This one is pretty bizarre, even for Amway. It's important to note that Randy Haugen, the latest in a long series of Amway distributors to be sued by Procter & Gamble for slandering the company by spreading rumors linking P&G with satanism, is a not just some low-level chump distributor. On the contrary, Haugen is a Diamond who was at the time a member of the Executive Committee of the Amway Distributors Association Council, an influential group made up of Amway's most powerful distributors. Also on the Council with Haugen were Dexter Yager, Bill Britt, Jody Victor, Jerry Meadows, Don Storms, Billy Florence, and others like them.
Considering the number of times P&G has already sued Amway distributors over this very same issue, I find it difficult to believe that Haugen wasn't fully aware that what he was doing was illegal and unethical. The RIAA's lawsuit over copyright infringement by high-level Amway distributors like Haugen, and the NMPA lawsuit (also over copyright infringement) naming Amway Diamonds Hal Gooch, Tim Foley and Carlos Marin (among others), is another indicator that Amway's top distributors have little regard for the law if it interferes with their ability to make a profit.
In December of 1996, Procter & Gamble filed a third amended complaint that significantly increased the scope of this lawsuit. In addition to the charge of defamation based on the spreading of the satanism rumor, P&G has added two serious allegations: the deliberate use of false and disparaging product comparisons, and unfair competition via the operation of an illegal pyramid scheme. On 7/14/97 the third amended complaint was dismissed. It's important to note that the judge ruled on whether or not P&G could amend its complaint to include the additional (pyramid scheme) charges, and not on the relative merits of the charges themselves. The lawsuit itself was not dismissed and will proceed as outlined in P&G's second amended complaint (see below).
In August of 1996 Amway filed a counterclaim, charging P&G with false representation, false advertising, and abuse of process. In April of 1998, Amway's counterclaim was dismissed.
In Septermber of 1998, the court dismissed P&G's Lanham Act claim. Claims of common law unfair competition, violation of the Utah Truth in Advertising Act, and tortious interference with business relationships had previously been dismissed. Amway is still a defendant in this lawsuit.The claims remaining are defamation, negligent supervision, and vicarious liability.
This is the first time, to my knowledge, that Amway is being taken on by someone who has even more money and resources than Amway. This time Amway won't be able to bully, intimidate, buy off, out-spend or wear down the plaintiffs.
Following the text of the complaint are some articles detailing the history of this case.
P&G has also filed in Texas a second lawsuit against Amway.
TRACY H. FOWLER (USB #1106) WILLIAM H. CHRISTENSEN (USB #4810) SEAN N. EGAN (USB #7191) CAMPBELL MAACK & SESSIONS One Utah Center, Thirteenth Floor 201 South Main Street Salt Lake City, Utah 84111 (801) 537-5555 telephone THOMAS S. CALDER JOHN E. JEVICKY DINSMORE & SHOHL 1900 Chemed Center 255 East Fifth Street Cincinnati, Ohio 45202 (513) 977-8200 telephone Attorneys for Plaintiffs the Procter & Gamble Company and The Procter & Gamble Distributing company IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH NORTHERN DIVISION THE PROCTER & GAMBLE COMPANY : and THE PROCTER & GAMBLE : DISTRIBUTING COMPANY, : : SECOND AMENDED COMPLAINT FOR Plaintiffs, : : INJUNCTIVE RELIEF VS. : : AND ACTUAL DAMAGES RANDY L. HAUGEN, individually; : FREEDOM ASSOCIATES, INC., a : Utah corporation; FREEDOM : TOOLS INCORPORATED, a Utah : corporation; ROGER D. PATTON, : individually; JEFFERY G. : MUSGROVE, individually; : MUSGROVE ENTERPRISES, a Texas : (Jury Trial Demanded) Partnership; STEVEN E. BRADY, : individually; STEPHEN L. : BYBEE, individually; EAGLE : BUSINESS DEVELOPMENT, INC., a : Utah corporation; TED RANDAL : WALKER, individually; WALKER : INTERNATIONAL NETWORK, a Texas : Partnership; JOHN DOES 1-5; : Civil No. 1:95-CV-0094W and AMWAY CORPORATION, a : Michigan corporation, : Honorable David K. Winder Defendants. : The Procter & Gamble Company and The Procter & Gamble Distributing Company (collectively "Plaintiffs") for their amended complaint in-this action, state as follows: I. THE PARTIES 1. The Procter & Gamble Company (hereinafter sometimes referred to as "P&G") is an Ohio corporation with its principal place of business in Cincinnati, Ohio, and P&G is therefore a citizen of Ohio. P&G and its subsidiary and affiliated companies manufacture consumer products and sell them in Utah and throughout the United States. These products include TIDE laundry detergent, dish washing detergent, FOLGER coffee, MR. CLEAN household cleaning products, and many other food, laundry, cleaning and personal care products. 2. The Procter & Gamble Distributing Company (hereinafter sometimes referred to as "P&G Distributing") is an Ohio corporation with its principal place of business in Cincinnati, Ohio, and P&G Distributing is therefore a citizen of Ohio. P&G Distributing sells P&G products including those identified in Paragraph 1 to retailers and distributors throughout the United States, including the State of Utah. P&G Distributing is a subsidiary of P&G. 3. Defendant Randy L. Haugen is a citizen of the State of Utah and an "Executive Diamond" level distributor of Amway consumer products and developer of Amway business in the distribution chain of Amway Corporation. At all relevant times, Haugen was directly involved in the wrongful conduct alleged herein. Haugen engaged in this wrongful conduct in his individual capacity and in his capacity as a representative and agent of defendant Freedom Associates, Inc. and defendant Freedom Tools Incorporated. Freedom Associates, Inc. and Freedom Tools Incorporated are Utah corporations through which Haugen conducts his Amway business activities. Randy L. Haugen, Freedom Associates, Inc. and Freedom Tools Incorporated are hereinafter referred to collectively as "Haugen." 4. Haugen has established a network and chain of distributors of Amway products throughout Utah, Nevada, Texas, Mexico and Canada, among other places, totaling upon information and belief over 100,000 distributors. The Haugen distributor network grossed sales of approximately $50 million of Amway products last year. This network is based or headquartered in Ogden, Utah. 5.Defendant Randy L. Haugen owns stock in subsidiaries or affiliates of the Amway Corporation. 6. Haugen receives compensation directly from Amway Corporation based on the sales performance and business development of distributors in his distributor network. 7. At all relevant times, Haugen has been actively engaged in the recruitment of additional Amway distributors to join his network and in the development of Amway business through these distributors. 8. Defendant Randy L. Haugen is a past co-chairman of the Business Operations Committee of the Amway Distributors Association Council (hereinafter "ADAC"). Thirty Amway distributors serve on the ADAC. Fifteen of the thirty distributors on the ADAC are appointed directly by Amway Corporation. Defendant Randy L. Haugen was appointed to the ADAC by Amway. The "mission" of the ADAC is to "advise and consult" with Amway Corporation "on all aspects of the business and to take an active role in shaping Amway's future." (See Exhibit A.) As announced in the Amway Corporation's May 1995 AMAGRAM publication, a copy of which is attached as Exhibit B, and made a part of this Complaint, Defendant Randy L. Haugen at the time of the actions giving rise to this Complaint was a member of the Executive committee of the ADAC. The Executive Committee establishes goals and objectives for the Business Operations and the Legal and Ethics Committees of the ADAC. 9. Defendant Roger D. Patton is a citizen of the State of Texas, residing in The Woodlands, Texas. At all relevant times Patton was an Amway distributor in Haugen's distribution network which is based or headquartered in Ogden, Utah. Patton communicates and transacts business regularly with Haugen's distributor network based or headquartered in Ogden, Utah, and was directly involved in the wrongful conduct alleged herein. 10. Defendant Jeffery G. Musgrove is a citizen of the State of Texas, residing in Katy, Texas. At all relevant times, Musgrove was an Amway distributor in Haugen's distribution network which is based or headquartered in Ogden, Utah. Musgrove communicates and transacts business with Haugen and others in the Haugen distributor network, and was directly involved in the wrongful conduct alleged herein. Musgrove engaged in this wrongful conduct
in his individual capacity and in his capacity as a representative and agent of defendant Musgrove Enterprises. Upon information and belief, Musgrove Enterprises is a Texas partnership entity through which Musgrove conducts his Amway business activities. Musgrove and Musgrove Enterprises are hereinafter referred to collectively as "Musgrove." 11. Defendant Steven E. Brady is a citizen of the State of Nevada, residing in Las Vegas, Nevada. At all relevant times, Brady was an Amway distributor in Haugen's distribution network which is based or headquartered in Ogden, Utah. Brady communicates and transacts business with Haugen and others in the Haugen distributor network, and was directly involved in the wrongful conduct alleged herein. 12. Defendant Stephen L. Bybee is a citizen of the State of Utah, residing in Logan, Utah. At all relevant times, Bybee was an Amway distributor in Haugen's distribution network which is based or headquartered in Ogden, Utah. Bybee communicates and transacts business with Haugen and others in the Haugen distributor network, and was directly involved in the wrongful conduct alleged herein. Upon information and belief, defendant Eagle Business Development, Inc., is a Utah business entity through which Bybee conducts and has conducted his Amway business activities since December, 1995. Bybee and Eagle Business Development, Inc. are hereinafter referred to collectively as "Bybee." 