried because the contract was illusory and unenforceable.  Only non contract claims (currently damage claims grounded in tort) would be tried.   Therefore, the non competition clause, the data management rule, the non solicitation rule and any other rules set forth in the unenforceable Rules of Conduct are outside the scope of claims for which Quixtar could recover. To quote the court,  

The Court’s reasoning applies to the Rules of Conduct and Amway’s (Quixtar’s) ability to unilaterally change the rules of the game. The 1998 contract before the Court in Morrison provided that "Amway reserves to itself the sole right to adopt, amend, modify, supplement or rescind any or all of these Rules, as necessary with respect to Rules enforcement.

* * *

Amway acknowledges that from time to time the contents of its various documents may be changed. Although it represents it will present such changes to the distributor board, final decision making authority rests with Amway (Quixtar). Quixtar admits that the preface to its Rules of Conduct has not materially changed since 1998.

* * *

A promise is illusory if it does not commit the promisor to perform. Alex Sheshunoff Mgm’t Servs., L.P. v. Johnson, 206 S.W. 3d 644 (Tex. 2006).

* * *

Quixtar has left itself ample "wiggle" room by providing that it may modify the Rules of Conduct as it sees fit. The same provision appears to have been before the Circuit in Morrison.

Because the language in the contract in Morrison was identical to the language at issue before the Eastern District of Texas Court, the Court declared the language to be unenforceable. Interestingly, the Morrison court declared that there was no material difference between the laws of Texas and the laws of Michigan (Quixtar’s forum of choice) on this point. Therefore, any IBO fearing the enforcement of Quixtar’s rules against him or her, under either Texas law or Michigan law, can take comfort that Quixtar is on precarious legal ground in pursuing enforcement of its illusory contract. To quote the Morrison court on this point,

As did the district court, 49 F. Supp. 2d at 533-34, we make that determination based on Texas law, which is the law of the forum, there having been no showing that the law of any other arguably more appropriate state materially differs in respect to the present issue.

The Simmons decision comes on the heels of two other decisions striking down all or some of the Rules of Conduct. On March 3, 2008, in Campbell, et. al. v. Quixtar, the Superior Court of White County in Georgia declared the noncompetition clause unenforceable, finding that its breadth "takes one’s breath away." Similarly, on March 31, 2008, in Pokorny et. al. v. Quixtar et. al., the Federal Court for the Northern District of California held the Rules of Conduct to be unenforceable. As the Fifth Circuit concluded in Morrison, the California federal court concluded that there was no material difference between California and Michigan law on the relevant points of law, and applied California law arguing that the forum state, California, had a public interest in addressing the issues.

As a result of all of these decisions, any IBO fearing repercussions from Quixtar by virtue of engaging in an MLM concurrently with their Quixtar business or within the six month non competition period or the two year non solicitation period can take comfort that at least three district courts and one Federal Court of Appeals has concluded that the Rules of Conduct are unenforceable.

All of these developments are consistent with the public policy against the restraint of trade that accompanies over-broad contractual provisions like those contained in the Quixtar Rules of Conduct, especially when applied to independent contractors, as opposed to employees. Perhaps Quixtar will consider changing its operation in such a way that attracts its distributors to stay through the merits of its compensation plan rather than the fear of suit if the IBO chooses to leave.