Yan Guo v. Kyani, Inc.

Citation: 311 F. Supp. 3d 1130Docket: Case No LA CV17–08257 JAK (GJSx)

Court: District Court, C.D. California; May 1, 2018; Federal District Court

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Yan Guo and Ju Jin Guo, collectively referred to as Plaintiffs, filed a lawsuit against Kyäni, Inc., Michael Breshears, and Kirk Hansen (collectively, Defendants), alleging that the Defendants operate a pyramid scheme through their distributorship model for health and wellness products. The Plaintiffs claim that distributors must pay fees and recruit others to join, perpetuating the scheme. On January 31, 2018, Defendants initiated arbitration proceedings against Yan Guo, followed by the Plaintiffs filing a First Amended Complaint the next day. Defendants subsequently amended their arbitration demands for both Yan and Ju Jin Guo. 

Kyäni and Breshears filed a motion to dismiss based on forum non conveniens, to which the Plaintiffs responded. A motion to dismiss for failure to state a claim was filed by the Moving Defendants on February 20, 2018, and the Plaintiffs opposed it. The Moving Defendants also sought a stay of the action, which the Plaintiffs contested. On March 30, 2018, Hansen joined in the motions to dismiss and stay. Following a hearing on April 9, 2018, the court denied the forum non conveniens motion, granted in part and denied in part the 12(b)(6) motion, and denied the motion to stay.

Factual background reveals that Yan and Ju Jin are California citizens, while Kyäni is an Idaho corporation founded by Breshears and Hansen, who hold significant positions within the company and are at the top of its distributor hierarchy, benefiting disproportionately from its compensation structure at the expense of the majority of distributors.

To become a Distributor for Kyäni, individuals must pay between $600 and $1,299, with specific instances noted where Yan and Ju Jin paid approximately $1,500 to become Distributors in 2016 and 2015, respectively. Distributors can earn bonuses primarily through recruitment rather than product sales, which is emphasized in Kyäni's marketing plan. Recruitment is encouraged through methods such as private business receptions and 3-way calls, with claims that consistent calling can lead to significant advancement within the company. The FAC alleges that selling Kyäni's products is difficult due to high prices, competition from other distributors, and restrictions on sales through various retail channels. Additionally, it claims that Kyäni has made misleading statements about product quality and profitability for Distributors, contributing to the characterization of Kyäni as operating an illegal pyramid scheme. Plaintiffs aim to represent a nationwide class of individuals who incurred financial losses from their involvement with Kyäni since January 1, 2011, and seek to certify two subclasses. The FAC presents ten causes of action against the Defendants, including claims for unfair business practices, false advertising, RICO violations, and violations of the California Seller Assisted Marketing Plan Act.

Defendants submitted a declaration from Kristen Pearson, Kyäni's Global Compliance Director, as part of their Forum Non Conveniens Motion. Pearson outlines that becoming a Distributor requires prospective applicants to complete an online application on Kyäni's website, during which they must consent to three agreements: the Electronic Consent Agreement, Kyäni's Policies and Procedures, and the Independent Distributor Agreement Terms and Conditions. Applicants can review or download these agreements and must check boxes confirming their acceptance to proceed.

The Independent Distributor Agreement establishes the relationship between Kyäni and Distributors, stating that the agreement is entered in Idaho Falls, Idaho, where the application is submitted and approved. It asserts that Idaho law governs the agreement, and disputes must be resolved exclusively in Idaho courts, particularly in Bonneville County's District Court. The agreement also incorporates Kyäni's Policies and Procedures and includes an arbitration provision, mandating that disputes related to the agreement or Kyäni's operations be settled by binding arbitration in Idaho Falls, following the Federal Arbitration Act and applicable arbitration rules.

Forum non conveniens is analyzed under 28 U.S.C. 1404(a) and allows a district court to decline jurisdiction if a foreign forum is more convenient. To succeed in a motion for dismissal based on this doctrine, the moving party must demonstrate: (1) the existence of an adequate alternative forum and (2) that the balance of private and public interest factors supports dismissal. Typically, a plaintiff's choice of forum is respected unless the factors strongly favor another jurisdiction. However, the presence of a valid forum-selection clause alters this dynamic; in such cases, the plaintiff must prove that public-interest factors "overwhelmingly disfavor" dismissal. The forum-selection clause is a critical consideration and should be given substantial weight unless exceptional circumstances exist.

