517 F.3d 248 (5th Cir. 2008), 06-20138, Morrison v. Amway Corp.

Docket Nº:06-20138.
Citation:517 F.3d 248
Party Name:Dr. Joe MORRISON; et al., Plaintiffs, Dr. Joe Morrison; Dawn Morrison; Randy Councill; Janet Councill; Dan Higgins; Helen Higgins; Ron Green; Karen Green; Victor Brook; Cathy Brook; Richmond Eagle Corp.; Dave Roberts; Rose Roberts; Tony Cutaia; Mary Cutaia; Warren Bird; Donna Bird; Kye Yeaman; Wade McKay; Debbie McKay; Robert Price; Barbara Price;
Case Date:February 06, 2008
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 248

517 F.3d 248 (5th Cir. 2008)

Dr. Joe MORRISON; et al., Plaintiffs,

Dr. Joe Morrison; Dawn Morrison; Randy Councill; Janet Councill; Dan Higgins; Helen Higgins; Ron Green; Karen Green; Victor Brook; Cathy Brook; Richmond Eagle Corp.; Dave Roberts; Rose Roberts; Tony Cutaia; Mary Cutaia; Warren Bird; Donna Bird; Kye Yeaman; Wade McKay; Debbie McKay; Robert Price; Barbara Price; Clay Young; Lisa Young, Plaintiffs-Appellants,

Herbert Hamilton; Marilyn Hamilton; Donald May; Celeste May; Michael Cutaia; Karen Cutaia; Randall Laine; Diane Laine; Frank Mazzola; Karen Mazzola; Larry Rogers; Suzanne Rogers; Robert Schmanski; Dana Schmanski, Appellants,


AMWAY CORPORATION; et al., Defendants,

Amway Corporation; Dexter Yager, Individually, doing business as Yager Enterprises and Internet Services Corp.; Donald R. Wilson, Individually, doing business as Wow International, Inc.; Randy Haugen, Individually, doing business as Freedom Associates, Inc.; Freedom Tools, Inc.; John Sims, Individually, doing business as Sims Enterprises; Internet Services Corp.; Yager Enterprises, Defendants-Appellees,


Pamela Gale Johnson, Joe & Dawn Morrison Bankruptcy Estate; William G. West, Tony & Maryann Cutaia Bankruptcy Estate; Robert Newhouse, Herbert & Marilyn Hamilton Bankruptcy Estate; Helen G. Schwartz, Wade & Debbie McKay Bankruptcy Estate; Christopher Moser, Warren & Donna Bird Bankruptcy Estate; William G. West, Randy & Janet Councill Bankruptcy Estate; Ben Floyd, Michael & Karen Cutaia Bankruptcy Estate; W. Steve Smith, Ron & Karen Green Bankruptcy Estate; Ben Floyd, Frank & Karen Mazzola Bankruptcy Estate; Janet Casciato-Northrup, Dave & Rose Roberts Bankruptcy Estate; Ben Floyd, Dana & Robert Schmanski Bankruptcy Estate; Janet Casciato-Northrup, Donald and Celeste May Bankruptcy Estate, Trustees-Appellants.

No. 06-20138.

United States Court of Appeals, Fifth Circuit

Feb. 6, 2008

Page 249

Brock C. Akers (argued), Michelle Chelvam, Phillips & Akers, A. Glenn Diddel, III, The Diddel Law Firm, Houston, TX, for Plaintiffs-Appellants and Appellants.

Thomas C. Walsh (argued), Bryan Cave, St. Louis, MO, Thomas Wilson Taylor, Kendall Matthew Gray, Andrews Kurth, Houston, TX, for Amway Corp.

Michael Y. McCormick, McCormick, Hancock & Newton, Houston, TX, for Yager, Wilson, Haugen, Freedom Tools, Inc., Sims and Yager Enterprises and Internet Services Corp.

Rick Joseph Abraham, Abraham Law Offices, Columbus, OH, Edward B. McDonough, Jr., McDonough & Associates, Houston, TX, for Internet Services Corp.

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Appeal from the United States District Court for the Southern District of Texas .

Before GARWOOD, SMITH and DeMOSS, Circuit Judges.

GARWOOD, Circuit Judge:

Appellants (collectively, "Distributors") appeal the district court's final judgment confirming and entering judgment on the arbitration award. Appellants seek reversal of the district court's judgment and vacatur of the arbitration award, reversal of the district court's prior order compelling arbitration, and remand for a trial. They argue five issues on appeal: (1) the district court erred by not vacating the arbitration award due to the arbitrator's evident partiality and bias; (2) the district court erred by compelling arbitration since the arbitration agreement was not valid and enforceable due to Amway's retention of a unilateral right to modify it; (3) the district court erred by compelling arbitration since the arbitration agreement was unconscionable; (4) the district court erred by compelling arbitration even if the agreement was valid and enforceable because the arbitration agreement did not cover all of the Distributors' asserted claims; and (5) the district judge lacked jurisdiction to confirm the arbitration award.


