Justice for All
This year, DSN debuted a new award that honors the companies that serve as incredible partners to the direct-selling industry. This award recognizes supplier companies that uplift, support and contribute to the evolution and growth of the direct selling channel.
In recognition of its successful defense of Neora in an epic victory against the Federal Trade Commission (FTC), the inaugural winner of the new Bravo Supplier Award is Foley & Lardner. Foley is not new to the industry. It has been representing direct selling companies for over 40 years.
The Dream Team
For seven years, Neora battled allegations brought by the FTC that the company was operating as a pyramid scheme, among other claims—including income, means and instrumentalities, product and agency. In September 2023, Neora made history when it became the first US direct selling company to triumph over the FTC’s pyramid scheme claims in a court trial since Amway’s administrative law win in 1979.
Foley & Lardner represented Neora in this landmark case, with Edward (“Ed”) Burbach serving as Neora’s Lead Counsel throughout the seven-year battle. As the chair of Foley’s Government Solutions Practice and co-chair of its State Attorneys General Practice, Burbach was uniquely qualified to oversee the defense.
Before joining Foley, Ed was appointed by now-Texas governor, Greg Abbott, as his original deputy attorney general for litigation, Ed served as Texas’ lead litigator and supervised all of Attorney General Abbott’s 11 civil litigation divisions, including 250 attorneys, 600+ employees and a $35 million budget. It was in this role that he was first exposed to the direct selling industry—ironically by investigating and bringing claims against them.
Ed and his national team specialize in State Attorneys General and FTC investigations and claims. Over the last 30 years, Ed has litigated a broad range of regulatory investigations and claims for clients, including those in retail, direct sales, health care, Medicaid, antitrust and corporate. So, when Neora needed a partner to fight the federal government, Ed and Foley stepped up as the David to the FTC’s Goliath.
Landmark Lessons
The court not only ruled in Neora’s favor, but it rejected every claim. This overwhelming loss for the FTC was an unbelievable win for the direct selling industry in terms of adding credibility and proving legitimacy. However, there are several important lessons other companies can learn from this historic ruling.
- Be prepared. “Despite losing to Neora, it’s important to realize that the FTC will not stop pursuing direct selling companies. Your company may one day be the target of the FTC or other legal actions,” Ed warned. “Be prepared by adopting and implementing governing documents with robust compliance.” Examples of these documents include policies and procedures, compensation plan and advertising policies.
- Play defense. “The biggest challenges for Foley and our clients were the tactics undertaken by the FTC,” Ed stated. “The FTC has a policy of not sharing their evidence before filing suit. There is no federal law defining a pyramid scheme and the FTC has not adopted a definition through rulemaking. Instead, it tried to move the industry with non-binding Staff ‘Guidance’ and litigation.” It’s thus essential for businesses to have their ducks in a row and try to understand the FTC’s latest expectations.
- Get involved. Due to their disdain and distrust of the channel (likely fed by the actions of bad apples in the industry), the FTC has made the entire industry a target. Per Ed, “Direct selling businesses need to stay apprised of the actual law and the FTC’s actions to better protect their rights. It is very important for the channel to be involved in the FTC’s rulemaking to create clearer legal standards.”
The Final Verdict
After their win, Neora is seeking an award of $5.8 million—merely a portion of their attorneys’ and experts’ fees and expenses—from the FTC under the limitations of the Equal Access to Justice Act. “We hope that if the award is made, it will encourage more open discussions with the FTC prior to suit,” Ed said. “The direct selling channel has had longevity because the model is effective. Even in this world of artificial intelligence and social media, humans still enjoy connecting with other people and would rather buy from those they know. However, to remain successful, direct selling companies must operate in a proper—and legal—manner.”
Ed also noted that having a client like Neora made the fight easier. “I would like to thank Neora and Jeff Olson for putting their trust in Foley & Lardner and being willing to fight the good fight. The live courtroom testimony of Founder and CEO Jeff Olson, Co-CEO Deborah Heisz, Co-Founder and President Amber Olson Rourke and Director of Compliance Sandra Davis was outstanding.”
He also noted the invaluable contributions of his team. “My colleagues provided excellent support throughout the 3.5 years of investigation and over four years of litigation in three federal court venues—Chicago, Trenton and Dallas. Special recognition to those also on my top-notch trial team, Craig Florence, Rob Johnson and Michelle Ku, as well as trial support from John Sepehri, Stephanie McPhail and Nita Overton.”
On behalf of the industry at large, DSN would like to congratulate and thank Ed and the entire Foley & Lardner team for their significant and historic contribution to the direct selling channel.
From the June 2024 issue of Direct Selling News magazine.
