IN THE CIRCUIT COURT OF BUCHANAN COUNTY, MISSOURI

DIVISION NO.. ___

 

 

NETCO, INC.; SCHMITZ & ASSOCIATES, )

INC.; JOANNE SCHMITZ d/b/a SCHMITZ )

& CO.; and R K KELM CO., L.L.C., )

)

Plaintiffs, )

)

vs. ) Case No. ___________________

)

JIMMY DUNN )

4078 East Forrest Ridge Lane )

Rogersville, MO 65742; )

)

JIMMY V. DUNN & ASSOCIATES, INC. )

2281 West Nottingham )

Springfield, MO 65810 )

(registered agent – Jimmy V. Dunn )

4078 East Forrest Ridge Lane )

Rogersville, MO 65742); )

)

HAROLD GOOCH, JR. )

Six Curtis Court )

Thomasville, NC 27760; )

)

GOOCH SUPPORT SYSTEMS, INC. )

Six Curtis Court )

Thomasville, NC 27760 )

(registered agent – Tryon Business Services, Inc. )

207 N. Tryon Street )

30th Floor )

Charlotte, NC 28202); )

)

WILLIAM CHILDERS )

2352 N.W. 49th Lane )

Boca Raton, FL 33431; )

)

TNT, INC. of Charlotte, North Carolina )

7005 Shannon Willow Road )

Charlotte, NC 28266 )

(registered agent – Billy S. Childers )

7005 Shannon Willow Road )

Charlotte, NC 28266); )

)

JIM EVANS )

5549 South Golden )

Springfield, MO 65810; )

 

 

EVANS CORPORATION )

)

)

)

)

MICHAEL P. ABBEY )

2060 West Hyacinth Court )

Nixa, MO 65714-7024; )

)

ABBEY CORPORATION )

)

)

)

)

GERALD PRESSLEY )

35350 Olathe Drive )

Eldridge, MO 65463; )

)

PRESSLEY CORPORATION )

)

)

)

)

PRO NET GLOBAL ASSOCIATION )

6851 Distribution Avenue South )

Jacksonville, FL )

(registered agent – Corporation Service Co. )

1013 Centre Road )

Wilmington, DE 19805); )

)

GLOBAL SUPPORT SERVICES, INC. )

6851 Distribution Avenue South )

Jacksonville, FL )

(registered agent – Corporation Service Co. )

1201 Hays Street )

Tallahassee, FL 32301-2525); )

)

JOHN DOE; RICHARD ROE; and other unknown )

conspirators, )

)

Defendants. )

 

 

 

PETITION

 

 

COME NOW the Plaintiffs, by and through their attorneys, and for their causes of action against the Defendants, state and allege as follows:

 

Type of Action

 

1. This cause arises out of business relationships between Plaintiffs and Defendants tangental to what may be commonly referred to as the "Amway business." This dispute does not directly involve the purchase or sale of Amway products. Instead, it pertains to what may be referred to as the Amway "tool" and "function" business more particularly described below. The "tool" and "function" business is not a part of Amway, but pertains to the promotion of Amway through the independent efforts of Amway distributors. The parties hereto are or were Amway distributors and/or engage(d) in the Amway "tool" and "function" business. The causes of action hereinafter set forth, arising out of the same series of transactions and occurrences, are based upon tortious interference with Plaintiffs' contracts and business relationships and expectancies, breach of implied in fact contracts, and breach of attendant duties of good faith and fair dealing. The Defendants, acting in concert and conspiring among themselves and with others, have/are systematically, intentionally and willfully eliminating Plaintiffs, or have eliminated Plaintiffs, from the Amway "tool" and "function" business, in violation of law.

 

Jurisdiction and Venue

 

2. Jurisdiction and venue are proper in this Court in accordance with the provisions of § 508.040 R.S.Mo. Many of the Defendants are residents of the State of Missouri. All of the Defendants do business within the State of Missouri, including Buchanan County. The various alleged breaches and tortious conduct occurred in part in Missouri, including Buchanan County. Some, if not all, Defendants do business over the Internet and, accordingly, are deemed as a matter of law to do business within Missouri, including Buchanan County. On knowledge and belief, the Defendants acted in concert with one another in furtherance of a joint enterprise or conspiracy, such that the acts of one Defendant constitute the acts of all other Defendants. The amount in controversy substantially exceeds the minimum jurisdictional limit for matters to be brought before this Court.

 

Parties

 

3. Plaintiff Netco, Inc. ("Netco"), is a Missouri corporation, who from mid-1990 until August 1999, was doing business as an authorized Amway distributor or independent business ("IB"). Netco's principals are Charlie and Kim Schmitz of St. Joseph, Missouri, who were the predecessors in interest to Netco in respect to the Amway distributorship. Netco was incorporated on June 27, 1990. Netco's offices are located at 5709 NE Woodbine Road in St. Joseph, Missouri. Charlie Schmitz became an Amway distributor in 1984, adding his wife, Kim, to the distributorship in 1988. Together, they operated the distributorship in their names until incorporating Netco and assigning their interests to Netco in 1990. Netco, for a period of time, was actively engaged in the Amway "tool" business.

4. Plaintiff Schmitz & Associates, Inc. ("Schmitz Associates") is a Missouri corporation owned by Charlie and Kim Schmitz, with offices located at 5709 NE Woodbine Road in St. Joseph, Missouri. Schmitz Associates was incorporated on September 30, 1992. This corporation, for a period of time, facilitated the Amway-related rally, convention and function business for Charlie and Kim Schmitz (Netco), and operated in tandem with Netco to build, support and enhance the Amway business.

5. Plaintiff Joanne Schmitz is a resident of Parnell, Nodaway County, Missouri, doing business as Schmitz & Co., a sole proprietorship, with offices located at 5709 NE Woodbine Road in St. Joseph, Missouri. Ms. Schmitz is an authorized Amway distributor, having become an Amway distributor in 1984. As hereinafter discussed, she purchased the Amway distributorship from Netco in August 1999, acceding to its network of distributors. Her previous Amway distributorship merged with Netco's Amway network of distributors. Joanne Schmitz is the mother of Charlie Schmitz. Ms. Schmitz, for a period of time, has been actively engaged in the Amway "tool" and "function" business.

6. Plaintiff R K Kelm Co., L.L.C. ("Kelm Co.") is a Missouri limited liability company conducting Amway and Amway-related business with offices located at 15359 Highway 164 in Lebanon, Missouri. Kelm Co. is an authorized Amway distributor. The principals of Kelm Co. are Kenneth and Ritta Kelm, the predecessors in interest to Kelm Co. in respect to the Amway distributorship. Kenneth and Ritta Kelm became Amway distributors in 1982. Kelm Co., for a period of time, has been actively engaged in the Amway "tool" and "function" business.

7. Defendant Jimmy Dunn and his wife, Sue Dunn, are citizens of the State of Missouri, residing at 4078 East Forrest Ridge Lane, Rogersville, Missouri 65742. The Dunns are distributors of Amway products, and are involved in the promotion of Amway distributorships. They conduct business through Defendant Jimmy V. Dunn & Associates, Inc. ("Dunn Associates"). On knowledge and belief, Dunn Associates is organized and existing under the laws of the State of Missouri, with its principal place of business at 2281 West Nottingham, Springfield, Missouri 65810. Dunn Associates is in the business of purchasing and reselling business support materials for use by Amway distributors, and of organizing seminars, rallies and major functions attended by Amway distributors. Jimmy Dunn and Dunn Associates reside in Missouri, conduct business in this State, and are subject to suit in Missouri. The acts and/or omissions of Jimmy Dunn, as herein described, are those of Dunn Associates. Unless otherwise noted, reference to "Defendant Dunn" herein shall refer to all Dunn Defendants.

8. Defendant Harold [Hal] Gooch, Jr. and his wife, Susan Gooch, are citizens of the State of North Carolina, residing at Six Curtis Court, Thomasville, North Carolina 27760. The Gooches are or have been distributors of Amway products and are involved in the promotion of Amway distributorships. The Gooches conduct business through Defendant Gooch Support Systems, Inc. (Gooch Systems). On information and belief, Gooch Systems is organized and existing under the laws of the State of North Carolina, with its principal place of business at Six Curtis Court, Thomasville, North Carolina 27360. Gooch Systems is in the business of purchasing and reselling business support materials for use by Amway distributors, and of organizing seminars, rallies and major functions attended by Amway distributors. The Gooches and Gooch Systems conduct business in the State of Missouri, and are subject to suit in Missouri. The acts and/or omissions of Harold Gooch, Jr., as herein described, are those of Gooch Systems. Unless otherwise noted, reference to "Defendant Gooch" herein shall refer to all Gooch Defendants.

