Nitro, Netco, West Palm amended complaint excerpts

The original complaint had43 pages.  The  amended complaint has expanding to 75 pages.   The amended complaint has numerous new detailed anecdotes and excerpts from communications.  I will highlight the interesting ones below. 

The complaint starts with case generalities and on page three it describes the history of the dispute stating with Brig Hart's April 1997 action against Amway and 19 distributors.   The complaint states this suit is a refiling of the Hart suit in respect to Hart's U-Can-II business.   The Hart action was mediated and Hart dropped his claims in July of 1997.

The general allegations of the complaint start on page 6.  According to the complaint "Richard "Dick" DeVos, Jr was "steering the Amway ship" when all of this was playing out."

"19. Amway became dependent on the extremely lucrative tool and function business to support, indeed subsidize, its Amway business. The wealth that Amway distributors have been led to believe can be achieved by hard work is not wealth in the Amway business, but instead in the tool and function business. Such unfortunately is not made clear to new distributors, and has served to ultimately disadvantage many, including these Plaintiffs, who have been wrongfully denied fair and equitable access and opportunity within the tool and function business. This suit seeks to address these wrongs."

41. Amway has desired to lessen the clout of the kingpins, and exercise more control and influence over the tool business. The problem for Amway historically in doing so has been the control over the business exercised by the kingpins and the tremendous power of the kingpins. The kingpins have for years held control over Amway’s sales force. For Amway to "take on" the kingpins has meant to risk the loss of Amway’s distributor sales force. Hence, for years, Amway appeased the kingpins and even helped facilitate their efforts to maintain tight control over the tool business while biding time and looking for opportunity to diminish the control and power of the kingpins.   Understanding this tenuous relationship is imperative to understanding Amway’s actions.

55. At some point in time, the exact point being unknown to Plaintiffs, Amway – acting by and through its authorized agents and representatives as herein detailed in part – became an active co-conspirator in a conspiracy or perhaps multiple conspiracies, acting separately or in concert at the same time, to control, fix the price of, allocate the business of, and to monopolize and manipulate the tool and function business to the detriment of Plaintiffs and others. The conspiracy, including these Defendants, endeavored to assist the kingpins in the monopolization, control and manipulation of the market for BSMs as herein defined and to restrain trade. On knowledge and belief, the participants in this conspiracy included at least some, if not all, of the Amway kingpins, their tool and function companies, their agents and representatives, their suppliers or manufacturers of tools (including Global Support Systems, Inc.), the Amway Distributor’s Association (later known as the Independent Business Owners Association International or "IBOAI"), and its directors, agents and representatives, and perhaps even JAMS/Endispute, Inc., the for-profit national dispute resolution company ("JAMS"). At a minimum, the conspirators used or manipulated JAMS such that it became an important instrumentality in the conspirators’ efforts to exercise control. Not all of the co-conspirators are known to the Plaintiffs at this time. The acts and omissions of any one co-conspirator are and were the acts and omissions of all others, including each Defendant.

56. The Amway kingpins needed Amway as an "object" to promote their separate tool and function business, and further, the kingpins needed Amway’s help in controlling their downline distributors and negating any emerging competition. Amway, in turn, needed the kingpins to sustain and build Amway. These two separate businesses were dependent upon one another in order to prosper. Although Amway apparently never expected the tool and function business to become what it had become by the early ‘80s, a business in and of itself, the tool and function business did just that.

60. Amway joined the kingpins in avidly touting the virtues and benefits of tools and functions to Amway distributors. The "rule of reason" advanced in 1983 was forgotten or ignored; BSMs income to the kingpins vastly exceeded their Amway income. It is and was common for Amway executives to attend functions. For example, Amway’s Chief Executive Officer, Tom Eggleston, attended major Yager/InterNet functions in the 1990s like "Free Enterprise," and spoke to the distributors, touting the benefits of tools, tacitly approving and endorsing the tool system known by Amway to be in place – the same tool system as that in 1983, which co-founder DeVos said was so wrong.

