This lawsuit was filed on 7/16/97 in the U.S. District Court for the Southeastern District of Texas in Houston. (Those wishing to obtain a photocopy of the complaint can do so by calling Ikon Document Services at (713) 236-0903 and asking for case #H-97-2384, Procter & Gamble v. Amway. The cost will be around $44.)
This lawsuit differs significantly in several respects from that previously filed by P&G in Utah.
The Procter & Gamble Company
:
One Procter & Gamble Plaza
:
Cincinnati, Ohio 45202,
:
and :
The Procter & Gamble Distributing
:
Company
:
One Procter & Gamble Plaza
:
Cincinnati, Ohio 45202,
:
Plaintiffs, :
-vs- :
Amway Corporation
:
7575 East Fulton Street
:
Ada, Michigan 49355,
:
and :
The Amway Distributors Association
:
Council
:
7575 East Fulton Street
:
Ada, Michigan 49355,
:
and
:
Ja-Ri Corporation
:
7575 East Fulton Street
:
Ada, Michigan 49355,
:
and :
Donald R. Wilson
:
1190 E. 5425S
:
Ogden, Utah 84403,
:
and :
WOW International Inc.
:
9190 E. 5425S
:
Ogden, Utah 84403,
:
and
:
Wilson Enterprises, Inc.
:
1190 E. 5425S
:
Ogden, Utah 84403,
:
and :
Ronald A. Rummel, Individually, and
:
d/b/a Rummel Enterprises
:
11875 Forestgate Drive
:
Dallas, Texas 75243,
:
and :
Roger D. Patton
:
40818 Pipestone
:
Magnolia, Texas 77355,
:
and :
Jeffrey G. Musgrove, Individually, and :
d/b/a Musgrove Enterprises
:
6110 Plantation Bay Drive
:
Katy, Texas 77449,
:
and :
Kevin Shinn
:
County Road 1083
:
Greenville, Texas 75401,
:
and :
Randy Haugen
:
2488 Bonneville Terrace
:
Ogden, Utah 84403,
:
and :
Freedom Associates, Inc.
:
2488 Bonneville Terrace
:
Ogden, Utah 84403,
:
and :
Freedom Tools, Inc.
:
2488 Bonneville Terrace
:
Ogden, Utah 84403,
:
and
:
Randy Walker
:
17688 Kuykendahl Road
:
Spring, Texas 77379,
:
and :
Walker International Network
:
1450 (Interstate 45 S #F-13
:
Conroe, Texas 77304,
:
and :
Gene Shaw
:
Box 131
:
Whiteright, Texas 75491,
:
and :
Robert Schmanski, Individually, and
:
d/b/a Schmanski Enterprises
:
17167 Beaver Springs
:
Houston, Texas 77090,
:
and :
Mark Pruitt
:
1607 Sweet Grass Trail
:
Houston, Texas 77090,
:
and :
William Bredemeyer
:
722 Sheldon Road
:
Channelview, Texas 77530,
:
and :
John and Jane Does, 1-5, Individuals, :
and :
John and Jane Does, 6-10, Business
:
Entities,
:
Defendants.
:
COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES
The Procter & Gamble Company and the Procter & Gamble Distributing
Company
(collectively "Procter & Gamble" or "Plaintiffs"), for their
complaint in
this action, state as follows:
I. JURISDICTION AND VENUE
1. The matter in controversy exceeds, exclusive of interest and
costs, the
sum of Seventy-Five Thousand ($75,000.00) Dollars.
2. The jurisdiction of this Court is based upon a federal question,
18
U.S.C. § 1962(c), Racketeer Influenced and Corrupt Organizations
Act, 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.
3. Venue is proper in the United States District Court for the Southern
District of Texas, Houston Division under 18 U.S.C. § 1965(a),
Racketeer
Influenced and Corrupt Organizations Act and under 28 U.S.C. §
1391 because
the Defendants reside in or conduct business within the State of
Texas
and/or committed some or all of the acts giving rise to the claims
in this
action within this judicial district.
II. INTRODUCTION
4. The Amway Corporation distributes household products for which
its
principal competitor is Procter & Gamble. The basic product
lines of Amway
and Procter & Gamble coincide in a host of key areas. For instance,
Procter
& Gamble's Tide and Cheer laundry detergents are in direct
competition with
Amway's SA-8 laundry products; Procter & Gamble's Crest and
Gleem
toothpastes compete with Amway's Glister; and Procter & Gamble's
Spic n Span
and Top Job compete with Amway's L.O.C. Multipurpose Cleaner.
5. Unlike Procter & Gamble, which sells its products through
traditional
retail networks, Amway sells its products through a network of
distributors
in what it refers to as a multi-level marketing plan. At first
blush, the
plan would appear to focus upon the recruitment of a large sales
force to
move Amway products to market through door to-door sales. In reality,
the
plan primarily rewards distributors for recruiting new distributors,
who
will in turn be rewarded for recruiting new distributors, in a
seemingly
endless proliferation of "downlines." Whereas the normal retail
distribution
model relies upon a minimal number of middlemen to move products
to market,
the Amway system depends upon a multiplicity of layers.
6. Amway's distributors are, in effect, its employees. Amway exerts
substantial control over how and where the plan and product information
must
be presented, over the way distributors must manage their "downline,"
and
over almost every aspect of a distributor's conduct. Amway even
describes
how a distributor should deal with a spouse in a divorce.
7. Amway can, and does, exert such tight control because all aspects
of the
Amway Corporation and its distribution network are effectively
controlled by
the same small group of people. The same families that own Amway
also own
the highest level active distributor, Ja-Ri, to which all other
distributors
ultimately report. (The name Ja-Ri is a conjunction of the first
names of
the two founders of Amway.) Furthermore, Amway and Ja-Ri control
the Amway
Distributor's Advisory Council (the ADAC), which is supposedly
the forum for
distributors to have a voice in the business.
8. Amway has engaged in a widespread pattern of unfair competition
against
Procter & Gamble in an effort to lure consumers into becoming
Amway
distributors. Amway has published false claims to the effect that
Tide
laundry detergent will form "sludge" that will clog the user's
drainpipes.
Distributors are also covertly encouraged to spread a variety of
disparaging
remarks about other Procter & Gamble products, such as the
false claim that
Crest toothpaste contains abrasives which damage teeth. Most disturbing,
however, are the persistent false rumors circulated by Amway distributors
implying that Procter & Gamble is affiliated with satanism.
9. Amway engages in disparagement and other unfair competition as
a part of
its overall effort to lure customers away from Procter & Gamble
products,
enticing them to become a part of the Amway distribution scheme.
10. The Amway enterprise is in reality an elaborate, illegal pyramid
scheme.
Amway's objective is to entice consumers out of the retail marketplace
by
convincing them that purchasing Amway products will make them rich.
Of those
who invest the time, money, and personal sacrifice to become Amway
Distributors, only a select few ever break even. Even fewer realize
the
profits touted by Amway in its sales pitch--and they do so by siphoning
money from the victims at the bottom.
11. This action seeks to recover the losses Procter & Gamble
suffers because
Amway's unlawful pyramid scheme has diverted consumers from the
legitimate
marketplace and because the defendants have promoted lies about
Procter &
Gamble and its products. A measurable percentage of Amway distributors
previously purchased Procter & Gamble products and would still
be purchasing
Procter & Gamble products had they not been misled by the Defendants.
12. All pyramid schemes take from those at the bottom to benefit
those at
the top. A simple pyramid is an unadorned payment of money, coupled
with the
promise that by recruiting a new crop of victims the payor will
become the
payee many times over. To profit requires one to enter the game
early,
recruit others, and advance quickly to the top of the pyramid.
The promise
is basic: If you allow yourself to be victimized today, you will
profit by victimizing those below you tomorrow. The scheme requires
potentially infinite growth to support the promises made to new
recruits.
13. The Amway Pyramid is elaborately disguised as a marketing network
in
which "products" flow down in return for money flowing up. The
existence of
the "products" creates the illusion of legitimacy and masks the
purpose of
the payments. No legitimate distribution network contains so many
layers of
middlemen, selling and reselling the same goods a dozen or more
times,
encouraging those below to keep the base of the pyramid expanding
with new
victims. And, the pressure to keep Amway's pyramid going with new
recruits
is enormous, because the Amway Pyramid is in a constant state of
collapse
and renewal. In 1996, the average Amway distributor earns just
$36.08 per
month before expenses. Every year 50% of Amway's distributors realize
the futility of the venture and withdraw.
14. But Amway's own numbers demonstrate that it is not really in
the
business of marketing goods to the public. According to the most
recent
statistics available, 82% of all final sales of Amway products
are made to
Amway distributors. Hence, like every pyramid scheme, the Amway
Pyramid is a
closed system--the profits come not from the distribution of a
good or
service to those outside the pyramid, but from a redistribution
of
wealth among the layers within the pyramid.
15. The Amway Pyramid has proven so successful at redistributing
wealth that
it has spawned a second line of business--the sale of "tools" to
lower
level distributors. "Tools" are primarily motivational tapes of
dubious
value produced by the highest level Amway distributors. They are
sold only
to those within the Amway Pyramid. Buying tapes is characterized
as an
essential ingredient to success as an Amway distributor; distributors
are pressured to buy at least one per week. The tape business is
immensely
profitable for those at the top, providing additional incentive
for them to
replenish the continually collapsing pyramid with new victims.
16. In the early 1980's, Amway acknowledged that the motivational
tape
business rendered the entire Amway organization an illegal pyramid
scheme.
Amway co-founder, Richard M. DeVos, Sr. told Distributors: "Now,
the tape
business, if it is not used as a support for the Amway business,
will
oftentimes be an illegal business--in fact, it could be called
a pyramid--
because [product] does not get sold to the consumer..." DeVos
continued:
"Let me talk to you about the legal side...that
deals with pyramids,
that deals with the illegal operation
of a business that does not have
an end consumer, where product is not
retailed. That would include all
books and tapes. The sad news, folks,
is that when those things go out
that way and become excessive...then it
becomes an out and out illegal
pyramid...
17. The motivational tool business has since expanded. More importantly,
DeVos' remarks amount to an admission that Amway is "an out and
out illegal
pyramid" by virtue of its being "a business that does not have
an end
consumer, where product is not retailed."
18. So long as consumers are misled by inflated promises and lies
into
joining the Amway Pyramid, Procter & Gamble will continue to
be damaged--
foreclosed from a significant segment of the consumer market and
vilified by
false rumors. Amway and the Defendants who help it have engaged
in a
persistent pattern of corrupt activity.
Accordingly, Procter & Gamble is entitled to relief.
