Did the 5th Circuit Just Call Texas-based Ignite a Pyramid Scheme?

UPDATE 10/4/17: The U.S. Supreme Court has denied defendants’ last-ditch effort to appeal a Fifth Circuit Court of Appeals decision affirming certification of the class. The Fifth Circuit, after vacating a previous judgment in favor of the defendants and granting a petition for rehearing the case en banc (before all judges of the court), affirmed a district court’s decision to certify the class in September 2016. That gave the case the go-ahead to proceed as a class action. The Supreme Court’s decision returns the case to district court for proceedings. What follows is Bonnie Patten’s original blog on the issue.

The Fifth Circuit Court of Appeals in a two-to-one decision in 2015 decided that failed distributors of a Dallas-based Multilevel Marketing – a way of distributing products or services in which the distributors earn income from their own retail sales and from retail sales made by their direct and indirect recruits. doing business as Ignite could not bring a lawsuit against the company as a class action under the Racketeer Influenced and Corrupt Organizations (RICO) Act. The decision has prompted TINA.org to get involved in the case as (Latin for “friend of the courts.”) A person or organization that is not a party to a lawsuit but has a significant interest in the case and offers information that may be important to the court’s determination. to urge the Fifth Circuit to reconsider its decision that effectively shields pyramid schemes in this jurisdiction from ever facing civil class-action lawsuits.

While much of the decision wallows in the legal weeds, what is interesting from a factual perspective is that the majority opinion found ample evidence that the company, which markets energy and mobile services through its Ignite arm, is a pyramid scheme.

Here’s some of the pyramid scheme highlights from the decision:

• “Ignite’s Presidential Directors . . . implied that Ignite was a pyramid scheme.”
• “In presentations to [distributors] and prospective [distributors], these officers repeatedly underscored that the way to make money was by recruiting other [distributors], not recruiting customers.” (emphasis in the original)
• “A [distributor]’s success depends primarily on recruiting a ‘downline’ of other [distributors] who, in turn, recruit other [distributors] and customers into the Ignite program.”
• “The record shows, for example, that Greg McCord admonished [distributors] in one presentation that ‘if you keep concentrating on customers, you won’t make money.’”
• “Although these Presidential Directors did not use the term ‘pyramid scheme’ to describe Ignite, a reasonable prospective [distributor] could reasonably construe these representations as the hallmarks of a pyramid scheme: Ignite predominately pushes recruiting over selling, and thus expanding the number of [distributor] participants, over customer acquisition.”
• “Presidential Director Randy Hedge repeatedly referred to the multi-level marketing business as a ‘pyramid.’ To illustrate, he told his audience on one occasion: “I don’t care if you call [Ignite] an octagon, parallelogram, rectangle – they’re sending me a check.’”
• Presidential Director Randy Hedge “shared an anecdote about recruiting an individual into Ignite after calling it a ‘pyramid deal’ because the prospective [distributor] was only really interested in whether the deal was ‘makin’ any money.’”

And finally, the majority opinion states, “the record in this case suggests that investors were told that it was a pyramid scheme.”

Indeed, it was the evidence that the defendants are running a pyramid scheme that led the court to reject the certification of the class, because, according to the court opinion, some plaintiffs might have known that Ignite was not a legitimate business opportunity but actually an illegal pyramid scheme.

The decision, to say the least, puts Ignite on TINA.org’s list of MLMs to watch.

For more information on TINA.org’s legal efforts in this case, click here.