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U n i t e d S t a t e s D i s t r i c t C o u r t
F o r t h e N o r t h e r n D i s t r i c t o f C a l i f o r n i a
IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF CALIFORNIAJEFF POKORNY, LARRY BLENN, andKENNETH BUSIERE, on behalf ofthemselves and those similarlysituated, Plaintiffs,v.QUIXTAR INC., et al.,Defendants.)))))))))))))Case No. 07-0201 SCORDER REQUIRINGSUPPLEMENTAL BRIEFING
I. INTRODUCTION
Before the Court is a Motion for Settlement filed jointly byPlaintiffs Jeff Pokorny, Larry Blenn, and Kenneth Busiere("Plaintiffs") and Defendants Quixtar Inc., et al. ("Defendants").ECF No. 141 ("Mot."). The parties seek class certification,appointment of class counsel, and preliminary approval of the classsettlement. Id. at 1. Plaintiffs and Defendants separately filedresponses in support of the Motion. ECF Nos. 143 ("Pls.' Resp."),144 ("Defs.' Resp."). For the following reasons, the Court findsthat it cannot grant the relief requested without additionalinformation from the parties. Accordingly, the Court CONTINUES thehearing date on the Motion to April 8, 2011, and ORDERS the partiesto submit supplemental briefing addressing the following issues.
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II. BACKGROUND A. Factual Background
Quixtar is a multi-level marketing program that sells avariety of products and services through a network of individualdistributors known as Independent Business Owners ("IBOs"). SeeFirst Amended Complaint ("FAC") ¶ 2. In addition to sellingQuixtar products, IBOs can earn bonuses by recruiting newdistributors into their "line of sponsorship." See id. IBOs oftensell Business Support Materials ("BSMs"), also known as "tools andfunctions," to these recruits. Id. ¶¶ 39, 41-42. These BSMsinclude tapes, compact discs, and videos that contain informationclaimed to be "essential to success as a distributor." Id. ¶ 42.In their FAC, Plaintiffs claimed that a registration fee of $117was required to become a Quixtar IBO, but alleged that in practice,most IBOs make an initial investment of $200 to $4000 in theirbusiness "through the purchase of products and the 'tools andfunctions' materials." Id. ¶ 58.Plaintiffs alleged that this operation constituted afraudulent pyramid scheme. Id. ¶ 35. Plaintiffs claimed thatQuixtar "induces new recruits to join the Quixtar program throughmaterial false representations that such recruits will be able tore-sell Quixtar products for a profit." Id. ¶ 37. Plaintiffsclaimed that "95% of Quixtar's products are not sold to retailconsumers," but rather to other IBOs down the lines of sponsorship.Id. Plaintiffs alleged: "The prices IBOs pay for Quixtar'sproducts (and associated costs) are so high that any profit onretail sales is virtually impossible." Id. ¶ 37. Plaintiffs
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wrote: "Because the IBOs are Quixtar's actual customers andconsumers of its products, Quixtar requires an ever expandingnetwork of so-called distributors (IBOs) in order to keep Quixtarafloat." Id. Plaintiffs claimed that because it constituted afraudulent pyramid scheme or "endless chain," Quixtar's practices"violated the federal RICO and mail and wire statutes and theCalifornia Penal Code § 327." Id. ¶ 52. Also named as Defendantsin the FAC are individuals and entities alleged to be Quixtardistributors in the "lines of sponsorship" linking Plaintiffs andQuixtar. Id. ¶¶ 8-16.
B. Procedural Background
Although this action commenced nearly four years ago, theparties seek to settle this action relatively early in theproceedings. Plaintiffs' Initial Complaint was filed on January10, 2007. ECF No. 1 ("Compl."). On March 5, 2007, Defendantsseparately filed several motions to dismiss and/or stay the actionand compel Plaintiffs to participate in arbitration pursuant toarbitration provisions in the IBO registration agreements. ECFNos. 28, 32, 36. On March 31, 2008, the Court denied thesemotions, finding the arbitration agreements to be procedurally andsubstantively unconscionable and therefore unenforceable. ECF No.115 ("Mar. 31, 2008 Order").
1
Defendants appealed this order under9 U.S.C. § 16(a)(1)(B), and the Court stayed proceedings pendingthe appeal. ECF No. 127. On April 20, 2010, a Ninth Circuit panel
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The March 31, 2008 Order also provides a more detailed account ofthe procedural history of the case, including a discussion ofseveral continuances, motions to strike, and Plaintiffs' motion tofile an amended complaint. See id. at 2-5.
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Judge pushes back on Amway / Pokorny settlement, seeking fairer terms for the class.
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