13. Defendant Ted Randal Walker is a citizen of the State of Texas, residing in Houston, Texas. At all relevant times, Walker was a "Diamond" level Amway distributor in Haugen's distribution network which is based or headquartered in Ogden, Utah. Walker communicates and transacts business with Haugen and others in the Haugen distributor network, and was directly involved in the wrongful conduct alleged herein. Walker engaged in this wrongful conduct in his individual capacity and in his capacity as a partner of defendant Walker International Network, a Texas partnership with its principal place of business in Houston, Texas. Upon information and belief, Walker International Network is a Texas business entity through which Walker conducts his Amway business activities. Walker and Walker International Network are hereinafter referred to collectively as "Walker." 14. Defendants John Does 1-5, whose complete identities and addresses are unknown at this time, upon information and belief, are individual distributors and/or businesses who are members of Haugen's distribution network centered in Ogden, Utah, and are involved in the sale and distribution of Amway consumer products and the development of Amway business. Haugen, Patton, Musgrove, Brady, Bybee, Walker and John Does 1-5 shall be known as "Distributor Defendants" unless expressly stated otherwise. 15. Defendant Amway Corporation ("Amway") is a Michigan corporation with its principal place of business in Ada, Michigan. Amway, through its chain of distributors, including the Defendants, develops its business,including the recruitment of new distributors, and sells and distributes nationwide consumer products such as SA8 PLUS PREMIUM laundry detergent, CRYSTAL BRIGHT dish washing detergent, EXQUISITE and NINE TO FIVE coffee products, DURISHINE household cleaning product and many other food, laundry, cleaning and personal care products. These Amway products distributed by Defendants compete with P&G's products in the consumer market nationwide. Furthermore, Amway specifically advertises against P&G's products in its publications, such as AMAGRAM and the Amway Product Demonstrations Guide. Copies of such I advertisements are attached as Exhibit C and made a part of this Complaint. 16. Amway exercises supervision and control over its distributors through, among other things, ADAC and similar agencies, the terms of its contracts with individual distributors including Distributor Defendants, as well as publications such as the Business Reference Manual, which set forth in detail the rules and standards of conduct required of Amway distributors; violations of those rules and standards can result in termination of the distributorship. For example, included in the Business Reference manual are the following Rules of Conduct: a. RULE 10. Do not engage in any deception or unlawful trade practices. b. RULE 11. Do not operate or engage in illegal or unlawful business enterprises or be convicted of an illegal or unlawful activity. 17. In addition to the aforementioned methods and manners of control and authority Amway exercises over its distributors, Amway also sets forth very strict requirements about what Amway distributors can and cannot say to customers and potential distributors in the areas of religion and politics, among other things, and in connection with the presentation of the Amway Sales and Marketing Plan. 18. Amway also exercises control and supervision over its distributors by requiring material produced and distributed to develop the sales and distribution of Amway products and the solicitation of new Amway distributors to be pre-approved by Amway corporate headquarters. 19. Amway Corporation sells to its distributors communication systems known as "Amvox Network Voice Messaging" and "Amvox by Voice-Tel" which use the telephone lines of interstate commerce. Specifically, Amway advertises and provides for cash and other valuable consideration subscriptions to Amway's Amvox communication systems for its distributors. Copies of Amway's Amvox advertisement and Amway's Amvox subscription order form are attached as Exhibit D and made a part of this Complaint. 20. Amway offers the Amvox system to its distributors in order to promote the Amway business and to recruit new Amway distributors. Amway possesses business records which contain the telephone numbers of all Amway distributors who utilize the Amvox system. 21. Amway has the capability to receive messages on the Amvox system from distributors and to send messages to all distributors who subscribe to Amvox. II. JURISDICTION AND VENUE 22. The matter in controversy exceeds, exclusive of interest and costs, the sum of Fifty Thousand ($50,000.00) Dollars. 23. The jurisdiction of this Court is based upon a federal question and diversity of citizenship pursuant to 28 U.S.C. §§ 1331 and 1332.In addition, this court has general and specific jurisdiction over each and every defendant in this action. 24. Venue is proper in the United States District Court for the District of Utah under 28 U.S.C. § 1391 because the Defendants reside in the State of Utah and/or committed a substantial part of the acts giving rise to the claims in this action within this district. III. FACTS APPLICABLE TO ALL CLAIMS 25. P&G was formed in 1837. In 1882 P&G registered in the United States Patent and Trademark Office a trademark called the "Moon and Stars" design. Successive minor variations of this design were also federally registered. A copy of one such registration for P&G's "Moon and Stars" trademark, United States Registration No. 298059, is attached as Exhibit E and made a part of this Complaint. 26. The "Moon and Stars" trademark is a corporate symbol under which P&G has conducted business throughout the United States for over a hundred years. This business has been based upon the principle of providing products of superior quality and value that best meet the needs of consumers. 27. In or about April and May 1995, Distributor Defendants, with actual knowledge of their falsity or with malicious and reckless disregard as to their truth or falsity, circulated and published or allowed to be circulated and published in the States of Utah, Texas and Nevada, and elsewhere through the Amvox communication systems and through other media, completely false and defamatory written and oral statements. Both forms of defamatory expression disparaged Plaintiffs' products, trademark, business interests, reputation and goodwill. A transcript of certain such false and defamatory oral statements that were published through the Amvox communication system is attached as Exhibit F and made a part of this Complaint. The statements falsely and maliciously associate P&G and P&G Distributing with satanism and falsely and maliciously describe the "Moon and Stars" trademark as a satanic symbol. The statements also falsely and maliciously assert that the President of P&G appeared on a nationally televised talk show and discussed P&G's relationship to satanism and P&G's support for the church of satan. The statements further promote a boycott of P&G products and the purchase of competing Amway products, which Defendants promote and distribute for profit. 28. P&G Distributing and P&G and its subsidiaries and affiliates do not have and never have had any connection, relationship, or association whatsoever with satanism, devil worship or any church of satan. P&G representatives, executives and employees have never appeared on any television program or show asserting any connection with satanism, devil worship or the church of satan. 29. Distributor Defendants, individually and in concert, have made the false, defamatory and product disparaging statements contained in Exhibit F, and were allowed to make such statements by Amway, to increase their economic gain, to enhance their Amway distributorships, and to sell Amway products, all to the benefit of defendants and to the detriment of Plaintiffs. 30. The statements published and circulated by Distributor Defendants as set forth in Exhibit F contain vicious misrepresentations of fact and false statements which were known by Defendants to be false or were made, or were allowed to be made, maliciously and with reckless disregard as to their truth or falsity and which have caused harm and damage to Plaintiffs and their business. 31. The instant action is not the first time that Amway distributors have been involved in propagating and circulating false statements of the sort alleged herein. In 1991, Procter & Gamble obtained a judgment for $75,000 against two Amway distributors for spreading rumors linking Plaintiffs' trademark with Satanism. 32. Moreover, Amway was directly informed by Plaintiffs at various times in the 1980's and 1990's about the rumors of satanism linked to Plaintiffs, their products and trademarks being circulated by Amway distributors. Despite this information, Amway has done little or nothing to educate its distributors about such rumors or prevent such rumors from being spread to the marketplace, all to Plaintiffs' substantial disadvantage. For example, despite the fact that Randy L. Haugen has been an Amway distributor since the early 1980s, has achieved "Executive Diamond" status, and has served on the ADAC and its Executive Committee, he claims that prior to April or May 1995, he never received notice from Amway informing him that the rumors regarding Plaintiffs' connection with satanism or the church of satan in this case were false. 33. Amway was and is in a position of control and authority over Distributor Defendants such that it knew, or should have known, of Distributor Defendants' conduct as alleged herein. Moreover, Amway had the ability and the obligation to prevent its distributors, including Distributor Defendants, from engaging in the conduct alleged herein. For example, even though Amway has the telephone numbers of all its distributors who subscribe to Amvox service, Amway made no effort to inform all such distributors that the rumors described herein are false. 34. Defendants' conduct and acts as alleged above have caused P&G and P&G Distributing irreparable injury and such conduct will continue to the irreparable harm of Plaintiffs unless enjoined by this Court. COUNT ONE DEFAMATION PER SE 35. Plaintiffs incorporate as if fully restated herein their prior allegations in Paragraphs 1 through 34 of the Amended Complaint. 36. Defendants knowingly and intentionally slandered, libeled and defamed Plaintiffs or have allowed Plaintiffs to be slandered, libeled and defamed by publishing or allowing to be published the false, malicious and non- privileged statements concerning Plaintiffs, their executives and employees, and products, which proximately caused harm and damages to Plaintiffs' reputation, prestige and standing as well as Plaintiffs' business and products. 37. As a result of Defendants" conduct, Plaintiffs have suffered damages in an amount to be determined at trial. 