III. THE PARTIES
19. 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 and sell them in Texas
and
throughout the United States. These products include Tide, Era,
Cheer and
Bold laundry detergents, Crest and Gleem toothpastes, Biz laundry
bleach,
Ivory, Zest, Camay and Safeguard bar soaps. Cascade dishwashing
soap, Folger
coffee, Mr. Clean, Comet and Spic & Span household cleaning
products, Crisco
cooking products, Bounty paper towels, Charmin bathroom tissue,
Pert
and Prell shampoos, Scope mouthwash, Pampers and Luvs diapers,
Bounce fabric
softener, Duncan Hines baking mixes, CoverGirl cosmetics. Secret
and Sure
deodorants, Dawn dishwashing liquid and many other food, laundry,
cleaning,
and personal care products. A more complete list of these products
is
attached as Exhibit 1.
20. 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 Texas. Procter
& Gamble
Distributing is a subsidiary of The Procter & Gamble Company.
21. Defendant Amway Corporation ("Amway") is a Michigan corporation
with its
principal place of business in Ada, Michigan. Amway is a privately-held
company owned and controlled by the DeVos and Van Andel families.
(See
Exhibit 2.) Amway, through its employees and its chain of distributor-
agents, including the Defendants herein, engages in the business
of
recruiting consumers to become "distributors" of Amway products.
Amway
products are sold and distributed nationwide and include: Glister
anti-
plaque fluoride toothpaste, SA8 Plus Premium laundry detergent,
Crystal
Bright dishwashing soap, Far Corners and Nine to Five coffee products,
Durishine household cleaning product, Modern Magic Meals vegetable
oil pan
coating spray, Meadowbrook paper towels and bathroom tissue, Satinique
sport
shampoo, Amway Zoom Spray Cleaner, Artistry cosmetics, Deter deodorant,
Amway Dish Drops dishwashing liquid, L.O.C multipurpose cleaner,
Amway
Fabric Softener and Brightener and many other food, laundry, cleaning
and
personal care products. Amway also sells and distributes, through
a
catalog,products made by other manufacturers. Amway does not offer
for sale
any product made by Procter & Gamble. Defendant Amway Corporation
may be
served with process through its registered agent for service, CT
Corporation, at 350 N. St. Paul Street, Dallas, Texas 75201.
22. Many Amway products distributed by Defendants compete with Procter
&
Gamble's products in the consumer market nationwide. A list of
many of the
Amway products which compete with Procter & Gamble products
is attached
hereto as Exhibit 1. Amway specifically advertises against Procter
&
Gamble's products in its publications such as its monthly AMAGRAM
magazine
and its Amway Product Demonstrations Guide, both of which are sent
through
the U.S. Mails. Copies of examples of such advertisements are attached
as
Exhibit 3. Information in such advertisements concerning Procter
& Gamble
products is often inaccurate, false and/or misleading.
23. Defendant The Amway distributors Association Council ("ADAC")
is
comprised of high-level Amway distributors such as members of the
DeVos and
Van Andel families, Ja-Ri and Defendants Haugen, Wilson and Rummel.
The ADAC
is a Michigan corporation whose business address has been the same
as Amway
in Ada, Michigan. (See Exhibit 4.) The ADAC has 30 board members.
Fifteen
are elected by less than 1% of Amway distributors. The other 15
are
nominated by Amway and elected by other board members. The ADAC,
in
conjunction with Amway and Ja-Ri, controls and supervises Amway
distributors. The ADAC consults and advises Amway on all aspects
of the
Amway business. The ADAC further consults, advises, enacts and
implements
Amway disciplinary rules on behalf of Amway. The ADAC was directly
involved
in the wrongful conduct alleged herein. Defendant The Amway Distributors
Association Council may be served with process through its registered
agent
for service, Kim S. Mitchell, at 7575 East Fulton Street, Ada,
Michigan
49355.
24. Defendant Ja-Ri is a Michigan Corporation whose business address
is the
same as Amway in Ada, Michigan. Ja-Ri was incorporated by Richard
M. DeVos,
Sr. and Jay Van Andel in 1963. (See Exhibit 5.) Ja-Ri is a privately-held
company owned and controlled by the DeVos and Van Andel families.
Amway and
Ja-Ri are operated as a single entity, using a common place of
business,
having common employees, and having common owners. Amway and Ja-Ri
intermingle their assets and fail to adequately observe corporate
formalities. Ja-Ri holds title to real estate used by the DeVos
and Van
Andel families for residential purposes. Ja-Ri, in conjunction
with Amway
and the ADAC, controls and supervises Amway Distributors. Ja-Ri
was directly
involved in the wrongful conduct alleged herein. Defendant Ja-Ri
Corporation
may be served with process through its registered agent for service,
Kim S.
Mitchell, at 7575 East Fulton Street, Ada, Michigan
49355.
25. Defendant Donald R. Wilson is a citizen of the State of Utah,
residing
in Ogden, Utah. At all relevant times, Wilson was a top-level Executive
Diamond Amway distributor. Wilson was directly involved in the
wrongful
conduct alleged herein. Wilson engaged in the wrongful conduct
in his
individual capacity and in his capacity as a representative and
agent of
Amway and as a representative of defendant, WOW International Inc.
("WOW"),
aka Wilson International Network, and Wilson Enterprises, Inc.,
entities
through which Wilson conducts his Amway business activities. WOW
is a Utah
corporation with its principal place of business at 1190 E. 5425
South,
Ogden, Utah. WOW is privately owned and controlled by Don and Nancy
Wilson.
WOW is one of the corporate entities through which Defendant Don
Wilson
conducts his business, including his Texas business activities,
as an Amway
distributor. (Wilson, WOW, Wilson International Network and Wilson
Enterprises are hereinafter referred to collectively as "Wilson."
) Wilson
conducts business extensively in Texas, conducting seminars for
Amway
distributors, renting meeting halls and auditoriums in Texas for
Amway
seminars, arranging speaking engagements by Texas citizens and
supervising,
training, controlling and benefiting from the efforts of numerous
Texas
Amway distributors. Wilson's network of Amway distributors is primarily
centered in Utah, Texas, Arizona, and Nevada. At all relevant times,
Wilson
was an agent of Amway. Defendant Donald R. Wilson may be served
with process
at 1190 E. 5425S, Ogden, Utah 84403. Defendant WOW International,
Inc. may
be served with process through its registered agent for service,
Donald R.
Wilson, at 1190 E. 5425S, Ogden. Utah 84403. Defendant Wilson Enterprises,
Inc. may be served with process through Donald R. Wilson, one of
its
principals, officers, agents or directors, at 1190 E. 5425S, Ogden,
Utah
84403.
26. Defendant Ronald Rummel is a citizen of the State of Texas,
residing in
Dallas, Texas. At all relevant times, Rummel was an agent of Amway,
a
Diamond-level Amway distributor and a member of the ADAC. Rummel's
business
is located in Texas. Rummel transacts business in this District
of Texas.
Rummel was directly involved in the wrongful conduct alleged herein.
Rummel
engaged in the wrongful conduct in his individual capacity and
in his
capacity as a representative and agent of Amway and Rummel Enterprises.
Rummel and Rummel Enterprises are hereinafter collectively referred
to as
"Rummel." Defendant Ronald A. Rummel may be served with process
at
11875 Forestgate Drive, Dallas, Texas 75243. Defendant Rummel Enterprises
may be served with process through its principal, agent or partner,
Ronald
A. Rummel, at 11875 Forestgate Drive, Dallas, Texas 75243.
27. Defendant Roger D. Patton is a citizen of the State of Texas,
residing
in Magnolia, Texas. At all relevant times, Patton was an agent
of Amway and
an Amway distributor. Patton's business is headquartered in Texas.
Patton
transacts substantial business in Texas. Patton was directly involved
in the
wrongful conduct alleged herein. Patton engaged in the wrongful
conduct in
his individual capacity and in his capacity as a representative
and agent of
Amway. Defendant Roger D. Patton may be served with process at
40818
Pipestone Road, Magnolia, Texas 77355.
28. Defendant Jeffery G. Musgrove is a citizen of the State of Texas,
residing in Katy, Texas. At all relevant times, Musgrove was an
agent of
Amway and an Amway distributor. Musgrove was directly involved
in the
wrongful conduct alleged herein. Musgrove engaged in the wrongful
conduct in
his individual capacity and in his capacity as a representative
and agent of
Amway and Defendant Musgrove Enterprises, a Texas partnership entity
through
which Musgrove conducts his Amway business activities. Musgrove
and Musgrove
Enterprises are hereinafter referred to collectively as "Musgrove."
Defendant Jeffrey G. Musgrove may be served with process at 6110
Plantation
Bay Drive, Houston, Texas 77084. Defendant Musgrove Enterprises
may be
served with process through its principal, agent or partner, Jeffrey
G.
Musgrove, at 6110 Plantation Bay Drive, Houston, Texas 77084.
29. Defendant Kevin Shinn is a citizen of the State of Texas, residing
in
Greenville, Texas. At all relevant times, Shinn was an agent of
Amway and an
Amway distributor. Shinn's business is located in Texas. Shinn
transacts
substantial business in Texas. Shinn was directly involved in the
wrongful
conduct alleged herein. Shinn engaged in the wrongful conduct in
his
individual capacity and in his capacity as a representative and
agent of
Amway. Defendant Kevin Shinn may be served with process at County
Road
1083, Greenville, Texas 75401.
30. Defendant Randy Haugen is a citizen of the State of Utah, residing
in
Ogden, Utah. At all relevant times, Haugen was an agent of Amway
and an
Amway distributor. Although Haugen's principal place of business
is in Utah,
he transacts a substantial amount of business in Texas. Haugen's
business
activities in Texas include, but are not limited to, sales of products
to
Amway distributors in Texas, supervision, training and control
of Amway
distributors in Texas, sending false and defamatory messages concerning
Procter & Gamble to Amway distributors in Texas and receiving
benefits from
the activities of downline Amway distributors located in Texas.
Haugen was
directly involved in the wrongful conduct alleged herein in his
individual
capacity as a representative and agent of Amway and Defendant Freedom
Tools,
Inc., and Freedom Associates, Utah corporations through which Haugen
conducts Amway business activities. Haugen and Defendants Freedom
Tools,
Inc. and Freedom Associates are hereinafter collectively referred
to as
"Haugen." Defendant Randy Haugen may be served with process at
2488
Bonneville Terrace, Ogden, Utah 84403. Defendant Freedom Associates,
Inc.
may be served with process through its registered agent for service,
Randy
Haugen, at 2488 Bonneville Terrace, Ogden, Utah 84403. Defendant
Freedom
Tools, Inc. may be served with process through its registered agent
for
service, Randy Haugen, at 2488 Bonneville Terrace, Ogden, Utah
84403.
