Fortune Hi-Tech Marketing Hit with Class Action Suit

by louabbott on September 3, 2010

In a 42 page document (exclusive of Exhibits) plaintiffs Yvonne Day , Leonard Haslag , James McCormick  and John W. Turner filed a class action law suit against Fortune Hi-Tech Marketing, Inc. (FHTM), the company, the owners, officers, some employees and distributor leaders.  In blistering language and drawing on the recent legal actions by the States of Montana and North Dakota, the suit alleges that FHTM is, and always has been, an “illegal pyramid” scheme and is a “Racketeer Influenced and Corrupt Organization.”

The video on this page is part of a business presentation of the Fortune Hi Tech Marketing compensation plan by Presidential Ambassador, Joel McNinch, that is quoted in the lawsuit.

Others named in the lawsuit are:

Paul C. Orberson, Jeff Orberson, Thomas A. Mills, David Mills, Billy Stahl, Simon Davies, Ruel Morton, Todd Rowland, Ashley Rowland, Todd & Ashley, Inc., Mike Misenheimer, Steve Jordan, Joel McNinch, Chris Doyle, Ken Brown, Jerry Brown, Bob Decant, Joanne McMahon, Terry Walker, Sandi Walker, Sherri Winter, Trey Knight, Kevin Mullins, Scott Aguilar, Molly Aguilar, Nathan Kirby, Dwayne Brown, Aaron Decker, Susan Frank, Ramiro Armenta, Angelina Armenta, Alexis Adame, Teresa Adame, Darla DiGrandi, Matt Morse, Matt Barrett and Roberto Rivera

The suit seeks to close down the company through injunctive relief and recover treble  damages, costs, and attorneys’ fees.

The law firm for the class action suit is:

DINSMORE & SHOHL LLP
1400 PNC Plaza
500 West Jefferson Street
Louisville, Kentucky 40202
(502) 540-2300 (Telephone)
(502) 585-2207 (Facsimile)
kenyon.meyer@dinslaw.com

Copy of the full law suit can be downloaded here.

Interested persons can follow the development of the law suit at Justia Dockets and Filings.

Mr. Jason Baker, who was identified to me at FHTM as general counsel for the company was not immediately available for comment.

Updated: September 4, 2010

According to an article and video at WHAS11.com, a Louisville Kentucky TV station, Former Kentucky Attorney General Chris Gorman, a Fortune “legal advisor,” had this to say:

“The best thing and the fairest thing for everybody is to try the case in the court and that’s what we intend to do. We intend to fight this case vigorously,” Gorman said.

Gorman points out that Dish Network was giving a presentation at Fortune Fest, disputing the lawsuit’s claim that fortune doesn’t have a sales partnership with dish.

He says cease and desist lawsuits are now settled.

“Today, we’re doing business in Montana. Montana does not think we’re a pyramid. Otherwise they would not let us do business,” said Gorman.

Gorman did not mention that in the settlement with Montana, FHTM was required to make significant changes to how the company does business in the State, pay a fine of $100,000, and to refund up to as much $840,000 to Montana participants.

Editor Opinion

While I am hardly qualified to judge the merits of the case on solely legal issues –  like whether the suit has been properly filed, whether the jurisdiction is correct, and whether it is properly framed, etc. – there is little question in my mind that this presents a huge business challenge for FHTM and consequently, for all of their distributors. Regardless of the outcome of the case, with this news capping the other recent legal challenges to the ‘business opportunity,’ it is bound to become very difficult, if not close to impossible to effectively recruit.  Without new recruits, it would seem doubtful that the company can stay in business.

At the heart of the lawsuit is the issue that all networkers need to understand. For a company to stand legal scrutiny, distributors (associates, IBOs, IRs, representatives, whatever) cannot in any way shape or form be compensated for recruiting other distributors.

The law suit makes this allegation that could, in fact, be made against many MLM companies:

85. Fortune’s commission structure makes this possible by allowing IRs [Independent Representatives] to earn commissions on sales without ever actually selling anything to a customer outside the Fortune Pyramid. In fact, prospective IRs are told while joining Fortune that they must purchase certain products to earn their first “customer points” and therefore allow bonuses to be paid to their sponsors.

While the FHTM compensation plan ties the payment of commissions and bonuses to getting customers (at least 3) as measured by “customer points,” in actual practice, the lawsuit alleges this:

90. These “active personal customers” need not be actual human beings, let alone human beings outside of the Fortune Pyramid; rather, a product or service purchased from Fortune by the IR him or herself qualifies as a “customer” for purposes of allowing IRs to receive commissions and bonuses. The “customer points” assigned to each Fortune product or service determine how much of any given Fortune product or service must be purchased to qualify as one customer.

91. A “Customer Point Sheet” provided to new IRs explains what products or services may be purchased to qualify as a new “customer.” As an example, the purchase of $39.99 of True Essentials products by an IR counts as one “customer” and one “customer point.”

92. To obtain the required three customer points, new IRs are encouraged to merely purchase Fortune products and services themselves, rather than attempt to sell them to outsiders. Potential IRs are frequently told at recruiting meetings that they are already paying for the types of  products and services offered by Fortune – e.g., television, Internet service, cellular phone service,vitamins or travel – so they should simply switch from their current service provider to a product offered by Fortune.

93. Although one of the three “customers” purportedly must be “other than his/her own personal or household account”, Fortune neither tracks nor enforces this policy, and the policy itself permits this customer to be another IR.

One of the 12 Critical Success Factors I teach in the MLM The Whole Truth Special Report and Course, is “#8 – Are there Real Customers?”  The test is essentially this: can it be demonstrated that there exists a significant percentage of customers buying the company’s products or services who do so even though they are NO part of the compensation plan?

If the answer is ‘yes,’ probably any other legal issues that may exist can be fixed.  If the answer is ‘no,’ any other legal manipulations may not suffice to prevent the company from being attacked as illegal.

I am actually shocked at how many companies would probably fail that test if the true numbers were known.  And, I am then further concerned as to how many distributors have no idea that the company is then vulnerable.

It is also important for network marketers to understand that each of the named defendants, including company principals, officers, management, and distributor leaders,  are being accused of participating “in a pattern of racketeering activity,” not just the FHTM corporation:

173. Each defendant is a “person” for purposes of RICO, 18 U.S.C. § 1962, because each defendant is, and was at all relevant times, an individual or entity capable of holding legal or beneficial interest in property.

174. All of the defendants in this action collectively form an “enterprise” under RICO, 18U.S.C. § 1962, in that they are a group of individuals and entities associated in fact, although not a legal entity.

175. In the alternative, the enterprise consisted of Fortune, which is controlled by defendants Paul C. Orberson, Jeff Orberson, Thomas A. Mills, David Mills, Billy Stahl, and Simon Davies.

176. In the alternative, the Fortune Pyramid is an enterprise, in that it is an association in fact of all defendants and others which, although not gathered under any legal entity, operates the illegal pyramid scheme to draw new investors to Fortune.

177. The defendants engaged in a pattern of racketeering activity by participating in a scheme and artifice to defraud in violation of the mail and wire fraud statutes, 18 U.S.C. §§ 1341 and 1343.

If this line of argument stands, distributors who plan on succeeding and achieving top leadership status had better be sure that the company they represent can stand rigorous legal scrutiny for reasons other than it makes good business sense – they can end up being sued or even going to jail along with the principles of the company!

I welcome informed and thoughtful comments below.

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