The issue in this case is whether a marketing and promotion plan by Fortune in Motion, Inc., constituted an illegal chain distribution scheme pursuant to WIS. ADM. CODE § ATCP 122.01. At summary judgment, the trial court ruled that the Fortune in Motion plan did not violate the administrative rule. Based on this holding, the court dismissed the State's forfeiture and injunction action against Fortune in Motion, Inc., its president, David Kalenuik, and
We hold that a material issue of fact exists as to whether the Fortune in Motion plan constitutes a "chain distributor scheme" as defined in WIS. ADM. CODE § ATCP 122.02. We reverse the trial court's grant of summary judgment. We remand for further proceedings on the State's complaint.
The Wisconsin Statutes and Administrative Code
Section 100.20(1), STATS., prohibits unfair trade practices, and § 100.20(2) authorizes the Department of Agriculture to issue general orders forbidding certain trade practices. Pursuant to this authority, the Department enacted WIS. ADM. CODE § ATCP 122.01 which makes the use of a chain distributor scheme "in connection with the solicitation of business investments from members of the public" an unfair trade practice. This rule also recites the public policy which underpins the prohibition of chain distribution schemes:
WISCONSIN ADM. CODE § ATCP 122.01.
WISCONSIN ADM. CODE § ATCP 122.02 defines a "chain distributor scheme" as follows:
The Fortune in Motion Marketing Plan
The structure of the Fortune in Motion marketing plan is set out in its promotional materials.
In order to enter the Red Circle, the applicant must be sponsored by someone who is already an active broker. In addition, the applicant must also purchase or sell $500 worth of travel vouchers which can be purchased only from the Green Circle broker who receives all payments for the vouchers.
Once admitted to the Red Circle, the new Red Circle broker, together with other brokers already in the circle or those who arrive thereafter, solicit and sponsor other persons as prospective Red Circle brokers. Once the eight positions on the Red Circle are filled, the circles divide and the eight Red Circle members become members of separate Orange Circles comprised of four brokers each. Likewise, the four members of the Orange Circle become members of separate Yellow Circles comprised of two brokers each; and the two members of the Yellow Circle each become a sole broker in separate Green Circles, replacing the existing Green Circle brokers who must then depart the plan.
Thus, the completion of a Red Circle team repeatedly triggers a division and multiplication of the circles. It also triggers the advancement of a participant to the next circle. Reaching the Green Circle represents the payoff since the Green Circle broker sells all of the vouchers and receives the $500 payment made by each of the eight new entrants to the Red Circle. Thus, the Green Circle broker receives a total payment of $4000. The Green Circle broker buys the eight vouchers from Fortune in Motion, Inc., for $62.50, representing an expense of $500. Less the initial $500 entrance payment, the Green Circle broker will have netted $3000 upon departing the plan.
THE TRIAL COURT PROCEEDINGS
In October 1995, the State filed a complaint against Fortune in Motion seeking an injunction and civil forfeitures. The complaint alleged that Fortune in Motion, Inc., was a Canadian corporation and that Kalenuik, its president, was the principal proponent of the Fortune in Motion marketing plan which "promotes, offers and grants participation to interested recruits the opportunity to participate in a chain distributor scheme . . . ." The complaint additionally identified Boyles and Burling as principal promoters of the Fortune in Motion distribution scheme in Wisconsin. The State also filed a motion seeking a temporary injunction against the plan. The trial court denied the motion.
Fortune in Motion then brought the motion for summary judgment which is the subject of this appeal. Fortune in Motion argued that its marketing plan was not a "chain distributor scheme" under the definition
The trial court granted Fortune in Motion's summary judgment motion and denied the State's concurrent motion. The court stated:
On June 14, 1996, the trial court entered a judgment dismissing the State's complaint. The State appeals the court's grant of summary judgment to Fortune in Motion. However, the State does not appeal the trial court's further ruling denying its motion for partial summary judgment.
Procedural History on Appeal
Before we address the appellate issue on the merits, we recite some of the procedural history regarding
In addition, separate counsel for Burling and Boyles also previously asked this court for permission to withdraw. This motion was based upon the clients' failure to cooperate with counsel and pay attorney's fees. We also granted this withdrawal request.
Following these orders, this court advised and warned all the respondents that they risked the sanction of summary reversal if they did not file respondents' briefs. Despite these warnings, Fortune in Motion, Inc., Kalenuik and Burling failed to file briefs. Therefore, as a sanction, we previously summarily reversed the judgments in favor of these parties. Boyles, however, has filed a pro se respondents' brief and he also appeared pro se at the oral argument in this case. While we appreciate Boyles' brief and oral argument presentations, they speak to his claim of an innocent intent and not to the legal issues before us.
