Former Equinox representatives join suit against Las Vegas multilevel marketer

David Strow

Friday, Dec. 17, 1999 | 11:22 a.m.

A federal judge has allowed a group of former Equinox International Corp. representatives to join a Nevada action against the Las Vegas network marketing company, in a move that could expand the case into a class-action lawsuit.

Meanwhile, 15 existing representatives are asking the court to sanction the Federal Trade Commission and the state of North Carolina for violating established rules of law in their quest for evidence against Equinox.

The six representatives added to the case by Judge Johnnie Rawlinson had been pursuing a class action case against Equinox in Texas state court. In her order, Rawlinson said adding the Texas plaintiffs would help "conserve judicial resources."

The Federal Trade Commission and eight states, including Nevada, have accused Equinox in Las Vegas federal court of operating an illegal pyramid scheme, and are seeking to recover damages on behalf of Equinox's former representatives, as well as a court order shutting the company down.

Equinox has denied the government claims, saying it is operating a legal network marketing company, along the lines of industry leader Amway. The company sells a line of health and beauty products, as well as water filtration devices, through a network of 40,000 independent distributors.

The Texas representatives had initiated their case in 1997, also accusing Equinox of operating an illegal pyramid scheme in violation of federal securities laws. Although a Texas court had already granted their motion to represent all Equinox representatives from 1991 to 1997, the new plaintiffs must still convince Rawlinson to grant them class action status in Las Vegas.

That had caused the FTC to object to adding the Texas plaintiffs. In previous filings, the FTC argued that their efforts to win class action certification would unnecessarily slow down the case, now scheduled to go to trial in April. Since the Texas representatives were primarily interesting in winning monetary compensation, the FTC argued, they should wait until the case had reached the damages phase.

But Rawlinson disagreed, saying that the only way the new plaintiffs would delay the case was if Equinox opposed their motion, and Equinox did not protest their initial filing.

"The court does not believe that resolving any class action issues will prejudice the FTC case," Rawlinson wrote.

Since then, Rawlinson has been asked for a protective order by 15 existing Equinox representatives who are protesting subpoena requests sent out by the FTC.

"My clients believe that this (government subpoenas) is a clear case of a private agenda being advanced by public agencies at the cost of people who do not have vast financial resources to defend themselves while still trying to earn a living," said attorney Robert Graham in an affidavit.

These subpoenas ask for all materials and documents relating to the representatives' sales dating back to 1992. This would cover such items as receipts, sales documents, sales tapes, customer lists and income tax returns. The representatives, who were not named as defendants, call these requests "overbroad."

"To fully respond to these requests would, in many cases, require not just boxes, but pallets of information," the motion states. "If these small business owners were to fully comply with these exhaustive requests, they would likely lose income with which they need to feed their families."

The representatives are also protesting the request for tax forms and customer lists. Customer lists, the representatives claim, could be used by competitors to steal business.

Their motion requests that any tax forms released be subject to confidentiality agreements.

The motion also asked for sanctions against the FTC and North Carolina over incidents that allegedly occurred earlier this month.

On Dec. 8, three representatives claim they were contacted by officials with the North Carolina attorney general's office. Even after the representatives gave the North Carolina officials the names of their attorneys, they claim the callers continued to press for information and then advised the representatives about how much information should be provided in answer to the subpoenas.

This, the lawsuit states, violates established rules of conduct, which mandate that attorneys must communicate their requests to a client's attorney.

In a second case, representative Cal James said he was questioned by an FTC attorney Dec. 10 while his attorney was absent. In this case, James claims the FTC attorney asked what information James had provided to his attorney, a question that violated the client-attorney privilege, the motion states.

The representatives also provided a letter, dated Oct. 8, that was sent by the North Carolina attorney general's office to all Equinox distributors in that state. The letter states that a lawsuit had been filed, and that "the judge found that Equinox International met the test of a pyramid scheme." The letter then asks Equinox representatives to contact the attorney general to provide information on their experiences with the company.

The motion by the Equinox representatives called this letter "destructible" to all Equinox representatives.

"These letters seem to the receiving party that the government is putting Equinox out of business, so go find another way to make money," the motion states.

The representatives asked for $1,750 in sanctions against the FTC and North Carolina.