Nitro Distributing, Inc. v. Alitcor, Inc.

• Decision Date: 04 May 2009
• Docket Number: No. 08-1451.,08-1451.
• Citation: 565 F.3d 417
• Parties: NITRO DISTRIBUTING, INC.; West Palm Convention Services, Inc.; Netco, Inc.; Schmitz & Associates, Inc.; U-Can-II, Inc., Appellants, v. ALTICOR, INC., a foreign corporation; Amway Corporation, a foreign corporation; Quixtar, Inc., a foreign corporation, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

565 F.3d 417

NITRO DISTRIBUTING, INC.; West Palm Convention Services, Inc.; Netco, Inc.; Schmitz & Associates, Inc.; U-Can-II, Inc., Appellants, v. ALTICOR, INC., a foreign corporation; Amway Corporation, a foreign corporation; Quixtar, Inc., a foreign corporation, Appellees.

No. 08-1451.

United States Court of Appeals, Eighth Circuit.

Submitted: January 14, 2009.

Filed: May 4, 2009.

R. Dan Boulware, argued, R. Todd Ehlert, Todd H. Bartels, Sharon Kennedy, on the brief, St. Joseph, MO, for appellant.

James Robert Sobieraj, argued, Chicago, IL, Thomas Walsh, St. Louis, MO, Cynthia A. Homan, Julie Leichtman, and Ralph J. Gabric, Chicago, IL, on the brief, for appellee.

Before LOKEN, Chief Judge, WOLLMAN and SHEPHERD, Circuit Judges.

WOLLMAN, Circuit Judge.

Nitro Distributing, Inc., West Palm Convention Services, Inc., Netco, Inc., Schmitz & Associates, Inc., and U-Can-II, Inc., (collectively, appellants), appeal from the district court's¹ grant of summary judgment to Alticor, Inc., Amway Corporation, and Quixtar, Inc., (collectively, Amway); dismissal of appellants' Racketeer Influenced and Corrupt Organizations Act (RICO) claims; and various adverse discovery rulings. We affirm.

I.

Appellants were each distributors of Amway marketing materials. In an earlier decision involving these parties, we explained Amway's unique business model.

Amway, a multinational company with sales in excess of $5 billion, sells a wide variety of products ranging from kitchen cleaner to jewelry to, in some countries, coffee and milk.... Amway distributes its products via a "network marketing" method. Under this method, a potential distributor must be sponsored into the company before he or she may sell Amway products. The sponsor, the sponsor's sponsor, and so on, are the "upline" for the new distributor. Amway encourages distributors to establish a "downline" by sponsoring other distributors, and it awards bonuses based on the volume of both the distributors' sales and the sales of their downline. Amway calls this system the "products business".

Sponsors use motivational tools like tapes, lectures, and rallies, [or business support materials (BSMs)], to recruit new distributors and to encourage their downlines to sell as many products as possible. The "tools business" arose to meet the demand for motivational tools.

Nitro Distrib., Inc. v. Alticor, Inc., 453 F.3d 995, 997 (8th Cir.2006). The tools business operates in largely the same manner as the products business in that there are lines of sponsorship and each distributor develops a downline. In both businesses, sponsors are not to solicit another sponsor's downline; a sponsor typically sells products to his own downline, and downlines generally buy their sponsor's products. Additionally many of the companies in the tools business are owned by individuals in the products business.

Until 1998, Dexter Yager headed the largest line of sponsorship in the tools business. Dexter Yager had long been one of Amway's largest distributors, and he also owns InterNET, the exclusive supplier of BSMs to all distributors in his downline. His son, Jeff Yager, is president of InterNET. In 1997, four members of Dexter Yager's downline—Hal Gooch, Bill Childers, Tim Foley, and Steve Woods (the founders)—decided they wanted to break away from InterNET and form their own BSM distribution system, which would become Pro Net. Ken Stewart, the owner of appellants Nitro and West Palm, chose to join this breakaway and Pro Net. Global Support Services (Global) became Pro Net's exclusive supplier of BSMs. Appellants were high-ranking downline distributors in the founders' and Dexter Yager's lines of sponsorship.

The founders contacted Amway to discuss their desire to separate from InterNET. Amway is accustomed to such separations and says that it often offers advice to assure a smooth transition and avoid disruption of its products business. Sharon Grider, Amway's in-house counsel, and Bob Kerkstra, Amway's Manager of Distributor Relations, expressed concern to the founders that the breakaway would be contentious. Grider agreed to provide assistance to the founders, which included model BSM contracts and the Amway Antitrust Primer. The primer warned that "[c]ompeting BSM sellers, including those involved in customer disputes, must not agree to divide up customers and revenue," but that "it may be appropriate to agree on how to separate BSM lines of sponsorship to resolve a dispute." The primer also recommended that the founders seek independent legal advice.

