Opposition Brief — Omnitrition International, Inc. v. Webster

Supreme Court, U.S,

es ee Pe

AUG 16 1996

No. 96-82

| CLERK

In The

Supreme Court of the United States

October Term, 1995

S

OMNITRITION INTERNATIONAL, INC.,

JAMES FOBAIR, ROGER DALEY AND

CHARLES RAGUS,

Petitioners,

vs.

SHAUN WEBSTER AND ROBERT LIGON,

Respondents.

+

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

¢

OPPOSITION TO PETITION

FOR A WRIT OF CERTIORARI

¢

ELIZABETH J. CABRASER Douc.ias M. Brooks

WILLIAM BERNSTEIN MArTLAND & BROOKS

Counsel of Record One Boston Place, 28th Floor

Karen E. KARPEN Boston, Massachusetts 02108

ANTHONY K. LEE (617) 589-3990

Lierr, CABRASER, HEIMANN

& BERNSTEIN, LLP

275 Battery Street, 30th Floor

San Francisco, California 94111-3339

(415) 956-1000

Attorneys for Respondents

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

Il.

Ill.

TABLE OF CONTENTS

ogg Ft 88 te yt . pe rere ee ere

THE DISTINCTION BETWEEN “VERTICAL

COMMONALITY” AND “HORIZONTAL

COMMONALITY” AFFORDS NO BASIS FOR

DEFENDANTS’ PETITION ............s0000.

A. Petitioners Seek This Court’s Review Of An

Issue That Was Addressed By Neither The

District Court Nor The Court Of Appeals

B. A Pyramid Sales Scheme Satisfies The

Common-Enterprise Requirement Under

Either Vertical Or Horizontal Common-

ES oivee eb asu Cae eioreN veeeuNoeuseuss

THE COURT OF APPEALS PROPERLY

IMPOSED THE EVIDENTIARY BURDENS IN

EVALUATING DEFENDANTS’ MOTION FOR

SUMMARY JUDGMENT ....................

NEITHER PETITIONERS’ IMPROPER REAR-

GUMENT OF THEIR SUMMARY JUDGMENT

MOTION NOR THEIR POLICY-BASED ARGU-

MENT SUPPORTS THE GRANTING OF CER-

fi BE Ne eto oy einer a4 ae eR

12

ii

TABLE OF AUTHORITIES

Page

CASES

Celotex Corp. ». Catrett, 477 U.S. 317 (1986)....... Edyite

Curran v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,

622 F.2d 216 (6th Cir. 1980), aff'd, 456 U.S. 353

(1982) occ vndaee cd heee Reames sees dS ies ae 6

Davis v. Avco Fin. Servs., Inc., 739 F.2d 1057 (6th

Cir. 1984), cert. denied, 470 U.S. 1005 (1985) ........ 7

In re Amway Corp., 93 B.T.C. 616 (1979). ......50000.- 14

In re Koscot Interplanetary, Inc., 86 F.T.C. 1106

(1975), aff'd sub nom. Turner v. FTC, 580 F.2d 701

(DA. Coe. BO7DR akc vee oer ees 12

Reves v. Ernst & Young, 494 U.S. 56 (1990)........... 11

SEC v. Glenn W. Turner Enters., Inc., 474 F.2d 476

(9th Cir.), cert. denied, 414 U.S. 821 (1973).......... 6

SEC v. International Loan Network, Inc., 968 F.2d

1304 €O.C. ‘Cie: TOR ei ieee eens 8, 11

SEC v. International Loan Network, Inc., 770 F. Supp.

676 OG)... BOOBs oaks sss eee 8,9

SEC v. Life Partners, Inc., 87 F.3d 536 (D.C. Cir.

