Frye v. Taylor

263 So. 2d 835
CourtDistrict Court of Appeal of Florida
DecidedMarch 9, 1972
Docket70-952
StatusPublished
Cited by18 cases

This text of 263 So. 2d 835 (Frye v. Taylor) is published on Counsel Stack Legal Research, covering District Court of Appeal of Florida primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Frye v. Taylor, 263 So. 2d 835 (Fla. Ct. App. 1972).

Opinion

263 So.2d 835 (1972)

Thomas W. FRYE, Appellant,
v.
Norman W. TAYLOR, Appellee.

No. 70-952.

District Court of Appeal of Florida, Fourth District.

March 9, 1972.

*836 J. Russell Hornsby and Dale E. Anstine, of Law Offices of J. Russell Hornsby, Orlando, for appellant.

No appearance for appellee.

MAGER, Judge.

Defendant appeals a final judgment entered in favor of the plaintiff on a suit to enforce a promissory note.

Defendant executed the note to secure a loan of $2,500.00 made by the plaintiff to enable defendant to purchase a directorship in Koscot Interplanetary, Inc. Defendant contends that the note in question is void and unenforceable since it was given in consideration of participation in a transaction declared to be a lottery under Section 849.091, Florida Statutes, F.S.A. In addition, defendant counterclaimed for the return of $2,000.00 previously paid for the obtaining of a supervisor position in Koscot alleging that such payment was in violation of Chapter 517, Florida Securities Law.[1]

From our review of the evidence in the record we are of the opinion that the transaction in question unmistakably and as clearly as the proverbial "nose on the face" constitutes a lottery within the spirit and letter of F.S. Section 849.091, F.S.A. and that the note sued upon for participation in such illegal transaction is void and unenforceable. M. Lippincott Mortgage Investment Co. v. Childress, Fla.App. 1967, 204 So.2d 919.

The evidence in the record reflects an ingenious scheme of "pyramid franchising" agreements embracing multi-level membership recruitments with the payment of finder's fees for membership recruitment and "advancement" within the various levels of such plan. The evidence further demonstrates that the motivating factor inducing persons to become participants was not the sale of cosmetics but rather the receipt of a fee or commission through a chain process of securing membership.

F.S. Section 849.091, F.S.A., sets forth the type of "pyramid club" or "chain letter" which constitutes a lottery:

"849.091 Chain letters, pyramid clubs, etc., declared a lottery; prohibited; penalties. — The organization of any chain letter club, pyramid club, or other group organized or brought together under any plan or device, whereby fees or dues or anything of material value to be paid or given by members thereof are to be *837 paid or given to any other member thereof, which plan or device includes any provision for the increase in such membership through a chain process of new members securing other new members and thereby advancing themselves in the group to a position where such members in turn receive fees, dues or things of material value from other members, is hereby declared to be a lottery, and whoever shall participate in any such lottery by becoming a member of, or affiliating with, any such group or organization or who shall solicit any person for membership or affiliation in any such group or organization shall be guilty of a felony, and upon conviction thereof shall be punished by a fine of not less than one hundred dollars, nor more than five thousand dollars, or by imprisonment in the county jail for a period of not more than two years or in the state penitentiary not less than one year nor more than ten years." (Emphasis added.)

It is difficult to discern any distinctive difference between the scheme giving rise to the debt in question and the prohibited chain letter or pyramid transaction set forth in Section 849.091. The transaction in the case sub judice is ingenious because its survival is dependent upon a combination of operative simplicity, financial complexity and the basic human desire to "make a fast buck". It is a lesson in psychological motivation and character study the likes of which would bring an envious smile on the face of P.T. Barnum. Under the Koscot "plan" there are four basic levels of participation: beauty advisor (retailer); coordinator (retail manager); supervisor (wholesaler); and director (wholesale manager). Each position requires an investment to be made by the participant. In the case of a person ascending to the supervisor level, it is necessary to pay Koscot $2,000.00; in the case of a person ascending to the highest level of director it was necessary to pay Koscot $2,500.00. The person "sponsoring" a participant for the supervisor or director level receives a "finder's fee". In the case of a supervisor sponsoring another person to become a supervisor a $500.00 finder's fee would be paid; in the case of a director sponsoring a person to become a supervisor he would receive a $750.00 fee. In the case where a director sponsored an individual to move from supervisor to a director position the director would receive a $2,500.00 fee. Under this latter circumstance, however, the supervisor could not move up to the director position and the director would not receive his $2,500.00 fee for sponsoring such individual unless the supervisor found someone to replace himself.

Thus, it can be seen how movement occurs at the various levels and how this chain process initiates and continues on ad infinitum. This process, particularly recruitment and replacement, is perhaps most clearly illustrated in Koscot's "Directors Training Manual" which was admitted into evidence before the trial court:

"`This is the strength of our marketing plan. Before any Supervisor can reach the highest position in the field, he must fill his shoes with another Supervisor. This means the number of Supervisors you sponsor into the program can never decrease, but the number of Directors you have will be continually increasing.'"

In the case sub judice plaintiff was formerly a supervisor in Koscot having ascended to a directorship position prior to the time of the transaction in question. As a director plaintiff had "sponsored" defendant as a supervisor for which transaction defendant paid Koscot $2,000.00, with plaintiff receiving a $750.00 finder's fee. Subsequently plaintiff, as a director, sponsored defendant to be elevated from his supervisorship position to director position. It was this latter transaction that gave rise to the $2,500.00 loan, execution of the promissory note and this litigation. Defendant testified, inter alia, that he agreed to become a director and to pay Koscot $2,500.00 if plaintiff would loan him that amount. *838 Accordingly, defendant secured a cashier's check payable to Koscot and both plaintiff and defendant took this check to Koscot's office; whereupon Koscot immediately issued a cashier's check to plaintiff as his "finder's fee" which check, in turn, plaintiff gave to defendant as the substance of the loan transaction. As heretofore mentioned, it was necessary for defendant as supervisor to find a replacement for himself. The record reflects that such a replacement was found so as to perpetuate the chain member-recruiting and pyramid franchising process. It is interesting to note that the monies which form the substance of the loan traveled a full circle going from defendant to Koscot, from Koscot to plaintiff and from plaintiff back to defendant.

Although there is some reference to the sale and transfer of cosmetic products which supposedly is the business in which Koscot is engaged, the evidence indelibly indicates a pyramid franchising scheme possessing all of the requisite features and characteristics so as to bring it within the proscription of F.S. Section 849.091, F.S.A.

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Bluebook (online)
263 So. 2d 835, Counsel Stack Legal Research, https://law.counselstack.com/opinion/frye-v-taylor-fladistctapp-1972.