9. Defendant William Childers is a citizen of the State of Florida, residing at 2352 N.W. 49th Lane, Boca Raton, Florida 33431. Childers is a distributor of Amway products and is involved in the promotion of Amway distributorships. He conducts business through Defendant TNT, Inc. of Charlotte, North Carolina ("TNT"). On knowledge and belief, TNT is organized and existing under the laws of the State of North Carolina, with its principal place of business at 7005 Shannon Willow Road, Charlotte, North Carolina 28266. TNT is in the business of purchasing and reselling business support materials for use by Amway distributors, and of organizing seminars, rallies and major functions attended by Amway distributors. Childers and TNT conduct business in the State of Missouri, and are subject to suit in Missouri. The acts and/or omissions of William Childers, as herein described, are those of TNT. Unless otherwise noted, reference to "Defendant Childers" herein shall refer to all Childers Defendants, including TNT.

10. Defendant Jim Evans and his wife, Cathy Evans, are citizens of the State of Missouri, residing at 5549 South Golden, Springfield, Missouri 65810. The Evans are or were distributors of Amway products, and are involved in the promotion of Amway distributorships, as well as the business of purchasing and reselling business support materials for use by Amway distributors, and are involved with organizing seminars, rallies and major functions attended by Amway distributors. As residents of the State of Missouri and doing business in the State of Missouri, the Evans are subject to suit in Missouri. Jim and Cathy Evans may have heretofore assigned their Amway distributorship to a corporation, but the identity is unknown to Plaintiffs. In the event of such assignment, Plaintiffs are designating Defendant Evans Corporation as a party and will move to amend designating the correct named party when that information is disclosed. The acts and/or omissions of Jim Evans, as herein described, are those of their corporation as well. Unless otherwise noted, reference to "Defendant Evans" herein shall refer to all Evans Defendants.

11. Defendant Michael P. Abbey is or was a citizen of the State of Missouri, residing at 2060 West Hyacinth Court, Nixa, Missouri 65714-7024. Abbey is a distributor of Amway products, and is involved in the promotion of Amway distributorships, as well as the business of purchasing and reselling business support materials for use by Amway distributors, and of organizing seminars, rallies and major functions attended by Amway distributors. Abbey conducts business in the State of Missouri, and is subject to suit in Missouri. Michael P. Abbey may have heretofore assigned his Amway distributorship to a corporation, but the identity is unknown to Plaintiffs. In the event of such assignment, Plaintiffs are designating Defendant Abbey Corporation as a party and will move to amend designating the correct named party when that information is disclosed. The acts and/or omissions of Michael P. Abbey, as herein described, are those of his corporation as well. Unless otherwise noted, reference to "Defendant Abbey" herein shall refer to all Abbey Defendants.

12. Defendant Gerald Pressley is or was a citizen of the State of Missouri, residing at 35350 Olathe Drive, Eldridge, Missouri 65463. Pressley is a distributor of Amway products, and is involved in the promotion of Amway distributorships, as well as the business of purchasing and reselling business support materials for use by Amway distributors, and of organizing seminars, rallies and major functions attended by Amway distributors. Pressley conducts business in the State of Missouri, and is subject to suit in Missouri. Gerald Pressley may have heretofore assigned his Amway distributorship to a corporation, but the identity is unknown to Plaintiffs. In the event of such assignment, Plaintiffs are designating Defendant Pressley Corporation as a party and will move to amend designating the correct named party when that information is disclosed. The acts and/or omissions of Gerald Pressley, as herein described, are those of his corporation as well. Unless otherwise noted, reference to "Defendant Pressley" herein shall refer to all Pressley Defendants.

13. Defendant Pro Net Global Association (hereinafter "Pro Net"), is a Delaware Association engaged generally in the business of selling business support materials or "tools" for use by Amway distributors. Pro Net's main offices are located at 6851 Distribution Avenue South, Jacksonville, Florida. Pro Net does business in every state, including Missouri. Pro Net does business via the Internet. Pro Net does business in Buchanan County. On knowledge and belief, one or more of the Upline Defendants (as hereinafter designated), were/are "Founding Members" of Pro Net, and Defendants Bill Childers and Hal Gooch serve on the Pro Net Board and/or steering committee.

14. Defendant Global Support Services, Inc. (hereinafter "Global"), is a Delaware corporation engaged generally in the business of manufacturing and supplying and/or selling business support materials or "tools" to Defendant Pro Net for use by Amway distributors. Global's main offices are located at 6851 Distribution Avenue South, Jacksonville, Florida. Global does business in every state, including Missouri. Global works in tandem with Pro Net. Global conducts business via the Internet. Pro Net does business in Buchanan County. On knowledge and belief, one or more of the Upline Defendants own an equity interest in Global.

15. On knowledge and belief, the Defendants conspired among themselves and with others to undermine and damage Plaintiffs. Accordingly, in the furtherance of this conspiracy or enterprise, the primary purpose being to avoid "lines of sponsorship" and to impair the Plaintiffs' networks of downline distributors in order to profit unfairly from the Amway tool and function business, the act of one Defendant or co-conspirator constituted the act of the others. As hereinafter more particularly detailed, on knowledge and belief, the Defendants conspired among themselves and with others to breach agreements affecting the Plaintiffs' businesses, to unjustifiably and illegally interfere with the Plaintiffs' contracts and business relationships and expectancies, to deal unfairly absent good faith, and to impair and damage Plaintiffs' businesses to and for Defendants' own advantage and profit. Designated Defendants John Doe and Richard Roe are representative of other persons, unknown to Plaintiffs, who conspired with the other Defendants to accomplish the unlawful purpose of the enterprise as herein alleged.

 

General Allegations

 

Development of the Amway Tool and Function Business or the Business Support Materials Industry.

 

16. Amway Corporation ("Amway") is a "multi-level marketing" business, selling consumer goods and products worldwide through a vast network of independent distributors, many of them based in Missouri. The Amway "pyramid" marketing program, in connection with this business, is one where any purchase or sale of Amway products by a distributor financially benefits not only Amway, but also those Amway distributors who qualify and occupy levels within the Amway distributorship network higher than that of the selling distributor. Those Amway distributors who occupy positions below a given distributor in each branch of the network are referred to as that distributor's "downline." Conversely, those distributors who occupy positions in the network above a given distributor in each branch are called that distributor's "upline." These respective positions are determined by the essential and important Amway concept of "line of sponsorship." As such, a distributor's initial place in the Amway network is immediately below the distributor who sponsors and brings that distributor into the network, subject to Amway's approval, and immediately above those distributors that the given distributor sponsors as new Amway distributors. New Amway distributors are instructed that respect and observance of the line of sponsorship is mandatory, that they should "edify" and "support" their upline distributors, and that their upline is there to teach and support them. In order to earn significant profits as an Amway distributor, one must develop a sizable downline network by recruiting and sponsoring other distributors into the Amway business. By so doing, the upline distributors stand to benefit. The Defendants in this cause, aside from Defendants Global and Pro Net, are/were upline distributors to Plaintiffs in their respective Amway lines of sponsorship (herein the "Upline Defendants"). Defendants Childers, Gooch and Dunn are Amway distributors located near the apex of the Amway pyramid of distributors and were part of the upline for each Plaintiff. Defendants Evans were part of the upline of Plaintiffs Netco, Schmitz Associates and Joanne Schmitz. Defendants Abbey and Pressley were part of the upline of Plaintiff Kelm Co.

17. Amway considers its distributors as independent contractors, an aspect that is continuously stressed and touted as an advantage and incentive for every distributor. Accordingly, each distributorship constitutes an "Independent Business" or "IB," as designated by Amway. If an Amway distributor is successful in developing their independent business, the distributor can reach various "pin levels" of achievement. The ascending "pin levels" were Direct, Ruby, Pearl, Emerald and Diamond (as of September 1999, they are Platinum, Ruby, Sapphire, Emerald and Diamond). Each pin level entitles the distributor to corresponding benefits and privileges which increase at each ascending level.