1996) . 6 ccuscvecnvancdc i ures sia eeeeere teres 8

SEC v. W.J. Howey Co., 328 U.S. 293 (1946) ...2, 4, 5, 11

United Housing Found, Inc. v. Forman, 421 U.S. 837

(2975) 2. 0s cvs evades cbaecs tee renee eek ar ee 2

RULES

Rule 10 of the Rules of the Supreme Court of the

United States «io... oc cs idnv sick Boek eed eae esas 5

I. INTRODUCTION

Defendants-Petitioners Omnitrition International,

Inc. (“Omnitrition”), James Fobair, Roger Daley, and

Charles Ragus seek certiorari from reversal of summary

judgment in their favor. In reversing summary judgment

for Petitioners, a panel of the United States Court of

Appeals for the Ninth Circuit ruled that Plaintiffs-

Respondents had presented sufficient evidence to estab-

lish genuine issues of material fact on (1) whether the

Omnitrition multi-level marketing program is a pyramid

sales scheme, and (2) whether investment in the Omnitri-

tion program is an investment in a “security” under the

federal securities laws. In applying the definition of

“security” in evaluating Petitioners’ motion for summary

judgment, the Court of Appeals plowed no new ground.!

In addition, it is clear from the ruling that there was no

impermissible shifting of the burden of proof on sum-

mary judgment. Petitioners will have an opportunity to

argue the disputed factual issues at trial. As the decision

of the Court of Appeals raises no ground for the granting

of certiorari, the Petition for a Writ of Certiorari should

be denied.

1 If there is cause for this Court to re-examine the long-

standing precedents applying the federal securities laws to

pyramid marketing schemes, the appropriate time to do so

would be only after the full exposition of the facts after a trial on

the merits, and not after merely a “trial by affidavit.”

2 Respondents hereafter cite the Petition for a Writ of

Certiorari as “Pet.”

OY

ll. THE DISTINCTION BETWEEN “VERTICAL COM-

MONALITY” AND “HORIZONTAL COMMON-

ALITY” AFFORDS NO BASIS FOR THE

PETITION.

The test for an investment contract “security” under

the federal securities laws is whether “the scheme

involves an [1] investment of money in a [2] common

enterprise with [3] profits to come solely from the efforts

of others.” SEC v. W.J. Howey Co., 328 U.S. 293, 301 (1946).

In United Housing Found. v. Forman, Inc., 421 U.S. 837

(1975), the Court clarified the requirement that profits

accrue solely from others’ efforts by articulating a practi-

cal test that has become the prevailing standard:

The touchstone [for deciding whether some-

thing is a security] is the presence of an invest-

ment in a common venture premised on a

reasonable expectation of profits to be derived

from the entrepreneurial or managerial efforts of

others.

Id. at 852 (emphasis added).

Petitioners argue that the Court of Appeals relied on

the concept of “vertical commonality” in finding that

Respondents had presented sufficient evidence to with-

stand summary judgment on the issue of whether the

Omnitrition program involves a “common enterprise” as

required by Howey and its progeny. Petitioners further

argue that not only is vertical commonality an improper

relaxation of the common-enterprise requirement, but

also the use of vertical commonality here highlights the

split among the courts of appeals that has arisen from

some courts’ adoption of vertical commonality and other

courts’ rejection of vertical commonality in favor of the

stricter concept of “horizontal commonality.” Thus, con-

clude Petitioners, the Court should grant certiorari to

resolve this split and reject the use of vertical common-

ality to satisfy the common-enterprise requirement. (See

Pet. at 3-22.)

Petitioners’ argument suffers from two fundamental

flaws. First, neither the District Court nor the Court of

Appeals below even addressed the “common enterprise”

issue. Second, a pyramid sales scheme satisfies the com-

mon-enterprise requirement under either vertical or hori-

zontal commonality, and thus a rejection by this Court of

vertical commonality will not change the law on pyramid

schemes or the decision of the Court of Appeals in this

case.

A. Petitioners Seek This Court’s Review Of An

Issue That Was Addressed By Neither The Dis-

trict Court Nor The Court Of Appeals.

In granting summary judgment for Petitioners, the

District Court ruled that Omnitrition distributorships are

not securities for purposes of the Securities Exchange Act

of 1934 or section 12 of the Securities Act of 1933.

(Appendix to the Petition for a Writ of Certiorari at 49.)%

The only stated basis for this ruling was the District

Court’s conclusion that, because Omnitrition distributors

engaged in a certain amount of effort in participating in

the Omnitrition program, their success did “not depend

primarily upon the efforts of others,” and distributors

3 Respondents hereafter cite the Appendix to the Petition

for a Writ of Certiorari as “App.”

were not the passive investors the federal securities laws

were meant to protect. (See App. 46-49.) At no point in its

opinion did the District Court analyze the common-enter-

prise requirement.

