Amway Corporation v Procter & Gamble, U.S. District Court, Western District of Michigan, 10/13/98
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
AMWAY CORPORATION
Plaintiff,
vs.
THE PROCTER & GAMBLE COMPANY
AND THE PROCTER & GAMBLE
DISTRIBUTING COMPANY
Defendants
I. THE PARTIES
1. Plaintiff, Amway Corporation ("Amway") is a Michigan corporation with its principal place of business in Ada Michigan. Two young entrepreneurs, Rich De Vos and Jay Van Andel, founded Amway in the basement of their Ada, Michigan, homes in 1959. Shortly thereafter, Amway began manufacturing in a nearby 2,400 square foot building. Amway's expansion has continued steadily ever since. While Amway's headquarters remain located in Ada, it now has affiliated operations in 45 countries. Amway and its affiliated companies have over 14,000 employees.
2. Over 450 products are sold under the Amway name, including
laundry
detergent, household cleaning products, cosmetics, skin care products,
food supplements and various household goods. In addition, over 6,500 brand
name products are offered through Amway catalogs. In 1997, Amway's estimated
retail sales totaled $7 billion worldwide.
3. Amway's products are marketed and sold through a network of independent distributors, rather than through traditional retail stores. Persons from all walks of life are Amway distributors, including (for example) physicians, lawyers, elected government officials, architects, chemists, dentists, professors, veterinarians, nurses, accountants, policemen firemen, ministers, teachers, and homemakers. In the U.S., there are approximately one million independent distributors of Amway products, and worldwide there are approximately three million distributors.
4. Defendant The Procter & Gamble Company is an Ohio corporation with its principal place of business in Cincinnati, Ohio. It is therefore a citizen of Ohio. The Procter & Gamble Company and its subsidiary and affiliated companies manufacture and distribute consumer products such as home care products, laundry detergent, household cleaners and health and beauty products, and sell them in Michigan and throughout the United States.
5. Defendant The Procter & Gamble Distributing Company ("Procter & Gamble Distributing") is an Ohio corporation with its principal place of business in Cincinnati, Ohio. Procter & Gamble Distributing is therefore a citizen of Ohio. Procter & Gamble Distributing sells and distributes Procter & Gamble products (including those identified in the preceding paragraph) to its customers, which include retailers and wholesale distributors throughout the United States, including within the State of Michigan. Procter & Gamble Distributing is a subsidiary of the Procter & Gamble Company. Defendants are collectively referred to as "P&G").
6. Certain Amway products compete indirectly with certain
P&G products.
II. JURISDICTION AND VENUE
7. The matter in controversy exceeds, exclusive of interest and costs. the sum of seventy-five thousand ($75,000.00) dollars.
8. The jurisdiction of this Court is based upon diversity of citizenship pursuant to 28 U.S.C. § 1331.
9. Venue is proper in the United States District Court for
the Western District of Michigan under 28 U.S.C. § 1391 because the
Defendants reside in or conduct business within the State of Michigan and/or
committed some or all of the acts giving rise to the claims in this action
within this judicial district.
III. FACTS
A. P&G's Sponsorship Of A Rogue Web Site
10. P&G has been a behind-the-scenes sponsor of a rogue web site on the World Wide Web that foments hate rhetoric about Amway, its employees and its distributors. Sidney Schwartz ("Schwartz"), a paid consultant of P&G, is the author of this web site, which has been devoted to making malicious attacks on Amway.
11. Schwartz's web site has contained vulgar, false and defamatory statements about Amway, its officers, its business practices and its products. For example, Schwartz falsely accuses Amway of being a cult and of "screwing people over." Schwartz falsely accuses Amway employees of lying and cheating. Schwartz's web site lacks any objectivity, and is replete with false statements, half-truths and distortions, all of which are calculated to paint Amway in a false and negative light.
12. Schwartz's web site also includes links to other web sites that contain equally vulgar, false and defamatory statements about Amway, it officers, its business and its products. One such linked web site was "LOWNDES FOR CONGRESS". That site was maintained by Kenneth Lowndes. Some examples of the false and defamatory statements on Lowndes's web site are set forth below:
"The Amway Corporation stole a lot of money from my family, when it was most needed. My now eight year old son Jordan was born near the time of the theft.'"
