{ "id": 3512486, "name": "THE PEOPLE ex rel. NEIL F. HARTIGAN, Attorney General, Plaintiff-Appellant, v. UNIMAX, INC., et al., Defendants-Appellees", "name_abbreviation": "People ex rel. Hartigan v. Unimax, Inc.", "decision_date": "1988-03-29", "docket_number": "No. 87\u20141751", "first_page": "718", "last_page": "725", "citations": [ { "type": "official", "cite": "168 Ill. App. 3d 718" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "468 N.E.2d 1162", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "102 Ill. 2d 468", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 3156336 ], "opinion_index": 0, "case_paths": [ "/ill-2d/102/0468-01" ] }, { "cite": "301 Minn. 282", "category": "reporters:state", "reporter": "Minn.", "case_ids": [ 888833 ], "weight": 2, "pin_cites": [ { "page": "286" }, { "page": "100" } ], "opinion_index": 0, "case_paths": [ "/minn/301/0282-01" ] }, { "cite": "471 N.E.2d 236", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "128 Ill. App. 3d 874", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3524154 ], "weight": 3, "pin_cites": [ { "page": "879" }, { "page": "877" }, { "page": "881" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/128/0874-01" ] }, { "cite": "461 N.E.2d 78", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "122 Ill. App. 3d 481", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3522068 ], "pin_cites": [ { "page": "484" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/122/0481-01" ] }, { "cite": "90 Nev. 450", "category": "reporters:state", "reporter": "Nev.", "case_ids": [ 8557641 ], "weight": 2, "pin_cites": [ { "page": "453-54" }, { "page": "110" } ], "opinion_index": 0, "case_paths": [ "/nev/90/0450-01" ] }, { "cite": "69 Md. App. 377", "category": "reporters:state", "reporter": "Md. App.", "case_ids": [ 4439514 ], "weight": 2, "year": 1974, "pin_cites": [ { "page": "381-85" }, { "page": "1141-43" } ], "opinion_index": 0, "case_paths": [ "/md-app/69/0377-01" ] }, { "cite": "511 S.W.2d 224", "category": "reporters:state_regional", "reporter": "S.W.2d", "case_ids": [ 10122535 ], "weight": 2, "year": 1986, "pin_cites": [ { "page": "225-26" }, { "page": "226" } ], "opinion_index": 0, "case_paths": [ "/sw2d/511/0224-01" ] }, { "cite": "212 Kan. 668", "category": "reporters:state", "reporter": "Kan.", "case_ids": [ 41180 ], "weight": 2, "year": 1974, "pin_cites": [ { "page": "675-76" }, { "page": "422-23" } ], "opinion_index": 0, "case_paths": [ "/kan/212/0668-01" ] }, { "cite": "284 S.E.2d 333", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 2, "pin_cites": [ { "page": "338" }, { "page": "337, 338" } ], "opinion_index": 0 }, { "cite": "54 N.C. App. 513", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 8523773 ], "weight": 2, "pin_cites": [ { "page": "520" }, { "page": "520, 521" } ], "opinion_index": 0, "case_paths": [ "/nc-app/54/0513-01" ] }, { "cite": "151 Ariz. 20", "category": "reporters:state", "reporter": "Ariz.", "case_ids": [ 1502955 ], "weight": 4, "pin_cites": [ { "page": "24" }, { "page": "731" }, { "page": "24-25" }, { "page": "731-32" } ], "opinion_index": 0, "case_paths": [ "/ariz/151/0020-01" ] }, { "cite": "580 F.2d 701", "category": "reporters:federal", "reporter": "F.2d", "year": 1986, "opinion_index": 0 }, { "cite": "86 F.T.C. 1106", "category": "reporters:federal", "reporter": "F.T.C.", "year": 1978, "pin_cites": [ { "page": "1180" } ], "opinion_index": 0 }, { "cite": "489 N.E.2d 495", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "140 Ill. App. 3d 963", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3531431 ], "pin_cites": [ { "page": "967" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/140/0963-01" ] }, { "cite": "472 N.E.2d 822", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1986, "opinion_index": 0 }, { "cite": "129 Ill. App. 3d 402", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3489959 ], "year": 1986, "pin_cites": [ { "page": "404" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/129/0402-01" ] }, { "cite": "504 N.E.2d 791", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "152 Ill. App. 3d 614", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3574482 ], "pin_cites": [ { "page": "619" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/152/0614-01" ] } ], "analysis": { "cardinality": 783, "char_count": 15238, "ocr_confidence": 0.779, "pagerank": { "raw": 8.138363859351186e-08, "percentile": 0.4741538985477532 }, "sha256": "073328586c8333c46210d921cdcf2ead53820457d1b0475f9d4bb1cd717ac5c7", "simhash": "1:3dd654d5209f3c85", "word_count": 2474 }, "last_updated": "2023-07-14T19:02:50.417384+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "THE PEOPLE ex rel. NEIL F. HARTIGAN, Attorney General, Plaintiff-Appellant, v. UNIMAX, INC., et al., Defendants-Appellees." ], "opinions": [ { "text": "PRESIDING JUSTICE HARTMAN\ndelivered the opinion of the court:\nPlaintiff appeals from entry of summary judgment (Ill. Rev. Stat. 1985, ch. 110, par. 2 \u2014 1005) in favor of defendants. Defendant Unimax, Inc. (Unimax), is an Illinois corporation with its principal place of business in Schaumburg, Illinois. Codefendant Tim Dern (Dern) is president and a cofounder of Unimax. It is comprised of two separate spheres of activity: Unimax Buyers\u2019 Service (Buyers\u2019 Service) and Unimax Matrix (Matrix), a multilevel marketing plan.\nIn approximately April 1986, Unimax instituted the Buyers\u2019 Service, which enables consumers to purchase products and services at a discount from 13 suppliers which have vendor agreements with Unimax. To participate in the Buyers\u2019 Service, a consumer must complete a subscriber application, submit it with an initial payment of $36 and pay thereafter a $36 monthly fee and a $14 annual literature fee. Subscribers are not obligated to buy any merchandise or services and may withdraw from the Buyers\u2019 Service at any time and receive a refund of any unused, prepaid fees.\nMatrix is designed to sell memberships in the Buyers\u2019 Service. One becomes a Matrix \u201cmarketer\u201d by signing an \u201cIndependent Marketer\u2019s Agreement,\u201d receiving Unimax training and viewing training tapes, or reading company-approved training materials. A marketer need not purchase any merchandise in order to earn commissions, but earns commissions on the $36 monthly subscription fees paid by new subscribers he sponsors. He must recruit at least three new subscribers and they, as well as the marketer, must be \u201cactive,\u201d or up to date on their fee payments. A marketer\u2019s monthly commission check increases according to a commission schedule on nine levels: the greater the number of subscribers in a marketer\u2019s \u201cdown-line\u201d organization, the higher the commission the marketer will receive on monthly fee payments made by \u201chis\u201d subscribers. For example, at level 1, which involves only three subscribers in his down-line organization, the marketer earns only 1% of the $36 monthly fee paid by each of the subscribers or $1.08. At level 9, however, the marketer earns 6% of the $36 fee paid by each of the 19,683 down-line subscribers in his down-line organization, entitling him to earn $42,515.28 per month. The marketer is paid an additional 5% bonus in the ninth level, which could raise the amount payable to $77,944.68 per month.\nThere is no explicit requirement that an individual must be a subscriber in order to be a marketer or vice versa, although all 10,874 subscribers to the Buyers\u2019 Service have also signed marketer agreements, and no one currently participates solely as a marketer in the Unimax scheme. Approximately 10% of the signatories to marketer agreements are \u201cactive.\u201d Furthermore, a subscriber need not pay an additional fee to become a marketer, but anyone wishing to join Unimax as a marketer alone must pay a $52 \u201cset-up charge.\u201d\nThe State\u2019s two-count complaint against Unimax and Dem, individually and as president of Unimax, alleged in count I, that Matrix, as part of the Unimax \u201cplan,\u201d constituted a \u201cpyramid sales scheme,\u201d in contravention of section 2A(2) of the Consumer Fraud and Deceptive Business Practices Act (the Act) (Ill. Rev. Stat. 1985, ch. 121\u00bd, par. 262A(2)). In count II, the State alleged that Matrix also violated section 2A(1) of the Act as a \u201cchain referral sales technique.