31. Defendant Randy Walker is a citizen of the State of Texas, residing
in
Spring, Texas. At all relevant times, Walker was an agent of Amway
and an
Amway distributor. Walker's business is located in Texas. Walker
transacts
business in Texas. Walker was directly involved in the wrongful
conduct
alleged herein in his individual capacity as a representative and
agent of
Amway and Defendant Walker International Network, a Texas partnership
through which Walker conducts Amway business activities. Walker
and Walker
International Network are hereinafter collectively referred to
as "Walker."
Defendant Randy Walker may be served with process at 17688 Kuykendahl
Road,
Spring, Texas 77379. Defendant Walker International Network may
be served
through Randy Walker, one of its principals, agents, or partners,
at 17688
Kuykendahl Road, Spring, Texas 77379.
32. Defendant Gene Shaw is a citizen of the State of Texas, residing
in
Whiteright, Texas. At all relevant times, Shaw was an agent of
Amway and an
Amway distributor. Shaw's business is located in Texas. Shaw transacts
business in Texas. Shaw was directly involved in the wrongful conduct
alleged herein. Shaw engaged in the wrongful conduct in his individual
capacity and in his capacity as a representative and agent of Amway.
Defendant Gene Shaw may be served with process at Rural Route 1,
Whiteright,
Texas 75491.
33. Defendant Robert Schmanski is a citizen of the State of Texas,
residing
in Houston, Texas. At all relevant times, Schmanski was an agent
of Amway
and an Amway Distributor. Schmanski's business is located in Texas.
Schmanski transacts business in Texas. Schmanski was directly involved
in
the wrongful conduct alleged herein. Schmanski engaged in the wrongful
conduct in his individual capacity and in his capacity as a representative
and agent of Amway and Schmanski Enterprises. Schmanski and Schmanski
Enterprises are hereinafter collectively referred to as "Schmanski."
Defendant Robert Schmanski may be served with process at 17167
Beaver
Springs, Houston, Texas 77090. Defendant Schmanski Enterprises
may be served
with process through its principal, agent or partner, Robert Schmanski,
at
17167 Beaver Springs, Texas 77090.
34. Defendant Mark Pruitt is a citizen of the State of Texas, residing
in
Houston, Texas. At all relevant times, Pruitt was an agent of Amway
and an
Amway distributor. Pruitt's business is located in Texas. Pruitt
transacts
business in Texas. Pruitt was directly involved in the wrongful
conduct
alleged herein. Pruitt engaged in the wrongful conduct in his individual
capacity and in his capacity as a representative and agent of Amway.
Defendant Mark Pruitt may be served with process at 1607 Sweet
Grass Trail,
Houston, Texas 77090.
35. Defendant William Bredemeyer is a citizen of the State of Texas,
residing in Channelview, Texas. At all relevant times, Bredemeyer
was an
agent of Amway and an Amway distributor. Bredemeyer's business
is located in
Texas. Bredemeyer transacts business in Texas. Bredemeyer was directly
involved in the wrongful conduct alleged herein. Bredemeyer engaged
in the
wrongful conduct in his individual capacity and in his capacity
as a
representative and agent of Amway. Defendant William Bredemeyer
may be
served with process at 722 Sheldon Road, Channelview, Texas 77530.
36. Defendants John and Jane Does 1-5, whose complete identities
and
addresses are unknown as this time, upon information and belief,
are
individual distributors who are agents of Amway who conduct business
in
Texas, and are involved in the sale and distribution of Amway consumer
products and the development of Amway business.
37. Defendants John and Jane Doe 6-10, whose complete identities
and
addresses are unknown at this time, upon information and belief
are business
entities who are agents of Amway and are involved in the sale and
distribution of Amway consumer products and the development of
Amway
business in Texas.
38. Ja-Ri, Wilson, Rummel, Patton, Musgrove, Shinn, Haugen, Walker,
Shaw,
Schmanski, Pruitt, Bredemeyer, John and Jane Does 1-5 and John
and Jane Does
6-10, shall be hereinafter referred to as "Distributor Defendants"
unless
expressly stated otherwise.
IV. FACTS
A. Amway and Multilevel Marketing
39. Defendants distribute Amway products through a complex network
of
resellers that is sometimes referred to as a multilevel marketing
scheme. In
the United States, this network comprises hundreds of thousands
of
individuals organized in a pyramidal structure with Amway, Ja-Ri
and members
of the ADAC at the top of the pyramid.
40. Amway was founded by two salesmen of vitamin supplements. These
salesmen, Richard M. DeVos, Sr. and Jay Van Andel, devised an elaborate
commission scheme through which they recruited others to sell products.
They
offered the recruits a portion of the commission on any products
sold and
retained a portion of the commission themselves. The commission
structure
encouraged recruits to, in turn, recruit others below them. DeVos
and Van
Andel named their marketing company "Ja-Ri." Eventually, DeVos
and Van Andel
began marketing soap and detergent products under the label "Amway."
Amway's products compete directly against products distributed
through more
traditional retail channels by Procter & Gamble.
41. Each new Amway recruit joined the organization below a "sponsor."
Amway
defines a "line of sponsorship" as the "linkage between all distributors
in
a specific Distributor organization." The recruiting of new members
eventually grew into an enormous chain of sponsors and recruits.
In Amway
jargon, a recruit is "downline" from his or her sponsor, and a
sponsor is
"upline" from the recruit.
42. It is estimated that certain members of Amway have more than
a million
downline members. Ja-Ri is believed to be "upline" from all but
one
distributor out of the 2-1/2 million Amway members. Ja-Ri technically
has
one inactive upline sponsor from the early 1950's. In Amway jargon,
recruits
who fill out an application to join Amway are termed "distributors."
B. Amway's Distributors are the Agents and Employees of Amway
43. Amway's distributors are the employees and agents of Amway.
Amway and
its distributors collectively constitute a single business enterprise,
and
are dependent upon each other.
44. Amway's "distributors" are commissioned sales agents who must
follow an
extensive set of rules and regulations controlling the means and
manner in
which the distributors market Amway products. For instance, Amway
distributors must present the "plan" for recruiting new members
in
compliance with prescribed Amway literature and sales aids, are
prohibited
from selling products to certain classes of persons, may not sell
products in certain places (such as out of their office), are significantly
restricted in their ability to sell non-Amway products, are prohibited
from
resigning without Amway approval, and are even instructed on how
to conduct
themselves in the event of a divorce. The most fundamental tenet
of Amway
Distributorship is obedience to the upline distributors--which
leads
ultimately to Amway itself.
45. Amway has a legally controlling relationship with ifs distributor
organization, because the same two families that control Amway
also control
the highest active distributor (Ja-Ri) in the Amway Pyramid. Both
Amway and
the distributor network are under common control.
46. The controlling "partnership" relationship between Amway and
its
distributors is also demonstrated by the interworkings of Amway
and the
Amway distributors Association Council ("ADAC") (formerly called
the
"American Way Association" and "Amway Distributors' Association").
47. The ADAC states that its purpose is to give Distributors a "voice"
and
"a means by which they could influence policy decisions" of Amway.
In
reality, the ADAC is merely an arm and instrument of Amway, used
as yet
another means by which to control its distributors.
48. Richard M. DeVos, Sr. and Jay Van Andel, and/or members of their
families, have served on the ADAC since its inception, in their
capacities
as distributors. For example, Doug DeVos, son of Amway co-founder
Richard M.
DeVos, Sr., was a member of the ADAC's Executive Council in 1995.
Because
all members of the ADAC are required to be distributors, DeVos
sat on the
ADAC as a distributor (Ja-Ri), and not as a representative of Amway.
49. The 30 members of the ADAC are typically those at the highest
levels of
the Amway Pyramid. Fifteen of the 30 are elected by the less than
1% of
Amway distributors entitled to vote. The other 15 are elected by
the first
15, from a list of nominees proposed by Amway.
50. The ADAC ostensibly serves as an advisor and paid consultant
to Amway.
The ADAC also acts as a "board of arbitration." When Amway charges
that a
distributor has violated an Amway rule, the distributor can appeal
the
decision to the ADAC. The ADAC then conducts an evidentiary hearing,
engages
in fact-finding and decides whether Amway's decision was correct.
In-house
Amway attorneys attend and participate in the ADAC hearings. Theoretically,
the ADAC's determination is not binding on Amway, but the distinction
is
meaningless given that Amway effectively controls the ADAC to begin
with.
51. Amway is able to control the ADAC, through its membership (as
distributor Ja-Ri) on the ADAC and through its power to nominate
ADAC
members. Amway therefore controls the purported trade association
of its
distributors. This control augments Amway's ability to control
distributors
through its rules and regulations and through Ja-Ri.
C. The Amway Pyramid
52. The principal purpose of Amway is not to sell consumer goods
at retail
in fair competition with Procter & Gamble. Amway's purpose
is to divert
consumers from the retail marketplace, creating a captive audience
which
buys Amway products to the exclusion of all others in the false
hope that
doing so will lead to riches. At present, Amway has successfully
recruited
roughly 2.5 million consumers.
53. The bedrock of the Amway system is, in their terms, "dreambuilding."
The
message is twofold: first, that money will solve all your problems;
and
second, that Amway is a simple and easy way to make vast amounts
of money.
54. Once hooked by the dream, the sales pitch to a new distributor
switches
almost exclusively to the money to be made by recruiting additional
distributors. Through Amway's highly developed sliding scale of
commissions,
the real money comes from a distributor's cut on those he or she
recruits--
the distributor's "downline." One survives in Amway not by selling
soap to
neighbors, but by reselling the dream over and over and exhorting
one's
downline to do likewise. If new recruits will do as instructed,
their
downlines should in theory expand exponentially, with each new
layer of
recruits enriching those above.
55. To sell the dream one is required to buy Amway products. The
dream is,
after all, ostensibly based upon the distribution of Amway goods.
A
distributor must show faith in the "product." Becoming a 100% Amway
household is promoted as a key to Amway success. Hence Amway diverts
consumers from the marketplace not because of the merits of its
products,
but because the consumer believes that purchasing the product is
a
prerequisite to obtaining the dream. Meanwhile, Procter & Gamble
loses any
prospect of fairly competing with Amway for sales to consumers
misled into
becoming a part of the Amway scheme.
56. First, just 18% of Amway's products are sold to non-distributors;
Amway
and its distributorship network is in reality a pyramid scheme.
The Amway
distribution network is not intended to distribute products, but
rather to
redistribute cash within the pyramid. Like all pyramids, the Amway
scheme is
a closed system. If is a closed system in which money is funneled
from the
base to the apex.