18. Prior to the new program called "Direct Fulfillment," in about 1995, once a distributor reached a certain advanced volume level of business generated by the sale of Amway products, that distributor qualified as a "Direct" distributor and began buying Amway products directly from Amway without purchasing those products from their upline distributor. A pin level distributor does not share in the profits generated by the sale of Amway products from other "pin level" distributors in his/her down line, but does obtain monetary awards directly from Amway because of the increased volume generated by these "pin level" distributors in that distributor's downline network.

19. Plaintiffs own(ed) and operate(d) Amway distributorships based in western Missouri. Plaintiffs each acquired the status within the Amway distributor network as noteworthy and successful distributors, with Charlie and Kim Schmitz (Netco, Inc.) and Kenneth and Ritta Kelm (Kelm Co.) achieving the prestigious "Diamond" status in Amway, and Plaintiff Joanne Schmitz reaching the "Emerald" level. Plaintiffs' networks of downline distributors served as lucrative markets for the sale of Amway products and Amway-related motivational materials (audio and video tapes, books, electronic literature, etc.), known as "Business Support Materials" or "BSMs," or more commonly referred to as simply "tools"; and for motivational seminars, rallies, conventions and functions (hereinafter collectively "functions"), which serve and have served as an integral part of the Amway business. The tools and functions businesses together comprise what may be referred to as the BSMs industry.

20. For over 40 years, Amway has enticed prospective distributors into the Amway business with the "Amway Dream" of owning and operating an independent business, buying and selling Amway products. As part of the "Amway Dream," Amway requires distributors to "train" and "motivate" the downline distributors in their line of sponsorship. Powerful distributors at the top of the Amway pyramid developed the BSMs industry to accommodate Amway's requirement for training and motivation. Amway, by its acquiescence, if not acceptance, of the BSMs industry, has sanctioned the use of BSMs within and by the Amway distributorship network. Within this framework, Plaintiffs were successful in developing their respective Amway distributorships, as well as promoting and selling BSMs to their respective downline groups within their immediate lines of sponsorship.

21. As might be expected, these powerful distributors at the top of Amway, having developed the BSMs industry, sought to control it. First, they secured control over the manufacture, sale and dissemination of the tools. Although Amway required "content approval" of the tools, these items are/were non-Amway products. Second, they secured control of sponsoring and promoting major functions at which these very successful, high-profile distributors provided their own testimonials of success within Amway, all of which were calculated to motivate the distributors attending, fostering a sense of admiration and celebrity status for these powerful few. A "major function," as herein referenced, refers to the large, high-profile rallies or conventions normally held in large cities sponsored by a Diamond distributor. Only "Diamonds" were allowed to sponsor major functions. These major functions, attended by hundreds of Amway distributors, became bigger and more elaborate the higher the Diamond distributor was within the Amway pyramid or the larger the Diamond downline network. It was/is customary for the larger major functions to include well-known celebrity entertainers. The cost for an Amway distributor to attend these functions amounted to hundreds of dollars. Thus, these major functions generated huge profits for the Diamond sponsor and served to enhance the Diamond's "success profile" within Amway. Typically, each Diamond distributor would sponsor three major functions a year, and then a fourth where that Diamond would tie into a major function with his/her upline Diamonds. For example, in Netco's case, the fourth function was with Defendants Childers and Gooch. Further, video and audio tapes used as "tools" were made at these major functions, and reproduced and sold to hype the functions, as well as the Amway business. Third, these powerful distributors promulgated their own unwritten rules to govern this BSM industry since it involved non-Amway products. These rules were explained and then implemented in a course of dealing over years.

22. In respect to the "tools," these high-placed powerful distributors promulgated rules and implemented a course of dealing which required distributor/participants to purchase tools from their immediate upline distributor of the same, or higher, Amway pin level than themselves. Thus, for example, an Emerald distributor would buy his/her tools from the next upline Emerald or Diamond distributor, passing those lower-level distributors in between; a Diamond distributor would buy from the next upline Diamond, etc. The distributor acquiring the tools would then sell them to his/her immediate downline distributors who, in turn, would sell them to their down line. These same powerful distributors would also set the prices for the tools, such that a Diamond distributor would pay less for the tools than an Emerald, an Emerald less than a Pearl, and so forth on down the line, such that each participant received a "break," excepting the bottom-rung distributors, who were the primary ultimate consumers for the tools. The prices for the tools were supposed to be universal or the same for each distributor level. Accordingly, the rules for the tools were intended to be reasonably consistent with those for Amway products, as prescribed by the Amway Rules of Conduct for distributors, which require recognition of and adherence to the lines of sponsorship, but with certain privileges for pin level distributors. This course of dealing respecting the tool business, on knowledge and belief, began in the early 1980s or before.

23. The rules and/or course of dealing pertaining to functions also date back to the 1980s, if not earlier. Again, only Diamond distributors were allowed to sponsor major functions. All the while, the lower-level distributors were encouraged to support and attend these events. The rules and/or course of dealing governing major functions provided that such functions consist or be limited to the Amway distributors in the sponsoring Diamond's line of sponsorship. This meant there would be no "cross-lining," a concept of paramount importance within the Amway business. As such, strict adherence to the lines of sponsorship were recognized within these rules and the course of dealings for BSMs. Accordingly, an Amway distributor wishing to attend a major function was expected and required to attend the function sponsored by his/her immediate upline Diamond. Diamond and Emerald distributors received a "cut" from the gate at these major functions for each person attending the function from their downline network. Such distributors had an incentive, separate and apart from Amway's requirement to train and motivate, to "build the gate." A Diamond or Emerald distributor's downline network had intrinsic value to that distributor as a participant within the BSMs industry. A Diamond distributor, having the right to organize and run their own major function, had the opportunity to garner significant profits from these major functions. Moreover, Diamonds received compensation from a function sponsor for appearing on stage and/or speaking. It was customary for Diamonds to speak at major functions, providing their personal testimony of achieving success within Amway.

24. The rules and long-standing course of dealing for both the tool and major function business further provided that, for instance, if an upline Diamond sold tools to the downline of a downline Diamond and/or had the downline distributors of that downline Diamond attend the upline Diamond's function, the upline Diamond would enter into a "servicing agreement" with the downline Diamond to compensate the downline Diamond reasonably and fairly for the participation of that downline Diamond's downline distributors. Absent the consent of the downline Diamond and a servicing agreement, the upline Diamond would refrain from soliciting or involving the downline Diamond's network. This provision for consent and servicing agreements was also favored and prescribed by Amway. The intent of such was to negate an upline Diamond from abusing or failing to honor the important lines of sponsorship by "going around" or "boycotting" a downline Diamond or Emerald distributor to profit unfairly. The rules and course of dealing for the tool and function business were intended from the beginning to recognize and honor the essential lines of sponsorship, just as in the Amway business. Otherwise, abuses led to impairment and disintegration of the integrity of the network pyramid of distributors, and constituted, in Amway's own words, "unwarranted and unreasonable interference in the business of other Amway distributors."

25. These rules governing the tool and function business became known and understood by participants within the Amway network by instruction from the top down, and were confirmed in a course of dealing over years. The general understanding and acceptance of this long-standing course of dealing by all participants in the BSMs industry constituted an implied in fact contract between them.

26. The powerful distributors at the top of Amway, including but not limited to the Upline Defendants herein, regularly represented or caused to be represented to Plaintiffs and others that their success as Amway distributors and, in fact, the success of the entire Amway distributorship organization, was contingent upon the purchase of the tools distributed by the Upline Defendants and attendance at the major functions sponsored and/or supported by them, and that without such tools and attendance at such functions, Plaintiffs would be unable to build and maintain successful Amway distributorships. The Upline Defendants further represented or caused to be represented to Plaintiffs that they should purchase only those tools produced and distributed by the Upline Defendants.

27. The BSMs industry has grown so large and powerful that it has become a business in itself, separate and distinct, yet inextricably connected with Amway. The income an Emerald or Diamond Amway distributor can potentially derive from the BSMs industry is vastly superior to that income that can be derived from the sale of Amway products alone. Consequently, high-profile BSMs distributors at the top of the Amway pyramid, including some of the Upline Defendants, have profited immensely from this BSMs business.

