Procter & Gamble v. Amway

• Decision Date: 14 February 2001
• Docket Number: No. 99-20590,99-20590
• Citation: 242 F.3d 539
• Parties: (5th Cir. 2001) The Procter & Gamble Company and The Procter & Gamble Distributing Company, Plaintiff-Appellants, v. Amway Corporation, et al., Defendants, Amway Corporation; the Amway Distributors Association Council; Ja-Ri Corporation; Donald R. Wilson; Wow International, Inc.; Wilson Enterprises, Inc.; Ronald A. Rummel, Individually Doing Business as Rummel Enterprises; Kevin Shinn; Randy Haugen; Freedom Associates, Inc.; Freedom Tools, Inc.; Randy Walker; Walker International Network; Gene Shaw; John & Jane Does 6-10, Business Entities; Dexter Yager, Sr.; Birdie Yager; and D&B Yager Enterprises, Inc., Defendants-Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

Page 539

242 F.3d 539 (5th Cir. 2001)

The Procter & Gamble Company and The Procter & Gamble Distributing Company, Plaintiff-Appellants, v. Amway Corporation, et al., Defendants, Amway Corporation; the Amway Distributors Association Council; Ja-Ri Corporation; Donald R. Wilson; Wow International, Inc.; Wilson Enterprises, Inc.; Ronald A. Rummel, Individually Doing Business as Rummel Enterprises; Kevin Shinn; Randy Haugen; Freedom Associates, Inc.; Freedom Tools, Inc.; Randy Walker; Walker International Network; Gene Shaw; John & Jane Does 6-10, Business Entities; Dexter Yager, Sr.; Birdie Yager; and D&B Yager Enterprises, Inc., Defendants-Appellees.

No. 99-20590

IN THE UNITED STATES COURT OF APPEALS, FIFTH CIRCUIT

February 14, 2001

[Copyrighted Material Omitted]

Appeal from the United States District Court for the Southern District of Texas

Before SMITH and DENNIS, Circuit Judges, and ROETTGER,^* District Judge.

JERRY E. SMITH, Circuit Judge:

The Procter & Gamble Company ("P&G") appeals the dismissal of its lawsuit against Amway Corporation and other defendants for defamation, fraud, and violations of the Lanham Act, RICO, and Texas state law. We affirm in part, reverse in part, and remand.

I.

P&G, a manufacturer and distributor of numerous household products, has been plagued by rumors of links to Satanism since the late 1970's or early 1980's. The most common variant of the rumor is that the president of P&G revealed on a television talk show that he worships Satan; that many of P&G's profits go to the church of Satan; and that there is no harm in such disclosure, because there are no longer enough Christians left in the United States for such devilish activities to make a difference. The rumor often was circulated in the form of a written flier that listed numerous P&G products and called for a boycott.

P&G has spent considerable time and money unsuccessfully trying to determine the original source of the rumor and to squelch it. P&G has not been able to prove how the rumor began, although it asserts here that the rumor was either started or spread by Amway¹ or its distributors in the 1980's. P&G offered no proof that Amway originally started the rumor, but it did offer evidence showing that various Amway distributors spread it in the 1980's. Rather than suing Amway at that time, however, P&G worked with Amway's corporate headquarters, which promised to help stop the rumor.

The rumor re-surfaced on April 20, 1995, when an Amway distributor named Randy Haugen forwarded it to other Amway distributors via a telephone messaging system for Amway distributors known as "AmVox."² Haugen is a highly successful Amway distributor with a network of tens of thousands to possibly 100,000 distributors underneath him throughout Utah, Nevada, Texas, Mexico, and Canada. He also served on Amway's Distributors Association Council ("ADAC"), which is an advisory body for Amway distributors. Defendants Freedom Associates, Inc.; Freedom Tools Inc.; Randy Walker; and Walker International Network are Amway distributors in Haugen's distribution network.

There is no evidence that Haugen knew the rumor was false when he spread it; in fact, he testified that he believed it to be true. The rumor circulated in his and other distribution networks. Some Amway distributors printed fliers containing the rumor, circulating them to consumers, with a message saying, "We offer you an alternative." The fliers also gave contact information for Amway distributors. Although P&G has received complaints and inquiries about this rumor for the last twenty years, it offered evidence to show that, at the time the rumor was circulating on AmVox, the number of complaints and inquiries increased substantially in the states in which the majority of Haugen's distributors live.³

Within days of the initial message containing the rumor, Haugen sent a short retraction via AmVox.⁴ Shortly thereafter, an Amway representative contacted Haugen and delivered a copy of a P&G "truth kit," which explains that the rumor is false. The Amway representative asked Haugen to issue another retraction via AmVox. Using the AmVox system, Haugen then sent out a second, more detailed, retraction.⁵ Despite Haugen's retractions the rumor continued to circulate in Haugen's network and at least one other network for some time.

II.

