Yan Guo v. Kyani, Inc., Case No LA CV17–08257 JAK (GJSx)

• Decision Date: 01 May 2018
• Docket Number: Case No LA CV17–08257 JAK (GJSx)
• Citation: 311 F.Supp.3d 1130
• Parties: YAN GUO v. KYANI, INC., et al.
• Court: U.S. District Court — Central District of California

311 F.Supp.3d 1130

YAN GUO

v.KYANI, INC., et al.

Case No LA CV17–08257 JAK (GJSx)

United States District Court, C.D. California.

Signed May 1, 2018

Blake J. Lindemann, Lindemann Law Firm, Beverly Hills, CA, for Plaintiff.

Brent V. Manning, C. Seth Ensign, Jess M. Krannich, Pro Hac Vice, Manning Curtis Bradshaw and Bednar PLLC, Salt Lake City, UT, Lawrence B. Steinberg, Buchalter APC, Los Angeles, CA, for Defendant.

Proceedings: (IN CHAMBERS) ORDER RE DEFENDANTS KYANI, INC. AND MICHAEL BRESHEARS MOTION TO DISMISS COMPLAINT (DKT. 17, 28);

DEFENDANTS KYANI, INC. AND MICHAEL BRESHEARS MOTION TO DISMISS FIRST AMENDED COMPLAINT (DKT. 38);

DEFENDANTS KYANI, INC. AND MICHAEL BRESHEARS MOTION TO STAY (DKT. 39);

DEFENDANT KIRK HANSEN'S JOINDER TO PENDING MOTIONS (DKT. 63)

Present: The Honorable JOHN A. KRONSTADT, UNITED STATES DISTRICT JUDGE

I. Introduction

Yan Guo ("Yan"¹ ) and Ju Jin Guo ("Ju Jin") (collectively, "Plaintiffs"), individually and on behalf of all others similarly situated, brought this action against Kyäni, Inc. ("Kyäni"), Michael Breshears ("Breshears") and Kirk Hansen ("Hansen") (collectively, "Defendants"). Dkt. 1. The claims arise out of Plaintiffs' role as distributors of certain health and wellness products. They contend that Defendants have established the distributorships as part of a "pyramid scheme," in which distributors are required to make certain payments and to recruit others to become distributors who are also obligated to make such payments.

On January 31, 2018, Defendants filed an Arbitration Demand with the American Arbitration Association ("AAA") in Idaho Falls, Idaho as to Yan. See Declaration of Lawrence B. Steinberg ("Steinberg Decl."), Dkt. 23–2 ¶ 2. The following day, Plaintiffs filed the First Amended Complaint ("FAC"). Dkt. 27. Thereafter, on February 12, 2018, Defendants filed a First Amended Arbitration Demand with the AAA as to Yan. See Ex. B to Declaration of C. Seth Ensign ("Ensign Decl."), Dkt. 39–3. The same day, Defendants also filed with the AAA an Arbitration Demand as to Ju Jin. See Ex. A to Ensign Decl., Dkt. 39–2.

On January 11, 2018, Kyäni and Breshears (collectively, the "Moving Defendants") filed a motion to dismiss on the grounds of forum non conveniens ("Forum Non Conveniens Motion"). Dkt. 17. Plaintiffs opposed the Forum Non Conveniens Motion (Dkt. 24),² and the Moving Defendants replied. Dkt. 32. On February 20, 2018, the Moving Defendants filed a motion to dismiss for failure to state a claim ("12(b)(6) Motion"). Dkt. 38. Plaintiffs opposed the 12(b)(6) Motion (Dkt. 53), and the Moving Defendants replied. Dkt. 57. The Moving Defendants also filed a motion to stay this action ("Motion to Stay"). Dkt. 39. Plaintiffs opposed the Motion to Stay (Dkt. 52), and the Moving Defendants replied. Dkt. 58. On March 30, 2018, Hansen filed a notice of joinder³ in the Forum Non Conveniens Motion, the 12(b)(6) Motion and the Motion to Stay (collectively, the "Motions"). Dkt. 63.

On April 9, 2018, a hearing on the Motions was held and they were taken under submission. Dkt. 67. For the reasons stated in this Order, the Forum Non Conveniens Motion is DENIED , the 12(b)(6) Motion is GRANTED IN PART and DENIED IN PART , and the Motion to Stay is DENIED .

II. Factual Background

A. The Parties

Yan and Ju Jin are citizens of California. FAC ¶¶ 5–6.

Kyäni is an Idaho corporation. It is a network marketing company that distributes health and wellness products through a network of independent contractor distributors ("Distributors"). Declaration of Kristen Pearson ("Pearson Decl."), Dkt. 17–1 ¶ 3. The FAC alleges that Breshears and Hansen founded Kyäni in 2005. FAC ¶ 21. It alleges that Breshears is the Chief Executive Officer of Kyäni and that Hansen is Kyäni's Founder and Chairman. Id. ¶¶ 8–9. Breshears and Hansen are alleged to be "at the top of Kyäni's pyramid" because they are in the "top 1% of Distributors who make the most lucrative bonuses." Id. ¶¶ 87–88. The FAC alleges that Breshears and Hansen have profited from Kyäni's compensation plan "at the expense of the vast majority of" Distributors. Id.

B. Allegations in the FAC

The FAC alleges that to become a Distributor, an individual must pay Kyäni between $600 and $1299. FAC ¶ 23. It alleges that Yan became a Distributor on or about June 2016 by paying Kyäni approximately $1500. Id. ¶ 94. It alleges that Ju Jin became a Distributor in 2015 by paying Kyäni the same sum. Id. ¶ 96; see also Supplemental Declaration of Kristen Pearson ("Pearson Supp. Decl."), Dkt. 32–1 ¶ 5.