28. Amway has acknowledged in the Amway Sales and Marketing Plan the utility and benefit of BSMs: "To assist you with your own training and motivation, as well as training and motivating others, some distributors produce and distribute Business Support Materials and support services independently of Amway Corporation (independently-produced Business Support Materials or BSMs). These may include books, magazines, and other printed materials, audiotapes, videotapes, rallies, meetings, and educational seminars. While these BSMs are not required by or produced by Amway Corporation, you may decide that they can play a useful role in building a profitable Amway business."

29. The Amway Sales and Marketing Plan also encourages distributors to purchase BSMs and to attend events: "Merchandising products and sponsoring others is the way you build a truly successful business . . . You can also sponsor others as distributors and train them to merchandise products . . . As your business begins to grow, you will want to buy products and you may wish to acquire training aids. You will also want to attend motivational and business-building meetings. Typically, you may attend one distributor meeting a week." Amway promotes and sells to its distributors the "Amvox" telephone messaging system for use in promoting Amway and building the Amway network. Amvox is also used by Amway distributors, including the Upline Defendants, to promote and facilitate the BSMs business.

30. Amway's Rules of Conduct prohibit Amway distributors from selling tools to other Amway distributors whom the selling distributor did not personally sponsor into the Amway multi-level marketing network. As such, Amway has recognized the applicability and necessity of the "lines of sponsorship" to the BSMs industry consistent with the course of business practices and dealings over years. Amway further states that the failure to adhere to its Rule governing BSMs would constitute an "unwarranted and unreasonable interference in the business of other Amway distributors." Yet, Amway has not enforced its Rules governing BSMs; at least, not in any consistent or aggressive manner. Amway's apparent ambivalence has made it easier for abuses within the BSMs industry to occur.

31. To the knowledge of Plaintiffs, since 1996, the Upline Defendants have sought to undermine the Plaintiffs in a myriad of ways, and have violated all rules and agreements requiring the recognition and adherence to the well-established "lines of sponsorship" within the Amway network in respect to the lucrative BSMs industry. Defendants have conspired and endeavored to usurp Plaintiffs' downline networks by "going around" Plaintiffs – boycotting Plaintiffs – without either their consent or a servicing agreement, to take away Plaintiffs' participation in the tools business. Defendants have misled Plaintiffs' downline distributors by spreading falsehoods about Plaintiffs, with the intent and purpose of enticing, inducing or soliciting these downline distributors to boycott Plaintiffs' functions, attend Defendants' functions, and/or leave Plaintiffs' networks and/or abandon any allegiance or loyalty to Plaintiffs. Defendants have further sought to "blackball" or exclude Plaintiffs from Defendants' functions so as to demonstrate to Plaintiffs' downline that Plaintiffs are no longer effective within the Amway business. The result has been the significant impairment or destruction of Plaintiffs' Amway networks, as well as Plaintiffs' tool and function business, to their detriment and substantial damage. And, on knowledge and belief, these unsavory business tactics perpetrated upon Plaintiffs by the Defendants, or some of them, have been perpetrated by them and their co-conspirators on other Amway distributors.

 

The Netco and Schmitz Associates Business Operations.

 

32. Plaintiff Netco and its principals, Charlie and Kim Schmitz, enjoyed an exceptional level of achievement in Amway. From 1990 to 1998, Netco qualified at the prestigious Diamond pin level each year. Amway featured Charlie and Kim Schmitz of Netco in the Amagram magazine (Amway's official magazine published for Amway distributors), as achieving the prestigious Diamond level at the young ages of 28 and 25, respectively. Attached hereto as Exhibit A is a copy of an article on Charlie and Kim Schmitz contained in the November 1990 issue of Amagram, "Diamond Achievement" section.

33. From 1984 to 1999, Charlie and Kim Schmitz expended substantial time, resources and effort into building Netco and Schmitz Associates, making Amway their full-time jobs and relying on their Amway-related income as their primary means of support.

34. Charlie and Kim Schmitz personally sponsored approximately 53 Amway distributors under Netco, building a massive downline organization numbering approximately 8,000 Amway distributors.

35. Plaintiff Netco's Line of Sponsorship included, in part:

 

 

Richard Setzer (Diamond)

Hal Gooch (Diamond)

Bill Childers (Diamond)

Unknown distributor

Jimmy and Sue Dunn (Emerald/Diamond/Emerald)

Larry and Betty Evans (Direct)

Jim and Cathy Evans (qualified Emerald once in the 1980s/Direct)

(UPLINE)

Dan and Janet Lohnes (Direct/Pearl)

Dale White (inactive)

 

Wakes (inactive)

 

Ken and Barb New (inactive)

 

Netco (Charlie and Kim Schmitz) (Diamonds, 1990-1998)

53 Distributors Personally Sponsored, including:

 

 

 

Joanne Schmitz Rogers Lechner Carden Kinard Hurla

(Missouri) (Missouri) (Nebraska) (Iowa) (Iowa/Georgia) (Kansas)

Hathaway Beery Artherholt Wood

(Nebraska) (Iowa) (Iowa) (Iowa)

 

(DOWNLINE) McClane Card Dvorak McKee

(Nebraska) (Missouri) (Iowa) (Iowa)

½

Sterkel Wassinger Hackfort

(Illinois) (Nebraska) (Iowa)

Mathenia

(Illinois)

 

 

36. Although Charlie and Kim Schmitz and/or Netco were downline from distributors such as J. Evans, L. Evans, Lohnes, Whites, Wakes and News, they nevertheless achieved a higher pin level than those distributors.

37. Amway statistics confirm the unique status held by Plaintiff Netco and its principals, Charlie and Kim Schmitz. "Generally speaking, less than 10% work their Amway business as a full-time job and as their primary source of income over time. Naturally, because these people spend the most time and effort to build their own business and are the most committed to it over time, they typically make more money." (Official Amway website)

38. According to Amway statistics, about 3% of all American "direct" sellers earn more than $50,000 per year. About .6% (six-tenths of 1%) make more than $100,000 per year. (Official Amway website)

39. Based upon Amway’s statistics, Netco occupied the top six-tenths of one percentile (.6%) of all direct sellers in the United States.

40. Amway featured Charlie and Kim Schmitz’ success story in Amway promotional videotapes and magazines, including but not limited to:

(a) Amway Videotape, Professionals in Amway . . . Welcoming the Challenges,

(AL-1237).

(b) Amway Videotape, Amway Report, Volume 29, 1988, "Business Success

Story: Charlie Schmitz, Missouri Ruby."

(c) Amway Videotape, Opportunity 2000.

(d) Amagram Magazine, February 1987.

(e) Amagram Magazine, January 1989.

(f) Amagram Magazine, January 1990.

(g) Amagram Magazine, November 1990.

(h) Amagram Magazine, October 1991.

(j) Amagram Magazine, August 1993.

(k) Amagram Magazine, January 1996.

41. Beginning in 1993, Netco and Schmitz Associates began conducting their own major functions with the consent of Netco's upline, including Defendants Childers, Gooch, Evans and Dunn. Schmitz Associates utilized Netco's downline network in sponsoring, organizing and holding these major functions, which regularly drew over 2,000 Amway distributors in attendance.

42. By 1990, if not before, Netco, Schmitz Associates, and their principals, had become highly-profitable, well-established Amway distributors and/or Amway-related businesses.

 

A. The Defendants’ Tortious Interference with Plaintiff Netco's and Schmitz

Associates' Businesses.

 

43. Netco and Schmitz Associates, working in concert, participated in and were highly successful at developing their Amway and/or Amway-related businesses, which included buying and selling Amway products and BSMs. These Plaintiffs purchased and resold independently-produced BSMs in accordance with the implied contract of the parties formed by instruction from the Upline Defendants and confirmed by nearly ten years of business dealings with their upline.

44. This implied contract regarding the sale of BSMs existed not only in Plaintiffs’ lines of sponsorship, but throughout the entire Amway organization as well. For over ten years, Plaintiffs personally sold BSMs directly to the distributors whom they personally sponsored, pursuant to the course of dealings between the parties. Similarly, Plaintiffs purchased their BSMs in accordance with this course of dealing.

45. Plaintiffs Netco and Schmitz Associates also supplied BSMs to additional downline distributors within their lines of sponsorship, whom they did not personally sponsor, pursuant to the consent of those affected and servicing agreements as prescribed by Amway.