57. Second, the Amway model is patently unworkable as a product
distribution
network. From the top of the distribution chain to the bottom spans
dozens
of layers of distributors. If Amway were a business in which the
objective
was to move products to market, it would fail for the sheer multiplicity
of
middlemen, each of whom must rely upon the price of the product
to produce
some measure of profit. Those who enter at the bottom of that pyramid
face a
nearly insurmountable task of creating a downline large enough
to generate
their own commissions, only worsening the problem. As one publication
noted
in 1993, "for the present two million distributors to achieve financial
independence would mean that perhaps another 50 million distributors
would
have to be signed up." Canadian Business (July 1993).
58. Third, Amway's data demonstrates the economic absurdity of its
distribution model. The average monthly gross income of all Amway
distributors before expenses for 1996 was $36.08. Meanwhile, only
1% of
Amway Distributors ever reach the first and most basic level of
achievement--
direct distributorship, which signifies little more than a break-even
operation. Thus the odds are roughly 99 to 1 against a new distributor
ever
developing a viable--much less thriving--Amway business. Yet all
the while,
the 99% of Amway Distributors being exploited for the gains of
a few
continue buying Amway products to the exclusion of Procter &
Gamble.
59. Fourth, that Amway is a pyramid is demonstrated by its continual
state
of collapse. Each year, half of Amway's distributors realize the
futility of
the enterprise and quit. But Procter & Gamble cannot recoup
the sales it
lost while those distributors were obediently following the Amway
creed,
loyally supporting their uplines, and being exposed to the Amway
organization's vilification of Procter & Gamble.
60. Finally, Amway's pyramidal structure is revealed by the subsidiary
business in "tools" that uses the same network of downlines to
distribute
products which have no commercial value to anyone outside the Amway
Pyramid.
The "tools" consist of motivational tape recordings, books and
rallies
produced or sponsored by the upper echelon of the Amway Pyramid.
Recruits
are expected to buy the "tools" through standing orders--generally
one a
week at $5 to $8 each. In fact, they are told that success only
comes with
purchase of tools. The tools produce enormous profits for the uplines.
Sustaining that profit is in itself a substantial motivation to
find and
keep new Amway recruits, removing consumers from the marketplace
to generate
the cash necessary to sustain the Amway Pyramid.
61. Defendants' operation of an illegal pyramid by itself constitutes
unfair
competition that significantly reduces Procter & Gamble's consumers.
The
pyramid scheme, however, is only one aspect of Amway's pattern
of unfair
competition.
D. Defendants' Other Conduct Specifically Directed at, and Injurious
to,
Procter & Gamble
1. The Satanism Lie.
62. Procter & Gamble was formed in 1837, and in 1882, it registered
a
trademark sometimes referred to as the "Moon and Stars" design.
The design
depicts the man in the moon and 13 stars, one for each of the original
American states. Successive minor variations of this design were
also
federally registered under United States Registration No. 298059.
63. The "Moon and Stars" trademark is a corporate symbol under which
Procter
& Gamble has conducted business throughout the United States
and around the
world for over one hundred years. Procter & Gamble's business
has always
been based upon the principle of providing products of superior
quality and
value that best meet the needs of consumers.
64. Beginning in the early 1980's, and continuing since that time,
Amway
distributors have maligned Procter & Gamble and its products
by circulating
a false and malicious statement to the effect that Procter &
Gamble is
associated with Satan and that profits from the sale of Procter
& Gamble
products are contributed to the "Church of Satan." Typically, the
false and
malicious statement (the "Satanic Message") relates that the President
of
Procter & Gamble appeared on the Phil Donahue television program
and
stated that Procter & Gamble was associated with Satan. The
Satanic Message
typically states that Procter & Gamble's Moon and Stars trademark
is a
Satanic symbol which has appeared or will appear on Procter &
Gamble product
labels along with the numbers "666," said to be the mark of the
devil. The
Satanic Message typically urges that consumers boycott all Procter
& Gamble
products, including some 40 specifically identified Procter &
Gamble
products. (See Exhibit 6.)
65. The Satanic Message is a vicious misrepresentation and a false
and
malicious disparagement of Procter & Gamble. Procter &
Gamble is not, and
never has been, associated with Satan, the Church of Satan or any
similar
religion or entity. No product ever manufactured, distributed or
sold by
Procter & Gamble has been associated with Satan, the Church
of Satan or any
similar religion or entity. No president or any other employee
of Procter &
Gamble, including its current president, has ever appeared on the
Phil Donahue television program or any other television or radio
program and
announced an association with the Church of Satan, because there
is no
association. Procter & Gamble has never supported Satan, the
Church of Satan
or any similar religion or entity in any manner whatsoever. The
Satanic
Message, and every portion of it, is false and malicious and calculated
to
negatively impact Procter & Gamble and the sales of Procter
& Gamble
products.
66. Procter & Gamble complained to Amway in 1980's that a large
number of
reports received by Procter & Gamble of circulation of the
Satanic Message
identified Amway distributors as the source.
67. Amway responded by assuring Procter & Gamble that Amway
would do all if
could to stop its distributors from further circulating the false
and
malicious statement. Procter & Gamble relied on Amway's promises
and
assurances, which came from Amway's top officials.
68. Amway itself has admitted that the Satanic Message is false
and
malicious and that its repetition by Amway distributors constitutes
unfair
competition. Nevertheless, and despite its numerous assurances
to Procter &
Gamble, Amway did little or nothing to stop its distributors from
spreading
the Satanic Message. As of this date, Procter & Gamble
has identified for
Amway dozens of Amway distributors who have circulated the false
and
malicious statement. To date, Amway has taken no disciplinary action
whatsoever against any of those distributors. None have been censured.
None
have been suspended. None have been terminated. In fact, other
than a few
advisory letters to distributors and distributor organizations
who were
caught spreading the Satanic Message, the sum total of Amway's
efforts to
squelch the rumor in its distributor organization was primarily
to twice
publish in articles buried in Amway periodicals that Amway "does
not
condone" the spreading of the message about Procter & Gamble.
69. The Satanic Message was disseminated by Amway distributors again
in 1995
on a massive scale in different forms and by different media. The
first of
several known disseminations began in or about April 1995, when
Defendant
Bredemayer, in Houston, Texas, distributed a written version of
the Satanic
Message to Defendant Robert Schmanski, also an Amway distributor
in Texas.
Schmanski, in turn, spread the Satanic Message to Texas Amway distributor
Defendant Roger Patton.
70. Roger Patton created a tape recording of the Satanic Message
and sent it
by telephone to Defendant Jeffrey Musgrove, also an Amway distributor.
Patton's vehicle for transmitting the message to Musgrove was an
interstate
long distance telephone transmission and recording service known
as "Amvox."
Amvox is operated, sold and provided by Amway to its distributors.
Amway
established and markets and controls the Amvox system in order
to facilitate
mass communications between Amway and its distributors and among
Amway
distributors themselves. Amvox allows an Amway distributor to instantly
send
a recorded message by telephone to the telephone answering machines
of
thousands of other Amway distributors throughout the world. Amway
profits
from its distributors' subscriptions to the Amvox system.
71. Musgrove forwarded the Satanic Message via the Amvox system
to Texas
Amway distributor Defendant Randy Walker. Walker, a Diamond level
Amway
distributor, in turn forwarded the Satanic Message via the Amvox
system to
Defendant Haugen, a top Amway distributor in Defendant Wilson's
downline
organization. Haugen is, and at all material times was, an "Executive
Diamond" Distributor in the Amway Pyramid and a member of the ADAC
and the
ADAC Executive Committee.
72. Haugen then transmitted the Satanic Message via the Amvox system
to
thousands of his downline distributors. In accordance with standing
orders
to pass along any instructions received from upline distributors,
the
recipients of the Haugen transmission in turn sent the Satanic
Message to
numerous other Amway distributors. A copy of the transcript of
the Amvox
version of the Satanic Message is attached hereto as Exhibit 7.
73. The Satanic Message then proliferated through the enormous Haugen
organization. Amway itself admits that "thousands" of Amway distributors
received Haugen's broadcast of the Satanic Message or subsequent
transmissions of it. The false and malicious statement ran rampant
through
Haugen's organization of over 60,000 downline Amway distributors.
It is
believed that the message was sent to numerous other Amway
distributors and
others throughout the United States and elsewhere, including South
America.
74. At some point in this process, the Haugen Satanic Message crossed
into
at least two other, large organizations of Amway distributors.
First, the
message was sent by top Amway Diamond-level distributor Defendant
Ronald A.
Rummel, via the Amvox system, of one or more members of Rummel's
large
distributor organization. Second, the Haugen Amvox message was
received by
members of another large distributor organization known as International
Connection and further disseminated among the many Amway distributors
within
that group.
75. Concurrently with the transmissions and retransmissions of the
Satanic
Message via the Amvox system, a written version of the Satanic
Message was
being disseminated within the Amway distributor organization by
numerous
Amway distributors. Texas Amway distributor Defendant Kevin Shinn
placed
written copies of the Satanic Messages in packages of Amway products
he
distributed to other Amway distributors.
76. Defendant Gene Shaw, another Texas Amway distributor, repeated
the
Satanic Message from the stage to several hundred Amway distributors
at an
Amway meeting in Texas.
77. Defendant Mark Pruitt, a Texas Amway distributor, handed out
a written
version and/or verbally repeated the Satanic Message on a nightly
basis to
many other Amway distributors during Amway meetings at Pruitt's
house.
78. In addition, a flyer containing the Satanic Message and the
further
suggestion that Procter & Gamble products are poisonous was
disseminated by
a Texas Amway distributor to numerous other Amway distributors
with
instructions to pass out copies door-to-door because doing so would
help the
distributors' Amway business. The distributors complied and handed
out
numerous copies of the false and malicious document, a copy of
which is
attached as Exhibit 8.
79. Although Haugen later issued by Amvox a purported retraction
of his
Amvox transmission of the Satanic Message, after he got caught,
the
purported retraction was not received by all of the recipients
of Haugen's
broadcast and the subsequent rebroadcasts of the false and defamatory
statement. Amway was aware that a month after Haugen's purported
retraction,
the Satanic Message was still being transmitted among its distributors.
(See
Exhibit 9.) In fact, Amway was made expressly aware that Haugen's
purported retraction was not received by those Amway distributors
who were
still sending and receiving the Satanic Message through the Amway
Amvox
system. Amway could have sent a clear message to its Amvox subscribers
and
Amway distributors through the Amvox telephone message system denouncing
this deplorable conduct. It did not do so.
80. At about the same time, Amway distributors began asking their
pastors to
tell their congregations that Procter & Gamble was associated
with Satan.