38. With the implied approval of Amway, Distributor Defendants' conduct was undertaken in bad faith, was malicious and manifested a wanton disregard of and reckless indifference towards the rights of Plaintiffs thereby entitling Plaintiffs to punitive or exemplary damages. COUNT TWO COMMON LAW UNFAIR COMPETITION 39. Plaintiffs incorporate as if fully restated herein their "prior allegations in Paragraphs 1 through 38 of the Amended Complaint. 40. Defendants committed unfair competition and deceptive trade practices in violation of Utah common law which proximately caused harm and damage to Plaintiffs' business and products. 41. As a result of Defendants' conduct, Plaintiffs have suffered damages in an amount to be proven at trial. 42. With the implied approval of Amway,Distributor Defendants' conduct was undertaken in bad faith, was malicious and manifested a wanton disregard of and reckless indifference toward the rights of Plaintiffs thereby entitling Plaintiffs to punitive or exemplary damages. COUNT THREE UTAH TRUTH IN ADVERTISING ACT 43. Plaintiffs incorporate as if fully restated herein their prior allegations in Paragraphs 1 through 42 of the Amended complaint. 44. Defendants violated the Utah Truth in Advertising Act, Utah Code Ann. §§ 13-lla-1 through 13-lla-5 (1989 & Cum.Supp. 1992) which proximately caused harm and damage to Plaintiffs' business and products. 45. As a result of Defendants' conduct, Plaintiffs have suffered damages in an amount to be proven at trial. COUNT FOUR SECTION 43(a) OF THE LANHAM ACT 46. Plaintiffs incorporate as if fully restated herein their prior allegations in Paragraphs 1 through 45 of the Amended Complaint. 47. With the implied approval of Amway, Distributor Defendants published the false and deceptive statements concerning Plaintiffs and their products in commerce, thereby committing false and deceptive trade practices in violation of Section 43(a) of the Lanham Act, 15 U.S.C. §1125(a), which proximately caused harm and damage to Plaintiffs' business and products. 48. As a result of Defendants' conduct, Plaintiffs have suffered damages in an amount to be proven at trial. COUNT FIVE TORTIOUS INTERFERENCE WITH BUSINESS RELATIONSHIPS 49. Plaintiffs incorporate as if fully restated herein their prior allegations in Paragraphs 1 through 48 of the Amended Complaint. 50. Plaintiffs have advantageous business relationships with existing customers and expectancies of developing advantageous relationships with prospective customers. 51. Defendants were aware of these advantageous business relationships but, despite this knowledge, engaged in the conduct alleged herein. 52. Defendants undertook the alleged conduct for improper purposes, including but not limited to, inflicting an economic and competitive injury on Plaintiffs. 53. Defendants have utilized improper means in their competitions with Plaintiffs, including, but not limited to libeling, slandering and defaming Plaintiffs' and Plaintiffs' products. 54. As a result of the conduct alleged herein; Plaintiffs have suffered damages in an amount to be proven at trial. 55. The conduct of Defendants as alleged herein was undertaken in bad faith, was malicious and manifested wanton disregard of and reckless indifference towards the rights of Plaintiffs, thereby entitling Plaintiffs to punitive or exemplary damages. COUNT SIX NEGLIGENT SUPERVISION 56. Plaintiffs incorporate as if fully restated herein their prior allegations in paragraphs 1 through 55 of the Amended Complaint. 57. Through distributorship agreements, agencies, organizations and entities such as ADAC, and through publications such as the Business Reference Manual, Amway was and is in a position of authority, control and supervision over its distributors such as Distributor Defendants and profited from their efforts. 58. As such, Amway has a duty to Plaintiffs as well as to the general public to ensure that its distributors, including Distributor Defendants, engage in lawful and fair competition with their competitors in the sale and marketing of Amway products and the development of Amway business. 59. Amway has failed to properly control and supervise the Distributor Defendants thereby enabling the Distributor Defendants to engage in the conduct described herein. As such, Amway has breached its duty to Plaintiffs. 60. As a result of Amway's negligence, Plaintiffs have suffered damages in an amount to be proven at trial. 61. Amway has known for years that its distributors have engaged in the unlawful practices of spreading false and defamatory rumors about Plaintiffs and their products and trademarks. Amway has the capacity and authority to proscribe and prevent such unlawful practices. Amway's failure to so act was motivated by bad faith and malice and manifested a wanton disregard of and reckless indifference towards Plaintiffs' rights, thereby entitling Plaintiffs to punitive or exemplary damages. COUNT SEVEN VICARIOUS LIABILITY 62. Plaintiffs incorporate as if fully restated herein their prior allegations in paragraphs 1 through 61 of the Amended complaint. 63. Through distributor agreements, agencies, organizations and entities such as ADAC and through publications, guidelines and manuals such as the Business Reference Manual, Amway was in a position of authority, control and supervision over its distributors such as defendants and has profited from their efforts. 64. Distributor Defendants were and continue to be partners, agents and representatives of Amway and as such stand in partnership, agency/principal and/or master/servant relationships with Amway. 65. Amway cloaked the Distributor Defendants with actual and apparent authority to represent Amway. 66. The conduct alleged herein against Distributor Defendants took place within the scope of their partnership/agency relationships with Amway. 67. As such, Amway is vicariously liable for the conduct of agents and servants as alleged herein. 68. As a result of this conduct of defendants alleged herein, Plaintiffs have suffered damages in an amount to be proven at trial. 69. Defendants' conduct as alleged herein was undertaken in bad faith and manifested a wanton disregard of and reckless indifference towards the rights of Plaintiffs, thereby entitling Plaintiffs to an award of punitive or exemplary damages. IV. RELIEF WHEREFORE, Plaintiffs pray for relief as follows: a. judgment against Defendants jointly and severally for compensatory damages in excess of Fifty Thousand Dollars ($50,000.00); b. judgment against Defendants jointly and severally for punitive damages in an appropriate amount to deter Defendants and others from the conduct complained of; c. judgment against Defendants jointly and severally for attorneys' fees; d. for an order (i) permanently restraining Defendants and their partners, agents, and corporate subsidiaries and affiliates, individually and jointly, from publishing or in any manner causing to be published or circulated the statements in Exhibit F or any similar false statements purporting to connect Plaintiffs or any of their subsidiaries or affiliated corporations or their products or trademarks to satanism or devil worship or the church of satan; and (ii) requiring Amway to affirmatively communicate to all of its distributors through such means as its written distributorship applications, agreements, Business Reference Manual, Amvox system and other publications, guidelines and manuals, that statements purporting to associate Plaintiffs or any of their subsidiaries or affiliated corporations or their products or trademarks to satanism or devil worship or the church of satan are false and must not under any circumstances or for any purposes be published or circulated; and e. for such other and further relief to which Plaintiffs are entitled. V. JURY DEMAND Pursuant to Rule 38(b), Federal Rules of Civil Procedure, Plaintiffs demand trial by jury. DATED this 29th day of April, 1996. Respectfully submitted, CAMPBELL MAACK & SESSIONS TRACY H. FOWLER WILLIAM H. CHRISTENSEN SEAN N. EGAN One Utah Center, Thirteenth Floor 201 South Main Street Salt Lake City, Utah 84111-2215 (801) 537-5555 telephone and THOMAS S. CALDER JOHN E. JEVICKY DINSMORE & SHOHL 1900 Chemed Center 255 East Fifth Street Cincinnati, Ohio 45202 (513) 977-8200 telephone OF COUNSEL: Joseph P. Suarez, Esq. The Procter & Gamble Company Legal Division One Procter & Gamble Plaza Cincinnati, Ohio 45202 (513) 983-4194 telephone Attorneys for Plaintiffs The Procter & Gamble Company and The Procter & Gamble Distributing Company Plaintiffs' Addresses: The Procter & Gamble Company One Procter & Gamble Plaza Cincinnati, Ohio 45202 The Procter & Gamble Distributing Company One Procter & Gamble Plaza Cincinnati, Ohio 45202 Defendants Addresses: Mr. Randy L. Haugen Ted Randal Walker 2488 Bonneville Terrace 5227 Nodaway Lane Ogden, Utah 84403 Houston, Texas 77379 Freedom Associates, Inc. Walker International Network 12488 Bonneville Terrace 5227 Nodaway Lane Ogden, Utah 84403 Houston, Texas 77379 Freedom Tools Incorporated Amway Corporation 2488 Bonneville Terrace 7575 Fulton Street East Ogden, Utah 84403 Ada, Michigan 49355-0001 Roger D. Patton 34 Coralberry Road The Woodlands, Texas 77381 Jeffery G. Musgrove 16110 Plantation Bay Drive Katy, Texas 77449 Musgrove Enterprises 16110 Plantation Bay Drive Katy, Texas 77449 Steven E. Brady 3802 Meadows Las Vegas, Nevada 89107 Stephen L. Bybee 1142 Eastridge Drive Logan, Utah 84321 Eagle Business Development, Inc. 11142 Eastridge Drive Logan, Utah 84321
IN THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF UTAH CENTRAL DIVISION
THE PROCTER & GAMBLE COMPANY and THE PROCTER & GAMBLE DISTRIBUTING COMPANY,
RANDY L. HAUGEN, individually and dba FREEDOM ASSOCIATES, INC. and FREEDOM TOOLS INCORPORATED, Utah corporations; ROGER D, PATTON, individually; JEFFREY G, MUSGROVE, individually and dba MUSGROVE ENTERPRISES; STEVEN E. BRADY, individually; STEPHEN L. BYBEE, individually; EAGLE BUSINESS DEVELOPMENT, INC., a Utah corporation; TED RANDAL WALKER individually; WALKER INTERNATIONAL NETWORK, a Texas corporation; JOHN DOES 1-5; and AMWAY CORPORATION, a Michigan corporation,
MEMORANDUM DECISION AND ORDER
Case Mo. 1:95 CV 0094 K
The allegations of The Procter & Gamble Company and The Procter & Gamble Distributing Company (collectively, "P&G" have been previously chronicled. See Procter & Gamble Co. v. Haugen, 947 F.Supp. 1551 (D. Utah 1996). Presently before the court, and considered in turn in this order, are seven primary motions, as well as a variety of motions ancillary to them.