46. However, the Upline Defendants breached the implied contract in respect to BSMs with Netco and Schmitz Associates. While these Plaintiffs and other downline groups in Plaintiffs’ lines of sponsorship honored this implied contract, the Upline Defendants solicited and realigned Netco's downline to benefit themselves financially, at the expense of Netco's and Schmitz Associates' business and reputation.

47. Specifically, Upline Defendants intentionally circumvented the implied contract for BSMs and undermined Netco and Schmitz Associates by directly and/or indirectly selling BSMs in the following manner: (1) selling BSMs to downline distributors whom they did not personally sponsor; (2) cross-group selling BSMs to distributors in lines of sponsorship other than their own; and (3) recruiting and/or allowing downline distributors not in their immediate line of sponsorship to attend their events.

48. On knowledge and belief, Upline Defendants Childers, Gooch and other high-level Amway distributors, formed Pro Net and/or Global to facilitate the sale of BSMs to any distributor willing to buy from them; and Pro Net has solicited and sold BSMs to any willing Amway distributor, disregarding the long-standing course of dealing and the implied agreement for BSMs, and ignoring the essential lines of sponsorship. Pro Net's website virtually invites Amway distributors to circumvent their line of sponsorship for BSMs while giving purely pretexual observance to the importance of the lines of sponsorship. Pro Net postures itself publicly to supposedly operate for the benefit of its "members." Yet, Pro Net in reality seeks to promote and preserve, over the interests of its "Regular Members," the interests of its "Founding Members," the same being, on knowledge and belief, high-level Amway distributors who seek to control the BSMs industry. On knowledge and belief, these same high-level distributors control and profit from Global.

49. Pro Net's conduct, including its failure or refusal to respect the lines of sponsorship, is contrary to Amway's Rules of Conduct pertaining to BSMs.

50. After one or more of the Upline Defendants, including Defendants Gooch and Dunn, successfully converted a significant portion of Plaintiffs' downline BSMs business, Plaintiffs Netco and Schmitz Associates requested servicing agreements from Defendants Gooch in 1997 and from Defendants Dunn in 1998-99, seeking reasonable compensation for the BSMs business that had been misappropriated. However, these Upline Defendants refused to reasonably compensate Plaintiffs in accordance with the well-established implied contracts for BSMs.

51. After seeking to finesse the situation by offering Plaintiffs a pittance for their downline BSMs business, Dunn became even more aggressive and decided to cut the Plaintiffs out entirely. Defendant Jimmy Dunn, in an Amvox message in July 1999, to Jim and Cathy Evans, stated: "so, as far as I’m concerned, we don’t owe any function money, tool money, system money to Charlie’s mother's cause, so we’ll just let these guys, as they come across, smuggle in under y'all as far as getting tools to get Ernie set up so he can order direct . . . and we’ll stop, I’m not gonna pay Charlie any more money. So let’s see what happens here." The reference to "Ernie" is to Ernie Lechner, a distributor personally sponsored by Netco.

52. The Upline Defendants solicited the BSMs patronage of the following distributorships in Plaintiff Netco’s line of sponsorship, contrary to the aforesaid implied contract prohibiting the same: Trick Distributorship, Card Distributorship, Day Distributorship, Wall Distributorship, Holyfield Distributorship, Walthers Distributorship, and Birkholz Distributorship. Each of these distributorships refused Upline Defendants’ solicitations and opted to follow the implied contract governing the sale of BSMs.

53. The Upline Defendants breached the implied contract of the parties in selling BSMs to many distributorships in Netco's and Schmitz Associates' line of sponsorship. Examples follow.

(1) The Dvorak Distributorship.

54. One or more of the Defendants circumvented Netco’s lines of sponsorship by soliciting and selling BSMs (including tickets to events), directly to the Dvorak distributorship, via the Lechner Distributorship, without a written servicing agreement, and in violation of the implied contract of the parties.

(2) The Lechner Distributorship.

55. Netco personally sponsored the Lechner Distributorship in 1986. The Lechner Distributorship purchased its BSMs directly from Netco until 1999.

56. The Lechner Distributorship acknowledged in an Amvox message to Defendants Gooch, Childers and Dunn, and Plaintiff Netco in summer 1999, their decision to "plug into" their upline, Dunn and Jim and Cathy Evans, to purchase BSMs, thus going around Netco.

57. The Upline Defendants Childers, Gooch, Dunn and Evans funneled the sale of BSMs to Netco’s downline either directly or via the Lechner Distributorship. In so doing, these Defendants circumvented Plaintiffs Netco's and Schmitz Associates' lines of sponsorship in violation of the implied contract of the parties.

58. One or more of the Defendants circumvented Plaintiff’s lines of sponsorship by soliciting and selling BSMs (including tickets to events), directly to the Lechner Distributorship without a written servicing agreement, in violation of the implied contract of the parties.

 

(3) The Mathenia Distributorship.

59. In/about September 1996, the Mathenia Distributorship sent two letters to their upline (including Plaintiff Netco), stating that they wanted "the opportunity to function as the autonomous and independent business that the Amway Corporation recognizes us to be," and additionally wanted to turn to "counsel" from Defendants Evans, Childers and Dunn.

60. In these 1996 letters, the Mathenias admitted the improper relationship between certain Upline Defendants (Childers, Dunn and Jim Evans), and themselves regarding BSMs involving Charlie and Kim Schmitz (Netco): "We are well aware that you do not agree with the decisions we have made to (a) put our people in touch with upline above Charlie and Kim, such as Jimmy and Cathy Evans, Jimmy Dunn; (b) make our people aware of procedures and tools being used and promoted by Jimmy Dunn; (c) make our people aware of upline-promoted meetings in the Dunn Newsletter, and encourage them to make use of the meetings that would benefit them."

61. One or more of the Defendants circumvented Plaintiff Netco’s lines of sponsorship by soliciting and selling BSMs (including tickets to event), directly to the Mathenia Distributorship without a servicing agreement, in violation of the implied contract of the parties.

(4) The Wood Distributorship.

62. Netco supplied the Wood Distributorship BSMs from approximately 1990 to 1998, pursuant to a servicing agreement between Netco and the Kinard Distributorship.

63. Beginning in 1998, one or more of the Defendants began circumventing Netco’s lines of sponsorship by soliciting and selling BSMs (including tickets to events), directly to the Wood Distributorship without a written servicing agreement, in violation of the implied contract of the parties.

64. On March 22, 1999, Defendant Jimmy Dunn admitted in a letter to Netco that Defendants Dunn and Evans took over the sale of BSMs to the Wood Distributorship. Dunn stated, "we think the break paid to Netco on each of these tools is fair considering the circumstances of JVD & Associates (Dunn) and Evans & Associates assuming full responsibility for the distributors of McClane and Woods, and keeping them in the line of sponsorship."

(5) The McClane Distributorship.

65. On December 15, 1998, the McClane Distributorship wrote Netco, informing them that they would no longer be purchasing any BSMs from them, as they had "found another supplier."

66. Defendant Jimmy Dunn admitted in a letter to Netco that Defendants Dunn and Evans were taking over the sale of BSMs to the McClane Distributorship. Dunn stated, "we think the break paid to Netco on each of these tools is fair considering the circumstances of JVD & Associates (Dunn) and Evans & Associates assuming full responsibility for the distributors of McClane and Woods, and keeping them in the line of sponsorship."

67. One or more of the Defendants circumvented Netco’s lines of sponsorship by soliciting and selling BSMs (including selling tickets to events), directly to the McClane Distributorship without a written servicing agreement, in violation of the implied contract of the parties.

(6) The Beery/Davies Distributorship.

 

68. One or more of the Defendants circumvented Netco’s lines of sponsorship by soliciting and selling BSMs (including tickets to events), directly to the Beery/Davies Distributorship without a written servicing agreement, in violation of the implied contract of the parties.

(7) The Wassinger Distributorship.

 

69. One or more of the Defendants circumvented Netco’s lines of sponsorship by soliciting and selling BSMs (including tickets to events), directly to the Wassinger Distributorship without a written servicing agreement, in violation of the implied contract of the parties.

(8) The McKee Distributorship.