"We developed a direct mail campaign involving MCI, authorized by the Amway corporation in Official literature, and then behind our backs without any of the contractually required notices, Amway proceeded to lie to our clients, convincing them to send the MCI sign-ups in to Amway, by-passing our family, even though the Corporation had no legal standing whatsoever to do so, in contract law and/or in Criminal Law."
"According to the marketing plan, how much money does Amway steal
when they intentionally and wrongfully interfere with this plan
and objection?"
"Can or will Amway survive running things honestly and fairly?"
"AMWAY HITS PANIC BUTTON, "THREATENS" LOWNDES FOR CONGRESS WITH LAWSUIT!! AMWAY WANTS TO BE ''MANAGER'' OR CAMPAIGN! BIG BLUFF FROM CONFESSED THIEVES (AMWAY FOUNDERS, THAT IS)!!"
The web site has contained many other false and defamatory statements, but these are typical.
13. Schwartz's irresponsible statements, as well as his links to web sites such as the one maintained by Lowndes, were plainly calculated to encourage consumers to boycott Amway products, and to discourage distributors from selling these products and, in some cases, from remaining Amway distributors. The false and misleading information purveyed by Schwarrz was also calculated to discourage persons from becoming Amway distributors.
14. P&G has been covertly supporting Schwartz's smear campaign against Amway in several way. For example, P&G provided Schwartz with several boxes of documents, with the full knowledge that Schwartz would use this information in misleading fashion on his web site to unfairly attack Amway. P&G knew, or should have known, that some of the information it provided to Schwartz was wrongfully taken from Amway. Nevertheless, P&G provided this information to Schwartz, well aware that Schwartz would misuse it on his web site.
15. P&G has provided financial support for Schwartz's hate campaign. For example, P&G has retained Schwartz as a "consultant" and has paid him an hourly fee. P&G has borne many of Schwartz's expenses associated with his defamatory web site.
16. P&G attempted to conceal its illicit sponsorship of Schwartz's web site. When Amway attempted to discover the extent of P&G's relationship with Schwartz, P&G hired attorneys in three different states to try and thwart Amway's efforts to get the truth about P&G and Schwartz. P&G also secretly hired and paid for Schwartz's attorney to give Schwartz the false appearance of independence. Two different courts rejected P&G's legal maneuvering.
17. P&G has encouraged, paid for and otherwise assisted Schwartz's dissemination of malicious attacks against Amway with the intent of interfering with Amway's prospective and actual business relationships with independent distributors of Amway products and consumers of Amway products. On information and belief a number of individuals either quit their distributorships or declined to form a distributorship in the first instance as a result of P&G's underhanded tactics.
B. P&G's Negative Publicity Campaign Against Amway
18. P&G also has interfered with Amway's prospective and
actual business
relationships by mounting a negative publicity campaign against
Amway. As part of its smear campaign, P&G has issued several press
releases that make false and misleading statements about Amway. For example,
P&G falsely implied that Amway participated in the spread of a false
Satanic rumor about P&G, when in fact Amway has long cooperated with
P&G in efforts to quash the rumor.
1. The History Of The P&G Satanism Rumor
19. In the early 1980's a rumor began to circulate that P&G uses its profits to support the Church of Satan. Over the course of almost 20 years this rumor has become an urban legend that has been analyzed and discussed in several books. The P&G Satanism rumor did not originate with Amway or Amway distributors. In fact, no one knows who initially started the rumor.
20. P&G, which claims to have spent thousands of man-hours dealing with this rumor, has admitted on numerous occasions that the Satanism rumor is mostly circulated in certain religious communities. Since many of Amway's distributors are active in their churches, it is not surprising that some of' them would be exposed to the rumor. In fact, P&G knows that some Amway distributors actually heard the rumor from the pulpit.
2. P&G Previously Praised Amway's Efforts To Squelch The Satanism Rumor
21. P&G has publicly stated that it received over 200,000 reports of this rumor over the last 28 years. During the last 18 years, several million persons have been Amway distributors, and there are only a small number of incidents where an Amway distributor repeated the rumor. In those infrequent cases where the rumor has been detected, Amway has dealt with them swiftly and effectively.
22. From the beginning Amway accepted P&G's representation that the rumor is false. Even though P&G is a competitor, Amway has worked with P&G since the early 1980s to eliminate rumors about P&G from the marketplace. Amway has taken a number of steps to help P&G, including:
On several occasions Amway has published articles denouncing the rumors, in its Amagram, a monthly magazine sent to all distributors, and in its Newsgram, a monthly publication sent to all direct distributors.