A. Musgrove's and Patton's Motion to Dismiss.
Two of the individually named defendants, Roger Patton and Jeffrey Musgrove (and his dba, Musgrove Enterprises), move to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure. Both are Texas residents who are involved in this suit because they passed the Satanism rumor over the Amvox voice messaging system. In April of 1995, Patton, living in Woodlands, passed the rumor to Musgrove, living in Katy, who allegedly passed the message to Randall Walker in Houston, who in turn, passed the message to Randy Haugen in Ogden, Utah. Haugen and his immediate upline sponsor, Don Wilson, live in Ogden and conduct their Amway businesses there.
The principles applicable to this court in determining whether to assert personal jurisdiction were explicated by Judge Winder in Harnischfeger Engineers v. Uniflo Corporation, 883 F. Supp. 608 (D. Utah 1995), and are only partly restated here. Personal jurisdiction can be either general or specific. General jurisdiction is proper if "the defendant has had continuous and systematic general business contacts with the forum such that the defendant could reasonably anticipate being haled into the forum's court." Id. at 612 (internal quotation marks and citation omitted).
Whether specific jurisdiction is proper depends on the basis of the court's subject-matter jurisdiction. Here, subject-matter jurisdiction is based upon the existence of a federal question and diversity ofcitizenship. See 28 U.SC. §1331-32. To the extent subject-matter jurisdiction is based upon the existence of a federal question, specific jurisdiction is proper as long as it is consistent with the requirements of federal due process. To the extent subject-matter jurisdiction is based upon diversity of citizenship, specific jurisdiction is proper if: (1) the defendant' s act is one of those listed in Utah's Long-Arm Statute, Utah Code Ann. §78-27-24; (2) a nexus exists between the plaintiff's claim and the defendant's acts or contacts; and (3) the exercise of jurisdiction is consistent with the requirements of federal due process. Harnischfeger, 883 F. Supp. at 612-13.
P&G asserts that the court has both general and specific jurisdiction over these defendants.
2. Musgrove's and Patton's Contacts.
Musgrove and Patton are both in the Haugen/Wilson organization, in the sense that they were recruited or sponsored by a distributor whose Amway chain of sponsorship included Wilson and Haugen. Musgrove is separated from Haugen by approximately 18 sponsor "links" and from Wilson by approximately 19. At the time Musgrove became an Amway distributor, his immediate upline Diamond distributors were Utah residents Kelly and Connie Robbins.
Musgrove' s contacts with Utah consist of: (1) yearly attendance at an Amway-endorsed seminar in Utah between 1989 and 1995 and active promotion of the seminar to other Amway distributors, (2) in-person business discussions with Kelly Robbins, Haugen, and Wilson in Utah immediately before such seminars in some years, (3) paid, speaking engagements at three seminars in Utah sponsored by Wilson and receipt of instructions and payment from Wilson for speaking at each of ten to twelve Wilson-sponsored seminars held elsewhere, (5) communications with Wilson via fax regarding Musgrove's efforts to locate seminar facilities for Wilson in Texas, (5) receipt from Wilson of payment for selling tickets to Wilson-sponsored seminars, (6) approximately 181 Amway-related telephone calls to his Utah uplines over a two and one-half year period, (6) receipt of 50-60 Amvox messages originally sent by Haugen and Wilson, and (7) purchase of business planning calendars from a Utah merchant.
Patton is separated from Musgrove by at least three sponsor links. Patton's contacts with Utah consist of: (1) attendance at two or three of the annual Amway-endorsed seminars over a five-year period, (2) promotion of the seminar to his downline recruits, (3) receipt of Amvox messages originally sent by Haugen and Wilson, and (4) purchase of Haugen motivational tapes.
3. General Jurisdiction.
To establish the existence of general jurisdiction, P&G argues that the contacts of Musgrove and Patton demonstrate continuous and systematic contact in furtherance of their Amway businesses. And indeed, Musgrove and Patton acknowledge that, although all Amway distributors act independently, they deal with each other frequently because Amway products are distributed through a complex multi-level marketing structure. Under this structure, distributors have an incentive to recruit new distributors and assist in the development of their businesses because they receive a portion of a commission on the sales made by distributors "under them." As a result of this structure, each individual distributor is simultaneously the leader of a group consisting of the distributors under him and a member of, depending on the perspective, any number of groups lead by distributors upline. That Haugen's group was an operative one for Musgrove is evident from the fact that Musgrove sent an Amvox message to Haugen thanking him for leading the group as well as by references to the Haugen group that Musgrove made in Amway-endorsed speeches and by the course of dealing and communication between the two.
It is apparent from Musgrove's deposition testimony that Haugen was actively mentoring the distributors in his downline organization, including Musgrove. it is similarly apparent from Musgrove's deposition testimony that such mentoring -- the provision of business and motivational support -- can constitute a significant, or even core, aspect of a distributor's business.
Musgrove, for example, testified that his Amway business consisted of supplying products to his downline distributors and giving them advice on how to build their businesses, but that this role or "responsibility" of "helping people" had increased as his organization had grown. When Patton was similarly asked in a deposition to describe what he did as an Amway distributor, he responded that he "recruited other distributors and taught them to do the same." He stated that "an active part of being a distributor is being on the tapes and going to the functions and things." Patton testified that it was a corresponding Amway principle for downlines to "edify" their uplines, that is, to show "respect" for them and "build them up."
Although Musgrove and Patton did, in this sense, have an ongoing and systematic business relationship with Haugen, it is not sufficient to give this court general jurisdiction over them. Musgrove's and Patton' s Utah contacts involve them in their role as beneficiaries of the efforts of Haugen and Wilson to train and motivate their downlines and in their corresponding role as supporters of their upline leaders. Those roles do not constitute a significant enough aspect of their businesses to warrant this court's assertion of general jurisdiction over them. For this court to so assert, Musgrove and Patton must have "pervasive general business contacts" with Utah, such as Utah bank accounts, Utah offices, and Utah employees. See Harnischfeger, 883 F. Supp. at 612. Neither defendant's contacts rise to that level of substantiality.
4. Specific Jurisdiction.
Consistency with federal due process rights by itself enables this court to exercise specific jurisdiction based on the existence of a federal question, but constitutes only one of the three required elements necessary for this court to exercise specific jurisdiction based on diversity of citizenship. The latter, more comprehensive analysis is undertaken first.
The first part of the analysis is satisfied with regard to both defendants. Utah's Long-Arm Statute subjects any person who does any of certain enumerated acts to the jurisdiction of the courts of Utah for claims arising from those acts as a matter of law. P&G does not specifically identify the enumerated acts that it asserts these defendants have performed, but three seem possible: (1) transacting any business within Utah, (2) contracting to supply services or goods in Utah, and (3) causing any injury within Utah whether tortious or by breach of warranty. Utah Code Ann. §78-27-24(1)-(3).