 

70. On July 23, 1999, approximately seven days after Defendant Dunn's message to Defendant Evans acknowledging the "smuggling" of BSMs, Netco received an Amvox message from the McKee Distributorship. The McKees stated, "And, also with the tools, we’ve kind of made, what we did is kind of for a long-term decision. You know, we’re gonna go ahead and go through Ernie with those, and the reason being, you know, probably for the long term with our group and looking down the road a ways, and the connections and things that will come from that, you know, so, anyway, that’s kind of what we’re looking at." The McKee reference is to Ernie Lechner. The McKees' message was a result of Defendant Jimmy Dunn's orchestrated manipulation of Netco's network, circumvention of Netco's lines of sponsorship, and boycott of Netco for BSMs business.

71. This arrangement, orchestrated by Defendant Jimmy Dunn, also constituted "cross-group" buying and selling of BSMs, as the McKee Distributorship was not in the Lechner Distributorship’s line of sponsorship.

72. One or more of the Defendants circumvented Netco’s lines of sponsorship by soliciting and selling BSMs (including tickets to events), directly to the McKee Distributorship without a written servicing agreement, in violation of the implied contract of the parties.

(9) The Hurla Distributorship.

 

73. One or more of the Defendants circumvented Netco’s lines of sponsorship by soliciting and selling BSMs (including tickets to events), directly to the Hurla Distributorship without a written servicing agreement, in violation of the implied contract of the parties.

 

B. Further Upline Defendants' Attempts to Undermine Plaintiffs Netco and Schmitz Associates with their Downline Distributors.

74. The Defendants' conspiracy to undermine Plaintiffs' Amway business and convert their BSMs business included undermining and isolating them from their respective downline groups. One or more of the Upline Defendants made statements to Plaintiffs Netco's and Schmitz Associates’ downline distributors which prejudiced and/or impaired Plaintiffs' reputation and business. These false and/or misleading statements included, but were not limited to: Charlie and Kim Schmitz were poor leaders who would not counsel and work out problems with their downline distributors; Charlie and Kim Schmitz were disloyal and did not edify their upline; Charlie and Kim Schmitz passed on improper BSMs prices to downline distributors; Charlie and Kim Schmitz disparaged downline distributors who chose to purchase BSMs from other suppliers; and Netco conducted improper Amway meetings for the purpose of promoting non-Amway products.

75. The Upline Defendants’ motive in making the aforesaid statements was to undermine and alienate Plaintiffs from their downline and gain control of Plaintiffs’ BSMs business, while damaging Netco's Amway business, ultimately resulting in downline distributors leaving Plaintiffs' line of sponsorship, quitting Amway, and/or turning to other sponsors. In substance, the Upline Defendants to these Plaintiffs sought to disrupt and erode Plaintiffs' downline network to their ultimate benefit.

76. The damage to Netco's downline may be illustrated by the profound decline in attendance at Netco and Schmitz Associates' functions beginning in 1996:

1993 Events

June December

Chicago Indianapolis

2,374 2,170

1994 Events

March August December

Dallas Minneapolis Kansas City

2,056 2,319 2,357

1995 Events

March August December

St. Louis Grand Rapids Indianapolis

2,363 2,337 2,007

1996 Events

April July Nov./Dec.

Kansas City Denver Orlando

2,217 1,952 981

 

1997 Events

April August November

Tan-Tar-A St. Louis Omaha

1,124 916 887

1998 Events

July

St. Louis

625

77. After July 1998, Plaintiffs ceased their efforts to sponsor major functions, recognizing that Defendants' efforts had succeeded in destroying their major function business.

78. The Defendants’ plan to drive Plaintiffs Netco and Schmitz Associates out of the BSMs industry also included intentionally misleading Netco's downline as to the pricing of BSMs. The Upline Defendants, and particularly Gooch, Childers, Dunn and Evans, led Netco’s downline to believe that Netco and/or Schmitz Associates were systematically overcharging them for their BSMs. When Plaintiff Netco's downline distributors complained to the Upline Defendants of this alleged overpricing, the Upline Defendants concealed the fact that the BSM’s prices came straight from the Upline Defendants' own price lists supplied to Plaintiffs Netco and Schmitz Associates. When the Upline Defendants then began selling BSMs to Netco's downline, they provided the downline distributors favorable tool prices (a lesser price than Netco had charged them), to make it appear as if Netco and/or Schmitz Associates had, in fact, overcharged them. This was a deliberate, tortious and cleverly orchestrated scheme in the strictest sense to undermine Netco and Schmitz Associates by destroying their credibility with their downline distributors.

79. Defendant Gooch tacitly acknowledged the aforesaid pricing scheme in an Amvox message to Charlie and Kim Schmitz. Defendant Gooch stated: "If somebody jumps ship and goes somewhere else, you know, to buy tools – then they get a better price when they go there - then that is enticing for other people to do the same thing." Such a pricing practice was/is contrary to the long-standing course of dealing for pricing the tools.

80. Charlie and Kim Schmitz, as principals of a high-profile Diamond distributor (Netco), were regular speakers at Upline Defendants Gooch, Childers and Dunn's major functions for a period of time until 1996. Thereafter, they were omitted and effectively "blackballed" from their exclusive Diamond speaking circuit.

C. The Upline Defendants' Tortious Interference with Plaintiffs Netco and Schmitz

Associates' Contracts, Business Relationships and Expectancies Prompts the Sale

of their Amway Distributorship.

81. In the wake of the Upline Defendants, particularly Gooch, Childers, Dunn and Evans', pirating of Plaintiffs Netco and Schmitz Associates' businesses, and after exhausting efforts to save and/or restore the business relationships and expectancies, Charlie and Kim Schmitz, on behalf of Netco and Schmitz Associates, offered to sell their entire BSMs business to Defendant Dunn during the summer of 1999. In reply to Charlie and Kim Schmitz' offer, Defendant Dunn told Don Brindley, a mediator between the Schmitzes and Dunn, "Why should I pay Charlie for something that I already have?" Defendant Dunn, acting in concert with other Upline Defendants, had succeeded in misappropriating the Plaintiffs' BSMs business.

82. The interference and destruction of Plaintiffs Netco's and Schmitz Associates' businesses were so severe that Charlie and Kim Schmitz finally decided to sell Netco's Amway distributorship to Joanne Schmitz and get out of the Amway business after 15 years. The Defendants, particularly Gooch, Childers, Dunn and Evans, had succeeded in destroying their Amway business and literally forcing them out of Amway. Such decision (to sell their Amway distributorship), was not Plaintiffs' preference, but they felt they had no other viable alternative. By this time, the value of their business had been destroyed. Moreover, their upline, instead of being supportive, was anything but that.

83. Plaintiffs' damages as a direct result of Defendants' acts and omissions are believed to well exceed $10 million.

 

Joanne Schmitz d/b/a Schmitz & Co. Business Operation

84. Plaintiff Joanne Schmitz became an authorized Amway distributor on April 26, 1984, having been sponsored by Charlie Schmitz, such that she was in Charlie Schmitz' downline network (later Netco's network). She purchased Netco's Amway distributorship from Netco on August 2, 1999, with the approval or consent of Amway. Her previous distributorship was merged into the new Amway distributorship known as Schmitz & Co. upon the Netco network acquisition. As such, her network includes that of Netco's, as set forth in ¶ 35 above.

85. Following the acquisition of Netco's Amway distributorship, Joanne Schmitz purchased her BSMs from Defendant Dunn in accordance with the implied contract of the parties. She held a higher pin level than her immediate upline Defendant Evans, as well as the Whites, L. Evans, Lohnes, and Wakes (the News Distributorship had since dissolved). But her participation in the BSMs business has been substantially limited and further curtailed by the Upline Defendants Gooch, Childers, Dunn and Evans.

 

A. The Tortious Interference with Joanne Schmitz' Business.

 

86. In the ensuing fallout following Charlie and Kim Schmitz’ withdrawal from the Amway business, the Upline Defendants Gooch, Childers, Dunn and Evans seized the opportunity to entice even more of Joanne Schmitz' downline (formerly Netco's downline), for the sale of BSMs. As a result, Joanne Schmitz’ BSMs volume sharply dropped from approximately 2,800 tapes sold each week to their current level of approximately 80 per week.

87. In late 1999/early 2000, Joanne Schmitz, recognizing this interference, as Netco had done previously, sought a servicing agreement from Dunn which would reasonably compensate her for the BSMs business from her downline taken by Dunn, in accordance with the implied contract. Dunn refused.