Forum selection clauses can apply to both contractual and tort claims, as well as statutory claims. In diversity suits, federal law governs the interpretation of these clauses, which must be analyzed prior to enforcement. The applicability of a forum selection clause to non-contractual claims hinges on whether the resolution of those claims requires interpreting the underlying contract. The language of the clause significantly affects its scope; clauses stating disputes "arising under" the contract are interpreted narrowly, while those covering disputes "arising out of or relating to" the contract are broader. 

In *Manetti-Farrow, Inc. v. Gucci Am. Inc.*, the Ninth Circuit determined that a clause designating Florence, Italy, as the exclusive forum for disputes related to contract interpretation barred the plaintiff's tort claims, as they were intertwined with the rights and duties outlined in the contract. A similar conclusion was reached in *Modius, Inc. v. Psinaptic, Inc.*, where a clause designating the "Court of Queen's Bench" in Alberta, Canada, as the exclusive jurisdiction for disputes under a reseller agreement applied to the plaintiff's non-contractual claims, which arose from issues related to the agreement's execution and obligations.

Numerous non-contractual claims were advanced, alleging that the defendant intentionally or negligently misrepresented its intention to escrow the source code, which induced the plaintiff into a reseller agreement. The court noted that these claims were connected to the reseller agreement, as they required interpretation of the agreement to ascertain the parties' rights and duties under the Escrow Agreement. In contrast, in In re Orange, S.A., the plaintiff's non-contractual claims were found not to be governed by the forum selection clause in a non-disclosure agreement (NDA) between the parties. The defendant, a telecommunications provider, had approached the plaintiff, a software application developer, leading to the execution of the NDA that prohibited disclosure of confidential information. Upon termination of negotiations, the plaintiff alleged that the defendant improperly accessed its servers to obtain proprietary information and filed a complaint in California, asserting claims under the Computer Fraud and Abuse Act (CFAA), breach of terms, theft of trade secrets, and unfair competition. The defendant's motion to dismiss based on the forum selection clause was rejected by the Ninth Circuit, which affirmed the district court's finding that the claims were factually distinct from the NDA and thus outside the clause's scope.

Defendants assert that a mandatory forum selection clause in the Independent Distributor Agreement mandates that any suit concerning its interpretation or enforcement must be filed in Idaho state court. They argue that the claims in the First Amended Complaint (FAC) challenge the agreement's lawfulness and enforceability. Plaintiffs counter that the claims do not relate to the agreement's interpretation or enforcement. The forum selection clause specifically requires that disputes regarding the agreement be resolved in Idaho, which is consistent with similar clauses in case law, such as Manetti-Farrow. However, the FAC's claims, which include allegations of operating an illegal pyramid scheme and various business-related misconduct, do not require analysis of the Distributor Agreement's terms. These claims arise from alleged fraudulent practices by Kyäni, unrelated to the agreement itself.

Citing Hardy v. Advocare, Plaintiffs argue that their claims of misrepresentation do not necessitate interpretation of the Distributor Agreement, as the alleged misrepresentations occurred outside its context. Defendants' cited cases, such as Cung Le and Zako, involved disputes where the claims directly required interpretation of contractual terms or were anticipated by the agreements. In contrast, the FAC's claims do not invoke the agreement's provisions. Therefore, the court denies the Forum Non Conveniens Motion, concluding that the forum selection clause does not apply to the Plaintiffs' claims.

Legal standards for a 12(b)(6) motion to dismiss require that a pleading must contain a short and plain statement demonstrating entitlement to relief, as mandated by Fed. R. Civ. P. 8(a). The claim must present sufficient facts to establish a plausible entitlement to relief, as highlighted in Bell Atl. Corp. v. Twombly, which emphasizes that mere formulaic recitation of elements is insufficient. A plausible claim is one that suggests more than a mere possibility of unlawful conduct. If allegations are only consistent with a defendant's liability, they fail to meet the plausibility threshold as indicated in Ashcroft v. Iqbal.

Under Fed. R. Civ. P. 12(b)(6), a motion to dismiss is appropriate if the complaint lacks a viable legal theory or supporting facts. When evaluating such motions, courts assume the truth of the allegations and interpret them favorably for the non-moving party, as per Cahill v. Liberty Mut. Ins. Co. However, courts are not obligated to accept contradictory allegations or those that are conclusory or unreasonable, as established in In re Gilead Scis. Sec. Litig.