Amway has asserted that churches, not Amway distributors, are the
source of
the Satanic Message. However, when Amway was made expressly aware
that one
or more of its distributors was spreading on the Amvox system a
message that
told Amway distributors to contact every minister of churches and
have them
tell their congregations about Procter & Gamble and the Satanic
Message,
Amway, incredibly, did nothing to effectively address this deplorable,
malicious and unfair business conduct. (See Exhibit 9.) Amway knew
that its
distributors were engaging in such conduct, but did nothing to
effectively
stop it. During the same time period in which the Haugen-initiated
rumor was
circulating, a 3.5 million member church in Brazil promulgated
the rumor and
urged a boycott of Procter & Gamble products.
81. Amway did nothing to discipline any of the foregoing Amway distributors
who disseminated the false and malicious Satanic Message in 1995.
Amway
further failed to take steps of effectively stop further dissemination
of
the message by its distributors or effectively communicate to them
that the
message was untrue, and that engaging in this conduct was an unfair
and
illegal business practice. Indeed, Amway did not even inform Procter
&
Gamble of the foregoing incidents in 1995, including the widespread
dissemination of the Satanic Message to thousands of distributors
and
ministers of churches.
82. Amway knew the foregoing statements about Procter & Gamble
were false.
Amway is directly responsible for the acts of its agents and employees
in
spreading the rumor. Furthermore, by failing to act and to effectively
stop
the spread of the Satanic Message by its distributors within its
organization, Amway has encouraged, acquiesced in and/or ratified
the
foregoing vicious misrepresentations of fact and false statements
concerning
Procter & Gamble and its products.
2. Additional False and Disparaging Statements by Amway Distributors
Concerning Procter & Gamble and Its Products.
83. In addition to the foregoing false statements by Amway distributors
concerning Procter & Gamble, Amway distributors, with the knowledge,
encouragement, tacit approval and/or acquiescence of Amway, have
made
numerous other false and misleading statements concerning Procter
& Gamble
products.
84. In a publication to all Amway distributors, Amway made the clear
implication that Procter & Gamble's Tide laundry detergent
will form
"sludge" in consumers' drain pipes which will clog such pipes.
Amway's
suggestion concerning Tide was false and was made with knowledge
of its
falsity. (See Exhibit 10.)
85. Amway distributors have stated to other Amway distributors and/or
consumers that Tide contains "fillers" consisting of sand, clay,
peanut
shells, egg shells and walnut shells. Such statements are false
and were
made with knowledge of their falsity; Tide has never contained
any such
fillers.
86. Amway distributors have stated to other Amway distributors and/or
consumers that Tide will cause washing machines to rust and does
not
effectively launder clothes. Such statements are false and were
made with
knowledge of their falsity.
87. Amway distributors have stated to other Amway distributors and/or
consumers that daytime television programs sponsored by Procter
& Gamble are
Satanic. Such statements are false and were made with knowledge
of their
falsity.
88. Amway distributors have stated to other Amway distributors and/or
consumers that Procter & Gamble's Crest toothpaste contains
harmful
abrasives that will injure the enamel on consumers' teeth. Amway
distributors also use false and misleading product demonstrations
to
communicate this message. Such statements concerning Crest are
false and
were made with knowledge of their falsity.
89. Amway distributors have stated to other Amway distributors and/or
consumers that Procter & Gamble's fabric softener products
will damage the
motors of clothes-drying machines. Such statements are false and
were made
with knowledge of their falsity.
90. Amway distributors have stated to other Amway distributors and/or
consumers that Procter & Gamble's Cascade dishwashing soap
promotes the
growth of harmful bacteria on plates, glasses and eating utensils.
Such
statements concerning Cascade are false and were made with knowledge
of
their falsity.
91. In October of 1996, a concerned consumer called Procter &
Gamble after
seeing an Amway distributor conduct a product demonstration using
Tide and
Ivory Snow. The Amway distributor claimed these Procter & Gamble
products,
when mixed with bleach, would lead to "solidification" in her plumbing.
The
statements concerning Tide and Ivory Snow are false and were made
with
knowledge of their falsity.
92. Amway distributors are believed to have made other false and
disparaging
statements to the effect that Procter & Gamble's products contain
harmful
ingredients and adulterants and/or are harmful to consumers or
their
property.
3. Defendants' Disparaging Statements about Procter & Gamble
and its
Products Were False, Malicious and Made for Improper Purposes
93. Defendants have published, circulated, encouraged, acquiesced
in and/or
ratified the foregoing vicious misrepresentations of fact and false
statements concerning Procter & Gamble and its products, which
were known to
be false and were made, or were allowed to be made, maliciously
and/or with
reckless disregard as to their truth or falsity and which have
caused great
harm and damage to Procter & Gamble, its products, and its
business.
94. Defendants, individually and in concert, have made or have allowed
to be
made the foregoing false, defamatory, and product-disparaging statements
in
connection with the recruiting of additional Amway distributors
and/or the
promotion and sale of Amway products in order to support their
pyramid,
obtain economic gain, recruit new Amway distributors and persuade
consumers
(including Amway distributors) to cease purchasing Procter &
Gamble products
and instead purchase competing Amway products, all to the benefit
of
Defendants and to the detriment of Procter & Gamble.
95. Amway distributors tell recruits to accept representations about
Amway
"on faith." Amway distributors attempt to use religious faith as
a
recruiting device, and also to mask the fraudulent nature of their
illegal
pyramid. The Satanic Message is used in the same way, as a recruiting
device. Amway distributors state that Procter & Gamble is satanic
in order
to buttress their false assertions that Amway is Godly. In addition,
both
false statements are used to coerce Amway distributors to purchase
Amway
products that they otherwise would not purchase, in lieu of the
Procter &
Gamble products that they previously purchased and otherwise would
be likely
to continue to purchase. The Satanic Message is, in short, an additional
means of preventing the collapse of the Amway Pyramid. One Amway
distributor
confirmed that she was told at an Amway meeting: "when you buy
of their
[Procter & Gamble's] products, you are giving to the devil
to keep his work
going . . . Billy Graham, Jim Bakker . . . they are Amway people.
When you
buy Amway, you give to Jesus."
96. The false and malicious statements published and circulated
by Amway
distributors regarding Procter & Gamble and Procter & Gamble's
products
deceived consumers, and caused consumers to stop purchasing Procter
& Gamble
products. For example, a former Amway distributor in Texas stated
that while
she was a distributor she heard the false Satanic Message and other
statements disparaging Procter & Gamble from her upline distributors.
At the
time, she believed the statements to be true and as a result ceased
buying
Procter & Gamble products for at least six months. Another
Texas Amway
distributor stated that she still does not know whether the statements
concerning Procter & Gamble are false, because Defendants have
failed to fully
retract and correct the false statements and representations. The
statements have caused distributors to take written versions of
the Satanic
Message into stores in order of check to see if a Satanic symbol
has appeared
on Procter & Gamble products. Further, as a result of Defendants'
conduct, a
customer of Procter & Gamble canceled orders for Procter &
Gamble products,
stating: "Based on your president's Satan worship and profits of
your company
going to support Satan's purposes, YOU MAY CANCEL ALL FUTURE SHIPMENTS."
97. Amway's failure to discipline any Amway distributor in connection
with
any of the activities and conduct alleged herein has been in spite
of the
fact that Amway knew that its distributors were repeatedly and
persistently
involved in the dissemination and circulation of such statements
and
wrongful product disparagement activities and despite the fact
that Amway
publicly pledged to help Procter & Gamble stop the spread of
these false
statements.
98. Amway's statements, promises and assurances to Procter &
Gamble in the
1980's that Amway would do whatever it could to stop its distributors
from
disseminating the Satanic Message and false statements about Procter
&
Gamble products were knowingly false, and were intended to induce
Procter &
Gamble to rely on such statements, promises and assurances. Procter
& Gamble
reasonably relied on Amway's statements, promises and assurances
to Procter
& Gamble's detriment. Procter & Gamble refrained from bringing
action
against Amway in the 1980's in reasonable reliance on Amway's statements.
Procter & Gamble only recently discovered that Amway's statements,
promises
and assurances were fraudulent, and that Amway had done little
or nothing to
stop its distributors from making the foregoing false statements
about
Procter & Gamble and its products.
99. Despite Amway's control over its distributors and in direct
conflict
with its representations to Procter & Gamble, Amway has acted
with reckless
indifference and has failed to control its distributors, who on
numerous
occasions over the last fifteen years have continued to spread
defamatory
statements about Procter & Gamble, to disparage Procter &
Gamble's products,
and to commit other wrongful conduct detrimental to Procter &
Gamble.
COUNT ONE
BUSINESS DISPARAGEMENT
100. Plaintiffs incorporate as if fully restated herein their prior
allegations in Paragraphs 1 through 99 of this Complaint.
101. Defendants knowingly and intentionally, uttered, published
and/or
allowed to be uttered or published the foregoing false, malicious
and non-
privileged statements concerning Procter & Gamble and Procter
& Gamble's
products.
102. At the time of the utterances and/or publications, Defendants
knew of
the falsity of the statements and/or acted with reckless disregard
as to
their falsity.
103. Defendants acted with ill will and intended to interfere in
the
economic interests of Procter & Gamble in an unprivileged fashion.
104. The utterance and/or publication of the false, malicious, non-
privileged statements by Defendants induced others not to conduct
business
with Procter & Gamble, and/or to cease purchasing Procter &
Gamble's
products, which proximately caused special damage, including but
not limited
to, loss of trade, lost sales, lost revenue, and harm to Procter
& Gamble's
reputation, goodwill and prestige and standing with consumers or
customers
and in the business community.
COUNT TWO
DEFAMATION
105. Plaintiffs incorporate as if fully restated herein their prior
allegations
in Paragraphs 1 through 104 of this Complaint.
106. Defendants published or allowed to be published the false,
malicious
and non-privileged statements concerning Procter & Gamble,
its executives
and employees, and products.
107. The foregoing false statements concerning Procter & Gamble
and/or its
products are slanderous, libelous and/or defamatory. The foregoing
false
statements concerning Procter & Gamble and/or its products
are, further,
slanderous, libelous and/or defamatory per se. Defendants knowingly,
intentionally and/or maliciously uttered or published such false
and
defamatory statements and/or allowed, permitted and/or acquiesced
in the
uttering or publication of such statements.
108. The false, malicious, non-privileged statements proximately
caused harm
and damage of Procter & Gamble's reputation, prestige and standing
as well
as Procter & Gamble's business and products.
109. As a proximate result of Defendants' conduct, Procter &
Gamble has
suffered damages in an amount of be determined at trial.
110. Defendants' conduct was undertaken in bad faith, was malicious
and
manifested a wanton disregard of, and/or reckless indifference
towards, the
rights of Procter & Gamble, thereby entitling Procter &
Gamble to punitive
or exemplary damages.