Similarly, the Court of Appeals addressed only the

requirement that profits come from others’ managerial

efforts:

In Glenn W. Turner [474 F.2d 476], we deter-

mined that the fact that investors in the scheme

were required to exert some effort did not auto-

matically preclude a finding that the invest-

ments were securities. Instead, we focused on

the fact that the scheme’s promoters controlled

the methods by which the product was sold and

new members were recruited. The promoters

provided the “essential managerial efforts

which affect[ed] the failure or success of the

enterprise.” Id. at 483.

The same is true of Omnitrition’s program.

Plaintiffs claim that they were taught to sell

Omnitrition’s “proven plan of success” and to

“catch a wave of return that was far beyond

anything that [they] were involved in person-

ally.” By the very structure of a pyramid

4 This is the only mention of the common-enterprise

requirement found by Respondents in the District Court’s

opinion:

To establish that a transaction involves securities, the

Court must determine whether the scheme involves

an investment of money in a common enterprise with

profits derived solely from the efforts of others.

(App. at 47 (citing Howey, 328 U.S. at 301).)

scheme, participants’ efforts are focused not on

selling products but on recruiting others to join

the scheme. Under the reasoning of Glenn W.

Turner, this is enough to bring investments in

the program within the definition of “invest-

ment contracts.”

(App. at 14-15 (interpolations in opinion of Court of

Appeals).)

As with the District Court’s opinion, at no point in its

opinion did the Court of Appeals analyze the common-

enterprise requirement, much less apply the concept of

vertical commonality in doing so.°

Thus, Petitioners want this Court to grant certiorari

to address an issue which was addressed by neither the

District Court nor the Court of Appeals below. Respon-

dents submit that this is not one of the “compelling

reasons” for which the Court grants certiorari, see Rule 10

of the Rules of the Supreme Court of the United States.

Certiorari should be denied.

5 This is the only mention of the common-enterprise

requirement found by Respondents in the opinion of the Court

of Appeals:

An investment contract is a transaction in which

“the scheme involves an investment of money in a

common enterprise with profits to come solely from

the efforts of others.”

(App. at 14 (citing Howey, 328 US. at 301).)

i Te

B. A Pyramid Sales Scheme Satisfies The Com-

mon-Enterprise Requirement Under Either Ver-

tical Or Horizontal Commonality.

Even if the common-enterprise requirement were an

issue appropriately raised in Petitioners’ request for a

writ of certiorari — and it is not - a pyramid sales scheme

satisfies the requirement under either vertical or horizon-

tal commonality. Thus, because what Petitioners ulti-

mately seek - a rejection by this Court of vertical

commonality —- would not change the decision of the

Court of Appeals, certiorari should be denied. In SEC v.

Glenn W. Turner Enters., Inc., 474 F.2d 476 (9th Cir.), cert.

denied, 414 U.S. 821 (1973), in which a panel of the Ninth

Circuit affirmed the district court’s granting of a prelimi-

nary injunction against a pyramid sales scheme, the court

of appeals adopted an interpretation of the common-

enterprise requirement that became known as “vertical

commonality,” stating, “A common enterprise is one in

which the fortunes of the investor are interwoven with

and dependent upon the efforts and success of those

seeking the investment [i.e., the promoters or sellers] or

of third parties.” Id. at 482 n.7. The court of appeals

stated without discussion that the scheme in question

fulfilled the common-enterprise requirement of the Howey

test; analyzed the requirement of profits coming from the

efforts of others; and ruled that the scheme involved a

security under the federal securities laws. See id. at

481-83.

The Sixth Circuit, as Petitioners correctly note, (see

App. at 4, 7 & n.4, 13), has rejected vertical commonality

and requires horizontal commonality. See Curran v. Mer-

rill, Lynch, Pierce, Fenner & Smith, Inc., 622 F.2d 216, 222

peeeeene.

(6th Cir. 1980) (“[W]e . . . reject the vertical commonality

approach... . ”), aff'd, 456 U.S. 353 (1982) (affirming on

issue of whether private right of action exists under

Commodity Exchange Act). Nevertheless, in Davis v. Avco

Fin. Servs., Inc., 739 F.2d 1057 (6th Cir. 1984), cert. denied,

470 U.S. 1005 (1985), another panel of the Sixth Circuit

ruled that a pyramid sales scheme involved a “security.”