In the application section, the defendants argue for the dismissal of the second (Endless Chain Scheme), third (Unfair and Deceptive Business Practices), fourth (False Advertising), and tenth (California Seller Assisted Marketing Plan Act) causes of action, asserting that the Independent Distributor Agreement specifies Idaho law, which conflicts with the California law under which these claims are brought.

A federal court in diversity jurisdiction must apply the forum state's choice of law rules to ascertain the applicable substantive law. In California, two analyses exist for determining the governing law in contractual disputes. When parties designate another jurisdiction's law, the trial court follows the framework established in Nedlloyd, which addresses the enforceability of such choice-of-law clauses. The court first evaluates the clause to confirm that it encompasses the claims presented. The scope of the choice-of-law provision is generally interpreted under the law specified in the agreement, unless otherwise stated.

The Independent Distributor Agreement specifies that Idaho law governs. The Idaho Supreme Court supports the application of the chosen law for parties' contractual rights, provided the issue could have been explicitly addressed in the agreement. Furthermore, interpretations regarding arbitration clauses hinge on their terms, with the intent and meaning derived from the contract's language. Tort claims may fall under an arbitration clause based on their relation to the clause's subject matter, rather than their classification as tort or contract.

The Independent Distributor Agreement stipulates that it is governed exclusively by Idaho law, which primarily pertains to the interpretation and construction of the Agreement itself, rather than external claims or torts related to the parties' conduct. This interpretation aligns with precedents indicating that similar choice-of-law provisions are limited to contract construction. Consequently, claims related to the alleged operation of a pyramid scheme do not fall under this provision, allowing the plaintiffs to pursue statutory claims under California law. The motion to dismiss these claims (second, third, fifth, and tenth causes of action) is denied.

The second cause of action alleges an "endless chain" scheme under California Penal Code § 327 and Civil Code § 1689.2, while the third addresses unfair business practices under California Business and Professions Code § 17200 et seq. The fourth claims false advertising under California Business and Professions Code § 17500 et seq., and the fifth is for fraudulent concealment and nondisclosure. 

Defendants argue that these claims are subject to the heightened pleading standard of Federal Rule of Civil Procedure 9(b) because they involve fraud, asserting that the plaintiffs fail to specify the details of the alleged misconduct. Plaintiffs counter that the endless chain scheme does not require proof of intent, and even if Rule 9(b) applies, their claims are adequately pleaded. They assert that the third, fourth, and fifth causes of action are plausible but do not explicitly contest the applicability of Rule 9(b).

Cal. Civ. Code 1689.2 allows participants in an "endless chain scheme" to rescind contracts related to such schemes and recover their payments, minus any amounts received from participation. An "endless chain" is defined by Cal. Penal Code 327 as a scheme where participants pay to receive compensation for recruiting others, excluding payments based on sales to non-participants. Rule 9(b) mandates that claims involving fraud must be stated with particularity, requiring specific factual allegations to inform defendants of the misconduct. The challenged causes of action in the case at hand are based on the defendants' alleged operation of an endless chain scheme, characterized as "fraudulent" in the First Amended Complaint (FAC). The plaintiffs assert that they have standing under the fraudulent prong of the Unfair Competition Law (UCL) and that their claims for fraudulent concealment are also subject to Rule 9(b). The FAC successfully alleges an endless chain scheme, aligning with the Koscot test, which defines pyramid schemes as those where participants pay for the right to sell a product and recruit others for unearned rewards. It is claimed that becoming a distributor with Kyäni requires an initial payment of $600 to $1,299, and that advancement within the distributor hierarchy is contingent upon recruiting new distributors.

The First Amended Complaint (FAC) claims that "nearly all" Distributors of Kyäni's products incur financial losses due to high product pricing, which aligns with the Koscot standard. In contrast to a previous case against Herbalife, where fraud and misrepresentation claims were dismissed for lack of specificity, the allegations here are deemed sufficiently detailed to warrant notice for the defendants. Consequently, the motion to dismiss under Rule 12(b)(6) is denied for the second through fifth causes of action, which meet the heightened pleading standard of Rule 9(b).

Regarding the sixth and seventh causes of action under the Racketeer Influenced and Corrupt Organizations Act (RICO), defendants seek dismissal on the grounds that RICO claims cannot stem from alleged securities fraud. Plaintiffs counter that their payments to Kyäni for Distributor status should not be classified as "securities." RICO prohibits participation in an enterprise's affairs through racketeering or unlawful debt collection, requiring plaintiffs to prove specific elements, including injury to their business. Importantly, conduct actionable as securities fraud cannot support a RICO claim. Previous rulings, such as S.E.C. v. Glenn W. Turner Enterprises, have recognized investments in pyramid schemes as "investment contracts," which may qualify as securities under federal law. The Ninth Circuit has not strictly enforced the requirement that profits must come solely from the efforts of others.

