Neora has lost a bid to have the FTC cover $5.2 million in “attorney’s and expert fees and expenses”.

Following its decisive win against the FTC last year, Neora filed a motion requesting the FTC cover its expenses.

In support of its motion Neora argued, in light of its victory, that “the FTC’s positions were not substantially justified”.

In opposition the FTC argued that because Olsen was a “high net worth” individual, an order of fees would be “unjust”.

Having examined the case and arguments, on May 29th the court sided with the FTC.

Considering the totality of the circumstances, the Court concludes that the FTC’s position was substantially justified, and does not reach the parties’ remaining arguments.

In support of its request for fees, Neora seizes on language from the Court’s Findings of Fact and Conclusions of Law observing that the FTC provided “no evidence” in support of various discrete issues, to suggest that the FTC’s position was lacking in factual support from the outset, and similarly contends that “clear and unambiguous legal precedent” governed the outcome.

In doing so, Neora discounts and downplays the legitimate and substantial disputes presented by the parties throughout this case’s lengthy procedural history, an intervening Supreme Court decision that clarified the FTC’s available recovery, the FTC’s success on various pre-trial motions, the lack of clear binding precedent governing certain issues, and the fact that, in other cases, similar evidence presented by the FTC was found sufficient for it to prevail on the merits.

Lest there be any doubt: the Court considered this to be a close case, and reached its final decision only after careful scrutiny, assessment, and weighing of every piece of evidence in context following a comprehensive trial.

The FTC’s position had a reasonable basis in law and fact, thereby warranting denial of Neora’s request for fees and expenses under EAJA.

I might be reading into the decision but it appears the court is throwing the FTC a bone. Nobody saw the Supreme Court’s AMG decision coming, along with the havoc it has caused with respect to regulating MLM pyramid schemes.

To be clear, Neora prevailed against the FTC on the merits of it having sufficient retail sales activity. Even had the FTC of won however, damages would have been severely reduced due to AMG.

Somewhat confusingly, the court perhaps went a step too far in coming up for excuses as to why the FTC ignored Neora’s retail sales revenue.

In this case, the FTC structured its pyramid scheme claim around the second element of the Koscot test, which asks whether participants in the alleged pyramid scheme receive “the right to receive in return for recruiting other participants into the program rewards which are unrelated to sale of the product to ultimate users.”

Because the test evaluates the rights that participants receive through the scheme, the FTC argued that courts applying Koscot should focus on the particular defendant’s compensation plan, “before or even in lieu of considering operational data.”

As a result, the FTC’s evidence and arguments in support of its pyramid scheme claim, including the opinions and assumptions of its expert, Dr. Stacie Bosley, emphasized the terms of Neora’s Compensation Plan and the rights Brand Partners receive thereunder.

Relatedly, the FTC discounted other evidence—such as Neora’s revenues, sales to Preferred Customers, and potential for eventual collapse—that are not encompassed within the Koscot test and are unrelated to Neora’s Compensation Plan.

Here, admittedly, the Court ultimately found reason to look beyond the plain terms of the Compensation Plan, in part based on its reliance on non-binding authorities.

However, the FTC was substantially justified in relying primarily on Koscot, the terms of the Compensation Plan, and related evidence in support of its pyramid scheme claim, an approach that has been approved by other courts.

So too for the FTC’s request for an injunction based on its income, product, and means and instrumentalities claims.

The record demonstrates that the FTC had a reasonable basis in both law and fact to seek an injunction based on Neora’s violations of the FTC Act.

Personally I don’t factor in the “ultimate user” nonsense in evaluating MLM companies. Consequently you won’t see the term “ultimate user” in any of BehindMLM’s reviews.

The reason for this is “ultimate user” is defined as anyone using products purchased. “Ultimate users” can be distributors or retail customers.

The problem is this creates an autoship recruitment loophole, wherein MLM pyramid schemes can argue distributors are “ultimate users”.

What’s important and always has been, is whether an MLM company can demonstrate verifiable demand for its products outside of its own distributor/affiliate base.

In other words; significant retail sales or pyramid scheme. And typically this has meant 51% or more in company-wide sales volume being attributable to verifiable retail sales.

As discussed, the absence of binding caselaw and clear guidelines renders the pyramid scheme inquiry highly discretionary; although the FTC did not prevail here, its position might have satisfied a different reasonable factfinder.

If Neora prevailing against the FTC diminishes Koscot’s “ultimate user” nonsense in regulation of MLM pyramid schemes then I’m all for it.

Enough of the silly ambiguity already. It doesn’t help the FTC and it doesn’t help consumers trying to understand and evaluate MLM companies.