COUNT THREE
SECTION 16.29 OF THE TEXAS BUSINESS & COMMERCE CODE
INJURY TO BUSINESS REPUTATION OR TRADE NAME OR MARK
111. Plaintiffs incorporate as if fully restated herein their prior
allegations in Paragraphs 1 through 110 of this Complaint.
112. Defendants knowingly and intentionally uttered, published and/or
allowed to be published the aforesaid false and malicious statements
concerning Procter & Gamble, its executives and employees,
and products.
113. These unlawful acts caused injury to Plaintiffs' business reputation.
114. Defendants' conduct, acts, and failures to act as alleged above
have
directly and proximately caused Procter & Gamble irreparable
injury, and
such conduct will continue to the irreparable harm of Procter &
Gamble
unless enjoined by this Court.
115. Defendants' conduct constitutes a violation of Section 16.29
of the
Texas Business & Commerce Code.
116. As a result of Defendants' violation of Section 16.29 of the
Texas
Business & Commerce Code, Procter & Gamble is entitled
to a permanent
injunction restraining Defendants from the unlawful conduct described
herein.
COUNT FOUR
COMMON LAW UNFAIR COMPETITION
117. Plaintiffs incorporate as if fully restated herein their prior
allegations in Paragraphs 1 through 116 of this Complaint.
118. The foregoing conduct of Defendants violates numerous Texas
civil and
penal statutes, including, but not limited to: Texas Business &
Commerce
Code Section 17.12(a) (deceptive advertising); Texas Business &
Commerce
Code Section 17.46 (false, misleading or deceptive acts or practices
in the
conduct of any trade or commerce; Texas Business & Commerce
Code Section
16.29 (injury of business reputation); Texas Business & Commerce
Code
Section 17.461 (operation of illegal pyramid scheme).
119. Amway was at all material times, and is, engaged in a single
business
enterprise with its distributors, including the Distributor Defendants,
and
has profited from their efforts. The conduct alleged herein of
Amway's
distributors, including the conduct of the Distributor Defendants,
took
place within the scope of their conduct as a single business enterprise
with Amway.
120. Certain of the Defendants conduct business under the fiction
that they
are independent corporate entities. Such conduct of the corporate
Defendants
tends to deceive others, violate confidence, and injure public
interests,
and therefore represents a constructive fraud. Defendants are collectively
liable as a single business enterprise for damages proximately
caused
thereby.
121. Defendants' tortious conduct, as alleged above and below in
this
Complaint, and violations of civil and criminal laws has interfered
with
Procter & Gamble's ability to conduct business and violated
Procter &
Gamble's business and property rights, including but not limited
to, the
right to operate business without unlawful interference, invasion
or
injury and illegally diverting Procter & Gamble's consumers
and customers.
122. Defendants have committed unfair competition and deceptive
trade
practices in violation of Texas common law and the common law of
other
states, which proximately caused harm and damage to Procter &
Gamble's
business and its products.
123. As a result of Defendants' conduct, Procter & Gamble has
suffered
damages in an amount to be proven at trial.
124. Defendants, conduct was undertaken in bad faith, was malicious
and
manifested a wanton disregard of, and reckless indifference toward,
the
rights of Procter & Gamble, thereby entitling Procter &
Gamble to punitive
or exemplary damages.
125. Defendants should be permanently enjoined from committing further
acts
of unfair competition.
COUNT FIVE
SECTION 43(a) OF THE LANHAM ACT
126. Plaintiffs incorporate as if fully restated herein their prior
allegations in Paragraphs 1 through 125 of this Complaint.
127. In the utterance, dissemination and/or publication in the promotion
and/or commercial advertising of their products in interstate commerce,
Defendants caused or acquiesced in the aforesaid false, misleading
and
deceptive statements concerning their own products which are sold
in
interstate commerce.
128. In the utterance, dissemination and/or publication in the promotion
and/or commercial advertising of their products, Defendants caused
or
acquiesced in the aforesaid false, misleading and deceptive statements
concerning Procter & Gamble and its products, which are sold
in interstate
commerce.
129. The false and deceptive statements include, but are not limited
of the
following:
a. Advertising, publishing, disseminating,
and communicating false and
misleading statements and unfounded misrepresentations
about the
business, goodwill, and reputation of
Plaintiffs, including false
statements that Plaintiffs and/or their
corporate president were
involved in or connected with Satanism,
the devil, or other undesirable
or negative associations.
b. Advertising, publishing, and communicating
false and misleading
statements and unfounded misrepresentations
about the Plaintiffs'
products, including lies that Plaintiffs'
products contain sludge,
harmful abrasives, harmful ingredients,
adulterants, and/or fillers,
are harmful to consumers, clothing, appliances,
and homes, and that
Plaintiffs' products are less effective,
more expensive, and/or
inferior to Amway's competing products.
c. Advertising, implying, and communicating
false and misleading
misrepresentations about the economic
benefits of using Amway's
products and the economic detriments of
using Plaintiffs' products.
Such statements are false and misleading, constitute unfair competition,
unfair and deceptive trade practices and tortiously interfere with
the
business relations that Plaintiffs have with customers and consumers,
including, but not limited to, Amway distributors.
130. As previously alleged, Defendants operate, control, participate
in and
benefit from an illegal pyramid scheme whereby the Amway organization
obtains investments from new recruits, promises recruits that they
will
become wealthy if they stop purchasing Procter & Gamble products
and instead
purchase Amway products, and emphasizes the recruitment of new
distributors
rather than the sale of product at retail. As a result, the primary
focus of
the Amway organization is recruitment of new distributors, and
selling to
those distributors, rather than selling product at retail. Amway
distributors derive substantially all of their Amway related income
from
recruiting new distributors and the sale of motivational and other
recruitment tapes and materials, rather than from the sale of Amway
products
at retail to the consumers who are not participants in Amway. These
facts,
as well as the facts alleged above, render the Amway organization
an illegal
pyramid scheme in violation of state and federal law. Defendants
have used
the foregoing false statements concerning Procter & Gamble
and its products
to recruit individuals into the Amway Pyramid and thereby and thereafter
coerce them not to buy Procter & Gamble products, all of which
is done in
order to maintain the Amway Pyramid and prevent its collapse.
131. An illegal pyramid scheme is inherently fraudulent and deceptive.
The
deceptions inherent in the Amway Pyramid cause consumers to join
Amway,
purchase Amway products that they otherwise would not purchase
and refrain
from purchasing Procter & Gamble products that they otherwise
would
purchase. Defendants' operation of an illegal pyramid scheme constitutes
unfair competition and deceptive trade practices.
132. The aforementioned statements and acts actually deceived and
had a
tendency to deceive a substantial segment of the intended audience
of
potential and actual Procter & Gamble customers and consumers.
These false,
misleading and disparaging statements and the deceptions practiced
through
the operation of an illegal pyramid scheme influenced the purchasing
decisions of actual and potential Procter & Gamble customers
and consumers.
133. Procter & Gamble has been injured as a direct and proximate
result of
Defendants' conduct. Procter & Gamble suffered a direct diversion
of its
sales from itself to Amway as well as injury to the goodwill and
reputation
that it and its products enjoy with the buying public.
134. The publication of these false and deceptive statements and
the other
acts and conduct of Defendants alleged above, constitutes 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
of Plaintiffs'
business and products.
135. As a result of Defendants' conduct, Plaintiffs have suffered
damages in
an amount to be proven at trial.
136. Defendants deliberately, willfully and in bad faith committed
the
aforementioned violations of the Lanham Act. The aforesaid conduct
of
Defendants constitutes an exceptional case under 15 U.S.C. §
1117(a). Thus,
Plaintiffs are therefore entitled to recover enhanced damages and
reasonable
attorneys' fees incurred in this action.
COUNT SIX
TORTIOUS INTERFERENCE WITH PROSPECTIVE BUSINESS RELATIONS
137. Plaintiffs incorporate as if fully restated therein their prior
allegations in Paragraphs 1 through 136 of this Complaint.
138. Plaintiffs have had existing and potential economic relationships
with
numerous customers and consumers. These customers and consumers
include, but
are not limited to the following classes of individuals and entities:
a. Direct and indirect purchasers, consumers,
and individual users of
products manufactured by Plaintiffs,
b. Grocery stores, department stores, convenience
stores, pharmacies,
retailing establishments and chains, retail
and wholesale buyers,
distributors, and other organizations,
and
c. Past, present and future Amway distributors
(including, but not
limited to, the upline and downline distributors
of the named
Defendants), purchasers of Amway products,
and individuals who are
considered recruiting prospects by Amway
and its distributors.
Plaintiffs' customers reside in each state of the United States,
including
Texas, as well as in many foreign countries.
139. Plaintiffs have a reasonable expectation that their customers
will
continue to purchase Plaintiffs' products and have a reasonable
expectation
of developing and maintaining business relationships with their
prospective
customers in the future.
140. Defendants were aware of these business relationships and of
Plaintiffs' expectancy of continued future economic benefits by
sales to
customers. However, despite this knowledge, Defendants intentionally
engaged
in the foregoing non-privileged wrongful conduct which interfered
with Plaintiffs' business relationships. The foregoing are false and misleading
statements, constitute unfair competition, unfair and deceptive
trade
practices, and tortiously interfere with the business relations
that
Plaintiffs have with customers and consumers, including but not
limited to,
Amway distributors.
141. Defendants intentionally undertook this non-privileged wrongful
conduct
for the purpose of damaging the business, reputation and goodwill
of
Plaintiffs and their products, inflicting an economic and competitive
injury
on Plaintiffs, decreasing the sales of Plaintiffs' products, increasing
the
sales of Defendants' own products, and continuing the illegal enterprise
of
an unlawful pyramid scheme.
142. Defendants have improperly used or have allowed others to improperly
use or their own benefit, as instrumentalities to achieve this
wrongful
conduct, the Amvox system, Amway-related promotional literature,
books,
pamphlets, tapes, videos, and other publications, face-to-face
marketing
communications, presentations, speeches, and other marketing activities
by
Amway distributors, Amway-related rallies, functions, seminars,
and other
meetings, the interstate system of wires, and the interstate U.S.
Mail
system.
143. As a result of the Defendants' wrongful, non-privileged and
tortious
conduct, Procter & Gamble's past, present, and future customers,
including
but not limited to Amway distributors, have refrained from purchasing,
consuming, and/or using Plaintiffs' products and, at the direction,
suggestion, and/or encouragement of Defendants, have further
disseminated false and misleading statements and misrepresentations
about
Plaintiffs, Plaintiffs' products and Amway's products to other
individuals.
