United States District Court, N.D. Texas, Dallas Division
LISA RANIERI and MEGAN CORNELIUS, individually and on behalf of a class of similarly situated persons
ADVOCARE INTERNATIONAL, L.P.
MEMORANDUM OPINION AND ORDER
GREN SCHOLER UNITED STATES DISTRICT JUDGE.
Order addresses Defendant AdvoCare International, L.P.'s
("Defendant" or "AdvoCare") Motion to
Dismiss [ECF No. 57]. For the reasons set forth below, the
Court grants the Motion.
class action lawsuit arises out of allegations that AdvoCare,
a company that distributes health and nutritional products,
is a pyramid scheme. The participants in AdvoCare's
system are called "Distributors," Am, Compl. ¶
1. Plaintiffs Lisa Ranieri and Megan Cornelius
("Plaintiffs") are former Distributors.
Id. ¶¶ 194, 198. Plaintiffs joined
AdvoCare in 2007 and 2014, respectively, and both were
terminated in 2016. Id. ¶¶ 194, 197-201.
"At all times that Plaintiffs were associated with
AdvoCare, the AdvoCare 'Distributor Agreement' set
forth the terms and conditions of the contractual
relationship between AdvoCare and its Distributors."
Id. ¶ 24. The Distributor Agreement and
AdvoCare's "Policies, Procedures and the
Compensation Plan" comprised the contract between
Distributors and AdvoCare. Id. ¶¶ 24-25.
must pay initial and annual fees to access AdvoCare's
Compensation Plan. Id. ¶ 37. Through its
bonuses, the Compensation Plan allegedly "encourages
and, as a practical matter, requires Distributors to pay
AdvoCare more money through the purchase of products to
receive compensation." Id. Plaintiffs allege
that Distributors are unable to make any significant retail
sales and that AdvoCare makes extremely few retail sales.
Id. ¶ 38. Plaintiffs contend that "the key
to succeeding in AdvoCare is recruiting," not selling
product. Id. ¶¶ 90, 103. According to
Plaintiffs, AdvoCare uses commissions, bonuses, and the
prospect of advancement to encourage Distributors to recruit
and "inventory load." Id. ¶¶ 50-89.
a classic pyramid scheme," Plaintiffs allege,
"AdvoCare pays Distributors with other Distributors'
money." Id. ¶ 102. According to
Plaintiffs, the "overwhelming majority" of money
made by AdvoCare during the relevant time came from
Distributors. Id. Ergo, the "overwhelming
majority" of the money AdvoCare used to pay Distributors
must have come from other Distributors. Id. Due to
this compensation structure, Plaintiffs allege that
"[v]ery few Distributors make any money at all from
their participation in AdvoCare, and the vast majority lose
money," Id., ¶ 135.
Amended Complaint, Plaintiffs refer to certain individuals
formerly named as defendants in this case as "Scheme
Beneficiaries." Id. ¶ 149. Plaintiffs allege
that these individuals are in the top 2% of Distributors,
"actively participate in AdvoCare's pyramid
scheme," and "profit from the Compensation Plan at
the expense of the vast majority of Distributors."
Id. Plaintiffs contend that these individuals
"seek to intentionally mislead people" to recruit
new Distributors and to ensure that current Distributors
continue participating in the AdvoCare system, "which
requires the purchasing of product and recruiting, all to the
benefit of AdvoCare and the Scheme Beneficiaries."
Id. ¶ 179. "It is the continued hard work
of the Distributors at recruiting that will affect the
ability of AdvoCare and the Scheme Beneficiaries to continue
to reap financial rewards." Id.
to Plaintiffs, the so-called Scheme Beneficiaries "exist
by design." Id. ¶ 188. "Likely
because of its dependence on the Scheme Beneficiaries'
maintenance of their downlines," AdvoCare allegedly
"allows the Scheme Beneficiaries to manipulate the
Compensation Plan." Id. ¶ 190. Plaintiffs
allege that certain of these individuals wrongfully
transferred money to downline Distributors, practiced
inventory loading, and sold products through online retailers
in violation of AdvoCare's policies. Id.
¶¶ 190-91, 193.
individually and on behalf of a putative class of similarly
situated persons, initially sued AdvoCare on five counts and
certain individual defendants on three counts. AdvoCare and
the individual defendants moved to dismiss Plaintiffs'
claims, and the Court granted in part and denied in part both
motions on August 27, 2018. See ECF No. 48. On
September 11, 2018, Plaintiffs dismissed the individual
defendants and moved for leave to amend their claims against
AdvoCare. See ECF No. 51. On September 12, 2018, the
Court granted that motion. See ECF No. 52.
Plaintiffs now bring two causes of action against AdvoCare.
First, they seek a declaratory judgment declaring the
arbitration provision in their contracts
unenforceable. Second, they allege that AdvoCare engaged
in racketeering activity in violation of §§ 1961(5)
and 1962(c) of the Racketeer Influenced and Corrupt
Organizations Act ("RICO"). Defendant moves to
dismiss only the RICO cause of action.
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 (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 (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 (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
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
plaintiffs 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).
makes it unlawful for 'any person employed by or
associated with any enterprise ... to conduct or participate,
directly or indirectly, in the conduct of such
enterprise's affairs through a pattern of racketeering
activity.'" Allstate Ins. Co, v. Platnbeck,802 F.3d 665, 673 (5th Cir. 2015) (quoting 18 U.S.C. §
1962(c)). Defendant challenges whether Plaintiffs have
sufficiently pleaded the existence of an enterprise.
"RICO defines an enterprise as 'any individual,
partnership, corporation, association or other legal entity,
and any union or group of individuals associated in fact
although not a legal entity."' Id. (quoting
18 U.S.C. § 1961(4)). "This enumeration of included
enterprises is obviously broad, encompassing 'a ...