88. Defendant Dunn unilaterally reduced the payments due to Joanne Schmitz for the sale of BSMs tapes to her downline distributors from $1.40/tape to $0.10/tape. Additionally, Dunn refused to compensate Joanne Schmitz for the sale of all other BSMs to her downline. On February 22, 2000, Joanne Schmitz requested in writing that Defendant Dunn reasonably compensate her for their sale of BSMs to her downline. However, Defendant Dunn ignored this request, has refused to properly compensate her, and has failed to account for the volume of downline BSMs sales to Joanne Schmitz' downline. She is left to speculate as to the exact volume of BSMs business being exacted from her downline.

89. The Upline Defendants Gooch, Childers, Dunn and Evans continue to supply BSMs to Plaintiff Joanne Schmitz’ downline in violation of the implied contract governing the sale of BSMs, and refuse to properly compensate her and/or account for the sale of the same.

90. Plaintiff Joanne Schmitz' damages as a direct result of Defendants' acts and omissions are believed to well exceed $100,000.

The R K Kelm Co. Business Operation

91. Kenneth and Ritta Kelm became an authorized Amway distributor [IB] in March 1982. They incorporated their business on July 14, 1997, the same being Plaintiff Kelm Co., which they own. Both Amway products and BSMs are sold/marketed through Kelm Co.

92. The Kelms attained a high level of achievement in Amway. They were a high-profile "Diamond" distributor from 1989-90 through 1995, personally sponsoring approximately 14 other distributorships.

93. Upon reaching the Direct pin level, Kelm Co. purchased BSMs from the Pressley Distributorship (its immediate upline distributor of the Direct, or higher, pin level), pursuant to the implied contract and course of dealings of the parties. Upon reaching the Emerald pin level, Kelm Co. purchased its BSMs from the Stewart Distributorship, its immediate upline distributor, of the Emerald or higher pin level. Plaintiff Kelm Co. continues to order BSMs from the Stewart Distributorship today.

94. Plaintiff Kelm Co.’s line of sponsorship includes, in part:

Richard Setzer (Diamond)

Hal Gooch (Diamond)

Bill Childers (Diamond)

Unknown

Jimmy and Sue Dunn (Emerald/Diamond/Emerald -

Missouri)

Paul Stoddard

Ken Stewart (Diamond – Missouri)

 

Michael Abbey (Missouri)

 

Gerald Pressley (Missouri)

(Numerous others who left Amway)

 

Ken and Ritta Kelm (Diamond – Missouri)

Calhoun Glass

Numerous distributors Swaim

out-of-business (Indiana)

Dolar

(Florida)

 

 

A. The Tortious Interference with Kelm Co.'s Business.

 

95. Two of Kelm Co.’s largest downline groups included the Swaim Distributorship located in Indiana, and the Dolar Distributorship located in Florida. For years, the Swaim and Dolar Distributorships ordered their BSMs directly from Plaintiff Kelm Co. in accordance with the implied contract governing the sale of BSMs.

96. In 1996, a critical meeting took place at the Stewart Distributorship in Springfield, Missouri, consisting of Ken Stewart, Defendant Abbey, Defendant Pressley, Kenneth Kelm and the Swaims.

97. At this Springfield meeting, Kelm's upline (including Defendants Pressley and Abbey), told him that the Dolar Distributorship would purchase their BSMs directly from the Stewart Distributorship, thus bypassing the Kelm distributorship. Kelm's upline further told him that he was no longer to sell BSMs to the Dolar Distributorship or anyone below them. This edict from Kelm's upline violated the implied contract.

98. Also, during this Springfield meeting, Kelm's upline told him that the Swaim Distributorship would henceforth order their BSMs directly from the Stewart Distributorship, bypassing the Kelm distributorship. He was further told that he was no longer to sell BSMs to the Swaim Distributorship or any distributors in that line of sponsorship. This edict from Kelm's upline also violated the implied contract.

99. Accordingly, Kelm Co.’s upline, including Defendants Abbey and Pressley, in 1996 unilaterally reassigned the Dolar Distributorship under the Pressley Distributorship, and the Swaim Distributorship under the Abbey Distributorship, completely cutting out Plaintiff Kelm from his own line of sponsorship for the BSMs business of these downline distributors. Plaintiff Kelm's upline further ordered Kelm not to have any contact with the Swaim or Dolar Distributorships. When Kenneth Kelm tried to question all of these orders, he was told to "drop it" by his upline.

100. Plaintiff Kelm Co. never consented to its upline realigning and taking away its two largest downline groups, nor were any servicing agreements reached to compensate Kelm Co. for this action.

101. Before the critical Springfield meeting in 1996, Kenneth and Ritta Kelm were regular speakers at Defendants Gooch, Childers and Dunn's major functions (receiving the customary, sizable Diamond "speaking fees"), as well as their own. After the critical Springfield meeting, they were never asked to speak again at any of the Defendants' events, and were in effect "blackballed" from the exclusive Diamond speaking circuit.

102. Ironically, in 1998, approximately two years after the forced realignment of Kelm Co.'s downline, Ken Stewart, Kelm Co.'s upline distributor, told Kenneth Kelm during an event in St. Louis that the realignment had been a "mistake" for which Stewart and Defendant Abbey expressed remorse.

103. The Defendants' disregard for the line of sponsorship is further evidenced by the following example. Defendant Dunn actively solicited the BSMs patronage of Plaintiff Kelm Co. Defendant Jimmy Dunn contacted Kenneth Kelm on at least two occasions in 1999, telling him that he had "better make a choice." In one Amvox message on May 1999, Defendant Dunn tells Kelm, "I just need to know what you're going to do, what you want to do, and then I can respond accordingly, either you’re going to build Amway, and put this other thing aside, or you're going to build Nationwide and forget about the Amway business, because I can help you if you’re going to build the Amway business, but I can’t help you if you’re going to do both. So, let me know, I think that’s a key question, then I can respond accordingly." Nationwide is/was a non-Amway-related business. Dunn is/was not Kelm’s sponsor. Defendant Dunn was extremely active in seeking to virtually obliterate the lines of sponsorship for BSMs so that he could profit.

104. In the wake of one or more of the Defendants' pirating and/or assisting in the pirating of Kelm Co.’s largest groups and tool and function business, Kelm Co.'s Amway and BSMs businesses crumbled, with distributors going inactive, quitting Amway, or transferring to other sponsors.

105. The Defendants succeeded in substantially impairing Kelm Co.'s business. Plaintiff's damages as a direct result of Defendants' acts and omissions are believed to well exceed $5 million.

 

Defendants Have Superior Knowledge About the BSMs Industry and Owe Plaintiffs Duties, Including the Right to an Accounting.

 

106. Defendants, by their high positions in the Amway pyramid of distributors (higher than Plaintiffs), and/or by virtue of their exercised control over the tool and function business, and/or supply of tools, were/are in a superior position to Plaintiffs respecting, among other aspects of the Amway and Amway-related business, knowledge of the BSMs industry, including the volume of sales and other particulars. This superior position gives rise to certain duties arising as a matter of law, including fiduciary duties. Defendants are and should be in a position to account to Plaintiffs for the business transacted and profits generated within the BSMs industry by and through Plaintiffs' downlines.

107. Each of the foregoing allegations contained in ¶¶ 1 through 106 above are incorporated in each count hereinafter set forth by reference.

 

Liability

 

COUNT I

Tortious Interference

COME NOW each of the Plaintiffs, and for their first cause of action, state and allege as follows:

108. Each of the Plaintiffs, along with other Amway distributors who participated in the tool and function business, were a party(ies) to the implied contract(s) governing the BSMs industry, as further addressed in ¶¶ 116 and 126 below.

109. Each of the Plaintiffs also enjoyed and were the beneficiaries of a valid business relationship or expectancy with those downline distributors within their line of sponsorship. Plaintiffs, and each of them, reasonably expected that their downline distributors would be a source of business or serve as an exclusive customer base for their tool and function business.

110. Defendants, and each of them, had knowledge of the implied contract governing the BSMs industry, as well as the business relationships and expectancies enjoyed by each of the Plaintiffs with their downline distributors.