In Davis, participants in the scheme sued a finance com-

pany, from whom plaintiffs borrowed money to invest in

the scheme, and the finance company’s manager, who

had promoted the scheme to plaintiffs and solicited their

loans. Plaintiffs asserted claims under the Securities Act

of 1933 and the Securities Exchange Act of 1934. After a

| bench trial, the district court ruled that the promissory

notes given by plaintiffs for their loans, as well as plain-

tiffs’ investments in the pyramid scheme, were “securi-

ties” under the relevant statutes, and entered judgment in

favor of plaintiffs on their Securities Act claims. See 739

F.2d at 1059-62. The court of appeals affirmed in part and

reversed in part the judgment and remanded the case for

further proceedings. While the court of appeals disagreed

with the district court’s ruling that the promissory notes

given by plaintiffs were securities, the court of appeals

agreed as to the pyramid scheme investments:

We do agree, however, that the DTBG

adventures were securities. In this regard we

concur with and adopt the analysis in S.E.C. v.

Glenn W. Turner Enterprises, Inc., 474 F.2d 476

(9th Cir.), ... and S.E.C. v. Koscot Interplanetary,

Inc., 497 F.2d 473 (5th Cir. 1974). We will not

reiterate this analysis in the hope of keeping this

opinion to a reasonable length.

739 F.2d at 1063.

Indeed, Respondents have found no decision in

which a court has ruled that a pyramid scheme is not a

“common enterprise” for purposes of determining

whether a security is involved. In SEC v. International

Loan Network, Inc., 968 F.2d 1304 (D.C. Cir. 1992), for

example, the court of appeals affirmed the district court’s

holding that a pyramid scheme violated the federal secu-

rities laws and its granting of a preliminary injunction

against the scheme:

As for the common enterprise element, the

fortunes of investors are clearly linked to each

other and to the success of ILN as an enterprise.

The CFBS generates income for its investors,

and for the [defendants] .. . , only through

constant expansion of membership, which

depends on individual recruiting and the appeal

of [the promoter] Ford’s larger marketing cam-

paign. Thus, the court properly found the CFBS

satisfies the second prong of the Howey test as

well.

Id. at 1308.°

In the opinion affirmed by the court of appeals, SEC

v. International Loan Network, Inc., 770 F. Supp. 678 (D.D.C.

6 The District of Columbia Circuit has not adopted either

vertical commonality or horizontal commonality over the other.

See SEC v. Life Partners, Inc., 87 F.3d 536, 544 (D.C. Cir. 1996)

(ruling that investment program involved common enterprise

under concept of horizontal commonality although ruling that

profits were not derived predominantly from others’ efforts)

(“We need not reach, therefore, the SEC’s alternate contention

that the LPI program entails ‘strict vertical commonality’ -

another formulation of the common enterprise test recognized

in some circuits.”)

1991), the district court noted that the pyramid scheme in

question was a common enterprise under either vertical

or horizontal commonality:

The second element of the Howey test

requires the investment to be in a “common

enterprise.” This test is met whether the Court

looks to Glenn W. Turner, Koscot, or the opinion

of my colleague on this court in Meredith v.

Conticommodity Services, Inc., 1980 Fed. Sec. L.

Rep. (CCH) { 97,701 (D.D.C. 1980) (Gasch, J.). In

Meredith, the court intimated that commonality

requires a correlation between the profits and

losses of individual investors and the fortunes

of the investors as a group or with the enter-

prise itself. The profits of investors in the Capi-

tal Funds Bonus System are directly related to

the fortunes of other investors: it is through the

constant recruitment of new members in one’s

“downline” that income is earned. If the people

directly recruited by an Independent Represen-

tative do not vigilantly spread the word “you

come in, then you bring in your wife and your

kids,” then that Independent Representative

will not earn much income through the pro-

gram. Additionally, investors’ profits are linked

to the success or failure of ILN as a whole

because it is the ability to proclaim the organiza-

tion’s success that is the central selling point of

the program. The testimonials presented in the

videotape “Common Ground” illustrate the cru-

cial role that the organization plays in recruit-

ment.

