DSA Advisory Memo: State of Missouri v. Membership Marketing Inc.

November 3, 1988
Lawyers Council

The state of Missouri brought suit against Membership Marketing, Inc., (MMI) a self-described multilevel marketing company which offers services as a buying club. MMI is not a member of DSA. After winning at the trial court level, and losing on first appeal, MMI has appealed to the State Supreme Court.

In pertinent part, the Attorney General alleged that MMI was an illegal pyramid sales scheme under Missouri's Anti-Pyramid Act. After trial court litigation, the Missouri Court of Appeals permanently enjoined MMI activities, finding the company to be an illegal pyramid. I've enclosed a copy of that Court's decision. A motion for rehearing was denied and an appeal to the Missouri State Supreme Court has now been entered. The Supreme Court, as of this writing, has not granted a review, however, a decision is anticipated within the next several weeks. I've also enclosed a copy of the Court of Appeals' denial of motion for rehearing.

In finding MMI to be a pyramid, the Missourt Court of Appeals used some disturbing reasoning. Specifically, the Court found that:

• The so-called "Amway exception" (which excludes from the definition of "pyramid sales scheme" a plan where earnings are "primarily contingent on the volume or quantity of goods, services or other properties sold or distributed . . . for purposes of resale to consumers") is applicable only where tangible personal property is sold. In fact, the language of the statute specifically applies the exception to "goods, services or other property" I an apparent contradiction with the Court's interpretation. In its denial of the motion for rehearing, the Court seemingly retreats from its limitation of the Amway exemption.

• The statute requires that a person must give "considerationll before he or she can be deemed involved in a pyramid sale scheme. The Court stated that an MMI sales representative's promises, whereby the representative agrees to abide by the marketing policies of the company, are sufficient consideration to bring the law into play. No money need be paid.

The Assistant Attorney General's interpretation of the case is also disturbing. "This is going to go a long way to stamping out multilevel marketing techniques in the state of Missouri", one assistant AG was quoted as saying. Another has indicated that he believes this decision prohibits the offering of any services in a multilevel marketing operation.

Given the Court's decision and the Attorney General's interpretation of it, DSA should consider filing an Amicus Brief if and when the Supreme Court grants review. After you have had a chance to review the enclosures, please share your thoughts with me on this matter so we can be prepared to act appropriately.

Joseph N. Mariano, Associate Counsel & Manager of Government Affairs
    • Government Relations
    • Legal/Regulatory
    • Anti-Pyramid Laws
    • MLM
    • Missouri
    • United States