Amway has publicly denounced the Satanism rumor in response to media inquiries.
Amway has educated individual distributors on the falsity of the Satanism rumor.
Amway has sent distributors copies of P&G information packet about the Satanism rumor, which P&G provided to Amway to share with distributors who inquire about the rumor.
Amway has asked distributors who have repeated the rumor to issue retractions.
Representatives from Amway have met with P&G representatives, have had telephone conversations with them, and have exchanged letters on this subject in a joint effort to stop the rumor.
23. P&G's second highest lawyer expressly recognized Amway's help when he wrote: "We appreciate your cooperation in running down these rumors and thank you for doing so." P&G has been aware of steps Amway had taken yet never advised Amway that more should be done, nor did it contend that Amway was negligent or responsible for the spread of the rumor by independent Amway distributors.
24. Despite P&G's failure to stop the Satanism rumor,
P&G's business has thrived during the years of the rumor's circulation.
In fact, the company saw unmatched success during 1982, 1985, 1990 and
1995, which P&G has identified as peak years for rumor
activity.
3. The 1995 Resurgence of the Satanism Rumor
25. In the spring of 1995, P&G publicly stated that religious groups, college students and users of the internet were spreading the Satanism rumor on a massive scale. The rumor was running rampant in southern Florida and Houston, Texas before any Amway distributor repeated the rumor in late April 1995.
26. Around April 20, 1995, Roger Patton, an Amway distributor near Houston, Texas, received a flyer that repeated the Satanism rumor about P&G. That flyer did not originate with Amway or an Amway distributor. Patton read the text of the flyer into a voice mail message that he sent to an upline distributor. The voice-mail system used by these distributors is known as AMVOX®. The AMVOX message was forwarded to Randy Haugen, an Amway distributor residing in Utah. Randy Haugen did not solicit this AMVOX message. Without realizing that the Satanism rumor was false, he forwarded the AMVOX message to about 2O distributors, some of whom forwarded the message to other distributors via AMVOX.
27. Amway Corporation did not know that this AMVOX message had been sent until a distributor downline from Randy Haugen called Amway a few days later and asked about the message. An Amway employee promptly called Randy Haugen, told him the rumor was false, and recommended that he issue a retraction. Randy apologized, and said he would issue a full retraction, The Amway employee sent Randy a copy of an information kit that P&G supplied to Amway to respond to these episodes regarding the Satanism rumor.
28. The very next day, Randy Haugen prepared a new AMVOX message that contained a retraction based on the text of the P&G information kit that Amway had sent to Randy. He sent this retraction message to the same persons to whom he sent the original AMVOX message, as well as to some additional distributors. Below is a transcription of the retraction that Randy Haugen sent by AMVOX:
From Randy and Valerie Haugen
Hello, guys. This message is going out to all of Valerie and I's frontline and also to every Diamond in the organization. We had an AMVOX that came down that talked about Proctor and Gamble. A lot of you, I understand, did not get this AMVOX, But if you didn't get it, still pay attention to this, because if this rumor ever comes up again, you need to stamp it out. It was rumored that on a television show (on the Phil Donahue) and it is rumored on other talk shows, that CEO or officers from the Procter and Gamble company went on to the show and told them that their symbol represented Satanism symbol on all of their products and also that they practice Satanism. I'm going to read you a statement here and see if we can get this rumor, put it out, because I know a lot of you would like to know the truth. And it's very important that you understand this.
False rumors. Unfortunately, this familiar trademark has been subjected to prosperous, excuse me, preposterous, unfounded rumors since 1980-81. The rumors falsely allege that the trademark is the symbol of Satanism or devil worship. Typically, the story reports a Proctor and Gamble executive discussed Satanism on a national televised talk show. Another story maintains that the trademark is a result of Procter and Gamble being taken over by the Monies—followers of Rev. Sun Myung Moon and his Unification Church. The rumors are, of course, totally false. Their trademark originated in 1851 as a symbol for their star branded candle. Later, it was designed to show a man in the moon looking over a field of thirteen stars commemorating the original American colonies. It represents only Procter and Gamble. So, if you hear any rumors saying anything to the effect that they are practicing Satanism and their symbols on their products are Satanic, then it is absolutely, 100 percent false. We don't want any bad rumors about any competitor or noncompetitors on any company anywhere ever going out from us. So, if anybody you hear talking about this in the organization anywhere at all brings this up, it is absolutely not true. Not only is it not just substantiated but it is not true period. Amway Corporation does not endorse spreading false and malicious rumors against proctor and Gamble or any other company. Please do your part, as independent distributors, by not spreading this rumor any farther or nipping it if you hear it from anybody else.
