*************** (the "Company") is incorporated in California, with headquarters in *************** California. The Company, which is qualified to do business in Massachusetts, sells water purification units, filters and accessories. Retail sales are made through "Independent Distributors" ("Distributors"). The Company states that orders are accepted or rejected in California and that shipments are made from California via common carrier. Customer relations "are handled in California" and "support for our sales and marketing efforts is provided by the staff and personnel at the corporate headquarters." Massachusetts is the site of "in‑state recruiting, training, evaluation of sales, [and] hotels and homes [in Massachusetts are used] for sales meetings."
To become a Distributor, an individual must "register" by paying a "fee" and signing the Independent Distributor Agreement, which states, "It is acknowledged that Distributor will not be an employee, agent, or legal representative of [the Company]. Distributor serves as an independent contractor and as such is responsible for [his or her] own business including the cost of selling." After paying the fee and signing the Agreement, the Distributor receives the "Distributor Manual" and a "Business Kit" of advertising materials. Company material states that becoming a Distributor requires "virtually no investment....[The Company provides a] liberal inventory plan, continuous company help in reaching your goals...[a] Dynamic Compensation Plan...[and] Permanent Qualification is offered to help stabilize and motivate organization building....[The Company offers] technical and marketing support that is second to none."
Distributors are "encouraged" to advertise the Company's products. Advertising materials "must include only [the Company's] official claims, logos, trademarks, etc. [Distributors] must submit proposed advertising and promotional materials to the [Company's] sales Department for prior approval." Distributors may also purchase business cards and stationery imprinted with the Company logo and their name and address (or "message" in lieu of an address); advertising materials provide a space for the Distributor's name and address, as well as the Company's logo and address. Distributors offer the Company's gift certificate savings promotions to customers, such as the "Holiday Special" discount. These promotions are advertised in the Company's magazine for Distributors.
Distributors buy "sales" materials (audio and visual tapes, books, brochures, clothing, forms) from the Company. They may also, upon the payment to the Company of a refundable deposit and the purchase of unit filters, receive up to five "loaned Demonstrator Units" with which to demonstrate the purification system to prospective customers. Demonstration units may be rented to customers; if this occurs, a replacement is shipped to the Distributor. All demonstration units "remain the property of [the Company]."
Customer orders may be mailed, faxed or called in to Company headquarters by the Distributor, who receives a commission for each sale. "Bonuses" are offered to Distributors who reach designated levels of both personal sales and sponsored sales (see "Business Opportunity" Plan, below) in the Distributor "network." The Company offers contests and prizes to Distributors, and maintains honor groups for Distributors who have reached designated goals. The Company also offers "Optional Programs" for Distributors, which include "Incentive Programs" and "Sweepstakes," and holds periodic meetings and an annual national conference for Distributors.
Customers may also rent purifications units, and unlike units that are sold and directly shipped to the purchaser, rental units may be shipped to the customer or to the Distributor. The rental order form also requires that the Distributor sign the rental agreement with the customer, and, if the sale is made in cash, the Distributor must retain the "cash receipt" the Company issues for such sales. All rental components "remain the property of [the Company]" and the rental customer must first notify the Company before relocating the rented system. Distributors also receive commissions for rental units.
Customers may pay for their purchases in installments. The Installment Payment Order Form is "approved by" the Distributor, whose signature is required on the "Buyer Credit Application" section of the form. The Distributor may accept installment payments in cash, and must retain the cash receipt issued by Company for such sales. The Company retains a security interest in products bought via installments.
Distributors or their customers may call the Company toll‑free and receive "customer service and delivery information." Distributors may also call toll‑free to receive "sales support and distributor information."
" Business Opportunity" Plan
Distributors are "encouraged to advertise and promote [the Company's]...Business Opportunity" Plan by "review[ing] the "Business Opportunity" brochure with prospective Distributors [and] connect[ing] a...Unit in their kitchen and demonstrat[ing] how crystal clear the water is." Distributors receive a commission whenever an individual the Distributor has recruited ("sponsored") to become a Distributor makes a sale. Distributors increase their earnings via this "network" system of recruitment since each time a Distributor sells a unit, his or her sponsoring Distributor is also compensated. Sponsoring Distributors may "train distributors in [their] downline" using "Video Seminars" in "group meetings, seminars or one‑to‑one."
For the purposes of coming within the protection of P.L. 86‑272, the Company maintains that its activities in Massachusetts are limited to solicitation and activities ancillary to solicitation, or that its activities in Massachusetts, although beyond solicitation, are nevertheless de minimis.