Determining whether payments to an alleged pyramid scheme constitute investment contracts hinges on whether significant efforts are made by individuals other than the investor. Courts assess whether the promoters control the sales and recruitment processes. In the case referenced, payments made by plaintiffs to the pyramid scheme were deemed investment contracts because the scheme's structure prioritized recruitment over product sales. The plaintiffs' claims allege that the defendants operated an unlawful pyramid scheme in violation of RICO, asserting that their payments qualify as investment contracts under federal securities laws. The allegations indicate that those at the top controlled product sales and distributor recruitment, and that advancement within the scheme relied on recruitment efforts. Consequently, the plaintiffs' RICO claims are legally barred, as even minimal effort to sell products does not alter the classification of their payments as investments. This conclusion is supported by other district court rulings within the circuit, emphasizing that pyramid scheme investments are securities by nature, not specific agreements. Therefore, challenges related to pyramid schemes should be addressed through the Private Securities Litigation Reform Act (PSLRA) rather than RICO. The court granted the motion to dismiss the sixth and seventh causes of action without prejudice and without leave to amend. 

Regarding the eighth cause of action for federal securities fraud, defendants argue that the plaintiffs failed to adequately plead their claims, particularly by not identifying the specific federal statute violated and not meeting PSLRA requirements, including the certification requirement for class actions. Plaintiffs counter that their claims arise under Rule 10b-5 and assert that they have plausibly pleaded the necessary elements, submitting a sworn certification to support their position. Legal standards under Section 10(b) of the Exchange Act prohibit the use of manipulative or deceptive devices in securities transactions.

SEC Rule 10b-5 prohibits any fraudulent acts or practices in connection with securities transactions. In a private action under Rule 10b-5, plaintiffs must establish five elements: (i) a material misrepresentation or omission, (ii) scienter, (iii) a connection to the purchase or sale of a security, (iv) transactional and loss causation, and (v) economic loss. Deceptive conduct, including operating a pyramid scheme, is actionable, and no specific statement is required for a claim; deceptive conduct alone suffices. Claims must meet the particularity requirements of Federal Rule of Civil Procedure 9(b), and under the PSLRA, scienter must be pleaded with particularity, demonstrating intent to deceive or deliberate recklessness. To survive a Rule 12(b)(6) challenge, the inference of scienter must be at least as compelling as any opposing inference. The operation of a pyramid scheme is inherently deceptive, and the allegations in the FAC suggest a strong inference of scienter against the defendants. The other elements of the Rule 10b-5 claim are also adequately pleaded, leading to the denial of the motion to dismiss regarding this cause of action.

Regarding the ninth cause of action for unjust enrichment, defendants argue it fails because the relationship is defined by the Independent Distributor Agreement, which addresses the same subject matter. Plaintiffs counter that unjust enrichment is a standalone claim against individual defendants Hansen and Breshears. Unjust enrichment is classified as an action in quasi-contract according to the Ninth Circuit.

The claim for unjust enrichment requires demonstrating the receipt of a benefit and its unjust retention at another's expense. To succeed, a plaintiff must show that the defendant gained a benefit from them via fraud, duress, or similar improper conduct. In this case, the unjust enrichment claim is directed at Breshears and Hansen, who are not parties to the Independent Distributor Agreement. The alleged conduct supporting this claim falls outside the agreement's scope, meaning the existence of the agreement does not prevent the unjust enrichment claim. Consequently, the motion to dismiss (12(b)(6)) regarding this claim is denied.

Regarding the first cause of action for declaratory relief, defendants argue for its dismissal based on the viability of the plaintiffs' substantive claims. However, since many of the plaintiffs' claims are indeed viable, the motion to dismiss is denied for this cause as well. The court grants the motion in part, dismissing the sixth and seventh causes of action without prejudice and without leave to amend, while denying it in all other respects.

On the motion to stay proceedings under the Private Securities Litigation Reform Act (PSLRA), defendants contend that action should be paused until the 12(b)(6) ruling. They also suggest a temporary stay pending arbitration determination, arguing that the Independent Distributor Agreement delegates this issue to arbitrators. Plaintiffs counter that a first-filed federal action should not be stayed for a later action, and the PSLRA’s automatic stay does not apply here due to the unique characteristics of their securities claim. They also argue that any delegation of gateway issues to arbitration is unenforceable. The PSLRA mandates that all discovery be stayed during a motion to dismiss, but the motion to stay is deemed moot concerning the PSLRA request.