144. As a direct and proximate result of such wrongful and tortious
conduct
of the Defendants, Plaintiffs have suffered damages in an amount
to be
proven at trial which include, but are not limited to, the profits
that
Defendants received from the sales of Amway products which sales
would not
have occurred if Defendants had not tortiously interfered with
Plaintiffs'
business relationships.
145. Defendants undertook this wrongful and tortious conduct in
bad faith,
with malicious and wanton disregard, and in reckless indifference
towards
the rights of Plaintiffs, thereby entitling Plaintiffs to punitive
or
exemplary damages.
COUNT SEVEN
NEGLIGENT SUPERVISION
146. Plaintiffs incorporate as if fully restated herein their prior
allegations in paragraphs 1 through 145 off this Complaint.
147. Through distributorship agreements, agencies, organizations
and
entities such as ADAC, and through publications such as its 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.
148. 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 conduct themselves in such a fashion
as to
prevent injury to third parties, including competitors such as
Plaintiffs.
149. Amway assumed a duty to Plaintiffs in particular, as a result
of its
representations to Plaintiffs that if would take all steps possible
to stop
its distributors from engaging in the above-described illegal practices
and
business conduct and from spreading the aforesaid false and malicious
and
disparaging statements about Plaintiffs and their products.
150. In addition, Amway is a member of the Direct Selling Association
("DSA"). The DSA has adopted a Code of Ethics which is binding
on its member
companies, such as Amway ("DSA Code"). Member companies of the
DSA agree to
adhere to the DSA Code.
151. The DSA Code provides that:
(1) no member company will engage in deceptive,
unlawful or unethical
sales or recruiting practices; (2) all
statements made in connection
with the marketing of products will be
accurate and truthful; (3) "In
the event any consumer shall complain
that the salesperson or
representative offering for sale the products
or services of a member
company has engaged in any improper course
of conduct pertaining of the
sales presentation of its goods or services,
the member company shall
promptly investigate the complaint and
shall take such steps as it may
find appropriate and necessary...to cause
the redress of any
wrongs"; (4) "Member companies will be
considered responsible for Code
violations by their solicitors and representatives
where the
Administrator finds...the member has either
authorized such
practice found to be violative, condoned
it, or in any other way
supported it. A member shall be considered
responsible for a Code
violation by its solicitors or representatives,
although it had no
knowledge of such violation, if...the
member was culpably negligent
by failing to establish procedures whereby
the member would be kept
informed of the activity of its solicitors
and representatives"; (5)
"For the purposes of this code...companies
shall voluntarily not
raise the independent contractor status
of salespersons distributing
their products or services under its trademark
or trade name as a
defense against Code violation allegations..."
(emphasis added).
152. Amway, as a member of the DSA, adopted the foregoing duties
of care and
industry standards set forth above from the DSA Code.
153. As a company engaged in direct marketing and multi-level marketing
Amway owes duties of care to the public to: (1 ) make reasonable
effort in
the selection of its sales agents (distributors}; (2) actively
monitor and
supervise the conduct, statements and representations of its sales
agents;
(3) train sales agents to refrain from making false statements
about
competitors or competing products; (4) investigate complaints of
misconduct
on the part of its sales agents; (5) discipline any sales agent
found to
have engaged in misconduct; and (6) prevent and correct misrepresentations
by its sales agents.
154. Amway has breached the foregoing duties of care, thereby enabling
its
distributors, including but not limited to, the Distributor Defendants,
to
engage in the conduct described herein. As such, Amway has breached
its
duties owed to Plaintiffs.
155. Amway has known at least since 1980 that ifs distributors have
engaged
in the foregoing unlawful and illegal business practices and the
dissemination of false, misleading and/or defamatory and disparaging
statements about Plaintiffs and their products and trademarks.
Thus, if was
foreseeable that distributors would continue to engage in such
unlawful
practices.
56. As a proximate result of Amway's negligence, Plaintiffs have
suffered
damages in an amount to be proven at trial.
COUNT EIGHT
NEGLIGENCE
157. Plaintiffs incorporate as if fully restated herein their prior
allegations in paragraphs 1 through 156 of this Complaint.
158. Amway, through its agreements with its distributors and the
DSA, and
through its adoption of rules and regulations governing the conduct
of Amway
distributors, has undertaken duties to the public, including competing
companies, to use reasonable care in the supervision, training,
education,
monitoring, policing, and disciplining of its distributors in order
to
prevent or reduce the likelihood that such distributors would engage
in
conduct harmful of members of the public, including competitors
of Amway.
159. Amway's failure to adequately train, educate, monitor, police
and
discipline its distributors, as alleged above, breached such duties
owed by
Amway to Procter & Gamble.
160. Amway, further, undertook specific duties to Procter &
Gamble, as
previously alleged, to do everything within Amway's power to stop
the
dissemination within Amway's distributor organization of the Satanic
Message
and other false and disparaging statements about Procter &
Gamble and its
products.
161. Amway failed to do everything in its power, or to reasonably
attempt to
do everything in its power.
162. Amway Distributors, by joining Amway, undertook duties to refrain
from
engaging in unfair trade practices, and other conduct proscribed
by Amway's
rules and regulations which is injurious to competitors of Amway.
The
Distributor Defendants breached these duties owed to Procter &
Gamble by
engaging in the conduct alleged above.
163. As a direct and proximate result of the foregoing breaches
of duty by
Defendants, Procter & Gamble has been damaged in an amount
to be proven at
trial.
COUNT NINE
VICARIOUS LIABILITY
164. Plaintiffs incorporate as if fully restated herein their prior
allegations in paragraphs 1 through 163 of this Complaint.
165. Through contractual agreements with ifs distributors, agencies,
organizations and entities such as ADAC, through publications,
guidelines
and manuals such as the Business Reference Manual, through the
exertion of
control by Amway as an upline distributor through Defendant Ja-Ri,
and
through Amway's ability to control its distributors which was previously
alleged, Amway was at all material times, and is, in a position
of
authority, control and supervision over its distributors such as
Defendants
and has profited from their efforts.
166. Amway's distributors, including Distributor Defendants, were
and
continue to be partners, agents and representatives of Amway and,
as such,
stand in partnership, agent-principal, employer-employee, master-servant
and
joint venture relationships with Amway.
167. The conduct alleged herein of Amway's distributors, including
the
conduct of the Distributor Defendants, took place within the scope
of their
partnership, agency, joint venture, employer-employee and master-servant
relationships with Amway.
168. Amway has acquiesced in the foregoing misconduct of its distributors
by
accepting benefits from its association with its distributors and
failing to
terminate or otherwise discipline such distributors. Amway has
thereby
ratified their misconduct.
169. As such, Amway is vicariously liable for the aforesaid misconduct
of
its distributors, agents, employees and servants as alleged herein.
Amway
and the other Defendants are jointly and severally liable for the
aforesaid
misconduct of their partners and joint adventurers.
170. As a result of this conduct of Defendants alleged herein, Plaintiffs
have suffered damages in an amount to be proven at trial.
171. 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.
COUNT TEN
FRAUD
172. Plaintiffs incorporate as if fully restated herein their prior
allegations in Paragraphs 1 through 171 of this Complaint.
173. In furtherance of its illegal pyramid scheme and other false
and
deceptive trade practices, Amway made or caused to be made the
aforesaid
knowing and fraudulent misrepresentations of material facts to
Plaintiffs
that Amway would stop the spread of the Satanic Message within
its
organization and other false and disparaging statements made against
Plaintiffs by Amway distributors. Such fraudulent misrepresentations
included, but were not limited to, the following statements:
· On September 8, 1980 Eugene M.
Rogstad, an Amway staff attorney, sent
a letter to Sydney McHugh
of Procter & Gamble's Public Relations
Department stating with regards
to the Satanism rumor ". . . I will
cooperate in any way I can
to help better inform distributors of
Amway products of the fallacies
of this rumor." (See Exhibit 11.)
· On April 30, 1982 Casey Wondergem,
Amway's Director - Public
Relations, sent a letter to
Kathy Gilbert of Procter & Gamble's
Public Affairs Division stating
that Plaintiffs could "[b]e assured
that we'll do whatever we
can to help clear the air if we're
contacted about this senseless
rumor. . . .We'll do whatever we can
to assist in your difficult
task of discrediting an irresponsible
tall tale." (See Exhibit 12.)
174. The aforementioned statements were false, and at the time Amway
caused
these statements to be made, it knew they were false or acted with
reckless
disregard as to their truth or falsity.
175. Amway made these statements with the intention that Plaintiffs
forego
pursuing litigation or other action against Amway in connection
with the
aforesaid misconduct of Amway's distributors.
176. Plaintiffs reasonably relied, to its detriment, on the representations
made by Amway. Plaintiffs' reliance is evidenced by the statements
made by
Thomas Laco, Procter & Gamble's Executive Vice President, to
Jay Van Andel,
Chairman of Amway, that he was "convinced that Amway management
will do
everything in its power to stop some of the inaccurate statements
about
Procter & Gamble that are being made by Amway distributors
on occasion."
(See Exhibit 13.) Procter and Gamble first suspected that the
representations made by Amway as detailed above were false in or
about July,
1995, when it discovered that Defendant Haugen was a member of
the Executive
Committee of ADAC and agent of Amway. Procter & Gamble subsequently
discovered that, contrary to Amway's representations, Amway had
done little
or nothing to stop its distributors from making the aforesaid false
statements about Procter & Gamble and its products.
177. But for the aforesaid fraudulent representations upon which
Plaintiffs
justifiably relied to their detriment, Plaintiffs would have investigated
matters further and pursued any and all legal remedies available
to them,
including but not limited of an action against Amway for negligent
supervision of its distributors.
178. Due to Plaintiffs' justifiable reliance on Defendants' fraudulent
representations, plaintiffs suffered injuries, including but not
limited to
lost sales, loss of goodwill, injury to reputation, and out-of-pocket
expenses in responding to the rumor.
179. Amway's fraudulent conduct was undertaken in bad faith, and
manifested
a wanton disregard of, and reckless indifference towards, the rights
of
Procter & Gamble. Procter & Gamble is, therefore, entitled
to an award of
punitive or exemplary damages.
COUNT ELEVEN
Violation of Racketeer Influenced
and Corrupt Organizations Act, 18 U.S.C. § 1962(c)
180. Plaintiffs incorporate as if fully restated herein their prior
allegations in Paragraphs 1 through 179 of this Complaint.
181. Defendants are and were at all times mentioned herein "persons"
as that
term is defined in 18 U.S.C. § 1961(3).