\u201d (Ill. Rev. Stat. 1985, ch. 121\u00bd, par. 262A(1).) Appointment of a receiver was sought and the court was asked that defendants be enjoined from selling the right to participate in the plan; provide an accounting; be forced to disgorge all profits obtained in connection with the plan; and be required to pay a $50,000 penalty for violating the Act. See Ill. Rev. Stat. 1985, ch. 121\u00bd, par. 267.\nIn their answer, defendants denied these allegations and raised \u201caffirmative defenses\u201d that the State failed to state a cause of action upon which relief could be granted and the method by which Unimax conducts its business does not constitute a pyramid sales scheme or a chain referral sales technique as those terms are defined by the Act.\nDefendants also filed, on March 31, 1987, a motion for summary judgment supported by affidavits, asserting that a \u201cpyramid sales scheme\u201d involves the sale of the right to sell new memberships in the pyramid, \u201cso that investors must make their return not through the sale of products or services, but by encouraging others to invest\u201d in the scheme. Unimax commissions, however, are based solely on the sale of subscriptions and are a percentage of the subscription fee and, unlike a traditional pyramid scheme, Unimax does not require its subscribers to retain inventories of merchandise for purposes of resale to consumers. Defendants further argued that Unimax is not a \u201cchain referral sales technique.\u201d Ill. Rev. Stat. 1985, ch. 121\u00bd, par. 262A(1).\nThe State filed a brief in opposition to defendants\u2019 motion for summary judgment on May 1, 1987, and moved the circuit court to strike: (1) all of a Unimax attorney\u2019s affidavit; and (2) portions of Unimax\u2019 president\u2019s affidavit, as well as the motion for summary judgment, as immaterial, conclusory and inadmissible for lack of foundation and as hearsay. Defendants filed a response thereto, accompanied by additional affidavits.\nOn May 7, 1987, the circuit court granted defendants\u2019 motion for summary judgment, finding that \u201cthe benefit *** received by a person in the Unimax multi-level marketing plan is the membership in the Unimax [Bjuyers\u2019 [Sjervice, not the commission received on the sale of buyers club memberships by a person to subscribers,\u201d and \u201cthis benefit is not primarily based on the inducement of additional subscribers.\u201d The court further ordered any opinions of law contained in defendants\u2019 affidavits stricken. On May 8, 1987, the court entered an order striking portions of certain affidavits and the attorney\u2019s affidavit in its entirety.\nThe State appeals the order entered May 7,1987.\nSummary judgment will be granted where the pleadings, depositions, admissions and affidavits demonstrate that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law (Wogelius v. Dallas (1987), 152 Ill. App. 3d 614, 619, 504 N.E.2d 791; Ill. Rev. Stat. 1985, ch. 110, par. 2\u20141005); however, where reasonable persons may fairly draw differing inferences from facts not in dispute, summary judgment must be denied and the question resolved at trial. (Aspegren v. Howmedica, Inc. (1984), 129 Ill. App. 3d 402, 404, 472 N.E.2d 822.) The movant must show that his right to summary judgment is clear and free from doubt. Frazier v. Smith & Wesson (1986), 140 Ill. App. 3d 963, 967, 489 N.E.2d 495.\nThe State contends the circuit court erred in finding the undisputed facts in this case capable of only one inference and insists the facts presented in the pleadings and affidavits raise the inference of an illegal pyramid scheme in the guise of Matrix.\nMatrix easily can be viewed as a \u201cplan or operation\u201d whereby the marketer exchanges a \u201cthing of value\u201d by signing the marketer\u2019s agreement, which is a form of consideration. Section 1(g) of the Act defines a \u201cpyramid sales scheme\u201d (Ill. Rev. Stat. 1985, ch. 121\u00bd, par. 261(g)) as\n\u201cany plan or operation whereby a person in exchange for \u2022money or other thing of value acquires the opportunity to receive a benefit or thing of value, which is primarily based upon the inducement of additional persons, by himself or others, regardless of number, to participate in the same plan or operation and is not primarily contingent on the volume or quantity of goods, services, or other property sold or distributed or to be sold or distributed to persons for purposes of resale to consumers. For purposes of this subsection, (money or other thing of value) shall not include payments made for sales demonstration equipment and materials furnished on a nonprofit basis for use in making sales and not for resale.