By attending the annual Utah conferences, Musgrove and Patton transacted business within Utah. The broad definition of "transacted business" set forth by statute includes the activities of a non-resident "which affect persons or businesses within the state of Utah." Utah Code Ann. §78-27-23; see also Harnischfeger, 883 F. Supp. at 614 (reviewing "broad interpretations " of definition). Musgrove's additional acts of speaking in Utah and receiving payment for doing so heighten the applicability of the "transacting business" subsection to him and also place him within the scope of the subsection concerning those who contract to supply services here.
Assuming that Musgrove's and Patton's act in spreading the Satanism rumor caused injury to P&G within Utah, their conduct arguably falls within the third section. However, Utah courts have held that injury occurring in Utah is not a sufficient basis for the exercise of specific jurisdiction. Harnischfeger, 883 F. Supp. at 613.
The second part of the analysis requires the existence of a nexus between P&G's claims and the defendants' Utah activities. Specifically, and tracking the language of Utah's Long Arm Statute, P&G's claims must "arise from," as opposed to merely "relate to," Musgrove's and Patton's contacts with the State of Utah. Harnischfeger, 883 F. Supp. at 61 7. Although the nexus requirement is narrowly construed, this part is also satisfied with regard to both defendants.
The Amvox voice messaging system was provided by Amway to facilitate communication between distributors up and down the line -- to enable them to receive information and encouragement and to send information and encouragement back. When Musgrove and Patton transmitted the Satanism rumor over Amvox, they did so in an effort to share information that they believed would be useful and beneficial to other Amway distributors. P&G's claims against Musgrove and Patton arise or spring from this ongoing effort to develop and foster mutually beneficial relationships with other distributors in the Haugen group.
The final part of the analysis is satisfied if the court finds both (1) "that certain minimum contacts exist between" Utah and the defendants and (2) that exercising jurisdiction over the defendants does "not offend traditional notions of fair play and substantial justice." Harnischfeger, 883 F. Supp. at 614 (internal citations omitted).
The minimum contacts requirement is satisfied if the defendants have purposefully availed themselves of the privilege of conducting activities in Utah. This requirement is satisfied with respect to Musgrove, but not with respect to Patton. Musgrove's availment of the privilege of conducting activities in Utah is demonstrated by his numerous telephonic communications to individuals in Utah in furtherance of his Amway business, his attendance at seminars and informal mentoring sessions in Utah, his speaking engagements in Utah, and his interactions with Haugen and Wilson in furtherance of their common Amway group. Patton's contacts do not demonstrate the same degree of active availment.
The fair play and substantialjustice requirement "essentially asks whether asserting jurisdiction over a non-resident defendant would be fair." Harnischfeger, 883 F. Supp. at 615. Such considerations "sometimes serve to establish the reasonableness of jurisdiction upon a lesser showing of minimum contacts than would otherwise be required." Id. (internal quotation marks and citation omitted).
Relevant factors include: "(1) the burden on the defendants; (2) the forum state's interest in adjudicating the dispute; (3) the plaintiff's interest in obtaining convenient and effective relief; (4) the interstate judicial system's interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the several states in furthering fundamental substantive social policies." Harnischfeger, 883 F. Supp. at 615 (internal quotation marks and citation omitted). Consideration of these factors, especially factors (3) and (4), leads again to the conclusion that the exercise of jurisdiction over Musgrove would be fair. Relevant factors include the relatively close association between Musgrove and the other Utah defendants with respect to the issues raised by this lawsuit and the fact that P&G will not be able to litigate its claims with respect to this matter in one forum without inconveniencing at least some defendants.
Accordingly, Musgrove's motion to dismiss for lack of personal jurisdiction is denied. Patton's motion to dismiss for lack of personal jurisdiction is granted.
B. P&G's Motion for Leave to File a Fourth Amended Complaint.
P&G seeks leave to file a fourth amended complaint, adding claims for (1) fraud, (2) negligence, (3) breach of contract, and (4) injurious falsehood/product disparagement.
Under Rule 15(a) of the Federal Rules of Civil Procedure, the decision to grant leave to amend a complaint after the permissive period is within the trial court's discretion, and leave is to be freely given when justice so requires. See Pallottino v. City of Rio Rancho, 31 F.3d 1023, 1027 (10th Cir. 1994) (internal quotation marks and citation omitted). "Refusing leave to amend is generally only justified upon a showing of undue delay, undue prejudice to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments previously allowed, or futility of amendment." Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th Cir. 1993) (internal citations omitted). Moreover, "[it is well settled in this circuit that untimeliness alone is a sufficient reason to deny leave to amend." Id.
Timeliness is determined by reference to any court-ordered deadline for amending the pleadings. See id at 1366. In a Scheduling Order dated November 6, 1996, Magistrate Judge Ronald N. Boyce set May 1, 1997, as the cutoff for amended pleadings in this case. Because that deadline was embodied in a scheduling order, an additional standard applies. "Scheduling orders are not to be modified by the trial court except when authorized by local rules upon a showing of good cause." Sil-Flo, Inc. v. SFHC, Inc., 917 F.2d 1507, 1518 (10lh Cir. 1990) (interpreting Fed. R. Civ. P. 1603).1
P&G's motion to amend was submitted on September 10, 1997, and is, therefore, untimely. However, untimeliness is not the only factor uponwhich this court's determination to deny P&G's motion is based.
P&G has not adequately explained its failure to include the newly-proposed claims in its third amended complaint, which was filed on December 18, 1996. In fact, P&G essentially admits that the factual allegations that support its newly-proposed legal theories were known at the time P&G filed its third amended complaint. P&G nonetheless asserts that it is not engaged in the seriatim presentation of legal theories -- a practice that was expressly disapproved of by the Court of Appeals for the Tenth Circuit. See Pallottino, 31 F.3d at 1027.
P&G has repeatedly and candidly admitted that the reason it seeks to amend its complaint is to enable it to obtain the discovery it has tried to obtain since the inception of the case discovery that P&G believes has been prevented by an overly-restricted construction of its second amended complaint. While P&G's discovery efforts may have been improperly restricted, a matter that is discussed below, that fact does not explain its failure to earlier advance the full range of legal theories under which it may be entitled to relief.
Accordingly, PBG's motion for leave to file a fourth amended complaint is denied.
C. Amway's Motion for Sanctions for P&G's Destruction of Relevant Evidence.
Amway moves for sanctions against P&G, alleging that P&G violated its duty to preserve relevant information. Specifically, Amway alleges that P&G was under a duty to save all of its corporate e-mail communications during the pendency of this litigation and that P&G failed to do so until March 5, 1997. Even then, Amway alleges that P&G failed to either search or save the email communications of five key employees that P&G itself identified as having relevant information in its second supplemental Rule 26(a)(l) disclosures, filed on February 20, 1997.
Pursuant to both this court's inherent power and Rule 37(b)(2) of the Federal Rules of Civil Procedure, this court has the power to impose sanctions "against a litigant who is on notice that documents and information in its possession are relevant to litigation, or potential litigation, or are reasonably calculated to lead to the discovery of admissible evidence, and destroys such documents and information." Wm. T. Thompson Co. v. General Nutrition Corp., Inc., 593 F. Supp. 1443, 1455 (C.D. Cal. 1984). While the duty to preserve preexists the imposition of a discovery ruling, "the case law reveals that Rule 37(b)(2) has been invoked only against parties who have disobeyed a discovery ruling of some sort." Brandt v. Vulcan, 30 F.3d 752, 756 (7th Cir. 1994). "Rule 37 sanctions, then, are appropriate here if, and only if, [P&G] violated a discovery order." Id.
Amway tacitly concedes that no such discovery order is in place and instead asks the court to impose sanctions pursuant to its inherent authority by applying the evidentiary doctrine of spoliation. Under that doctrine, "the bad faith destruction of a document relevant to proof of an issue at trial gives rise to an inference that production of the document would have been unfavorable to the party responsible for its destruction." Aramburu v. Boeing Co., 112 F.3d 1398, 1407 (10th Cir. 1997). Because mere negligence in losing or destroying a document does not support an inference that the party was conscious of a weakness in its case, the "adverse inference must be predicated on the bad faith of the party destroying the records." Id.
Amway argues that bad faith should be inferred from P&G's refusal to save its corporate e-mail communications in spite of P&G's clear understanding of its duty to do so, as demonstrated by P&G's tenacious instance that Amway save all of its corporate e-mail communications until relevant material could be segregated out and by P&G's further request that Amway save the tapes containing the stored e-mails even after relevant material had been segregated on the grounds that "conceivably another party may have a request for information or another issue may come to light."
