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Ranieri v. AdvoCare International L.P.

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

July 16, 2019

LISA RANIERI and MEGAN CORNELIUS, individually and on behalf of a class of similarly situated persons
v.
ADVOCARE INTERNATIONAL, L.P.

          MEMORANDUM OPINION AND ORDER

          KAREN GREN SCHOLER UNITED STATES DISTRICT JUDGE.

         This 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.

         I. BACKGROUND

         This 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.

         Distributors 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."[1] Id. ¶¶ 50-89.

         "[L]ike 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.

         In the Amended Complaint, Plaintiffs refer to certain individuals formerly named as defendants in this case as "Scheme Beneficiaries."[2] 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.

         According 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.

         Plaintiffs, 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.[3] 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.

         II. LEGAL STANDARD

         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 (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 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 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).

         III. ANALYSIS

         "RICO 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 ...


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