Ranieri v. Advocare Int'l, L.P.

• Citation: 336 F.Supp.3d 701
• Decision Date: 27 August 2018
• Docket Number: CIVIL ACTION NO. 3:17-CV-0691-S
• Parties: Lisa RANIERI and Megan Cornelius, individually and on behalf of a class of similarly situated persons v. ADVOCARE INTERNATIONAL, L.P., Daniel McDaniel, Jenny Donnelly, Crystal Thurber, Wes Bewley, Dawn Funk, and Tyler Deberry
• Court: U.S. District Court — Northern District of Texas

336 F.Supp.3d 701

Lisa RANIERI and Megan Cornelius, individually and on behalf of a class of similarly situated persons

v.ADVOCARE INTERNATIONAL, L.P., Daniel McDaniel, Jenny Donnelly, Crystal Thurber, Wes Bewley, Dawn Funk, and Tyler Deberry

CIVIL ACTION NO. 3:17-CV-0691-S

United States District Court, N.D. Texas, Dallas Division.

Signed August 27, 2018

J. Benjamin King, Reid Collins & Tsai LLP, Dallas, TX, Randall Adam Swick, Reid Collins & Tsai LLP, Austin, TX, for Plaintiffs.

Thomas M. Melsheimer, John C.C. Sanders, Jr., Rex Andrew Mann, Winston & Strawn LLP, Steven H. Stodghill, Fish & Richardson, Dallas, TX, for Defendant.

MEMORANDUM OPINION AND ORDER

KAREN GREN SCHOLER, UNITED STATES DISTRICT JUDGE

This Order addresses the Motion to Dismiss filed by Defendant AdvoCare International, L.P. ("AdvoCare") [ECF No. 34] and the Motion to Dismiss filed by Defendants Wes Bewley, Tyler Deberry, Jenny Donnelly, Dawn Funk, Daniel McDaniel, and Crystal Thurber (collectively, the "Individual Defendants") [ECF No. 35]. For the reasons set forth below, the Court grants in part and denies in part the motions.

I. BACKGROUND

Pursuant to Special Order 3-318, this case was transferred from the docket of Judge Jane J. Boyle to the docket of this Court on March 8, 2018.

This class action lawsuit arises out of allegations that AdvoCare, a company that distributes health and nutritional products, is a pyramid scheme. Plaintiffs Lisa Ranieri ("Ranieri") and Megan Cornelius ("Cornelius") allege that AdvoCare is a pyramid scheme "with a twist" because it sells participants both a product and the right to share in the money paid by other participants. Compl. ¶ 3. The participants in AdvoCare's system are called "Distributors." Id. ¶ 5. Plaintiffs are former Distributors. Id. ¶¶ 191-98. Defendants are AdvoCare and certain individuals that are at or near the top of AdvoCare's alleged pyramid. Id. ¶¶ 11, 23.

To become a Distributor, one must purchase a kit, which cost either $59 or $79 during the relevant time. Id. ¶ 42. Distributors have two opportunities to earn money through AdvoCare: selling products and recruiting other Distributors into their downline.¹ Id. ¶¶ 3, 5-6. Distributors earn commissions and bonuses through their own sales and those of their downlines. Id. ¶¶ 8, 48. AdvoCare receives money from Distributors in the form of fees and product purchases. Id. ¶ 45. In their Complaint, Plaintiffs review at length the commission, bonus, and discount opportunities available to Distributors. See, e.g. , id. ¶¶ 48, 51, 72. Plaintiffs allege that all of these opportunities require Distributors to purchase more product than they can consume or sell and/or that they prioritize recruiting over retail sales. See, e.g. , id. ¶¶ 50, 55-56.

Once a Distributor has generated a certain level of product purchases, either personally or through junior Distributors in his or her downline, he or she can graduate to the Advisor level. Id. ¶ 47. Many of the bonuses and incentives Plaintiffs discuss are only available to Advisors. Id. ¶ 63.

According to Plaintiffs, there is no real opportunity to profit from retail sales, and recruiting is the only way to succeed as a Distributor. Id. ¶¶ 6, 8. They allege that very few people actually make money through AdvoCare, and that the vast majority end up paying more money to AdvoCare than they ever receive in profits. Id. ¶ 10. Further, Plaintiffs contend that most of the money paid out to Distributors comes not from sales to non-Distributors but from the investments made by other Distributors. Id. ¶ 107.

The Individual Defendants represent individuals that have made it to the top of the AdvoCare pyramid and thus have profited from the alleged pyramid scheme. Id. ¶ 11. All of the Individual Defendants have produced videos and made statements on the Internet promoting AdvoCare and touting the benefits of joining. Id. ¶ 147. Plaintiffs detail specific statements made by each Defendant in promotional videos and on their AdvoCare microsites (individual websites hosted by AdvoCare) and explain why they are misleading. Id. ¶¶ 149-75, 177-78. Finally, Plaintiffs allege that the Distributor Defendants work in concert with AdvoCare to promote the company. Id. ¶¶ 176, 179.