This court cannot determine that P&G acted in bad faith on the present record. Again, while the duty to preserve evidence exists independently of court order, a court order would have delineated the scope of P&G's duties, provided clear evidence that P&G was on notice of the relevance of the e-mail communications, and furnished a standard by which this court could judge the adequacy of P&G's production efforts. Whether the searches P&G conducted of its e-mail databases before deleting data were adequate to discharge P&G's duties at the time points in the litigation during which the searches were conducted simply cannot now be fairly judged, with one exception.
P&G's failure to search or preserve the e-mail communications of the five individuals that P&G had itself identified as having relevant information constitutes a sanctionable breach of P&rG's discovery duties. P&G's own identification of these individuals belies any possible claim that P&G was not on notice that their e-mail communications would be relevant. P&G is hereby sanctioned $2,000 for each of the five referenced individuals. P&G shall pay to Amway a total of S10,000 forthwith.
Amway's motion for sanctions is denied except as provided in the preceding section.2
D. P&G's Rule 72(a) Objection to Magistrate's Order re Search Terms.
P&G objects to an order issued by Judge Boyce that limits the scope of a keyword search that P&G desired to conduct of Amway's electronic databases. On October 28, 1996, Judge Boyce entered an order granting P&G the right to search Amway's electronic database with 25 search terms, which P&G was to propose. Amway objected to the 25 terms P&G proposed, which objection was sustained by Judge Boyce on February 25, 1997, when he entered the order now at issue.
Specifically, P&G objects to a provision in the order stating, "The relevant information for search would be matters that would show any communication, including those from Amway distributors, that would relate to anything about alleged improper references or characterization of Procter & Gamble and its products as related to or associated with Satanism or like references."
Pursuant to Rule 72(a) of the Federal Rules of Civil Procedure, a district judge "shall modify or set aside any portion of the magistrate judge's order found to be clearly erroneous or contrary to law."
Under Rule 26(b)(l), a party is entitled to discovery regarding "any matter, not privileged, which is relevant to the subject matter of the pending action, whether it relates to the claim or defense of the party seeking discovery, or other claim or defense of any other party." "Relevancy required as to the production of documents is not equated with that ordinarily used in determining the admissibility of evidence. The test is the relevancy to the subject matter which is broader than the relevancy to the issues presented by the pleadings." Duplan Corp. v. Deering Milliken, Inc., 397 F.Supp. 1146, 1187 (D.S.C. 1974).
P&G's objection is well taken to the extent that the order limits discovery of issues concerning "agency" and "control" to matters pertinent to the Satanism nunor as opposed to such control in general. The degree of supervisory control Amway exercises over its distributors in other realms is relevant to the issue of Amway's ability and duty, if any, to control dissemination of the Satanism rumor.
P&G's objection is also well taken to the extent that the order prevents discovery relevant to P&G's claims of unfair competition and deceptive trade practices. However, P&G's objection is not sustained to the extent that the search terms proposed by P&G would, as Judge Boyce feared, yield either "general commercial or competitive information" or a volume of documentation that "would be so extensive as to render the search unwieldy for any purpose legitimately within the current framework of the litigation."
P&G's objection is sustained to the extent outlined above and the order issued by Judge Boyce on February 27, 1997, is hereby modified accordingly.3 P&G shall revise its list of 25 proposed search terms and resubmit them as required by Judge Boyce's minute entry dated October 25, 1996 (File Entry No. 131).
E. Amway's Motion for Summary Judgment on Damages.
Amway moves for summary judgment on damages, arguing that P&G cannot establish causation with respect to the three types of damages P&G claims: (i) out of pocket costs combating the rumor, (ii) lost sales, and (iii) disgorgement of benefits received by the defendants. The individually-named distributors join in Amway's motion. P&G has filed an opposition memorandum, a motion to strike Amway' s summary judgment motion on the grounds that portions of Amway' s statement of undisputed facts are unsupported by competent evidence, and a Rule 56(f) Affidavit.
A defendant may not move for summary judgment on the ground that the plaintiff lacks evidence by simply asserting that the plaintiff lacks sufficient evidence to reach a jury. The defendant must first create, through the discovery process, a record for the district court to review. The defendant may then discharge its burden of production by pointing the district court to specific places in the record where the plaintiff was asked to produce evidence and failed to do so. As the Supreme Court has explained, "the burden on the moving party may be discharged by 'showing' -- that is, pointing out to the district court -- that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 325 U.S. 317, 325, 106S.Ct. 2548, 2554 (1986).
While Amway has directed the court to specific instances in the record where P&G's witnesses have been unable to substantiate P&G's damage theories, these instances do not demonstrate the absence of genuine issues of material fact as much as they reflect the reality that P&G's evidence is not fully developed. Amway's motion is premature.
This is not to say that Amway is required affirmatively to prove that P&G has not sustained damages or that Amway would not prevail on a similar motion if it were to be filed at a later date, but merely that the record is not yet sufficiently developed. For example, Amway has not shown that P&G will bear the burden of demonstrating actual damages for certain of its claims or that P&G will ultimately bear the burden of apportioning its out-of-pocket damages. Neither has Amway shown that the Affidavit of Robert E. Hall is contradicted by evidence in the record or suffers some other deficiency that would render it insufficient to withstand a motion for summary judgment.
Amway's motion is denied as premature.4
F. Amway's Motion for Summary Judgment on P&G's Vicarious Liability and Negligent Supervision claims.
Amway moves for summary judgment on P&G's vicarious liability and negligent supervision claims on the grounds that no employment or agency relationship exists between Amway and its independent distributors. P&G opposes Amway's motion by requesting a stay of further briefing pursuant to Rule 56(f) until P&G's Rule 72(a) objection and the distributor defendants' jurisdictional motions have been resolved and P&G has been allowed to conduct any discovery that may then be permitted. P&G's request is granted.5 P&G's opposition memorandum shall be due twenty days after the later of the date Musgrove's deposition is complete or the date Amway provides the e-mail communications pursuant to Judge Boyce's [now modified] order of February 27, 1997.
G: P&G's Motion for Summary Judgment on Amway's Counterclaims.
P&G moves for summary judgment on Amway's three counterclaims. Amway alleges that representations made by P&G in two press releases concerning this lawsuit violate the Lanham Act and the Utah Truth in Advertising Act and that P&G is liable for abuse of process in filing this suit against Amway.
I. Amway's Lanham Act Claim
As it pertains here, the Lanham Act subjects to liability any person who, in connection with any goods or services, uses any false or misleading representation of fact in commercial advertising or promotion that misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities. 15 U.S.C.A. §1125(a)(l)(B) (1998). P&G contends that Amway's claim fails because the press releases do not contain false statements made in connection with any product and because the press releases do not constitute commercial advertising or promotion.
In response to P&G's first contention, Amway points to a sentence in the press releases that states, "Amway competes directly with P&G in a number of our product lines." This is not sufficient to bring the press releases within the scope of the statute. "Notwithstanding that the Act encompasses a broad range of misrepresentations, it is clearly directed only against false representations in connection with the sale of goods or services in interstate commerce." Wojnarowicz v. American Family Ass'n, 745 F. Supp. 130, 141 (S.D.N. Y. 1990).
In response to P&G's second contention, Amway argues that the press releases amount to unpaid publicity, which can constitute commercial promotion. A four-factor test applies to determine whether representations constitute commercial advertising or promotion:
(1) the representations must be "commercial speech;"
(2) they must be made by a defendant who is in commercial competition with the plaintiff;
(3) they must be made for the purpose of influencing customers to buy defendant's goods or services; and
(4) they must be disseminated sufficiently to the relevant purchasing public to constitute "advertising" or "promotion" within that industry.
Garland Co. Inc. v. Ecology Roof Systems Corp., 895 F. Supp. 274, 277 (D.Kan. 1994 (quoting Gordon and Breach Science Publishers S.A. v. American Inst. of Physics, 859 F. Supp. 1521 (S.D.N. Y. 1994)). The Supreme Court has defined "commercial speech" as speech that proposes a commercial transaction. Bolger v. Young's Drug Prods. Corp., 463 U.S. 60, 66, 103 S.Ct 2875, 2880 (1982). Notwithstanding the possibility that the press releases may have affected the parties' sales, they do not propose a commercial transaction. Amway cannot overcome this hurdle.
2. Amway's Utah Truth in Advertising Act Claim.
The Utah Truth in Advertising Act (the "Act") provides that its purpose "is to prevent deceptive, misleading, and false advertising practices and forms" and mandates that it "is to be construed to accomplish that purpose and not to inhibit any particular form of advertising so long as it is truthful and not otherwise misleading or deceptive." Utah Code Ann. §13-11a-1. P&G contends that Amway cannot establish a claim under the Act because the press releases do not fall within the Act's definition of "advertising" -- that is, "any written, oral, or graphic statement or representation made by a supplier in connection with the solicitation of business." Utah Code Ann. §13-11a-2(1).
