Webster v. Omnitrition International, Inc.
United States Court of Appeals for the Ninth Circuit
79 F.3d 776 (1996)
- Written by Alex Ruskell, JD
Facts
Omnitrition International, Inc. (defendant) operated a multi-level marketing program selling supplements and vitamins. Omnitrition’s salesforce was required to recruit others to sell and buy Omnitrition products, and those higher up in the pyramid would receive commissions from those below them. Shaun Webster (plaintiff) sued, arguing that Omnitrition was an unlawful and inherently fraudulent pyramid scheme. The Federal Trade Commission test for a pyramid scheme was that such a scheme was characterized by the payment by participants of money to the company in return for which they receive (1) the right to sell a product and (2) the right to receive in return for recruiting other participants into the program rewards that are unrelated to sale of the product to ultimate users. The district court ruled in Omnitrition’s favor, finding that it was not an inherently fraudulent pyramid scheme because it required its salesforce to make up to 70 percent of their sales to retail customers instead of other salesforce recruits. Webster appealed, arguing that the 70 percent rule was not enforced or tied with Omnitrition’s recruitment requirements.
Rule of Law
Issue
Holding and Reasoning (Beezer, J.)
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