We appreciate that a whole lot—so let's crush that. If you're hearing any of that kind of stuff anywhere let's get rid of it and let's go on and build us a huge business and not have any of this kind of junk and that's a good lesson to be very, very, very careful about putting anything down on AMVOX that's not substantiated and if anybody could take the blame on any of this, I can take it. So, we just don't want anything to do with it and it was a mistake. It did go out to a few people,
END OF MESSAGE
29. After the retraction was sent out, Amway received a few isolated inquiries about the AMVOX message that contained the Satanism rumor. The people making the inquiries were immediately advised that the rumor was false. There was no evidence that the Satanism rumor was continuing to spread among Amway distributors. Randy's prompt retraction swiftly and effectively squelched the rumor.
30. In late April or early May 1995, P&G independently learned of the AMVOX message with the rumor. P&G also learned that Haugen had issued a prompt retraction. P&G never contacted Haugen to discuss any further remedial steps. P&G never contacted Amway to discuss this matter, despite the fact that P&G and Amway had communicated about this rumor in the past. By May 1995, Amway believed that matter was closed.
4. P&G's New Plan To Make Amway The Publicity Scapegoat For The Satanism Rumor
31. Unbeknownst to Amway, after P&G learned of the Haugen incident, it hatched a plan to make Amway the publicity scapegoat for the Satanism rumor. Unable to put this rumor to rest for, nearly 15 years, P&G sought to deflect attention from its inability to squelch the Satanic rumor by resorting to a negative, publicity campaign against Amway.
32. On August 28, 1995, P&G sued Randy Haugen in Utah for his forwarding of the AMVOX message containing the Satanism rumor. At the same time, P&G issued a press release that made numerous, unnecessary references to Amway, which was not even named as a party in the lawsuit. P&G's press release was crafted to give the false impression that Amway was responsible for encouraging the spread of the Satanism rumor in 1995 and in the past, and that Amway has not cooperated to help P&G stop the Satanism rumor. These false impressions were repeated in numerous media reports that were based on P&G's press release.
33. P&G's August 28, 1995 press release marked a significant deviation in P&G's media strategy regarding the Satanism rumor. Before filing its lawsuit, P&G publicly acknowledged that religious groups, college campuses, and the Internet were primarily responsible for the rumor. As recently as mid-August 1995, P&G told the media that the Bible Belt and computer bulletin boards were responsible for the "biggest resurgence in five years of the rumor."
34. P&G's press release also provides a false impression about Amway's past efforts to help P&G quash the rumor and P&G's past praise for Amway's efforts to stop the Satanism rumor. P&G's press release also was misleading because it deliberately omitted any mention of the retraction that Randy Haugen promptly issued upon learning that the Satanism rumor was false.
35. Following the filing of the Utah lawsuit, P&G used the legal process to take discovery against Amway. In response to P&G's requests, Amway produced several hundred pages of documents. P&G then elicited over 1000 pages of deposition testimony from eleven different Amway employees. P&G received first-hand knowledge about Amway's steps to stop the Satanism rumor in early 1995, which were consistent with the steps Amway had taken in the past, with the explicit and implicit approval of P&G.
36. Nevertheless, in April 1996, P&G sued Amway in Utah. Again P&G issued a press release which contained many of the same misleading statements about Amway that are found in P&G's August 1995 press release. In addition, the April 1996 press release contained the false statement: "We have seen little or no evidence that Amway has acted to stop this rumor."
37. In light of the number of times Amway and P&G communicated about Amway's efforts to help P&G stop the Satanism rumor, and P&G's explicit and implicit approval of Amway's actions, it was misleading, if not false, for P&G to say it had seen "little" evidence. It was outright false for P&G to suggest that it had seen "no" evidence that Amway has tried to stop the Satanism rumor.