Plaintiffs Ranieri and Cornelius joined AdvoCare in 2007 and 2014, respectively, and both were terminated in 2016. Id. ¶¶ 191, 194-98. Ranieri and Cornelius, individually and on behalf of a putative class of similarly situated persons, sued AdvoCare on five counts and the Individual Defendants on three. First, they seek a declaratory judgment declaring the arbitration provision in their contracts unenforceable.² Second, they allege that both AdvoCare and the Individual Defendants violated Sections 1962(c) and (d) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). Plaintiffs allege both primary RICO violations³ and conspiracy to violate RICO. Third, they allege that AdvoCare committed federal securities fraud.⁴ The Complaint does not indicate on which provision(s) of the federal securities laws Plaintiffs' claims are based. Fourth, Plaintiffs bring a claim for unjust enrichment against AdvoCare.

II. LEGAL STANDARDS

A. Rule 12(b)(6)

To defeat a motion to dismiss filed pursuant to Federal Rule of Civil Procedure 12(b)(6), a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; Reliable Consultants, Inc. v. Earle , 517 F.3d 738, 742 (5th Cir. 2008). To meet this "facial plausibility" standard, a plaintiff must "plead[ ] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Plausibility does not require probability, but a plaintiff must establish "more than a sheer possibility that a defendant has acted unlawfully." Id. The court must accept well-pleaded facts as true and view them in the light most favorable to the plaintiff. Sonnier v. State Farm Mut. Auto. Ins. Co. , 509 F.3d 673, 675 (5th Cir. 2007). However, the court does not accept as true "conclusory allegations, unwarranted factual inferences, or legal conclusions." Ferrer v. Chevron Corp. , 484 F.3d 776, 780 (5th Cir. 2007). A plaintiff must provide "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly , 550 U.S. at 555, 127 S.Ct. 1955 (internal citations omitted). "Factual allegations must be enough to raise a right to relief above the speculative level ... on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. (internal citations omitted).

In ruling on a Rule 12(b)(6) motion, the court limits its review to the face of the pleadings. See Spivey v. Robertson , 197 F.3d 772, 774 (5th Cir. 1999). The pleadings include the complaint and any documents attached to it. Collins v. Morgan Stanley Dean Witter , 224 F.3d 496, 498-99 (5th Cir. 2000). However, the court may also consider documents outside of the pleadings if they fall within certain limited categories. First, the "court is permitted ... to rely on ‘documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.’ " Dorsey v. Portfolio Equities, Inc. , 540 F.3d 333, 338 (5th Cir. 2008) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd. , 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) ). Second, the "court may consider documents attached to a motion to dismiss that ‘are referred to in the plaintiff's complaint and are central to the plaintiff's claim.’ " Sullivan v. Leor Energy, LLC , 600 F.3d 542, 546 (5th Cir. 2010) (quoting Scanlan v. Tex. A & M Univ. , 343 F.3d 533, 536 (5th Cir. 2003) ). Third, "[i]n deciding a 12(b)(6) motion to dismiss, a court may permissibly refer to matters of public record." Cinel v. Connick , 15 F.3d 1338, 1343 n.6 (5th Cir. 1994) (internal citations omitted); see also, e.g. , Funk v. Stryker Corp. , 631 F.3d 777, 783 (5th Cir. 2011) (stating, in upholding district court's dismissal pursuant to Rule 12(b)(6), that "the district court took appropriate judicial notice of publicly-available documents and transcripts produced by the [Food and Drug Administration], which were matters of public record directly relevant to the issue at hand." (internal citations omitted) ).

The ultimate question is whether the complaint states a valid claim when viewed in the light most favorable to the plaintiff. Great Plains Tr. Co. v. Morgan Stanley Dean Witter & Co. , 313 F.3d 305, 312 (5th Cir. 2002). At the motion to dismiss stage, the court does not evaluate the plaintiff's likelihood of success. It only determines whether the plaintiff has stated a claim upon which relief can be granted. Mann v. Adams Realty Co. , 556 F.2d 288, 293 (5th Cir. 1977).

B. Rule 9(b)

Because Plaintiffs' Complaint alleges fraud, Plaintiffs must plead the elements of their claims with the heightened particularity required by Rule 9(b). See, e.g. , Coates v. Heartland Wireless Commc'ns, Inc. , 26 F.Supp.2d 910, 914 (N.D. Tex. 1998). Rule 9(b) requires that "[i]in alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). "At a minimum, Rule 9(b) requires allegations of the particulars of time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby." Benchmark Elecs., Inc. v. J.M. Huber Corp. , 343 F.3d 719, 724 (5th Cir. 2003) (quoting Tel-Phonic Servs., Inc. v. TBS Int'l, Inc. , 975 F.2d 1134, 1139 (5th Cir. 1992) ). Put simply, Rule 9(b) requires the "who, what, when, where, and how" of the fraud. United States ex rel. Williams v. Bell Helicopter Textron Inc. , 417 F.3d 450, 453 (5th Cir. 2005) (quoting United States ex rel....