The disputes comprising the core of this appeal have been in contention for more than ten years, and have been heard in several courts and other dispute resolution fora. Distributors' complaints center upon their relationships with appellee Amway Corporation and distributorships within Amway Corporation (collectively, "Amway"), a multinational seller of household products in existence since 1959. Amway distributes products by means of a vast network of independent distributors who, in turn, continuously recruit new distributors (also called "down-liners").1 All distributors in this case were in the "down-line" of the distributor appellee Dexter Yager.

Based on their success selling products, distributors may earn entry into particular levels, with the Diamond level being among the highest levels of success. Many of the Distributors worked full-time as distributors, regarding Amway as their sole source of income. Distributors earn their income based on commissions from their own sales and those generated by their down-liners. In order to distribute Amway products, every Amway distributor signs Amway's standard distributorship agreement, which "confer[s] a right to distribute Amway products, and the right to receive sales commissions or 'bonuses' on any products sold, for a period of one year." Among other things, the distributor agrees to pay an annual fee and to abide by Amway's Code of Ethics and Rules of Conduct "as amended and published from time to time in official Amway literature." This agreement must be renewed annually, "no later than December 31 " for the following calendar year. Many distributors renew automatically while others submit a renewal form each year entitled "Notice of Intent to Continue." Business Support Materials (BSM) complement the Amway network, and consist of "rallies, tapes, books, and functions designed to motivate distributors."

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In June 1997, according to the essentially undisputed showing in this respect of the Distributors, the disputes at the heart of this case, which had been festering for some time, came to a head.2 Among other things, Distributors complained about how profits were determined regarding sales of BSM materials.

In September 1997, Amway informed Distributors it was amending the Rules of Conduct to include an arbitration program, communicating through publication in its official magazine, the Amagram, and other media sent directly to distributors. The arbitration provision, added to the 1998 Rules of Conduct, provided for arbitration for "any . . . claim or dispute arising out of or relating to [an] Amway distributorship, the Amway Sales and Marketing Plan, or the Amway Rules of Conduct (including any claim against another Amway distributor, or any such distributor's officers, directors, agents or employees, or against Amway Corporation, or any of its officers, directors, agents or employees)." The acknowledgment form mailed to the automatic renewal Distributors, containing information of the newly installed arbitration program, also stated, inter alia: "Because of some recent changes to the Intent to Continue (renewal) Form as well as the introduction of the new Business Support Material Arbitration Agreement (BSMAA), we need you to review the changes and sign the acknowledgment on the back of this letter. While these changes automatically become part of your agreement with Amway, we wanted to make sure you are aware of them." The announcements also included a separate, optional BSM arbitration agreement. The parties disagree as to whether the Distributors needed to sign and return an "acknowledgment form" before October 3, 1997, in order to be considered subject to the arbitration agreement. There is no dispute that all Distributors renewed their distributorship agreements after Amway gave notice of implementation of the arbitration program.

On January 8, 1998, a group of Distributors (the Morrison group) sued Amway and other defendants (including Dexter Yager) in Texas state court alleging a number of federal and state law claims, ranging from defamation to RICO. Amway (and the other defendants) on February 6, 1998 timely removed the case to the district court under 28 U.S.C. § 1441(b), and then filed a motion to stay the suit pending arbitration. Distributors argued against the stay, contending, inter alia, that the Arbitration Agreement was not binding on them. On October 15, 1998, the district court granted Amway's motion and stayed the suit pending arbitration. Morrison v. Amway Corp., 49 F.Supp.2d 529 (S.D. Tex. 1998).3

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While all this transpired in federal district court, another group of Distributors (the Hamilton group), shortly after removal of the Morrison group's state suit, filed a state court action against Amway and other defendants with substantially similar state law claims as those of the Morrison group but lacking all the federal causes of action. Thereafter, on July 1, 1998, the Morrison group joined the Hamilton group in the second state suit. Amway moved in the state court to stay the proceedings in that suit pending arbitration pursuant to the arbitration agreement. Approximately one month after the federal district court stayed its proceedings, the state court stayed the state litigation pending arbitration of the Hamilton group's claims. The state court abated the Morrison group's claims because they were already sub judice in federal court, and the claims were subsequently dismissed for want of prosecution by the state court on October 23, 2003.

On May 18, 2001, the Distributors requested arbitration under the arbitration agreement. On June 14, 2001, Amway and other defendants filed counterclaims in the arbitration. On August 17, 2001, the Distributors filed a motion for "Summary Disposition" in the arbitration, contending, inter alia, that there was no valid agreement to arbitrate, that if there were such an agreement it did not apply, or could not properly apply, to disputes, such as those involved in the...

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