The FAC alleges that Distributors earn certain bonuses by "recruiting people through a pay gate accumulator." FAC ¶ 32. It alleges that Defendants' "marketing plan ... systematically rewards recruiting Distributors over the sale of products." Id. ¶ 1. It alleges that Kyäni instructs Distributors to recruit new distributors through "private business receptions" and "massive 3–way calls." Id. ¶¶ 49, 56. A "private business reception" involves a Distributor hosting an event at his or her personal residence for recruits. Id. ¶ 50. The FAC alleges that Kyäni represents to Distributors that if they make 3–way calls every day, they "will be a diamond." Id. ¶ 57. It alleges that pursuant to Kyäni's compensation plan, Distributors "gain[ ] a rank" only for their recruitment efforts. Id. ¶ 69.

The FAC alleges that Distributors cannot successfully sell Kyäni's health and wellness products because they are priced so high, are available from other distributors at lower prices, and sales through numerous online retailers and brick-and-mortar stores are prohibited by Kyäni. Id.¶¶ 70, 81, 83. It also alleges that Kyäni has made certain misrepresentations regarding the quality of its products. Id. ¶¶ 73–76.

The FAC alleges that Defendants operate an "illegal pyramid scheme." Id. ¶ 3. It alleges that Kyäni's representatives, "including the executive team that authorized solicitation, marketing, and training materials," such as Bresehars and Hansen, made certain misrepresentations to Plaintiffs that imply that being a Distributor is profitable. Id. ¶¶ 20–80. It alleges, for example, that Kyäni represents that Distributors' cash flow will grow in "size and stability" and that "one can build strong... business ownership for a lifetime" as a Kyäni distributor. Id. ¶ 67.

C. The Proposed Class

Plaintiffs seek to represent a nationwide class of: "persons who paid start-up fees, monthly fees, annual fees, seminar ticket fees, any other fees imposed by Kyäni, and/or purchased products from Kyäni between January 1, 2011, to the present date, who lost money from their participation in the Kyäni scheme." FAC ¶ 103. Plaintiffs also seek to certify two subclasses. Id. ¶¶ 105–06.

D. The Causes of Action in the FAC

The FAC advances ten causes of action against Defendants: (i) declaratory relief; (ii) operation of an endless chain scheme, Cal. Pen. Code § 327, Cal Civ. Code § 1689.2 ; (iii) unfair and deceptive business practices, Cal. Bus. & Prof. Code §§ 17200 et seq. ; (iv) false advertising, Cal. Bus. & Prof. Code §§ 17500 et seq. ; (v) fraudulent concealment and nondisclosure; (vi-vii) violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961(5), 1962(c) ; (viii) federal securities fraud; (ix) unjust enrichment and (x) violations of the California Seller Assisted Marketing Plan Act ("CSAMPA"), Cal. Civ. Code §§ 1812.200 et seq.

E. Evidence Submitted by Defendants in Support of the Forum Non Conveniens Motion

1. Declaration Prepared by Kyäni's Global Compliance Director

Defendants submitted a declaration prepared by Kristen Pearson ("Pearson"), Kyäni's Global Compliance Director, in support of the Forum Non Conveniens Motion. Pearson Decl., Dkt. 17–1. Pearson declares that to become a Distributor, a person must submit an online application through Kyäni's website. Id. ¶ 5. As part of the application process, prospective distributors are required to consent to three separate agreements—the Electronic Consent Agreement, Kyäni's Policies & Procedures and Kyäni's Independent Distributor Agreement Terms & Conditions (collectively, "the Agreements"). Id. ¶¶ 6, 9, 11. Prospective distributors may review the Agreements on Kyäni's website or download copies of them in PDF form during the application process. Id. ¶¶ 12, 14. An applicant cannot become a Distributor unless that person checks three boxes on Kyäni's website confirming agreement to the terms and conditions presented in each of the Agreements. Id. ¶¶ 13, 15. Pearson declares that Yan and Ju Jin could have become Distributors only after going through these steps. Pearson Supp. Decl., Dkt. 32–1 ¶ 18.

Defendants submitted a supplemental declaration prepared by Pearson with their reply brief. Pearson Supp. Decl., Dkt. 32–1. The supplemental declaration includes certain information concerning Ju Jin, apparently because Ju Jin was added as a party after the Forum Non Conveniens Motion was filed. Pearson declares that a person by the name of "Ju Jin" applied to be and became a Kyäni distributor on December 30, 2015. Id. ¶ 17. Although the application submitted by "Ju Jin" did not include the last name "Guo," it appears that "Ju Jin" is the same Ju Jin as the Plaintiff in this action. Id. ¶ 19.

2. The Kyäni Independent Distributor Agreement Terms & Conditions

The Kyäni Independent Distributor Agreement Terms & Conditions ("Independent Distributor Agreement") governs the relationship between Kyäni and Distributors. See Ex. A to Pearson Decl., Dkt. 17–1 at 4 (Independent Distributor Agreement). The Independent Distributor Agreement states, in relevant part:

[t]he Distributor Agreement between the Distributor and Kyäni has been entered into in Idaho Falls, Idaho, United States of America, as this is the location where the Distributor submitted the application to enroll as a Kyäni Independent Distributor, and where the application was reviewed and approved by Kyäni. The Distributor Agreement shall be governed exclusively by the laws of

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