In response to the spread of the rumor among Amway distributors, P&G filed a lawsuit in each of two federal district courts. In 1995, in Utah, it sued Haugen, Freedom Associates, Inc., and Freedom Tools, Inc., for spreading the Satanism rumor, claiming it lost customers as a result of the actions of Haugen and other Amway distributors. P&G later joined Amway, Randy Walker, and Walker International Network as defendants. In 1996, P&G filed a second amended complaint containing causes of action for defamation, common-law unfair competition, violations of the Utah Truth in Advertising Act, tortious interference, negligent supervision, violations of Lanham Act § 43(a), 15 U.S.C. § 1125(a), and vicarious liability. P&G then filed a third amended complaint alleging that Amway is an illegal pyramid and alleging fraud and product disparagement; that complaint was dismissed in 1997. Later in 1997, P&G filed a motion for leave to file a fourth amended complaint to assert fraud and disparagement claims; the Utah court denied the motion as untimely.

One day after its third amended complaint was dismissed in the Utah action, P&G filed the suit at issue in this appeal, in Texas. This suit is based on the same transactions, and involves substantially the same parties, as does the Utah suit. It names Haugen, Amway Corporation, ADAC, and various other Amway Distributors (all hereinafter referred to as "Amway") as defendants.⁶ The Texas complaint sought remedies for the alleged conduct of defendants in (1) spreading the Satanism rumor, (2) disparaging P&G's Crest toothpaste, and (3) allegedly harming sales of P&G's products by inducing people to become Amway distributors and consumers by luring them into an illegal pyramid scheme and misleading them as to the financial rewards of selling Amway. P&G asserted various causes of action in its Texas suit, including common-law fraud; several violations of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c) and (d); and violation of Texas Business and Commerce Code § 16.29.⁷

The Texas district court granted Amway's Fed. R. Civ. P. 12(b)(6) motion dismissing P&G's RICO claim, because P&G did not allege that it had relied on Amway's alleged predicate acts of mail and wire fraud. Then, on summary judgment, the court held that P&G lacked standing to bring its § 43(a) claim based on Amway's alleged illegal pyramid scheme and that the fraud claim was time-barred. In September 1998, the Utah court granted defendants' joint motion for summary judgment and dismissed the § 43(a) claim, stating that "the misrepresentation at issue does not relate to a product within the meaning of the Lanham Act." Inexplicably, in the Utah court, P&G claimed only that Amway's actions constituted a violation of the Lanham Act's prohibition on the misrepresentation of goods or services, even though that act also provides a cause of action for misrepresentation of commercial activity.⁸

P&G did not argue that repetition of the Satanism rumor constituted misrepresentation of its commercial activities until its Fed. R. Civ. P. 60(b) motion for reconsideration of the Utah court's grant of summary judgment. The Utah court denied P&G's motion for reconsideration, finding no excuse for P&G's failure to raise the commercial activities claim earlier.

In March 1999, the Utah court granted summary judgment to defendants on the defamation per se, vicarious liability, and negligent supervision claims. A few days later, before the Texas case went to trial, the Utah court entered a final judgment dismissing all of P&G's claims.

After the final judgment from the Utah court, Amway moved for judgment as a matter of law ("j.m.l.") in the Texas case. The district court denied the motion because it was filed after the deadline for pre-trial motions. At the close of P&G's case, Amway again moved for j.m.l. The court granted the motion and dismissed the § 43(a) claim against Amway, Walker, and Haugen based on the res judicata effect of the Utah court's decision. The Texas court dismissed the § 43(a) claim for disparagement of commercial activities against the remaining defendants (and against Amway, Walker, and Haugen for purposes of vicarious liability), because it found that P&G had not presented sufficient evidence of "actual malice," which the court held to be a requirement of § 43(a) suits brought by "limited-purpose public figure" plaintiffs.⁹ The court also dismissed the Texas Business and Commerce Code § 16.29 claim and all remaining claims.

After oral argument had been heard in this court, the Tenth Circuit reversed the Utah summary judgment. P&G v. Haugen, 222 F.3d 1262 (10th Cir. 2000). The Tenth Circuit addressed P&G's misrepresentation of commercial activities claim, even though P&G had not timely raised it before the Utah district court. The Tenth Circuit explained its willingness by stating that where an issue is purely a matter of law, its resolution is certain, and public interest is implicated, it should be addressed on appeal. Id. at 1271. The Tenth Circuit concluded that the repetition of the Satanism rumor raised a claim under the "commercial activities" prong of the Lanham Act, and it therefore reversed and remanded as to the Lanham Act claim and reversed the dismissal of P&G's Utah state law tortious interference claim. Id. at 1280.

III.

The res judicata effect of the Utah judgment is a question of law that we review de novo. United States v. Brackett, 113 F.3d 1396, 1398 (5th Cir. 1997). This question--to which both sides direct most of their...