Plaintiffs' Rule 10b-5 claim is deemed adequately pleaded. Under the Federal Arbitration Act (FAA), specifically 9 U.S.C. § 3, a federal court must stay proceedings if a valid arbitration agreement exists and the issue is referable to arbitration. The FAA mandates that district courts have no discretion in directing parties to arbitration when an agreement is present, as established in case law such as Countrywide Home Loans, Inc. v. Mortgage Guar. Ins. Corp. and Dean Witter Reynolds, Inc. v. Byrd. The court must first determine whether the parties intended to delegate the arbitrability decision to an arbitrator. If not, the court conducts a full inquiry into arbitrability. If the parties did intend to delegate this decision, the court performs a limited inquiry to assess if the assertion of arbitrability is "wholly groundless." If it is not, the court will stay the trial pending an arbitrator's ruling; if it is, the court may deny the stay request. The determination of who decides arbitrability remains a judicial question unless explicitly delegated by the parties. The Ninth Circuit has recognized such delegation through arbitration provisions referencing AAA rules, which empower the arbitrator to rule on jurisdiction and validity of the arbitration agreement.

The Ninth Circuit has not definitively resolved whether the incorporation of American Arbitration Association (AAA) rules in contracts always serves as "clear and unmistakable" evidence of the parties' intent to delegate arbitrability to an arbitrator, regardless of their sophistication. In the Brennan case, it was clarified that the incorporation of AAA rules does not necessitate the parties to be sophisticated or the contract to be commercial for a court to conclude such intent. However, the circuit's courts differ on this issue, especially regarding unsophisticated parties. For instance, in Meadows v. Dickey's Barbecue Restaurants, it was determined that the franchisees, being less sophisticated than the franchisor and facing a complicated agreement, did not show clear intent for an arbitrator to decide on arbitrability despite the AAA rules' incorporation. Conversely, in other cases, courts have upheld that the incorporation of AAA rules indicates clear intent to delegate arbitrability, irrespective of party sophistication. The arbitration provision in the Independent Distributor Agreement mandates binding arbitration for disputes related to the agreement and its provisions, governed by the Federal Arbitration Act and AAA Commercial Arbitration Rules. This provision is located on the final page of a three-and-a-half-page document and lacks a specific heading. The key issue is whether this arbitration provision clearly delegates the question of arbitrability to the arbitrator.

Plaintiffs successfully argue that the arbitration provision lacks a "clear and unmistakable" intent to delegate arbitrability questions to an arbitrator, as evidenced by the unsophisticated nature of the parties and the mere incorporation of AAA rules without sufficient availability or notice to prospective distributors. The Defendants' counsel admitted that Kyäni does not provide access to these rules on their website or in print, reinforcing the claim of insufficient intent. This absence of clarity is supported by precedent indicating that failure to provide such rules can lead to findings of procedural unconscionability. Additionally, the Independent Distributor Agreement specifies that disputes regarding its interpretation must be resolved in Idaho state court, further undermining the argument for arbitration. The court concludes that the issue of whether Plaintiffs' claims are arbitrable is not ripe for adjudication, denying the Motion to Stay that sought a temporary pause pending an arbitrator's ruling. The court also denies the Forum Non Conveniens Motion and partially grants the 12(b)(6) Motion, dismissing the sixth and seventh causes of action without prejudice. The deadlines for filing motions related to arbitration and scheduling conferences are set, with an order for a Joint Rule 16(b)/26(f) Report.

Use of first names in this Order aims to simplify identification of individuals with common surnames, with no intent of disrespect. Both Plaintiffs and Defendants have raised numerous evidentiary objections regarding the evidence presented in the Forum Non Conveniens Motion, which are addressed in concurrent orders. Hansen was served on March 28, 2018. The Independent Distributor Agreement contains a broad arbitration provision stating that all disputes related to Kyäni and the Agreement will be settled by binding arbitration in Idaho Falls, Idaho. This arbitration agreement functions similarly to a forum-selection clause, determining both the location and procedure for dispute resolution. Although such clauses can support dismissal for improper venue, Defendants did not invoke this in their Forum Non Conveniens Motion, explicitly stating they did not rely on the arbitration clause for dismissal. The parties' agreements include a mandatory arbitration clause, but Defendants assert that the Idaho state court should determine the arbitrability of the dispute, a point not addressed here as it was not raised. An exception exists regarding the first cause of action in the FAC, which seeks a judicial declaration of the arbitration provision's unenforceability, leading Defendants to claim it is covered by the forum selection clause. However, they have not filed a motion to compel arbitration and have not clarified their rationale for the Idaho state court's jurisdiction over the arbitrability issue.

