The Nevada Supreme Court held that the state, exercising its police powers, could enact legislation that voids contracts previously entered into. Koscot operated in Nevada, selling cosmetics through a network of independent distributors. The State Legislature enacted a statute that prohibited pyramid programs like Koscot and required program sponsors to return the money of participants on request. Draney requested the return of his money, but Koscot refused. He then sued alleging a violation of the statute. Koscot claimed that the state exceed its power by crafting legislation that voided contracts that had been valid when entered into. The Supreme Court disagreed, holding that the legislature can use its police powers to protect the public by creating remedies like the ones allowed for under the new state pyramid statute.
Full case and case summary are also available at: http://www.mlmlegal.com/legal-cases/Koscot_v_Draney.php.
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