770 F. Supp. at 691-92 (citation omitted).

The observations of the court of appeals and the

district court in International Loan apply equally here. As

10

stated above, the common-enterprise issue was not even

discussed by the Court of Appeals below, and thus

Respondenis cannot cite any such discussion now. Nev-

ertheless, to rebut Petitioners’ argument, Respondents

elaborate on their theory, which they briefed below, on

how the Omnitrition program is a common enterprise.

The fortunes of all Omnitrition distributors are linked to

the success of the company and its promoters in continu-

ing to attract new recruits and keep the scheme going.

The “real money” promised to Omnitrition distributors

by the Omnitrition marketing plan is to be made by

recruiting others. It is the marketing plan devised by

Omnitrition and its promoters which is the fundamental

lure for new recruits. It is the managerial and entrepre-

neurial efforts by Omnitrition and its promoters to pitch

that plan, whether through recruitment meetings, revival-

like recruitment rallies, or other devices such as promo-

tional videotapes and other materials disseminated for

showing to prospective distributors, which are the most

important means of recruiting new distributors. Omnitri-

tion receives a great deal of money from the purchase of

products by its distributors. From those funds, the com-

pany pays for, among other things, the recruitment ral-

lies, the costs of producing promotional materials, and

the compensation of its pitchpersons - all for the purpose

of recruiting still more distributors. Without such efforts

by Omnitrition and its promoters, the flow of new

recruits will dry up, endangering the fortunes of all

Omnitrition distributors. Conversely, if Omnitrition’s

recruiting efforts are successful, and the company thrives,

the fortunes of all Omnitrition distributors are improved

by their enhanced ability to obtain new downline recruits

11

to generate income for them. Omnitrition and its promo-

ters spend funds obtained from distributors on efforts to

recruit more and more people, to the benefit of all distrib-

utors. Thus, the Omnitrition scheme passes either the

vertical-commonality or the horizontal-commoniality test.

See International Loan, 968 F.2d at 1308 (“As for the com-

mon enterprise element, the fortunes of investors are

clearly linked to each other and to the success of ILN as

an enterprise.”).

Therefore, even if the common-enterprise issue were

properly raised by Petitioners now, and the Court

granted certiorari and (as Petitioners want the Court to

do) rejected vertical commonality, the decision of the

Court of Appeals would be unaffected. Thus, assuming

that the Court wishes to address the issue of vertical

commonality versus horizontal commonality, this case is

an inappropriate vehicle to do so.”

7 Petitioners misdirect the discussion by arguing that cases

applying the definition of security to real estate developments and

brokerage accounts show that there would be a split among the

courts of appeal on whether a pyramid scheme involves a

security. (See Pet. at 8-15.) That conclusion does not logically

follow. Similarly, Petitioners cite Reves v. Ernst & Young, 494 U.S.

56 (1990), for its four-part test for whether an instrument

denominated a “note” is a security. (See Pet. at 22-23.)

Omunitrition distributorships are neither notes nor denominated

as such, and the appropriate test to apply is that applied by the

Court of Appeals below: the test created in Howey for deciding

whether an “investment contract” is a security. See Reves, 494

U.S. at 64 (setting forth Howey test and rejecting its application

to notes).

12

III. THE COURT OF APPEALS PROPERLY IMPOSED

THE EVIDENTIARY BURDENS IN EVALUATING

DEFENDANTS’ MOTION FOR SUMMARY

JUDGMENT.

Petitioners also claim that the Court of Appeals erro-

neously allocated the burdens of proof in evaluating Peti-

tioners’ summary judgment motion, and, as a result,

proceeded on the presumption that Omnitrition is a pyra-

mid sales scheme and required Petitioners to produce

evidence that it is not. (See App. at 5, 23-30.) Petitioners

assert that, to discharge their initial burden on summary

judgment, all they had to do was to ” ‘point[ ] out... that

there is an absence of evidence to support the nonmoving

party’s case.’” (App. at 23 (quoting Celotex Corp. v. Catrett,

477 U.S. 317, 325 (1986)).) Petitioners also assert that the

burden on Respondents “was to produce evidence of

material facts in dispute on each element of their claims.”

(App. at 24.) Contrary to Petitioners’ argument, the Court

of Appeals did nothing inconsistent with these principles.