73. The September 19, 1995 secret agreement (attached hereto as Exhibit E and made a part hereof by reference), on its face is a classic example of price-fixing and allocation of customers, in violation of the antitrust laws. And, apparently, the signatories to the agreement recognized this full-well, as they recited the following above their signatures:

We understand that this agreement needs to be reviewed by appropriate legal counsel for possible illegal acts. However, the spirit of this agreement must be maintained in the final revisions to this document.

The agreement was signed by Hal and Susan Gooch, and Bill and Hona Childers. This agreement was implemented. This secret agreement was sanctioned by Amway, who knew exactly what was coming down. Kerkstra was Amway’s authorized representative.

76. The importance of observation of the line of sponsorship was affirmed in a telephone message on Amvox (a telephone messaging system marketed and sold by Amway), by kingpin Jody Victor to Brig Hart of U-Can-II:

Hey Brig, it’s me, Jody. I’m now in Palm Springs, California, but thank goodness for Amvox. I want you to know that I agree 100% wholeheartedly with your Amvox message. And I won’t only sign it, I’ll help write it. I not only support the line of sponsorship and feel that it worked and built a business for 8½ years, under no circumstances would I want anyone to come in and solicit my groups. Upline, downline, crossline, whatever line. It’s certainly not right and it cannot be supported by anybody. You know it’s like anything else Brig, if one of my downline guys want to go work with someone else, Dexter, you or anyone, I would hope that they’d come to me and work out some type of a satisfactory agreement. I don’t see any other way.

82. Amway was complicit in the price fixing. Amway’s John Parker provided Brown with the Amway confidential line of sponsorship information and the "qualified pin levels" of those Amway distributors with the knowledge that the information was going to be used to set prices. And, remember, Amway at this point anticipated being a supplier of tools for the Gooch kingpins.

83. The conspirators knew full well the import of their action. The following exchange took place in a Pro Net meeting between kingpins Jimmy Dunn and Tim Foley, with other Gooch kingpins present:

Dunn: Tim [Foley], one of the points in this, in some of these articles on this web report has to do with a word called price fixing, and I mean, you can just see it throughout here, that anybody ever gets on top of this and really wants to make an issue out of these points you’re just making, they’d sure have something to grab on.

Foley: Yeah, I think so.

• Amway’s Complicity in the "Breakaway": Setting Up the Gooch Pyramid.

94. Amway helped facilitate the Gooch kingpins "break away" from Yager and InterNet. The assistance included several meetings with Amway lending guidance and direction to the Gooch kingpins and/or their agent, Paul Brown, in setting up this new tool pyramid.

95. In mid-1997, the Gooch kingpins met in Atlanta to discuss the breakaway from Yager. Amway executive, Bob Kerkstra, and Amway in-house legal counsel, Sharon Grider, participated. Amway was in on the "breakaway" from the inception.

96. The Atlanta meeting was followed by a meeting at the Paradise Hotel in the Bahamas in August or September 1997. At this meeting, the Gooch kingpins announced to the Gooch downline Diamonds their intention to break away from Yager. Amway executives in attendance at that meeting, for the purpose of demonstrating support for the breakaway and to ensure a smooth transition which would include averting retaliation from Yager, were: Doug DeVos, Billy Zeoli, Bob Kerkstra and Arla Harvey. Thus, the DeVos family was involved. Richard "Dick" DeVos, Jr., having served as Amway’s President from 1993 until 2002, was "steering the Amway ship" when all of this was playing out.

97. On knowledge and belief, one major reason Amway wanted the "breakaway" to occur was to lessen the clout or power of Dexter Yager. By pulling the Gooch downline out of the Yager pyramid, the Yager pyramid would be diminished.