111. The Defendants intentionally interfered with this implied contract, as well as the well-established business relationships and expectancies of the Plaintiffs, causing the breach of the contract, relationships and expectancies.

112. Defendants were without justification in their aforesaid intentional interference, causing the breach of the aforesaid contract, relationships and business expectancies.

113. As a direct and proximate result of the Defendants' intentional interference, Plaintiffs and each of them sustained damages which exceed the minimum jurisdictional amount for this cause to be brought before this Court.

114. The conduct of the Defendants, as herein described, was outrageous because of their evil motive or reckless indifference to the rights of others.

 

COUNT II

Breach of Implied in Fact Contract

Concerning the Tool Business

COME NOW each of the Plaintiffs, and for their second cause of action, state and allege as follows:

115. Plaintiffs, and each of them, entered into an implied in fact agreement with the Defendants, and each of them, as well as other Amway distributors, concerning the purchase and sale of tools within the BSMs industry.

116. This implied in fact agreement, brought about by a course of dealing and business practices over years, provided that the tools be purchased from a distributor's immediate upline distributor of the same or higher pin level than the purchasing distributor, at prices universally applicable to all distributors at the same level, and with the lines of sponsorship being recognized and followed or making sure that each distributor is properly compensated within the line of sponsorship.

117. Plaintiffs, and each of them, performed in accordance with the agreement.

118. Defendants, and each of them, breached the agreement by failing to follow the lines of sponsorship, boycotting Plaintiffs, failing to properly compensate Plaintiffs, and manipulating prices for the tools such that not all distributors on the same level received the same price for the tools.

119. As a direct result of Defendants' breach of this agreement, Plaintiffs and each of them were damaged, and the damages of each exceed the minimum jurisdictional amount for matters to be brought before this Court.

120. Defendants' aforesaid breach of the agreement, under the circumstances and events as described, was intentional and willful, and one calculated to injure and damage the Plaintiffs, and each of them. As such, Defendants' conduct rose to the level of an independent, intentional tort. Defendants' conduct is and was outrageous, and/or clearly demonstrates an evil motive or reckless indifference to the rights of others.

 

 

COUNT III

Breach of Duty of Good Faith and Fair Dealing

Concerning the Contract Governing the Tool Business

COME NOW each of the Plaintiffs, and for their third cause of action, state and allege as follows:

121. In contracting and dealing with the Plaintiffs, and each of them, in respect to the implied in fact agreement concerning the tool business, Defendants owed the Plaintiffs, and each of them, a duty of good faith and fair dealing in both the performance and enforcement of the agreement.

122. Defendants have heretofore breached, and continue to breach, their duty of good faith and fair dealing in respect to the implied in fact agreement concerning the tool business by all of Defendants' aforesaid actions and omissions.

123. As a direct result of Defendants' breach of their duty of good faith and fair dealing, Plaintiffs, and each of them, have sustained damages which exceed the minimum jurisdictional amount for matters to be brought before this Court.

124. Defendants' aforesaid breach of their covenant of good faith and fair dealing, under the circumstances and events as described, was intentional and willful, and one calculated to injure and damage the Plaintiffs, and each of them. As such, the Defendants' conduct rose to the level of an independent, intentional tort. Defendants' conduct is and was outrageous, and/or clearly demonstrates an evil motive or reckless indifference to the rights of others.

 

COUNT IV

Breach of Implied in Fact Contract

Concerning the Function Business

COME NOW each of the Plaintiffs, and for their fourth cause of action, state and allege as follows:

125. Plaintiffs, and each of them, entered into an implied in fact agreement with the Defendants, and each of them, as well as other Amway distributors, concerning the major functions within the BSMs industry.

126. This agreement, brought about by a course of dealing and business practices over years, provided that only Diamond distributors were permitted to sponsor major functions, at which Diamond distributors were featured speakers, and Diamond and Emerald distributors received compensation from the sponsor for those within their downline network who attended these major functions.

127. Plaintiffs, and each of them, performed in accordance with the agreement.

128. Defendants, and each of them, breached their agreement by "blackballing" the Plaintiffs from participating in these major functions and being able to successfully sponsor their own, and refusing to reasonably compensate Plaintiffs for their downline network of distributors who attended major functions sponsored or supported by the Defendants.

129. As a direct result of Defendants' breach of this agreement, Plaintiffs and each of them were damaged, and the damages of each exceed the minimum jurisdictional amount for matters to be brought before this Court.

130. Defendants' aforesaid breach of the agreement, under the circumstances and events as described, was intentional and willful, and one calculated to injure and damage the Plaintiffs, and each of them. As such, Defendants' conduct rose to the level of an independent, intentional tort. Defendants' conduct is and was outrageous, and/or clearly demonstrates an evil motive or reckless indifference to the rights of others.

 

 

COUNT V

Breach of Duty of Good Faith and Fair Dealing

Concerning the Contract Governing the Function Business

COME NOW each of the Plaintiffs, and for their fifth cause of action, state and allege as follows:

131. In contracting and dealing with the Plaintiffs, and each of them, in respect to the implied in fact agreement concerning the major function business, Defendants owed the Plaintiffs, and each of them, a duty of good faith and fair dealing in both the performance and enforcement of the agreement.

132. Defendants have heretofore breached, and continue to breach, their duty of good faith and fair dealing in respect to the implied in fact agreement concerning the major function business by all of Defendants' aforesaid actions and omissions.

133. As a direct result of Defendants' breach of their duty of good faith and fair dealing, Plaintiffs, and each of them, have sustained damages which exceed the minimum jurisdictional amount for matters to be brought before this Court.

134. Defendants' aforesaid breach of their covenant of good faith and fair dealing, under the circumstances and events as described, was intentional and willful, and one calculated to injure and damages the Plaintiffs, and each of them. As such, the Defendants' conduct rose to the level of an independent, intentional tort. Defendants' conduct is and was outrageous, and/or clearly demonstrates an evil motive or reckless indifference to the rights of others.

 

Request for Relief

 

WHEREFORE, Plaintiffs pray judgment against Defendants as follows:

(a) Plaintiffs Netco and Schmitz Associates pray judgment against Defendants Jimmy Dunn; Jimmy V. Dunn & Associates, Inc.; Harold Gooch, Jr.; Gooch Support Systems, Inc.; William Childers; TNT, Inc. of Charlotte, North Carolina; Jim Evans; Evans Corporation; Pro Net Global Association, Inc.; and Global Support Services, Inc., jointly and severally, for an accounting; for their actual damages in a fair and reasonable amount; for exemplary damages to deter Defendants and others from similar conduct; for their costs herein expended; and for such other and further relief as the Court shall deem just and proper.

(b) Plaintiff Joanne Schmitz prays judgment against Defendants Jimmy Dunn; Jimmy V. Dunn & Associates, Inc.; Harold Gooch, Jr.; Gooch Support Systems, Inc.; William Childers; TNT, Inc. of Charlotte, North Carolina; Jim Evans; Evans Corporation; Pro Net Global Association, Inc.; and Global Support Services, Inc., jointly and severally, for an accounting; for her actual damages in a fair and reasonable amount; for exemplary damages to deter Defendants and others from similar conduct; for her costs herein expended; and for such other and further relief as the Court shall deem just and proper.

(c) Plaintiff Kelm Co. prays judgment against Defendants Jimmy Dunn; Jimmy V. Dunn & Associates, Inc.; Harold Gooch, Jr.; Gooch Support Systems, Inc.; William Childers; TNT, Inc. of Charlotte, North Carolina; Michael P. Abbey; Abbey Corporation; Gerald Pressley; Pressley Corporation; Pro Net Global Association, Inc.; and Global Support Services, Inc.; jointly and severally, for an accounting; for its actual damages in a fair and reasonable amount; for exemplary damages to deter Defendants and others from similar conduct; for its costs herein expended; and for such other and further relief as the Court shall deem just and proper.

 

 

WATKINS, BOULWARE, LUCAS, MINER,

MURPHY & TAYLOR, LLP

 

 

By __________________________________

R. Dan Boulware - #24289

R. Edward Murphy - #27968

R. Todd Ehlert - #51853

3101 Frederick Avenue

P.O. Box 6217

St. Joseph, Missouri 64506-0217

Telephone: (816) 364-2117

Facsimile: (816) 279-3977

 

ATTORNEYS FOR PLAINTIFFS