\u201d\nThe marketer acquires \u201cthe opportunity to receive a benefit or thing of value\u201d by way of commissions, which are themselves \u201cprimarily based on the inducement of additional persons\u201d to buy into the Unimax system. Marketers\u2019 commissions, therefore, are \u201cnot primarily contingent on the volume of goods, services or other property sold or distributed *** to persons for purposes of resale to consumers,\u201d but are entirely unrelated to the sale of goods or services available through the Buyers\u2019 Service and are obtained only by recruiting more persons into Unimax. See Ill. Rev. Stat. 1985, ch. 121\u00bd, par. 261(g).\nNevertheless, defendants maintain that the commissions are \u201cprimarily contingent\u201d upon the sale of a service, i.e., the Unimax system, and that marketers are not paid \u201cfor the mere act of recruiting people to recruit\u201d; therefore, they urge, the system lacks elements which the Federal Trade Commission (FTC) finds fundamental to an illegal pyramid scheme: payment by participants 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 recruiting other participants into the program rewards unrelated to the sale of the product to ultimate users. (In re Koscot Interplanetary, Inc. (1975), 86 F.T.C. 1106, 1180, aff\u2019d sub nom. Federal Trade Comm\u2019n v. Beatrice Foods Co. (D.C. Cir. 1978), 580 F.2d 701; State ex rel. Corbin v. Challenge, Inc. (1986), 151 Ariz. 20, 24, 725 P.2d 727, 731.) FTC decisions identify other characteristics typical of pyramid schemes, such as: (1) requiring a recruit to pay a large sum of money, either as an entry fee (headhunting fee) or for the purchase of a significant amount of nonrefundable inventory (inventory loading) (State ex rel. Edmisten v. Challenge, Inc. (1981), 54 N.C. App. 513, 520, 284 S.E.2d 333, 338); (2) pressuring members to recruit more participants; and (3) \u201cendless chains,\u201d or down lines, envisioning an infinite number of members. (State ex rel. Sanborn v. Koscot Interplanetary, Inc. (1973), 212 Kan. 668, 675-76, 512 P.2d 416, 422-23; Dare to Be Great, Inc. v. Commonwealth ex rel. Hancock (Ky. App. 1974), 511 S.W.2d 224, 225-26; Schrader v. State (1986), 69 Md. App. 377, 381-85, 517 A.2d 1139, 1141-43; Koscot Interplanetary, Inc. v. Draney (1974), 90 Nev. 450, 453-54, 530 P.2d 108, 110.) Defendants maintain that Unimax employs none of these techniques.\nAlthough the criteria enunciated by the FTC for identifying an illegal pyramid scheme are entitled to consideration (People ex rel. Fahner v. Walsh (1984), 122 Ill. App. 3d 481, 484, 461 N.E.2d 78), they are not controlling. (Corbin, 151 Ariz. at 24-25, 725 P.2d at 731-32; Ill. Rev. Stat. 1985, ch. 121\u00bd, par. 262.) This court, moreover, has already approved section 1(g) of the Act as the operative definition of a \u201cpyramid sales scheme\u201d in Illinois. (See People ex rel. Hartigan v. Dynasty System Corp. (1984), 128 Ill. App. 3d 874, 879, 471 N.E.2d 236.) Furthermore, a pyramid sales scheme need not include an \u201cendless chain\u201d (see Dynasty, 128 Ill. App. 3d at 877; Ill. Rev. Stat. 1985, ch. 121\u00bd, par. 261(g)), inventory loading or headhunting fees to violate the terms of the Act. Ill. Rev. Stat. 1985, ch. 121\u00bd, par. 26(g).