98. Amway executive Bob Kerkstra, in January 1998, provided the Gooch kingpins with talking points to help explain the "breakaway" to distributors. Exhibit G attached hereto is one example. Also, Amway had a "suggested script" for its own employees in responding to questions from distributors about the breakaway.

99. A principal concern of both Amway and the Gooch kingpins was the reaction of Yager and the need to avert a "war." To avert this end, Billy Zeoli, who was regarded as the personal spokesman and advisor for the DeVos and VanAndel families and the agent for Amway, mediated the "breakaway."

100. Billy Zeoli provided this report using Amway’s Amvox messaging system utilizing interstate wires:

Good morning, gentlemen, this is Billy Zeoli talking to Hal Gooch, Tim Foley, Steve Woods, Ken Stewart, Bill Childers, Paul Brown. I’d like to report to you on the responsibility assignment you’ve given me. Jeff Yager was here in Grand Rapids last night, this is Monday, this is Saturday morning. The discussion and decision was as follows:

Number one. If there is a possibility of a serious meeting, a discussion of working things out, of discussing finance, Rick Setzer and other situations, and you’re willing to discuss that openly and clearly, the men mentioned in this memo also willing to discuss it openly and clearly, not just another meeting. Jeff Yager said he is willing to have that meeting on that basis. I am pleased to hear that. Now, if that meeting does not happen, for some odd reason, or it does not go properly, there’ll be a third, another meeting which will be with Mr. Kerkstra as well. I will bring him to that meeting, and have him, cause he’s the authority on rules and regulations to discuss the possibility and the clarity of a change in venue, a transition of these gentlemen mentioned the Gooch, Foley, Woods, Stewart, Childers, to their own situation with a discussion of a non-war, W-A-R, meeting to try and work that out. That’s where we are and that’s what I follow through on. And that’s the position we are in.

Therefore, I would ask you to consider that, that meeting of putting things together with the openness considered on your part probably for the very first time of Jeff doing that. Also with the discussion, frankly, if you do leave, is a consideration of giving Dexter a percentage of each tape, which if the relationship went well during the transition, with each people’s groups not being identified and raided, there would be that possibility. So that’s where we are.

101. The "deal" to avert the "war" struck by Zeoli on behalf of Amway was tantamount to the unlawful allocation of customers, the unlawful allocation of territory, and in exchange therefor, kickbacks or illegal payoffs. On knowledge and belief, Gooch and Childers were paying Yager and Setzer, who were upline to them in the Yager tool pyramid, to stay out of the Gooch pyramid so as not to compete for tools.

102. This "deal" was confirmed in an August 24, 1998 letter (sent via the U.S. Mail) from Paul Brown to Jeff Yager of InterNet Services Corporation, copying, among others, Bob Kerkstra of Amway. Amway had knowledge of the "deal" and was complicit by its knowledge and participation.

103. The payoffs per tape to keep Yager and Setzer from "raiding" the Gooch line of affiliation, according to Paul Brown, were as follows: 14 cents to Yager; 2 cents to Setzer; and a half-cent to Ronald Gooch, Hal Gooch’s brother.

104. Another reason why Amway sought to assist Gooch and Childers with the "breakaway" from Yager was in order for Amway to sell tools to the Gooch downline via the Pro Net supplier, Global, which sales occurred in 1998, 1999 and 2000.

105. Amway’s complicity in facilitating the Gooch pyramid is further evidenced by the guidance and direction provided Paul Brown, then acting as the agent for the Gooch kingpins, by Amway’s in-house counsel, Sharon Grider, and Amway’s outside antitrust counsel, John Peirce.

106. Attached hereto as Exhibit C is an Antitrust Primer provided Paul Brown by Sharon Grider.

107. After sending Paul Brown the Antitrust Primer (Exhibit A hereto), a telephone conference (using interstate wires) ensued between Paul Brown, Sharon Grider and John Peirce.

Excerpts of this telephone conversation included the following:

Grider: I was just bringing John [Peirce] up to speed so that he understood where [sic] we were trying to accomplish today, and just basically what I told him was our conversation of last week whereby you were looking for some overall assistance, and I’ll be pretty blunt here, breaking away and how you set up everything, and I said, we could help you with this part. And I faxed you a primer on antitrust so you see the issues there.

Brown: Right.

Grider: Some of the common plain English explanation of the contracts and the three model contracts.

Brown: Yeah.

Grider: So, we’re here to answer your questions on that stuff.

Brown: Okay . . .

* * *

Brown: I don’t think unless I can talk with you freely, I don’t think you can advise me freely, so I’m going to roll it all out to you and you know.

Peirce: Bear in mind that you are talking to Amway here.

Brown: Okay.

Peirce: You’ve got Sharon, who works for Amway, and I, who am counsel to Amway. What I’m thinking we can do is talk in generalities. You don’t have to name names or dollar amounts, but just talk about concepts of how somebody would set up a business, and I think we can probably give you what you need.

Brown: Okay. Alright.

***

Brown: Okay, and Sharon, I mean, you know, I mean, obviously we, without touching on, what a powder keg I’m sitting on here.

Grider: Yep, I do.

* * *

Grider: Paul, let me, you know, I’ve been, we sit up here and we watch things go on from time to time. And when I have seen this kind of an event in other organizations, nobody has found a way, based on my observations, of totally avoiding disruption in the business when they want to do what you’re talking about doing.

Brown: Really.

Grider: Correct.

* * *

Brown: And, I’m, in talking with you here, is there something, is there someone that I can, is there a suggestion you have for me or someone to talk with – i.e., at Amway – that can pretty well, that can sit there and, based on all the knowledge, as you say, you all sit up there and you have your hands and knowledge in a lot of different areas, okay? Of consultation that I could be having with someone that could help me understand the process, we should, that I should be giving, you know, information that I should be giving to people I represent to walk us through this mine field.

Grider: Um, we can probably help a little bit more on that. On that issue, and what I would like o do when you’re comfortable, is I’d like you to work with [Amway executive] Rob Davidson. You know Rob?

Brown: Yeah, uh-huh.

Grider: Rob’s the one to work for, work with. I advise him daily, on these issues, and he just has gone through a couple of these deals, and so he is, you know, he’s the right person to be with. And when you are ready, I will talk to him and let him know what’s going on.

***

Amway’s complicity is obvious. Amway, the admitted tool competitor, is having its legal counsel advise the representative of other competitors on how to deal with yet another competitor (Yager), to the potential inherent injury of this competitor (Yager), for the potential benefit of Amway. The end result is a new BSMs system (Pro Net) used to unlawfully injure these Plaintiffs and others, all with Amway’s ongoing knowledge and participation.

• Team In Focus: The Conspiracy’s Destruction of New Competition:

112. In order for TIF to break away from the Gooch kingpins, TIF needed a supplier for their tools. Amway wanted to be that supplier. Hence, on knowledge and belief, Amway saw this as an opportunity to seize more control over the tool business, and the "solution" alluded to by Kerkstra was Amway becoming a dominant supplier of tools, forcing out competition.

113. TIF negotiated with Amway for the breakaway from Gooch and for Amway’s commitment to supply TIF with tools through subsidiaries or affiliates of Amway, including Access Logistics and Access Business Group. On knowledge and belief, Amway made these commitments to TIF. TIF representatives had direct and ongoing discussions with top executives at Amway. They were assured Amway would support their move which carried obvious risk of retaliation by the kingpins.

114. Having been promised the protection of Amway, TIF subsequently advised the Gooch kingpins of their intention to break away, and they did. Thus, a direct challenge to one of the kingpins’ "systems" had been undertaken with TIF’s understanding that Amway would back them.

115. After TIF broke away from the Gooch system, Amway told TIF that they were going to advise the IBOAI Board about the arrangement. Of course, the IBOAI Board members were tool competitors and either kingpins or closely aligned with the kingpins. A copy of a written communication dated September 26, 2000, is attached hereto as Exhibit H and made a part hereof by reference. The "BSM Taskforce" mentioned in this communication was a task force created by Amway to deal with BSMs. All members of the task force, as well as Amway, were tool competitors. This communication was transmitted via the U.S. Mail. The BSM Taskforce continued its work at least into the summer of 2005 and may yet be functioning.

116. The IBOAI Board and the Gooch kingpins reacted harshly. On knowledge and belief, they viewed the situation as Amway trying to take control of the tool business, and if the arrangement with TIF worked successfully, other groups of tool distributors would do the same.

117. Kingpin Billy Florence advised Amway, who advised TIF, that TIF could not identify Amway as their supplier and thus be perceived as being Amway’s "accredited group" for tools and placing other tool competitors ( to-wit: the kingpins) at a competitive disadvantage.

118. Thereafter, on knowledge and belief, the Amway kingpins and the IBOAI Board applied pressure on Amway who recanted, withdrawing its support of TIF, including its commitment to supply tools.

119. On knowledge and belief, Larry Harper, Amway Director of Business Relations, told TIF, "We left you out in the ocean without a life raft, didn’t we?"

120. On knowledge and belief, when the TIF leadership confronted Quixtar President McDonald, he told them, "Guys, you never had anything in writing." When challenged to clean up the offenses of the kingpins in the tool business, McDonald responded, "But what would happen to the business?" McDonald’s point was, at that point in time, to undermine the kingpins and their tool businesses would inevitably lead to problems for Amway, as Amway needed the kingpins and the tool business to support and subsidize the Amway business. On knowledge and belief, kingpin Jody Victor told a TIF representative: "You can’t trust the corporation [Amway]."

121. TIF found itself without a supplier and without Amway’s support. The Gooch kingpins instructed their representative, Paul Brown, to boycott TIF and ensure that TIF could not buy tools from any tool supplier without the supplier itself being subjected to financial reprisals. Thus, the conspiracy worked to freeze TIF out of the tool business.

122. Ultimately, on April 19, 2002, after TIF attempted to implement its own tool "system" for its downline distributors and compete directly with Amway and the kingpins for BSMs, Amway terminated the Amway distributorships of the TIF leadership principals for purported "antitrust violations" in setting up their tool system. Other TIF founders thereafter resigned their distributorships with Amway in protest. Amway then forced the dispute into its arbitration process before JAMS, and that is where it ended, shrouded in secrecy. The TIF distributors were out of Amway and out of the Amway-related tool business. Because the TIF distributors should have been Nitro, West Palm, and U-Can-II’s BSMs customers, those Plaintiffs were also harmed.

130. And, consistent with their heavy-handed tactics, Amway suspended the Amway bonus income of Ken Stewart’s and Brig Hart’s Quixtar distributorships, withholding millions of dollars, because Nitro, West Palm and U-Can-II filed this very lawsuit in 2003 [such is the subject of another lawsuit pending before this Court]. Amway has worked with the kingpins to damage these Plaintiffs for years now.

• Tactics of the Conspiracy:

133. Abuses of the Rules governing BSMs were rampant within the BSMs business. Prices were "fixed." Competition was crushed. Control was paramount. Eligible participants were forced out.

134. Once a distributor was viewed by the conspirators in an unfavorable way, as were these Plaintiffs, usually following that distributor’s assertion of a position or right Amway or the kingpins did not like, an effort to compete for BSMs, or simply a desire to take their business, the following typically transpired:

(a) They "trashed" the grievant distributor by spreading falsehoods, for example: "He is not committed to the business"; "he is not committed to his downline"; "he won’t pay you what you’re entitled"; "he is too religious"; "he is a rogue"; "he is inactive"; "he is not interested in providing you with leadership"; and "he doesn’t care about you or the business." This was intended to drive a wedge between the distributor and his downline. This happened to the Plaintiffs and their principals who were the targets and victims of these falsehoods. Of course, those driving the wedge were the very ones the grievant had long "edified," per the Amway culture, so when those who had been "edified" criticized the grievant, it carried credibility.