Unattributed handwritten notes suggest that an Amway Steering Committee was formed to "manage" the breakaway.² According to these notes, Committee members included Kerkstra, Doug DeVos, other high-level Amway executives, and Bill Zeoli, who had previously worked as an outside consultant on Amway's behalf. The notes indicate that Amway would not take sides and that its primary concerns were to "1. protect the little guy, 2. maintain tool income for those who depend, and 3. [make sure that] Amway revenue will not suffer." These notes and the record as a whole suggest that Amway's primary focus was on avoiding a negative impact on its products distribution business.

The founders asked Zeoli for his assistance in negotiating the breakaway and considered him to be a neutral mediator. In July 1997, Zeoli left a voice message for the founders "to report on the responsibility assignment you have given me." Zeoli explained in the message that DeVos would not be involved in these negotiations, but that Kerkstra would be involved because he was "the authority over the rules and regulations." The purpose of the message was to notify the founders that Jeff Yager was willing to have a "non-war" meeting with them. Zeoli also suggested that the founders pay Dexter Yager a percentage of each tape sold by Pro Net, assuming that neither group's downlines were "raided" by the other.

Early in 1998, the parties had many meetings to facilitate the breakaway. Kerkstra remembers attending several meetings with both Dexter and Jeff Yager and the founders "to avoid injuring as many distributors involved as possible." Kerkstra also acknowledged that if pricing was discussed at the meetings, he would have been there to hear it, but stated that Amway would not discuss specific pricing regarding a non-Amway product, such as InterNET's and Pro Net's BSMs. Gooch also remembered that BSM pricing and a payment to Dexter Yager were discussed at these meetings, but offered no further specifics.³

During this period of negotiation, the founders sought and received confidential "pin level" and line of sponsorship information from Amway. Pin levels are a means of distinguishing top earners within a line of sponsorship. The founders requested this information to create a compensation plan for Pro Net that accurately reflected the productivity of each distributor within their lines of sponsorship.

A sticking point between the parties was the tools created by InterNET that featured founders, such as motivational audio tapes on which a founder was the primary speaker. The founders argued that these tapes were their property and should be given to them upon breaking away from InterNET. InterNET, and thereby Jeff and Dexter Yager, insisted, however, that "[i]t has been the understanding of the entire organization that in exchange for InterNET recording, editing, marketing, manufacturing, and distributing [the tapes] in single quantities that we own and supply this material." The parties eventually agreed that InterNET would supply the master versions of the tapes on condition that Pro Net pay a royalty fee of $.14 per tape to InterNET. Additionally, each side agreed not to solicit the other's downlines. The royalty payments continued through 2000 and totaled just over $1 million.

The formation of Pro Net had negative consequences for appellants. Though the parties disagree as to the direct cause, appellants experienced decreased sales and market share, and, in some cases, the failure of their business after Pro Net's formation. Appellants filed suit against Amway, alleging that Amway and Pro Net, and at times, InterNET, were involved in an antitrust conspiracy. Appellants asserted that Pro Net was a sham corporation organized to allow Amway to gain greater control over the BSM market. According to appellants, Amway and Pro Net conspired to allocate customers and fix prices within the tools business in violation of the Sherman Antitrust Act, 15 U.S.C. § 1. Appellants also alleged injurious falsehood, tortious interference, and violations of RICO, 18 U.S.C. § 1962.

II.

The district court granted summary judgment to Amway, dismissing appellants' claims of antitrust conspiracy, injurious falsehood, and tortious interference. We review a district court's grant of summary judgment de novo, Amerinet, Inc. v. Xerox Corp., 972 F.2d 1483, 1489 (8th Cir. 1992), and view the evidence in the light most favorable to the nonmovant. Flegel v. Christian Hosp. Northeast-Northwest, 4 F.3d 682, 685 (8th Cir.1993). To survive a motion for summary judgment, appellants "must establish that there is a genuine issue of material fact" such that their claim should proceed to trial. Matsushita Elec. Indus. Co., v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). This standard requires more than "some metaphysical doubt as to the material facts." Id. at 587, 106 S.Ct. 1348. "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no `genuine issue for trial.'" Id.

A.

Appellants argue that the district court "misunderstood the nature and scope of the conspiracy" when it granted summary judgment to Amway on appellants' antitrust claims. Section 1 provides that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign...