''Morrison v. Amway Corp.'' 49 F. Supp. 2d 529 was a lawsuit concerning the enforcement of a

contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...

ual

arbitration Arbitration is a form of alternative dispute resolution (ADR) that resolves disputes outside the judiciary courts. The dispute will be decided by one or more persons (the 'arbitrators', 'arbiters' or 'arbitral tribunal'), which renders the ' ...

provision between the defendant Amway Corp. and the plaintiff their distributors.

Background

Amway distributors earn their income from commissions from their sales of Amway products. To become a distributor of Amway products, one must pay a fee and sign a standard distributorship agreement that is renewed annually. The agreement consist of Code of Ethics and Rules of Conduct, right to distribute Amway products, the right to receive sales commissions any products sold for a year. Business Support Materials (BSM) provide media and functions designed to motivate Amway distributors. In June 1997, the distributors complained about the determination of profits from the sale of BSM materials. This led to Amway amending an arbitration program into the rules of conduct. On January 8, 1998, a group of distributors (the Morrison group) sued Amway in Texas State Court alleging a number of federal and state law claims. The amended arbitration agreement was included in the standard distribution agreement and mailed out to distributors for contract renewal. The case was moved to district court and was stayed pending arbitration on October 15, 1998. Shortly after the Morrison lawsuit, another group of distributors: the Halmonton group, filed a lawsuit with state law claims only on July 1, 1998. This lawsuit was joined by the Morrison group of distributors. On May 18, 2001, the distributors requested an arbitration, and counter arguments were exchanged by the parties on June 14, 2001. Arbitrator Anne Gifford was selected from JAMS arbitration services provider for Amway, who completed an arbitration course conducted by Amway. The distributors then filed a motion for "Summary Disposition" contending there was no valid agreement prior to the arbitration program and the current arbitration program did not apply to their disputes because it was

unconscionable Unconscionability (sometimes known as unconscionable dealing/conduct in Australia) is a doctrine in contract law that describes terms that are so extremely unjust, or overwhelmingly one-sided in favor of the party who has the superior bargaining ...

. They also claimed that the arbitration was unfair because Amway selected and trained the arbitrator, and held exclusive powers to remove them. The motion was rejected by Gifford. After discovery, on Jan. 13, 2005 Gifford ruled in favor of the distributors on all of Amway's claims, and in Amway's favor on all of the distributors’ claims, resulting in $7 million to Amway offset by an award to distributors of $1 million. On January 27, 2005, the distributors moved in the district court to vacate the award alleging Gifford's partiality and “corruption” as well as the unenforceability of the arbitration agreement. This was followed by Amway and the other defendants confirming the award and entering judgment on it. The court sided with the defendant on September 15, 2005, denying the motion to vacate and confirmed the award. The court found that the arbitration clause was not rendered unconscionable because an automatic distributorship renewal form sent by the Amway compelled consent to the arbitration clause. The distributors moved for rehearing on Sept. 21, 2005, which the district court denied without a hearing; the distributors appealed

Judgment

The distributors argued that the Amway has superior bargaining power and made this modification in the agreement unilaterally, making it a unconscionable contract of adhesion. The

appeals court A court of appeals, also called a court of appeal, appellate court, appeal court, court of second instance or second instance court, is any court of law that is empowered to hear an appeal of a trial court or other lower tribunal. In much of t ...

ruled in favor of the plaintiff and held that the arbitration agreement was illusory, lacking in

consideration Consideration is a concept of English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions. The court in ''Currie v Misa'' declared ...

, and unenforceable. The District court erred by compelling arbitration because there was no written arbitration policy at the time the lawsuit was filed. The clause "to comply with the Amway Sales and Marketing Plan, Code of Ethics, and Rules of Conduct as they are amended and published from time to time in official Amway literature," in Amway's Rules of Conduct was illusory, lacking in consideration, and unenforceable.

References

{{United States contract case law United States contract case law 2008 in United States case law United States Court of Appeals for the Fifth Circuit cases