Defendants argue inconsistently that the Independent Distributor Agreement assigns questions of arbitrability to arbitrators; however, as they have not filed a motion to compel arbitration, these issues remain unaddressed. Should Defendants choose to file such a motion, both parties will need to consider whether the enforceability of the arbitration clause and its applicability to the claims in the First Amended Complaint (FAC) should be determined by the Court, given the forum selection clause in the Agreement. The mere potential introduction of Kyäni's Global Compensation Plan into evidence does not change the situation, as a complete copy has not been provided, preventing any assessment of its relevance to the claims in the FAC. The claims primarily focus on allegations that Kyäni operates an unlawful, endless chain scheme and that Plaintiffs were fraudulently induced to become Distributors through misrepresentations. These claims do not require interpretation of the Compensation Plan's terms, as the associated "rights and duties" are not in dispute. Instead, the questions center on Kyäni's advertising practices and business model without needing to evaluate compliance with the Compensation Plan. Citing case law, the claims do not align with the scope of the forum selection clause since they do not relate to interpreting or enforcing the Compensation Plan. Additionally, Plaintiffs’ references to Idaho case law regarding choice-of-law provisions lack persuasive power, as no agreement on relevant provisions was evidenced in those cases.

Industries did not necessitate the application of Washington law for the claims of the plaintiff, a boiler repairman injured in Idaho while working for his Washington employer. Defendants contended that plaintiffs lacked standing for their tenth cause of action under the California Seller Assisted Marketing Plan Act (CSAMPA) due to insufficient allegations of injury. However, the CSAMPA permits any purchaser injured by a violation or breach related to the marketing plan to seek damages. The First Amended Complaint (FAC) asserted that each plaintiff paid approximately $1,500 to become a distributor based on misrepresentations about Kyäni's profitability, establishing sufficient standing under CSAMPA. Previous cases, such as Hinojos v. Kohl's Corp., support that individuals with business dealings who have suffered losses due to unfair practices have standing to sue.

Defendants' citation of Boorstein v. Men's Journal is unconvincing as it involved a failure to plead injury under California's Shine the Light law, whereas the FAC clearly pleads injury. Consequently, the motion to dismiss (12(b)(6)) regarding standing is denied. Furthermore, plaintiffs argued that the endless chain scheme cause of action is not subject to Rule 9(b)'s heightened pleading standard since it does not require a mens rea or intent. However, the Ninth Circuit allows plaintiffs to allege fraudulent conduct even when fraud is not a necessary element of the claim, which necessitates compliance with Rule 9(b)'s particularity requirement. Defendants' reliance on Kearns v. Ford Motor Co. is misplaced as that case did not adequately plead violations of the California Consumers Legal Remedies Act and the Unfair Competition Law based on misrepresentations.

The court found that the challenged complaint lacked specific details regarding the misleading statements in the advertisement, the timeline of the plaintiff's awareness, and the basis for the plaintiff's reliance on the advertisements. The case differs from Kearns, which did not involve a pyramid scheme; the current claims assert fraud related to the promotion of a pyramid scheme, necessitating particularity in pleading. The First Amended Complaint (FAC) sufficiently details the alleged scheme, including representations made by Kyäni's representatives about earning potential and misleading advertising practices. The plaintiffs' claims regarding their efforts in selling Kyäni products do not align with their allegations and suggest that their expenditures may constitute investment contracts. The court dismissed these claims without prejudice, allowing for potential reassertion if evidence arises showing the investments did not qualify as securities. Additionally, the Private Securities Litigation Reform Act (PSLRA) mandates specific certifications from plaintiffs in securities class actions, which were met by the certification provided by Yan. The court found no support for the plaintiffs' reliance on the McGreghar and Burley cases, noting that the parallel arbitration demands do not constitute pending district court actions. The court also clarified that motions to stay proceedings are adjudicated regardless of pending arbitration motions, as jurisdictional questions in arbitration are delegated to the arbitrator.