38. P&G's attempts to make Amway the public scapegoat for the Satanism rumor quickly began to falter in the Utah litigation. Shortly after Amway was sued, P&G was fined $7,500 for flagrantly violating a court order. A few months later, the Utah court dismissed three of P&G's claims against Amway. P&G then attempted to intimidate Amway by attempting to add claims that accused Amway of product disparagement and being an illegal pyramid. The Utah Court rejected P&G's new claims, and more recently dismissed another one of P&G's original claims. P&G also had to pay an additional $10,000 fine for destroying relevant evidence.
39. In July 1997, P&G filed another lawsuit in Texas, which raised the same claims that were rejected in Utah. P&G also escalated its negative publicity campaign, by filing its Texas complaint with false allegations and by issuing another press release that contained false and misleading statements about Amway. This press release also was widely disseminated, and was repeated by many media sources. P&G also issued this press release with the intent, or knowledge, that misguided zealots like Schwartz would post it and P&G's scurrilous Texas complaint on their web sites in a manner designed to further discredit Amway.
40. P&G's false and misleading press releases have been issued with the intent of interfering with Amway's prospective and actual business relationships with independent distributors of Amway products and consumers of Amway products. On information and belief a number of individuals either quit their distributorships or declined to form a distributorship in the first instance as a result of P&G's underhanded tactics.
COUNT I
TORTIOUS INTERFERENCE WITH ACTUAL AND PROSPECTIVE BUSINESS RELATIONS
41. Amway incorporates as if fully restated herein all of the allegations in Paragraphs 1-40.
42. Amway has had existing, and a reasonable probability of future, economic relationships with certain independent distributors of Amway products and consumers of Amway products.
43. There is a reasonable probability that certain customers of Amway products will continue to purchase Amway products in the future.
44. There is a reasonable probability that certain independent distributors of Amway products will continue to be independent Amway distributors in the future, and that certain individuals will become Amway distributors in the foreseeable future.
45. P&G was aware of these business relationships and of Amway's expectancy of continued future economic benefit as a result of these business relationships.
46. P&G has encouraged, paid for and otherwise assisted the dissemination of malicious attacks against Amway on the World Wide Web with the intent of interfering with Amway's prospective and actual business relationships with independent distributors of Amway products and consumers of Amway products. On information and belief, certain individuals either quit their distributorships or declined to form a distributorship in the first instance as a result of P&G's tortious conduct.
47. P&G also has issued false and misleading press releases which have interfered with Amway's prospective and actual. business relationships with independent distributors of Amway products and consumers of Amway products. On information and belief, certain individuals either quit their distributorships or declined to form a distributorship in the first instance as a result of P&G's tortious conduct.
48. As a direct and proximate result of P&G's conduct, Amway has lost sales and has been otherwise damaged in an amount to be proven at trial.
49. P&G's conduct was undertaken in bad faith, was malicious and manifested a wanton disregard, of and/or reckless indifference towards, the rights of Amway, including Amway's right to its actual and potential business relationships, thereby entitling Amway to punitive or exemplary damages.
RELIEF
WHEREFORE, Amway requests the following relief:
a. judgment against P&G for compensatory damages in excess of
Seventy-Five
Thousand Dollars ($75,000);
b. judgment against P&G for Amway's attorney fees;
c. for an order permanently enjoining and restraining P&G, its
agents and
affiliates from unlawfully and/or improperly interfering with Amway's
actual and prospective business relationships with customers of Amway products
and independent distributors of Amway products;
d. judgment against P&G for punitive damages in an appropriate
amount to
punish P&G and deter P&G and others from the conduct complained
of; and
e. for such other and further relief to which Amway is entitled.
JURY DEMANDED
Pursuant to Rule 38(b), Fed, R Civ. P., Amway demands trial by jury.
October 13, 1998
Respectfully submitted,
J.A. Cragwell, Jr.
Norbert F. Kugele
WARNER NORCROSS & JUDD LLP
900 Old Kent Bank Building
111 Lyon St., N.W.
Grand Rapids, MI 49503
(616) 752-2000
James R. Sobieraj
Timothy Q. Delaney
BRINKS HOFFER GILSON & LIONE
455 North Cityfront Plaza Drive
NBC Tower, Suite 3600
Chicago, Illinois 60611-5599
(312)321·4200
Michael A. Mohr
Albertus Hultink
Catherine Lynem
Amway Corporation
7575 Fulton Street, East
Ada, Michigan 49355
(616) 787-6000
Attorneys for Plaintiff
Amway Corporation