P&G asserts that the press releases were not issued in connection with solicitation of business. Although Amway argues that there is a genuine issue of fact as to whether the press releasessSolicit business, this court effectively determined they do not solicit business by ruling above that they do not "propose a commercial transaction."
Amway's primary line of defense is its argument that the conduct at issue falls within the scope of one of the deceptive trade practices that are specifically enumerated in the Act. Under §13-11a-3(1)(h), a deceptive trade practice occurs when "a person disparages the goods, services, or business of another by false or misleading representation of fact."
As a particularized description of the conduct prohibited by the Act, the language in this subsection would usually trump the more general language contained in the Act's statement of purpose. However, the specific directive in the statement of purpose to construe the rest of the Act to accomplish the narrow purpose of preventing misleading advertising requires a different result. The statement of purpose effectively imposes an overarching requirement that otherwise actionable conduct constitute advertising. The press releases are not advertising.
3. Amway's Abuse of Process Claim
A claim for abuse of process requires two elements: (1) an ulterior purpose and (2) an act in the use of process which is not proper in the regular prosecution of a lawsuit. Kool v. Lee, 134 P. 906, 909 (1913). Amway claims that the instant lawsuit was filed for the improper collateral purpose of fostering negative publicity about Amway. P&G opposes Amway's claim on the grounds that fostering negative publicity and conducting an aggressive media campaign have not been found improper by other courts in the prosecution of a proceeding, See, e.g, Perry v. Manocherian, 675 F. Supp. 1417, 1429 (S.D.N.Y. 1987). This court agrees.
Therefore, P&G's motion for summary judgment on Amway's counterclaims is granted.
DATED this 17th day of April, 1998.
BY THE COURT:
DALE A. KIMBALL United States District Judge
1This court has reviewed the transcript of the colloquy between Judge Boyce and Tracy Fowler, counsel for P&G, that occurred during the telephonic hearing on April 25, 1997. In denying P&G's motion to extend the May 1st cutoff, Judge Boyce stated, "If there is a request to amend the pleadings beyond May 1st, then there will have to be the requisite showing of good cause and other things that would justify the amendment." Fowler responded by stating, "[O]f course any request we make to amend the pleadings is going to have to meet the threshold showing of Rule 15." To which Judge Boyce replied, "Well, that's in effect what I've done … and one of the things you'll probably have to establish that you would not have to establish if there were an open period is that you would have to show why you couldn't have made your request for an amendment at an earlier date." Although the potential for confusion is apparent, it is the conclusion of this court that Judge Boyce did not thereby waive application of Rule 16(f)'s "good cause" standard.
Nor did Judge Boyce alter the May 1st cutoff for timely amendments during the hearing on August 8, 1997. During that hearing, Judge Boyce, citing considerations of judicial administration and litigation management, established for the first time an outside cutoff date beyond which even motions to amend would not be permitted -- September 10, 1997.
2Given this decision, the court considers neither Defendants Haugen, Walker, Brady, and Bybees's Joinder in Amway's Motion for Sanctions for P&G's Destruction of Relevant Evidence nor P&G's opposition thereto.
3In the final section of its responsive memorandum, Amway moves the court to sanction P&G for its conduct with respect to the search-term matter. P&G moved to strike Amway's request for sanctions on the grounds that P&G has not acted vexatiously and that Amway failed to file a written motion requesting the relief as required by Rule 7(b)(l). Both motions are denied.
4Given this decision, P&G's motion to strike is vacated as moot. Also, to remove any potential for misunderstanding, the court's decision to deny Amway's motion is not reached pursuant to Rule 56(f), but on the basis that Amway has failed to satisfy its burden ofproduction.
5To the extent P&G may also seek a stay pending resolution of issues raised by its three motions to compel or issues related to the conduct of Rule 30(b)(6) depositions, P&G's request is denied.
IN THE UNITED STATES DISTRICT COURT FOR. THE DISTRICT OF UTAH
THE PROCTER & GAMBLE COMPANY and
THE PROCTER & GAMBLE DISTRIBUTING COMPANY,
RANDY L. HAUGEN, individually and dba
FREEDOM ASSOCIATES, INC. and ORDER DISMISSING
FREEDOM TOOLS INCORPORATED, Utah PLAINTIFFS'
corporations; ROGER D. PATTON, individually; LANHAM ACT CLAIM
JEFFERY G. MUSGROVE, individually and dba
MUSGROVE ENTERPRISES; STEVEN E.
BRADY, individually; STEPHEN L. BYBEE, Case No. 1:95 CV 0094 K
individually; EAGLE BUSINESS
DEVELOPMENT, INC., a Utah corporation; TED
RANDAL WALKER, individually; WALKER
INTERNATIONAL NETWORK, a Texas
corporation; JOHN DOES 1-5; and AMWAY
CORPORATION, a Michigan corporation,
Before the Court is Defendants' Joint Motion for Summary Judgment on Plaintiffs' Lanham Act Count. Resolution requires this Court to first determine the scope of the factual allegations upon which Plaintiffs' Lanham Act claim is based and then determine whether such allegations constitute violations of the Lanham Act.
I. The Factual Allegations upon which Plaintiffs' Lanham Act Claim are Based.
Defendants assert that the only factual basis for Plaintiffs' Lanham Act claim is distribution of the satanism rumor over the Amvox system by the distributor defendants (as opposed to Amway itself). Plaintiffs assert that the case involves more than dissemination of the rumor over Amvox — that it also includes dissemination through printed flyers and word-of-mouth, as well as Amway`s dissemination of falsehoods about the qualities and ingredients of its products through Amway publications, product demonstration guides, and training programs, e.g.,, that Tide clogs drains and rusts washing machines and that Crest harms tooth enamel.
Review of Plaintiffs' Second Amended Complaint, which all agree is the operative version, especially in light of Plaintiffs' Third Amended Complaint, which was dismissed, and Plaintiffs' Proposed Fourth Amended Complaint, which was disallowed, convinces this Court that Defendants' position is correct. The Second Amended Complaint concerns the satanism rumor alone. Allegations that Amway falsely misrepresented the qualities and ingredients of Plaintiffs' products appear for the first time in the Third Amended Complaint. This conclusion is supported by Plaintiffs' counsel's previous representation to the Court that the Second Amended Complaint is "limited to Defendants' defamatory circulation of the Satanism rumor."
2. Whether the Satanism Rumor is Actionable under the Lanham Act.
Defendants assert that the satanism rumor is not actionable under the Lanham Act because: (i) the rumor does not contain false representations about the qualities or characteristics of Plaintiffs' products and (ii) the rumor does not constitute commercial advertising or promotion. See 15 U.S.C. §1125(a).
The Lanham Act "reaches only misrepresentations that tend falsely to represent some aspect of a product or service; it does not reach, as here, misrepresentations essentially unconnected to a product or service." Tire Kingdom v. Morgan Tire & Auto, 915 F. Supp. 360, 369 (S.D. Fla. 1996) (internal quotation marks and citation omitted), aff'd without opinion, 136 F.3d 139 (11th Cir. 1998); see also Thompson Everett, Inc. v. National Cable Advertising, L.P., 850 F. Supp. 470, 483 (E.D. Va 1994), aff'd, 57 F3.d 1317 (4th Cir. 1995). Misrepresentations concerning a producer or supplier's status or reputation that say nothing that would tend falsely to represent anything about the quality, nature, or characteristics of that producer's products are not actionable. See Tire Kingdom, 915 F. Supp. at 369.
Although the Amvox message identifies 45 Procter & Gamble products, it does not contain false representations about the qualities or characteristics of those products. This conclusion is again bolstered by Plaintiffs' own statements. Defendants deposed the leader of the of the Procter & Gamble team that combated the satanism rumor, Gerald S. Gendell. When asked whether he considered the satanism rumor to be a product-specific rumor, he responded: ''It's not a product ingredient rumor. It does not relate to the construct of the product, itself. It relates to the reputation of the company and, therefore, to the product, but not to the product itself." Plaintiff's Lanham Act claim fails because the misrepresentation at issue does not relate to a product within the meaning of the Lanham Act. Thus, the Court does not consider whether Defendants' dissemination of the rumor constitutes commercial speech.
Accordingly, Defendants' Joint Motion for Summary Judgment on Plaintiffs' Lanham Act Count is HEREBY GRANTED and Plaintiff's Lanham Act claim is HEREBY DISMISSED.
Dated this 4th day of September, 1998.
BY THE COURT
DALE A. KIMBALL
United States District Judge
Wall St. Journal, 8/1/90
Procter and Gamble sued two Amway Corp. distributors.
The Cincinatti-based consumer-products giant, eager to quash rumors linking the company to Satanism, sued the distributors for spreading the tales and launching boycotts of P&G brands.
The lawsuit, filed in federal district court in Topeka, Kan., seeks an order to stop the distributors, James and Linda Newton of Parsons, Kan., from circulating the rumors. Procter & Gamble also seeks compensatory damages of more than $50,000 and unspecified punitive damages.
