The court held that Koscot's structure was inherently fraudulent under the New Jersey Consumer Fraud Act. The State attorney general alleged that the marketing practices used by Koscot were deceptive. Koscot overstated potential compensation during recruitment meetings and failed to disclose to potential distributors all of the fees and commissions that they would have to pay to the company to remain in good standing. Koscot defended on the grounds that all of the distributors who made the deceptive statements were independent contractors, not employees, and because of this Koscot could not be held liable for their statements. The court, stating that it could find not general rule of law that independent contractors who were acting under the direction of their principle could not make the principle liable through the contractor’s actions, categorically rejected this argument. To hold so would allow Koscot to use its independent distributors as a shield against liability, while continuing to direct their fraudulent activities.

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