\nHere, the commissions earned by marketers are contingent, not on the sale of any goods or services offered by Unimax, but only on bringing new individuals into the Unimax plan. The greater the number of subscribers a marketer sponsors, the greater his monthly commission check will be. The maximum commission available at each of the nine Matrix levels is conditioned upon full and timely payment by the marketer-sponsor and all of \u201chis\u201d subscribers of their subscription fees. Together, these uncontradicted facts demonstrate as much an opportunity for marketers to earn money \u201cprimarily based upon the inducement of additional persons *** to participate in the same plan or operation\u201d (Ill. Rev. Stat. 1985, ch. 121\u00bd, par. 261(g)), as they do an opportunity to earn commissions based on the sale of a service.\nDefendants admit that all subscribers have signed marketing agreements and that there are not marketers who are not also subscribers, although they insist subscribers aren\u2019t required to become marketers and are encouraged to do so only to broaden the membership base and thereby \u201c[afford] purchasers the benefits of [the] buying power of a large group of consumers.\u201d The fact that an individual wishing to sell subscriptions alone must pay a start-up fee, however, while a subscriber can become a marketer at no extra cost, demonstrates an emphasis by Unimax on drawing more individuals into the organization. Several courts interpret greater pressure on members to sponsor new recruits than to market company merchandise as evidence of an illegal pyramid. (Dynasty, 128 Ill. App. 3d at 881; Dare to Be Great, Inc. v. Commonwealth ex rel. Hancock, 511 S.W.2d at 226; State v. Solem (1974), 301 Minn. 282, 286, 222 N.W.2d 98, 100; State ex rel. Edmisten v. Challenge, Inc., 54 N.C. App. at 520, 521, 284 S.E.2d at 337, 338.) Because these material, uncontradicted facts reasonably yield more than one possible inference, the circuit court erred in granting defendant\u2019s motion and the summary judgment entered in favor of defendants must be reversed.\nThe circuit court erroneously found that the \u201cbenefit or thing of value received by a person in the Unimax multi-level marketing plan is the membership in the *** [Bjuyers [Sjervice, not the commission received on the sale of buyers club memberships.\u201d The only means by which a marketer may gain a \u201cbenefit\u201d through Matrix, however, is to sponsor Unimax subscribers and obtain commissions on their membership fees; membership in the Buyers\u2019 Service is obtained separate and apart from a marketer\u2019s activities in Matrix. This misunderstanding of Unimax operations further supports the conclusion that the court erred in determining that, as a matter of law, Matrix does not violate the Act.\nAccordingly, the circuit court\u2019s order of May 7, 1987, granting defendants\u2019 motion for summary judgment must be reversed and the cause remanded for further proceedings consistent with this opinion.\nReversed and remanded.\nSTAMOS and BILANDIC, JJ., concur.\nThe court\u2019s order disposed of the entire two-count complaint. The briefs, however, are devoted to count I of the complaint and whether Matrix constitutes an illegal pyramid scheme; neither party addresses the issue of whether defendants operate a \u201cchain referral sales technique.\u201d Under Supreme Court Rule 341(e)(7), points not argued in the briefs are waived. 107 Ill. 2d R. 341(e)(7); see also Jenkins v. Wu (1984), 102 Ill. 2d 468.483. 468 N.E.2d 1162.", "type": "majority", "author": "PRESIDING JUSTICE HARTMAN" } ], "attorneys": [ "Neil F. Hartigan, Attorney General, of Springfield (Roma Jones Stewart, Solicitor General, and William G. Sullivan, Teresa M. Mooney, and Patricia Kelly, Assistant Attorneys General, of Chicago, of counsel), for appellant.", "Stephanie W. Kanwit and Margaret F. Woulfe, both of Chicago, for appellees." ], "corrections": "", "head_matter": "THE PEOPLE ex rel. NEIL F. HARTIGAN, Attorney General, Plaintiff-Appellant, v. UNIMAX, INC., et al., Defendants-Appellees.\nFirst District (2nd Division)\nNo. 87\u20141751\nOpinion filed March 29, 1988.\nRehearing denied April 22, 1988.\nNeil F. Hartigan, Attorney General, of Springfield (Roma Jones Stewart, Solicitor General, and William G. Sullivan, Teresa M. Mooney, and Patricia Kelly, Assistant Attorneys General, of Chicago, of counsel), for appellant.\nStephanie W. Kanwit and Margaret F. Woulfe, both of Chicago, for appellees." }, "file_name": "0718-01", "first_page_order": 740, "last_page_order": 747 }