RENO, Nev. (CN) — A federal judge ordered Reno-based MXI Corp. to pay $7.7 million to settle a class action from salespeople who accused it of running a pyramid scheme involving “healthy” Xocai chocolate.
In their May 2015 lawsuit, lead plaintiffs Enrique and Michelle Martinez said they were two of an estimated 50,000 salespeople who bought the chocolate from MXI for resale. They claimed it was a classic pyramid scheme, in which MXI, but not the salespeople, made money through “endless recruiting” of new members.
U.S. District Judge Miranda M. Du gave final approval to the settlement on Feb. 28. The order includes $6.1 million to the class, plus $1.6 million in attorney’s fees and costs, and $35,000 in service awards to five plaintiffs.
“The court finds that the settlement is the product of serious, informed, non-collusive negotiations conducted at arms’ length by the parties and with the initial assistance of a mediator,” Du wrote.
She certified the settlement class as all MXI associates who are U.S. citizens and received less money than they paid to MXI, while buying its chocolate for resale from May 1, 2011 through Nov. 3, 2016.
As of Jan. 19 this year, 1,383 of 41,200 potential class members had submitted claims for either cash or products.
Du also ordered MXI to provide evidence it no longer is encouraging members to buy more chocolate for resale or personal use to qualify for bonuses or commission.
MXI also must show it no longer requires members to have at least 51 percent of qualifying sales volume to preferred customers to earn pay.
Du in March 2016 dismissed RICO claims against MXI. She found the Ninth Circuit has ruled that investments in pyramid schemes are securities, governed by the Private Securities Litigation Reform Act, which precludes RICO claims. But she upheld claims of mail and wire fraud, consumer fraud, and operating a pyramid scheme.
With the case surviving, MXI and Martinez, et al., attempted mediation, but did not reach an agreement after an all-day session. Du entered the settlement order after a Feb. 27 fairness hearing.