Seastrom v. Neways

Are distributors with extensive down-lines appropriate class representatives?

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The California Court of Appeals held that distributors with extensive downline are not appropriate class representatives in a suit against the MLM company. Seastrom was a distributor of Neways' oral spray that contained Human Growth Hormone, a product that required a prescription. Neways was shut down for distributing the product without requiring prescriptions, and the distributors sued for fraud, seeking certification of a class of all person who purchased the product. The court ruled that the distributors, who had reached the "diamond level", were not appropriate class representatives because their claims did not represent those of the entire class, and were in fact divergent from a significant number of the potential class members. The distributors had made significant profits from selling the product to their downline, and challenged the contention that they should disgorge their profits in the same way that the company had. Because their profits were made at the expense of those defrauded in their downline, they were not appropriate class representatives.

Case and case summary are also available online at: http://www.mlmlegal.com/legal-cases/Seastrom_v_Neways.php

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Published In: Civil Procedure Updates, MLM / Direct Sales Updates, MLM Consulting / Network Marketing Updates

Reference Info:State, 9th Circuit, California | United States

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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