MEDIATION, ARBITRATION OR LITIGATION: WHICH, IF ANY, IS THE RIGHT CHOICE FOR DISTRIBUTORS?
by, David G. Eisenstein, Esq.
So you’ve been done in by a jealous distributor in your company who envies your success. The “deep throat” distributor, under a promise of confidentiality, spills the beans and rats on you to the company compliance director, or, worse yet, to the company CEO. The CEO, who never particularly liked you anyway, eagerly pounces on the allegations against you to first suspend and then terminate you without disclosing what, if any, evidence exists to support the hearsay charges. Yet the termination letter makes it sound like you are the worst traitor since Benedict Arnold betrayed these United States, setting forth the vague but sinister sounding allegations against you. Maybe the allegations consist of gossip or half-truths relating to cross-sponsoring of your Mom in another MLM that offered a product at wholesale to its distributors that she needed to control her gout, but which your existing company does not offer. Or maybe the charges, if they could be proven, amount to you making a snide remark concerning the CEO or any one of his or her favorites in corporate or amongst the distributors.
Let’s assume further that you have built a very productive distributor organization in the company you have been terminated from and have not been offered a chance to sell your organization or otherwise avoid the consequences of your downline and commissions rolling up to your upline, or even, coincidentally, to the company itself. Your emails have been ignored, and you have been password deprived out of your web based back office by the company, effectively putting you out of business, and thereby eliminating the promised daiquiri on the beach type of residual income that every MLM promises distributors in order to get them to invest thousands of dollars of capital in marketing and garage qualification expenditures, not to mention the hundreds or thousands of hours of up front labor by the distributor during the first couple of years of building an organization, which goes virtually uncompensated during the protracted startup period. What should you do? What should any owner of a business which throws off to the owner thousands of dollars of income each month? Consult a qualified attorney! That’s what. What are the post-termination options open to you and your counsel, preferably one skilled in MLM legal issues and situations?
1.
Appeal by the distributor’s lawyer of the company’s decision who should direct the appeal to the key decision maker in the company. This requires the distributor, ideally through the attorney, to contact the CEO or the general counsel of the company and submit what amounts to a well researched and well thought out combination demand letter/legal mini-brief that should, in a professional way, threaten, cajole, and point out the principal reasons why the distributor should be reinstated with payment of back commissions that the company withheld after its one sided “investigation” leading up to the termination letter. Keep in mind, that once the company has made a termination decision it is very difficult to get it to reverse itself, but I would estimate that it does in fact happen, in about one in four cases, through give and take after the attorney sends the letter appealing the company’s decision. This process need not cost the distributor more than $1,000.00 in legal fees where the attorney is already up to speed on and therefore does not need to spend costly hours on the way network marketing works or on key MLM legal issues, such as how such a termination and stoppage of the distributor’s business and income is in fact a “forfeiture” which “the law abhors.”
Appeal by the distributor’s lawyer of the company’s decision who should direct the appeal to the key decision maker in the company. This requires the distributor, ideally through the attorney, to contact the CEO or the general counsel of the company and submit what amounts to a well researched and well thought out combination demand letter/legal mini-brief that should, in a professional way, threaten, cajole, and point out the principal reasons why the distributor should be reinstated with payment of back commissions that the company withheld after its one sided “investigation” leading up to the termination letter. Keep in mind, that once the company has made a termination decision it is very difficult to get it to reverse itself, but I would estimate that it does in fact happen, in about one in four cases, through give and take after the attorney sends the letter appealing the company’s decision. This process need not cost the distributor more than $1,000.00 in legal fees where the attorney is already up to speed on and therefore does not need to spend costly hours on the way network marketing works or on key MLM legal issues, such as how such a termination and stoppage of the distributor’s business and income is in fact a “forfeiture” which “the law abhors.”2.If the Appeal to the company does not work, then MARBLIGATE (mediate, arbitrate, and/or litigate). Depending on the particular facts of the situation mediation, arbitration, and/or litigation will be necessary to “right the wrong” of termination if the Appeal by the distributor’s lawyer direct to the company does not result in reinstatement. At this stage, a distributor can request mediation under the auspices of the DRA under its new pro-mediation conflict resolution policies. A mediator, if mediation is instituted by the distributor and the company pursuant to company policy or mutual choice of the parties, will act as an impartial referee, allowing both sides to air out their positions in a relatively informal and calm atmosphere of courtesy and confidentiality. If the mediation is successful, the parties will immediately draft and sign a written contract resolving their dispute. Mediation has the advantage of being a swift and relatively inexpensive form of dispute resolution and can be expected to resolve 75%-80% of the disputes which are submitted to mediation.