(b) Having undermined the grievant, they took his business. The grievant was vulnerable because of the monopolization and control over the business exercised by the kingpins with the help of Amway.

(c) When the grievant asked Amway, a co-conspirator, for help, the grievant was turned away. Most of the time, the grievant also became subject to sanctions by Amway in the Amway business as well. Nitro, West Palm, and U-Can-II’s principals are examples.

(d) When the grievant sought legal recourse in the courts, Amway, the IBOAI, the kingpins, and even JAMS aligned against him to force him into Amway’s biased arbitration process where he could not prevail. And they sealed it all with secrecy. In essence, the conspiracy frustrated any notion of fairness or due process.

(e) To combat the publicity of lawsuits by the grievant, Amway touted that the suits were without merit and simply attributable to "disgruntled former distributors" and Amway touted Amway as a free enterprise affording a great opportunity to own "your own independent business."

(f) On knowledge and belief, to further discredit or silence critics, Amway instituted a "web reputation initiative," wherein Amway sought to manipulate the internet such that "hits" on favorable websites were displayed before negative "hits" during an internet search. On knowledge and belief, this tactic also involved the use of a website under the name of "Qrush," whose professed mission is to defend Amway and to crush all critics.

The effect of all of this is that Amway has worked to crush any new emerging competition in the tool business, unless the competition (e.g., Gooch’s Pro Net and TIF, albeit temporarily), had Amway’s blessing. Amway could use its inherent power to do so, including sanctioning distributors in the Amway business.

135. Nitro was viewed with disfavor by the conspirators and its participation in the tool business was curtailed substantially, contrary to the Rules, and all to Nitro’s proximate and direct damage.

136. West Palm likewise was viewed with disfavor by the conspirators and was boycotted out of the function business, contrary to the Rules, and all to West Palm’s proximate and direct damage.

137. Netco was viewed with disfavor by the conspirators, and was boycotted from the tool business, contrary to the Rules, and all to Netco’s proximate and direct damage.

138. Schmitz Associates was viewed with disfavor by the conspirators, and was boycotted out of the function business, contrary to the Rules, and all to Schmitz Associates’ proximate and direct damage.

139. U-Can-II was viewed with disfavor by the conspirators, and its participation in the tool and function business was precluded by and through an effective boycott, contrary to the Rules, and all to U-Can-II’s proximate and direct damage.

140. All of the Plaintiffs lost millions of dollars as a direct result of being boycotted from the tool and function business, contrary to the Rules and the kingpins’ representations, with Amway’s knowledge and complicity, upon which they had relied in good faith. Plaintiffs were damaged and competition was damaged. The tactics of the conspiracy continue today.

143. On knowledge and belief, there is extensive documentation in Amway files and IBOAI files constituting or referencing communications between the kingpins and Amway and/or the IBOAI respecting the Plaintiffs and/or the Yager and/or Gooch pyramid systems, and the efforts to control and manipulate same.

152. In or about September 2004, Quixtar unilaterally implemented [forced upon] its distributor network a new non-compete rule which serves to negate competition in the tool business, as well as competition to the Amway business. This rule furthers the objectives of the conspiracy in holding distributors in line and restraining competition which benefits both the kingpins and Amway. The non-compete rule is unconscionable and legally unenforceable. It is one subject of another action pending before this Court arising out of the Amway business.

153. Quixtar has also recently implemented an "Accreditation Program" for tools. This "program" provides that if certain tool systems meet Amway’s own "criteria," they will receive "accreditation" from Quixtar. This is yet one more way for Amway and the kingpins to control the tool business and stifle competition. It is consistent with Amway’s objective to vest control of the tool business in a select few kingpins who Amway sees fit to favor.