182. Amway and its distributors constitute an association-in-fact
"enterprise" as that term is defined in 18 U.S.C. § 1961(4),
which is
engaged in and affects interstate and foreign commerce. The enterprise
at
all times mentioned herein was and is engaged in the manufacture,
distribution and sale of products of millions of Amway distributors
and
other consumers throughout the United States and around the world.
The
enterprise is an ongoing organization with a common purpose, a
defined
hierarchy, and a regularity of function.
183. Defendants are employed by or associated with the enterprise,
and
knowingly and willfully conduct and participate in the conduct
of the
enterprise's affairs, directly and indirectly, through a pattern
of
racketeering activity in violation of 18 U.S.C. § 1962(c).
Each of the
Defendants derives income, directly and indirectly, through their
operation,
management or control of the enterprise.
184. The pattern of racketeering activity engaged in by Defendants
involves
at least three separate but related schemes, carried out for a
number of
decades and continuing to this time. These schemes include:
(a) Inducing consumers, through false promises
of enormous wealth and
other misrepresentations, to join the
Amway Pyramid;
(b) Inducing distributors and potential
distributors, through further
misrepresentations, to purchase motivational
tools and attend
motivational rallies, all with the purpose
of fostering the Amway
Pyramid; and
(c) inducing distributors and other consumers,
through false and
malicious disparagement of Procter &
Gamble and its products (as well
as the products of other competitors),
and through other
misrepresentations, to purchase Amway
products instead of Procter &
Gamble or other competitive products.
The pattern of racketeering is
separate and distinct from the legitimate
manufacture, distribution and
sale of products undertaken by the enterprise.
185. The pattern of racketeering engaged in by Defendants involves
schemes
and artifices to defraud constituting mail fraud (18 U.S.C. §
1341) and wire
fraud (18 U.S.C. § 1343), all of which is "racketeering activity"
as defined
in 18 U.S.C. § 1961 (1)(B).
Defendants have engaged in these schemes and artifices with the
specific
intent to defraud, causing damage to the property interests of
Procter &
Gamble and multiple other victims.
186. There are thousands of predicate acts of mail and wire fraud
relating
to Procter & Gamble and other victims that occur on an ongoing
basis and
have so for years, and threaten to continue repeatedly into the
future.
These predicate acts comprise the pattern of racketeering activity.
All of
these predicate acts have a common purpose and effect--to promote
the Amway
Pyramid. These predicate acts include mailings containing misrepresentations
or omissions made in furtherance of the schemes, telephone calls
containing misrepresentations or omissions made in furtherance
of the
schemes, facsimile transmissions containing misrepresentations
or omissions
made in furtherance of the schemes, as well as mailings, telephone
calls and
facsimile transmissions that may not themselves contain misrepresentations
but were undertaken as an integral part of the schemes and in furtherance
thereof. For example, the acts of mail and wire fraud include,
but are not
limited to, sending on a month-to-month or continuous basis to
Amway
distributors and/or recruits: published manuals, newsletters and
magazines
such as the "AMAGRAM" and "Newsgram", via United States mail; letters,
contracts and memoranda via United States mail; and messages via
interstate
telephone wires through use of Amvox and Amway's site on the Internet.
The
predicate acts committed by Defendants also
include, but are not limited to, those described above in the foregoing
paragraphs, as well as those set forth with specificity in Exhibit
14.
187. As a proximate result of the pattern of racketeering engaged
in by
Defendants, Procter & Gamble suffered damage to its business
and property,
including damage to its reputation and good will, as well as diverted
customers and lost sales, in an amount to be determined at trial.
COUNT TWELVE
Violation
of Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §
1962(c)
188. Plaintiffs incorporate as if fully restated herein their prior
allegations in Paragraphs 1 through 187 of this Complaint, including
the
descriptions of the predicate acts directed by Defendants against
Procter &
Gamble and other victims, forming the basis of a pattern of racketeering
activity.
189. Defendants are and were at all times mentioned herein "persons"
as that
term is defined in 18 U.S.C. § 1961(3).
190. Amway's distributor organization constitutes an association-in-fact
"enterprise" as that term is defined in 18 U.S.C. § 1961(4),
which is
engaged in and affects interstate and foreign commerce. Said enterprise
at
all times mentioned herein was and is engaged in the distribution
and sale
of products to millions of Amway distributors and other consumers
throughout
the United States and around the world. The enterprise is an ongoing
organization with a common purpose, a defined hierarchy, and a
regularity of
function.
191. Defendants are employed by or associated with the enterprise,
and
knowingly and willfully conduct and participate in the conduct
of the
enterprise's affairs; directly and indirectly, through a pattern
of
racketeering activity in violation of 18 U.S.C. § 1962(c).
Each of the
Defendants derives income, directly and indirectly, through their
operation,
management or control of the enterprise.
192. The pattern of racketeering activity engaged in by Defendants
involves
at least three separate but related schemes, as previously set
forth above,
carried out for a number of decades and continuing to this time.
The pattern
of racketeering is separate and distinct from the legitimate distribution
and sale of products undertaken by the enterprise.
193. The pattern of racketeering engaged in by Defendants involves
schemes
and artifices to defraud constituting mail fraud (18 U.S.C. §
1341) and wire
fraud (18 U.S.C. § 1343), all of which is "racketeering activity"
as defined
in 18 U.S.C. § 1961 (1 )(B).
Defendants have engaged in these schemes and artifices with the
specific
intent to defraud, causing damage to the property interests of
Procter &
Gamble and multiple other victims.
194. The pattern of racketeering engaged in by Defendants involves
thousands
of predicate acts constituting mail fraud and wire fraud, as previously
set
forth above.
195. As a proximate result of the pattern of racketeering engaged
in by
Defendants, Procter & Gamble suffered damage of its business
and property,
including damage to its reputation and good will, as well as diverted
customers and lost sales, in an amount to be determined at trial.
V. RELIEF
WHEREFORE, Plaintiffs pray for relief as follows:
a. judgment against Defendants jointly and severally for compensatory
damages in excess of Seventy-Five Thousand Dollars ($75,000.00);
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 the Defendants jointly and severally for
Plaintiffs' attorneys' fees;
d. for an order permanently enjoining and restraining Defendants
and
their partners, agents, corporate subsidiaries and affiliates,
individually and jointly, from:
(1) publishing, circulating, or causing the publication or circulation
of
the statements in Exhibits 6, 7, and 8 or any similar false statements
purporting to connect Plaintiffs or any of their subsidiaries or
affiliated
corporations, employees, products or trademarks to Satanism, the
devil, or
the Church of Satan; (2) publishing, circulating, or causing the
publication
or circulation of any false and disparaging statement about Plaintiffs'
products, including, but not limited to, statements that Plaintiffs'
products are "negative," "evil," "the devil's work," or contain
sludge,
harmful abrasives, harmful ingredients, adulterants, and/or fillers
(such as
beach sand, peanut shells, walnut shells, or egg shells), or are
harmful to
consumers, clothing, appliances, and homes, or that Plaintiffs'
products are
less effective, more expensive, and/or inferior to Amway's competing
products; (3) publishing, circulating, or causing the publication
or
circulation of any statement that misrepresents the economic benefits
of
using Amway's products and the economic detriments of using Plaintiffs'
products; (4) committing any of the aforesaid unfair methods of
competition,
unfair or deceptive acts or practices; and (5) operating and conducting
an
illegal pyramid scheme, permitting distributors to spend the majority
of
their Amway-related efforts in recruiting new Amway distributors,
paying
commissions or bonuses to any Amway distributor whose Amway business
volume
is not primarily attributable to retail sales, using misrepresentations
to
recruit individuals into the Amway Pyramid, and coercing distributors
not to buy products of Plaintiffs or to purchase the competing
products of
Amway exclusively;
e. for an order requiring all Defendants to affirmatively communicate
to all
of their distributors (through such means as its written distributorship
applications, agreements, Business Reference Manual, Amvox system
and other
publications, speeches, correspondence, guidelines and manuals)
that the
following statements are false and must not under any circumstances
or for
any purposes be published or circulated: (1) statements purporting
to
associate Plaintiffs, any of their subsidiaries, affiliated corporations,
employees, products, or trademarks with Satanism, the devil, or
the Church
of Satan or other undesirable or negative associations, (2) statements
that
Plaintiffs' products are "negative," "evil," "the devil's work,"
or contain
sludge, harmful abrasives, harmful ingredients, adulterants, and/or
fillers
(such as beach sand, peanut shells, walnut shells, or egg shells),
or are
harmful of consumers, clothing, appliances, and homes, or that
Plaintiffs'
products are less effective, more expensive, and/or inferior to
Amway's
competing products; and (3) statements that misrepresent the purported
economic benefits of using Amway's products and the purported economic
detriments of using Plaintiffs' products;
f. under the provisions of the Lanham Act, 15 U.S.C. § 112
et seq., for
judgment against the Defendants jointly and severally for attorneys'
fees,
because this case constitutes an exceptional case and entities
Plaintiffs to
recover attorneys' fees and costs against Defendants, and
g. under the Lanham Act for an accounting of all profits of Defendants
attributable to their wrongful conduct, unjust enrichment and/or
unfair
trade practices alleged herein and judgment awarding Plaintiffs
all moneys
wrongfully obtained by Defendants' unfair trade practices, false
and
deceptive trade practices, unfair competition, operation of an
illegal
pyramid scheme and violation of the Lanham Act;
h. Under R.I.C.O. or the Lanham Act, attorneys' fees and treble damages.
i. for such other and further relief to which Plaintiffs are entitled.
VI. JURY DEMAND
Pursuant to Rule 38(b), Federal Rules of Civil Procedure, Plaintiffs
demand
trial by jury.
Respectfully submitted this 16th day of July, 1997.
RICHARD A. SHEEHY
State Bar No.18178600
Fed. ID.# 2887
MCFALL, SHERWOOD & SHEEHY
Two Houston Center
909 Fannin, Suite 2500
Houston, Texas 77010-1003
(713) 951-1000
(713) 951-1199 - Telecopier
JOHN E. JEVICKY
CARL J. STICH
ROBERT HEUCK II
DINSMORE & SHOHL, L.L.P.
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
(513) 977-8200
STANLEY M. CHESLEY
THERESA L. GROH
WAITE, SCHNEIDER,
BAYLESS & CHESCEY
1513 Central Trust Tower
Cincinnati, Ohio 45202
(513) 621-0267
Attorneys for Plaintiffs The Procter &
Gamble Company and The Procter &
Gamble Distributing Company
OF COUNSEL:
THOMAS S. CALDER
DlNSMORE & SHOHL, L.L.P.
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
(513) 977-8200
JOSEPH P. SUAREZ
THE PROCTER & GAMBLE COMPANY
Legal Division
One Procter & Gamble Plaza
Cincinnati, Ohio 45202
(513) 983-4194