Thus, we do not have any respondents appellate brief which meaningfully defends the trial court's ruling or addresses the issues raised by the State. However, the appellate record does include the extensive and well-stated trial court brief on behalf of Fortune of Motion, Inc., and Kalenuik in support of their motion for summary judgment. This brief was adopted by Burling and Boyles in support of their separate
We review a summary judgment de novo, using the same standards and methodology applied by the trial court. See Voss v. City of Middleton, 162 Wis.2d 737, 748, 470 N.W.2d 625, 629 (1991). "If the moving party has made a prima facie case for summary judgment, the court must examine the affidavits and other proof of the opposing party . . . to determine whether there exist disputed material facts, or undisputed material facts from which reasonable alternative inferences may be drawn, sufficient to entitle the opposing party to a trial." Grams v. Boss, 97 Wis.2d 332, 338, 294 N.W.2d 473, 477 (1980). The court must grant summary judgment if the pleadings, depositions, answers, admissions and affidavits show that there is no genuine issue of material fact and, as a matter of law, the moving party is entitled to judgment. See Voss, 162 Wis. 2d at 748, 470 N.W.2d at 629.
The parties' cross-motions for summary judgment raised the same issue: whether the Fortune in Motion marketing program is a "chain distributor scheme." WISCONSIN ADM. CODE § ATCP 122.02(1) defines a "chain distributors scheme" as follows:
The case law from the supreme court has broken this administrative rule out into five elements: "(1) A person must be granted a license or right, (2) in return for an investment, (3) which gives [the person] the right to recruit for profit, (4) persons to whom similar licenses are granted, and (5) in return for an investment." HM Distribs. of Milwaukee, Inc. v. Department of Agric., 55 Wis.2d 261, 270, 198 N.W.2d 598, 604 (1972).
The trial court ruled that the Fortune in Motion marketing program did not satisfy the definition of a chain distribution scheme under WIS. ADM. CODE § ATCP 122.02(1) because it did not require that an investment be made. The court rested its ruling on the definition of "investment" set out in WIS. ADM. CODE § ACTP 122.02(2):
The court noted that the evidence adduced at the hearing on the temporary injunction
We fully accept that the sales efforts of a person seeking admission to the Red Circle represent "personal services" generally. However, we must focus on the meaning to be given "personal services" for purposes of WIS. ADM. CODE § ATCP 122.02(2). While no cases have defined "personal services" as used in this provision of the administrative code, our supreme court has defined the phrase in a different setting as follows:
State v. Vodnik, 35 Wis.2d 741, 749, 151 N.W.2d 721, 725 (1967).
The summary judgment record here raises a serious question as to whether the sales efforts of a Red Circle applicant qualify under the "personal services" exception to an investment pursuant to WIS. ADM. CODE
The summary judgment record also reveals that it makes no difference to Fortune in Motion or the applicant whether the applicant gains admission to the plan by direct investment or by a sale of the vouchers to a third party. From the standpoint of Fortune in Motion, the profit motive lies in the repeated admission of new persons to the marketing plan so that the Green Circle broker is paid funds, a portion of which must be used to purchase the travel vouchers from Fortune in Motion. From the standpoint of the applicant, the profit motive lies in the hope of attaining Green Circle broker status. Neither of these goals is directly linked to the rendering of personal services to Fortune in Motion.
We also observe that the interplay between the applicant and Fortune in Motion under this particular plan is not akin to the relationship which traditionally exists in a personal services arrangement between an employer and employee, a principal and agent, or the parties to an independent contractor relationship. As we have noted, Vodnik holds that, regardless of the relationship, "[the] human labor must in the nature of a service as distinguished from the end product or the fruit of the service." Vodnik, 35 Wis. 2d at 749, 151 N.W.2d at 725. Here, the summary judgment record
In the trial court, Fortune in Motion likened itself to direct sales marketing companies such as Amway, Mary Kay Cosmetics and Shaklee which also depend on the recruitment efforts of its distributors as part of their distributors' sales activities. However, this record contains precious little of the specifics regarding the marketing plans of these entities. We properly base our decision on the facts pertinent to this case and the applicable law. Moreover, if this argument is correct, then the "personal services" exception subsumes the general rule barring recruitment. That result would obviously be unreasonable. In construing a statute, we must interpret it in such a way as to avoid absurd or unreasonable results. See State v. Moore, 167 Wis.2d 491, 496, 481 N.W.2d 633, 635 (1992).
A chain or pyramid scheme rests on its ability to lure participants with an exponential return on their investment as long as new participants are recruited to fund the payoff to those already in the plan. Such a plan becomes illegal when it "contemplates an endless chain of purchasers, or . . . a series of constantly multiplying endless chains, with nothing but fading rainbows as the reward of those who are unfortunate enough to become purchasers the moment before the collapse of the scheme." Twentieth Century Co. v. Quilling, 130 Wis. 318, 324, 110 N.W. 174, 176 (1907). Here, one reasonable reading of the summary judgment record allows for the conclusion that those awaiting the ultimate payoff will find an ever dwindling, or perhaps
We reverse the trial court's grant of summary judgment to Fortune in Motion, and we remand for further proceedings on the State's complaint.
By the Court.—Judgment reversed and cause remanded.