Janet Peterson signed a contract with Sunrider Corporation in 1976 that provided for her payment arrangements as a participant in Sunrider's sales program. Sunrider was a Utah corporation that sold herbs, dietary supplements, skin care products, and beauty aids through a multilevel marketing plan. The plan includes several "levels of achievement" through which participants may receive compensation based both on their own sales of company products and on the sales of those whom participants have "sponsored"—that is, those whom participants have brought into the company.
Peterson received commissions from Sunrider Corporation from 1976 through 1994 for sales that were made by Sunrider distributors who had been recruited by Peterson. Her payments averaged $3,500 per month. In 1994, after Sunrider had been acquired by another company, the payments ended. The new CEO stopped the payments because he claimed they were illegal. The Utah Pyramid Scheme Act (UPSA) provides that "A person may not organize, establish, promote, or administer any pyramid scheme." Part of the UPSA provides:
receiving bonuses in a multi-level marketing business is illegal when the bonuses are based only upon sponsorship of an organization, rather than promoting a product, selling a product, or training and supervising down-line distributors.
Peterson says that her commissions from the lower levels are based on sales of products and not just on her having recruited the people and companies to sell Sunrider. The new corporation argues that Peterson still did not make the sales herself and that the payments are illegal. Peterson argues that it would be unfair not to pay the commissions.
What should the court do and why? Be sure to consider the purpose of the antipyramid statute. Think also about her reliance on the representations of the previous company's officials. Finally, think through the public policy issues in paying or not paying Peterson according to her original contract. [Peterson v The Sunrider Corp., 48 P.3d 918 (Utah 2002)]
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