Quixtar class action settlement – a brief analysis

Regular follows of this blog will be aware of the settlement in a class action case against Quixtar by Pokorny, Blenn, and Busiere. Today most IBOs and former IBOs covered by the class action have received their second notice about the settlement, so I’ve been receiving a few inquiries about it.

The case was originally against Quixtar, the Puryears and World Wide Group and the Britts and BWW, Amway (formally Quixtar) . Through the process of negotiating the settlement, Amway extended it to include a whole range of BSM (business support material) companies. The second amended complaint lists the following as defendants -

This was a smart move by Amway, as the settlement essentially immunizes both Amway and all the BSM companies against any lawsuits by anyone who was an IBO in the past decade. Amway has made a lot of significant changes in the last few years to better control the activities of the field and BSM companies, as well as make for a better, potentially more profitable business for all. An ongoing lawsuit of this nature, no matter it’s lack of merit, is a costly distraction. Following on from Woodward and TEAM settling their case, the settlement of the Morrison case, the Ribbon gift card settlement, and the Canadian class action being thrown out, Amway has pretty much cleared the deck and can move forward with a clean slate.
The usual handful of Amway critics have of course interpreted settlement as an admission of guilt. It’s nothing of the sort of course, and the settlement documents themselves clearly state this. What perhaps make it even more obvious is the actual dollar figures of the settlement. Here’s what was agreed to -

  1. Amway agrees to a bunch of changes they’ve already implemented – ie more free training, better monitoring of BSM companies etc
  2. a $34 million cash fund to pay administrative costs, attorney expenses, settlement expenses etc
  3. a $21 million product credit fund

The product credit fund is at retail price and offers some product bundles worth up to $75 to anyone who was an IBO, didn’t renew, and didn’t ask for a refund of their membership fee. Amway’s retail price includes approximately 30% retail markup from IBO price, plus an additional around 35% for volume rebates and distributor incentives. On top of that you have Amway’s profit margin. So this fund is actually costing Amway no more than around $5 million or so. So they’re spending $5 million to get a range of Amway’s best selling products in to the hands of people who had already thought joining Amway was a good idea at least once before.

That’s not a settlement – it’s a marketing expense!

Then there’s the cash fund. First thing to note is that nearly $16 million of this has been allocated to pay the plaintiff’s lawyers and expenses and a further $1 million is allocated for administrating the settlement and class notice. In other words, the actual payout to class members is $17 million – or just 0.16% of Amway’s revenue last year, and their total actual costs for the settlement, around $39 million, is less than 0.4% of last years revenues.

I think it’s fair to assume that Amway’s lawyers were costing at least as much as the plaintiffs in this case, and that proceeding to a full jury trial, and the inevitable appeals no matter what it’s result, would have cost at least this amount again. There’s every chance this settlement has saved Amway money. It’s certainly worth the expense to avoid the inevitable bad press the case would have brought.

So, if you were an IBO between January 1, 2003 and February 21, 2012 and didn’t renew or you can prove you lost money with your Quixtar business, check out www.quixtarclass.com you might be eligible for some cash or free products!

4 thoughts on “Quixtar class action settlement – a brief analysis”

  1. There were no “court charges”. Individuals, not any official body, made allegations against Amway. I’ve previously analysed the allegations, and they’re groundless.

    There have been times when there’s been allegations against Amway that I think have had some basis, and I’ve said so. In this case I think the allegations were bogus, and I’ve said so.

    The reality is though, it is cheaper to just settle this case than to fight it and win it. It’s probably also more sensible from a PR perspective.

    1. You are correct. I was under Billy Florence at that time. Every first night pack that anyone got told you that this was an incredibly challenging business, that was not for people unwilling to invest time and money.
      Like millions of other people, I lost my ass. But there was no question that the concept worked for some and I knew what I was getting into.

      1. Charles,

        According to the class action settlement agreement there are a little under 1.5 million former IBOs from the past decade in the US. It was estimated by an independent consultant that at most only 18% even had $100 worth of expenses on business support materials (including seminar tickets etc). Only about 3% of all the former IBOs contacted have requested any reimbursement through the settlement fund.

        It’s simply mathematically impossible for there to have been “millions” of people who “lost their ass”

  2. I am very alien to legals issues that Amway had, because I understand finance but not much of law or chargesheets. But why do you end up defending Amway payments? I am a biggest fan of both Apple and Microsoft but both of them paid penalties in various places/times I guess. I know Amway has all its bad names and I suffered a bit from my up line, Amway and the system. However, just like Steve Jobs believed, if your products are of better quality and satsifiy need you will have buyers. Especially being in FMCG it should be easy for Amway, I can understand blogs that are meant for flushing out the stress suffered being an IBO (anti-Amway) but I am not sure why an Amway support blog should talk about defending court charges.

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