If the Appeal to the company does not work, then MARBLIGATE (mediate, arbitrate, and/or litigate). Depending on the particular facts of the situation mediation, arbitration, and/or litigation will be necessary to “right the wrong” of termination if the Appeal by the distributor’s lawyer direct to the company does not result in reinstatement. At this stage, a distributor can request mediation under the auspices of the DRA under its new pro-mediation conflict resolution policies. A mediator, if mediation is instituted by the distributor and the company pursuant to company policy or mutual choice of the parties, will act as an impartial referee, allowing both sides to air out their positions in a relatively informal and calm atmosphere of courtesy and confidentiality. If the mediation is successful, the parties will immediately draft and sign a written contract resolving their dispute. Mediation has the advantage of being a swift and relatively inexpensive form of dispute resolution and can be expected to resolve 75%-80% of the disputes which are submitted to mediation. Private and public mediations are available, including mandatory mediation required by many federal courts. Mediation can be a beautiful thing, but keep in mind that the company will likely have well paid hired guns setting forth the company’s side and therefore the distributor should arm himself or herself with qualified legal talent for the mediation as well, meaning paying for attorneys who are skilled and experienced in MLM legal matters. A mediation, if the company agrees to one outside of the context of proceedings in litigation, something it is not under any legal compulsion to do unless its Policies and Procedures require it to do so, will be more expensive in terms of attorneys’ fees for the distributor, than the Appeal referenced above.
Arbitration is still the “alternative dispute resolution” of choice for most companies, which they in turn attempt to enforce on their distributors through arbitration clauses in their distributor agreements and policies and procedures. This usually takes place under the rules for resolving commercial disputes of the American Arbitration Association (AAA), but outside of a few notable exceptions is usually a company dominated proceeding which takes place on their home turf, as required by virtually every arbitration clause MLM companies use with their distributors, broadly covering any dispute which might arise out of the company/distributor relationship, including but not limited to wrongful terminations. Arbitration tends also to be an expensive form of dispute resolution for the distributor as the AAA’s administration expenses and a substantial deposit on the lawyer arbitrator’s legal fees must be paid by the participants up front, which means the distributor must come up with thousands of dollars right up front in addition to his or her own attorney’s retainer.
Litigation allows the prospects for the largest upside and the fairest outcome for the distributor where the distributor’s attorney is litigation savvy as well as astute in the ways of MLM companies and the laws that apply. Litigation in court is the only way to get a case before a jury, who may be at least somewhat sympathetic to the distributor’s plight in taking on corporate. Choosing a forum, or the place where the court will determine the case, is an important up front decision that the distributor and his or her counsel can make, oftentimes at the risk of the company attempting to enforce its arbitration and/or forum selection (the court where the case will be filed and heard) clauses which it requires in identical terms to be agreed to by its thousands of distributors, often setting it forth in documents or parts of documents that the distributor never reads nor can be expected to read. Most experienced MLM attorneys will refuse to take an MLM case strictly on a contingency fee, mainly because the issues involved are complex commercial contract issues, not slam dunk issues over personal injuries resulting from a rear-end auto accident with clear liability. It is possible however to negotiate with qualified MLM litigators to hire them on the basis of a combined flat fee which basically pays the client’s share of the attorney’s overhead expenses while he litigates the client’s case, with a contingency fee which allows the litigator to make a profit on the back end when and if the case has been resolved successfully for the client.