Previously, P&G has filed a dozen lawsuits related to the devil-worship rumor, including actions against three other Amway distributors. All were settled out of court, the company said.
The Newtons distributed brochures that accuse the company of supporting the Church of Satan, P&G alleged. The couple also told others that P&G's moon and stars logo is a Satanic symbol and encouraged them to boycott P&G products, according to P&G officials. The Newtons couldn't be reached for comment.
A spokewoman for Amway, Ada, Mich., said its distributors operate independently and declined to comment on the suit. She saidd Amway has cooperated with P&G in the past to squelch rumors about Satanism.
Distributors for Amway sell numerous products, including detergents, cleaning and personal care products. P&G sells leading brands in all those categories, such as Tide detergent, Spic and Span cleaner and Pert Plus shampoo.
Time Inc. 1990
Selling to beat the devil. (Amway vendors attempt to discredit Procter and Gamble by linking company with satanism)
Bareknuckle competition is the credo of American business, but James and Linda Newton may have taken things too far. In a lawsuit filed last week, Procter Gamble accuses the Parsons, Kans., couple of promoting their independent Amway distributorship by linking P&G to satanism. The Newtons allegedly circulated a flyer claiming that the president of P&G "gave Satan all the credit for his riches" and offering information on "alternative products." For more than a decade, P&G has been bedeviled by the satanism charge. Tales that its 108-year-old moon-and-stars logo was demonic forced the symbol off company packaging. Three previous rumors were traced to Amway distributors, who were repudiated by Amway officials.
From Compuserve AP News - Business Section Today
AP 28 Aug 95 16:02 EDT V0107
P&G Sues Over Satanism Rumors
CINCINNATI (AP) -- Procter & Gamble Co. on Monday filed a lawsuit alleging an employee of competitor Amway Corp. spread rumors linking P&G to devil worship. The lawsuit was filed in U.S. District Court in Salt Lake City against Randy Haugen, a high-ranking distributor of Amway products. It accuses Haugen of using Amway's voice mail system to spread the rumors to other Amway distributors. P&G is seeking more than $50,000 from Haugen. The court will determine the exact amount of the damages if P&G wins its case, company spokeswoman Linda Ulrey said. Haugen, of Ogden, Utah, could not be reached for comment Monday. His home phone number is not published. A message seeking comment was left for Amay spokeswoman Judy Jones at the direct sales company's headquarters in Ada, Mich. "We have been fighting this outrageous rumor for over 15 years," said James J. Johnson, P&G senior vice president and general counsel. "Throughout that time, people associated with Amway have played a role." The rumors typically claim P&G's president spoke in support of Satanism on a nationally televised talk show and that the company's moon-and-stars trademark is a Satanic symbol. No one from P&G ever has discussed Satanism on a talk show, the Cincinnati-based consumer products company said. P&G said its trademark dates back to the mid-1800s, when a man in the moon was a popular design. The 13 stars in the design honor the 13 original colonies. P&G has answered about 200,000 calls and letters about the rumors during the past 15 years. Calls and letters peaked in 1982, 1985, 1990 and this year.
Tuesday August 29 6:25 a.m. EDT
P&G Fights Satanism Rumors Again
CINCINNATI (Reuter) - The maker of Pert shampoo is trying once again to wash that rumor out of its hair -- the rumor that says its stars and moon logo is a satanic symbol.
Procter & Gamble Co., the Cincinnati-based consumer products giant, said Monday it launched a new battle in federal court to squelch the rumor when it filed a lawsuit against an independent distributor of Amway Corp. products.
Amway is one of the world's largest direct sales companies. More than two million independent distributors sell Amway's 400 home care and personal care products directly to consumers. Amway had $5.3 billion sales last year.
People associated with Ada, Mich.-based Amway, which makes home care and personal care products that compete with some P&G lines, have "played a role" in spreading such rumors for years, P&G said.
"We have been fighting this outrageous rumor for over 15 years," P&G senior vice president and general counsel James J. Johnson said in a news release.
The lawsuit, filed in U.S. District Court in Utah, accuses Randy Haugen, an independent Amway distributor, of spreading false and malicious statements connecting P&G with satanism, Procter & Gamble said.
P&G described Haugen as a high ranking "diamond level" distributor of Amway products who appears in Amway corporate publications.
Haugen used Amway's electronic voice mail system to spread the rumor to other Amway distributors, P&G said.
P&G said previous similar lawsuits have also named Amway distributors and further legal action may do the same.
Amway said it has tried in the past to help P&G stop the rumors.
"Amway will continue to cooperate with Procter & Gamble and will continue to enlist the support of independent Amway distributors to stop this rumor," Amway said in a statement.
P&G was founded as a soap making concern in 1837. Its curly-haired man in the crescent moon has been a trademark since the mid-1800s when his portrait was "simply a popular design," P&G said.
The 13 stars represent the 13 American colonies, it added.
In 15 years, P&G has gotten nearly 200,000 calls and letters about the rumors, with inquiries peaking in 1982, 1985 and 1990. This spring, calls and letters on the subject jumped from 22 a day to 200 a day, P&G said.
AP 2 Apr 96 17:58 EST V0383
P&G Expands Satanism Lawsuit
CINCINNATI (AP) -- Procter & Gamble Co. said Tuesday it has added Amway Corp. and five Amway distributors to a lawsuit over rumors linking P&G to devil worship.
Amway independent distributor Randy Haugen was the sole defendant named in the original lawsuit filed August in U.S. District Court at Salt Lake City.
The lawsuit accused Haugen of using Amway's voice mail system to spread the rumors to other Amway distributors. It seeks a minimum of $50,000 in damages. The court will decide the exact amount.
P&G alleges Amway, which competes with P&G in some product categories, is responsible for its distributors' conduct and has failed to stop them from spreading the rumors.
The amended lawsuit claimed the distributors have spread the satanism rumor to encourage consumers not to buy P&G products, said James Johnson, P&G's general counsel and senior vice president.
Amway, from its headquarters in Ada, Mich., said Tuesday it is being unfairly blamed by P&G. Amway said that Haugen has issued a retraction of the rumor and that it has been cooperative in response to P& G's lawsuit.
Amway said it doesn't condone the rumor mongering and that P&G's action appears aimed at discrediting a competitor.
The rumors typically claim that P&G's president spoke in support of Satanism on a nationally televised talk show and that the company's moon-and-stars trademark is a satanic symbol.
No one from P&G has ever discussed satanism on a talk show, the Cincinnati- based consumer products company said.
P&G said its trademark dates back to the mid-1800s, when a man in the moon was a popular design. The 13 stars in the design honor the 13 original colonies.
P&G has answered about 200,000 calls and letters about the rumors during the past 15 years. Calls and letters peaked in 1982, 1985, 1990 and this year.
CINCINNATI, April 2 /PRNewswire/
The Procter & Gamble Company (NYSE: PG) amended its suit filed August 31, 1995, against Randy Haugen, a high-ranking "diamond level" distributor of Amway products, to include the Amway Corporation and five additional Amway distributors. This suit will remain in the U.S. District Court of Utah, where it was originally filed.
P&G contends that Amway is responsible for its distributors' conduct in this case. Amway has failed to stop its distributors from spreading false and malicious statements connecting P&G with satanism. Evidence discovered by P&G in this lawsuit revealed that the five additional Amway distributors also spread these false stories about P&G.
"Our efforts in the past to get the Amway Corporation itself to put a halt to this illegal business practice by their distributors have obviously proved futile. We are enforcing our legal rights," said Procter & Gamble Senior Vice President and General Counsel James J. Johnson. "We have seen little or no evidence that Amway has tried to stop this rumor.
"Amway competes directly with P&G in a number of product lines, and some Amway distributors have used this rumor to encourage a consumer boycott of P&G products," Johnson added.
The false stories typically claim that P&G's president discussed satanism on Donahue, a nationally televised talk show, and that the company's "moon and stars" trademark is a satanic symbol. The president of P&G has never discussed satanism on any nationally televised talk show, nor has any other P&G executive. The moon & stars trademark dates back to the mid-1800s, when the man in the moon was simply a popular design. The 13 stars in the design honor the original 13 Colonies.
P&G has answered almost 200,000 calls and letters about these false rumors during the past 15 years. Calls and letters peaked in 1982, 1985, 1990 and 1995. In the United States, consumer contacts to the company went from 22 a day early in 1995 to nearly 200 a day a short time later, when the false stories began spreading.
Prominent religious leaders and organizations from virtually every denomination have condemned spreading these false rumors. They include: The Billy Graham Evangelistic Association; Jerry Falwell; The Southern Baptist Convention; The Most Reverend Daniel E. Pilarczyk, Archbishop of Cincinnati; and the Church of the Nazarene.