On the issue of whether Omnitrition is a pyramid

sales scheme, Respondents discharged their burden. As

the Court of Appeals observed, pyramid schemes

“are characterized by the payment by partici-

pants of money to the company in return for

which they receive (1) the right to sell a product

and (2) the right to receive in return for recruit-

ing other participants into the program csewards

which are unrelated to sale of the product to

ultimate users.”

(App. at 7 (quoting In re Koscot Interplanetary, Inc., 86

F.T.C. 1106, 1181 (1975), aff'd sub nom. Turner v. FTC, 580

F.2d 701 (D.C. Cir. 1978)) (emphasis in Koscot opinion).)

13

Petitioners agree with this two-prong test but argue that

Respondents did not produce evidence that Omnitrition

meets it. (See Pet. at 24, 26 & n.12.) On the contrary, in

both the District Court and the Court of Appeals, Respon-

dents presented evidence on the operation of the Omni-

trition program and explained how the program’s very

structure fit the above definition. The Court of Appeals

agreed with Respondents:

To become a supervisor, a participant must

pay a substantial amount of money to Omnitri-

tion in the form of large monthly product orders

.... In exchange for these purchases, the super-

visor receives the right to sell the products and

earn compensation based on product orders

made by the supervisor’s recruits. This compen-

sation is facially unrelated to the sale of the product

to ultimate users because it is paid based on the

suggested retail price of the amount ordered

from Omnitrition, rather than based on actual

sales to consumers.

On its face, Omnitrition appears to be a

pyramid scheme.

(App. at 8-9 (first emphasis added).)

Thus, the Court of Appeals concluded:

Omnitrition argues that [Respondent] Webs-

ter failed to submit sufficient admissible proof

that Omnitrition is a pyramid scheme. We dis-

agree. The mere structure of the scheme suggests

that Omnitrition’s focus was in promoting the

program rather than selling the products. When

added to statements from Webster’s and

[Respondent] Ligon’s depositions, plaintiffs

14

have produced sufficient evidence to defeat

summary judgment.

(App. at 10 (first emphasis added).)

Given that Respondents had met their burden on

summary judgment, Petitioners’ evidence was insuffi-

cient to show the absence of a factual dispute on whether

Omnitrition is a pyramid scheme:

To rebut the pyramid allegations, Omnitri-

tion relies heavily on In re Amway Corp.. 93 FTC

618 (1979), in which the FTC found Amway was

not a pyramid scheme because its policies pre-

vented inventory loading and encouraged retail

sales. Id. at 715-16. Omnitrition argues that its

formal adoption of policies similar to Amway’s

was sufficient to support summary judgment.

We disagree.

Omnitrition has distribution rules modeled

on Amway’s. However, the existence and

enforcement of rules like Amway’s is only the

first step in the pyramid scheme inquiry. Where,

as here, a distribution program appears to meet

the Koscot definition of a pyramid scheme [as

shown by Respondents’ evidence], there must

be evidence that the program’s safeguards are

enforced and actually serve to deter inventory

loading and encourage retail sales. In Amway,

the ALJ made that crucial finding of fact, after a

full trial. See id. at 631. Our review of the record

does not reveal sufficient evidence to establish

as a matter of law that Omnitrition’s rules actu-

ally work.

15

Further, Omnitrition’s rules, while carefully

crafted to appear like those in Amway, are

weaker in operation.

(App. at 10-11.) Of the three “anti-pyramiding” policies

formally adopted by Omnitrition, for only one did Peti-

tioners produce evidence of enforcement, and the Court

of Appeals found that even that evidence was insufficient

to establish that the rule in fact effectively discouraged

pyramid-scheme activity. (See App. at 11-12.)

The Court of Appeals did not proceed to evaluate

Petitioners’ summary judgment motion from the pre-

sumption that Omnitrition is a pyramid scheme. Respon-

dents produced evidence that Omnitrition is a pyramid

scheme. Petitioners produced some evidence purportedly

showing that Omnitrition is not. The Court of Appeals

ruled that, based on the evidence, there was a genuine

issue of material fact on whether Omnitrition is a pyra-

mid scheme. On this basis, the Court of Appeals properly

reversed summary judgment. See Celotex, 477 U.S. at 325

(“Rule 56 mandates the entry of summary judgment

.. . against a party who fails to make a showing sufficient

to establish the existence of an element essential to that

party’s case, and on which the party will bear the burden

of proof at trial.”) (emphasis added). While Petitioners

may quarrel with the weight the Court of Appeals placed

on the parties’ evidence, this matter is inappropriate for

review by this Court. See Rule 10 of the Rules of the

Supreme Court of the United States (“A petition for a

writ of certiorari is rarely granted when the asserted error

consists of erroneous factual findings or the misapplica-

tion of a properly stated rule of law.”).

16

IV. NEITHER PETITIONERS’ IMPROPER REARGU-

MENT OF THEIR SUMMARY JUDGMENT

MOTION NOR THEIR POLICY-BASED ARGU-

MENT SUPPORTS THE GRANTING OF CER-

TIORARI.

Petitioners improperly reargue the merits of their

summary judgment motion before this Court. Petitioners

contend, “(T]he Ninth Circuit Court dismissed the fact

that Omnitrition’s participants’ profits result entirely

from their own labors... .” (Pet. at 5.) Petitioners assert

that “an IMA’s [i.e., distributor’s] earnings do not result

from any effort by Omnitrition to recruit IMAs.” (Pet. at

6-7 n.3.) In both the District Court and the Court of

Appeals below, Petitioners had argued that the efforts by

Omunitriton distributors precluded the conclusion that

Omnitriton involved a security. The Court of Appeals

rejected the argument, ruling that the evidence created a

genuine issue as to whether distributors’ profits resulted

only from their own efforts or whether the profits

depended on the “essential managerial efforts” of Omni-

trition and its promoters. (See App. at 14-15 (quoting

Glenn W. Turner, 474 F.2d at 482).) Certiorari should not

be granted simply to allow Petitioners to reargue their

summary judgment motion.

In addition, Petitioners urge the Court to grant cer-

tiorari on the ground that “this case is vitally important

to multi-level companies and their distributors in the

United States, a multi-billion dollar industry. ...” (Pet. at

5.)® Petitioners argue:

8 In support of their assertion, Petitioners cite and attach to

their petition an amicus curiae brief which the Direct Selling

17

The error [of the Court of Appeals] imposes

upon a multi-level company, a defendant-

movant for summary judgment in this case, the

burden to produce evidence that it is not an

illegal pyramid scheme. . . . [T]he court has,

perhaps unwittingly, established a presumption

of illegality against all multi-level companies,

which could force a company to trial merely by

brandishing the company’s brochure.

(Pet. at 29.) As explained above, there was no error (even

leaving aside that the company’s own brochures and

promotional materials may indeed be highly reliable and

probative evidence for the trier of fact). The Court of

Appeals did not rule that Omnitrition is a pyramid

scheme. The Court of Appeals ruled that the parties’

evidence established a genuine factual dispute as to the

matter. There is no “presumption of illegality against all

multi-level companies.” To defeat summary judgment on

a claim that a multi-level marketing company is a pyra-

mid scheme, any plaintiff will have to produce evidence

that the program meets the definition of a pyramid

scheme, as Respondents did here.

Nothing in the opinion of the Court of Appeals calls

for the granting of certiorari. The purported importance

of this case to multi-level marketing companies does not

by itself support Petitioners’ request for certiorari.

Association attempted to file in the Court of Appeals to support

Petitioners’ petition for rehearing. (See Pet. at 5 n.2; App. at

86-117.) It is inappropriate for Petitioners to rely on the brief, as

the Court of Appeals denied the Direct Selling Association leave

to file it. (See App. at 84.)

Vv. CONCLUSION

For the foregoing reasons, the Petition for a Writ of

18

Certiorari should be denied.

Dated: August 16, 1996

Respectfully submitted,

ELIZABETH J. CABRASER

WILLIAM BERNSTEIN

Counsel of Record

KAREN E. KARPEN

ANTHONY K. LEE

Lierr, CABRASER, HEIMANN &

BERNSTEIN, LLP

275 Battery Street, 30th Floor

San Francisco, California 94111-3339

(415) 956-1000

Douczas M. Brooks

MARTLAND & BROOKS

One Boston Place, 28th Floor

Boston, Massachusetts 02108

(617) 589-3990