Polar Molecular Corporation v. Amway Corporation et al

Filing 128

OPINION ; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, kcb)

UNITED STATES DISTRICT COURT F O R THE WESTERN DISTRICT OF MICHIGAN S O U T H E R N DIVISION

P O L A R MOLECULAR CORPORATION, P l a in tif f , F ile No. 1:07-CV-460 v. H O N . ROBERT HOLMES BELL A M W A Y CORPORATION, et al., D e f e n d a n ts . / OPINION T h is Court previously dismissed or granted summary judgment for the Amway D ef en d an ts1 and the DNS Defendants2 on portions of Plaintiff Polar Molecular Corporation's c o m p la in t alleging trademark infringement, breach of contract, misappropriation of trade s e c re ts , and conversion. (Dkt. Nos. 52, 53, 83, 84.) This matter is now before the Court on t h e Driving Force Defendants' 3 motion for summary judgment on the basis of collateral e sto p p e l on all issues previously decided against Plaintiff on the dispositive motions filed by th e other Defendants (Dkt. No. 91), and on motions for summary judgment filed by all of the The "Amway Defendants" are Defendants Amway Corporation, Quixtar Inc., Alticor I n c ., and Access Business Group L.L.C. In this opinion the Court has not distinguished b e tw e e n the various Amway Defendants, instead referring to one or all of them as "Amway." T h e "DNS Defendants" are Defendants J.B.R. Sullivan Company, D.N.S. Marketing C o m p a n y, Bill Newton, Jeff Selzer, and Robert Disberger. The "Driving Force Defendants" are Defendants Driving Force Technologies, LLC, T ra n s Tech One, LLC and Isabelle's Lighting, Inc.
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D e f en d a n ts on the remaining portions of Count I, alleging violations of the Lanham Act, and C o u n t V, alleging conspiracy. (Dkt. Nos. 86, 93.) For the reasons stated herein, the motions f o r summary judgment will be granted. I. T h e background facts are not in dispute. Plaintiff Polar Molecular Corporation, which is owned by Mark Nelson, developed a fuel additive known as "DurAlt." Plaintiff licensed th e Amway Defendants to manufacture and sell DurAlt under the name "Freedom Fuel." D ef en d an ts Robert Disberger, Bill Newton and Jeff Selzer are top distributors for the Amway D e f en d a n ts . In 2005 Plaintiff declined to authorize the DNS Defendants to manufacture F r e e d o m Fuel. The Amway Defendants subsequently stopped manufacturing and selling F re e d o m Fuel. The DNS Defendants formed the Driving Force Defendants in order to d e v e lo p and manufacture a competitive fuel additive called ProFuel. ProFuel was offered f o r sale on an Amway-approved website for a brief period of time. The only counts of the complaint that have not yet been adjudicated are Counts I and V . Count I alleges a violation of the Lanham Act and Count V alleges civil conspiracy. In a previous opinion the Court declined to rule on "the sufficiency of Plaintiff's Lanham Act c laim to the extent that it is based upon false statements that have caused confusion as to D e f en d a n ts ' association with Plaintiff or as to Plaintiff's sponsorship or approval of D ef en d an ts ' goods or commercial activities." (Dkt. No. 52, 11/14/07 Op. at 9.) The Court a ls o declined to dismiss Plaintiff's conspiracy claim to the extent that it was based upon

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p a lm in g -o f f or unfair competition. (Id. at 15-16.) In the joint status report filed on May 8, 2 0 0 8 , Plaintiff represented that the remaining portions of its Lanham Act and conspiracy c la im s in Counts I and V "involve an allegation that Defendants have falsely told and have c o n s p i re d amongst each other to falsely tell potential customers and actual customers that th e re is a licensing agreement with Plaintiff for the manufacture and sale of ProFuel." (Dkt. N o . 88, Jt. Status Report 2.) II. U n d e r Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is p ro p e r if there is no genuine issue as to any material fact and the moving party is entitled to ju d g m e n t as a matter of law. In evaluating a motion for summary judgment the Court must lo o k beyond the pleadings and assess the proof to determine whether there is a genuine need f o r trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). If D e f e n d a n ts carry their burden of showing there is an absence of evidence to support a claim th e n Plaintiff must demonstrate by affidavits, depositions, answers to interrogatories, and/or a d m is s io n s on file, that there is a genuine issue of material fact for trial. Celotex Corp. v. C a tre tt, 477 U.S. 317, 324-25 (1986). In considering a motion for summary judgment, the court must construe the evidence a n d draw all reasonable inferences in favor of the nonmoving party. Minges Creek, L.L.C. v . Royal Ins. Co. of Am., 442 F.3d 953, 955-56 (6th Cir. 2006) (citing Matsushita, 475 U.S. a t 587). Nevertheless, the mere existence of a scintilla of evidence in support of Plaintiff's

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p o s itio n is not sufficient to create a genuine issue of material fact. Anderson v. Liberty L o b b y , Inc., 477 U.S. 242, 252 (1986). The proper inquiry is whether the evidence is such th a t a reasonable jury could return a verdict for Plaintiff. Id.; see generally Street v. J.C. B r a d fo r d & Co., 886 F.2d 1472, 1476-80 (6th Cir. 1989). I I I. T h e Driving Force Defendants seek summary judgment on the basis of collateral e sto p p e l on all issues previously decided against Plaintiff on the dispositive motions filed by t h e other Defendants. (Dkt. No. 91.) Specifically, the Driving Force Defendants seek ju d g m e n t on the following claims: Count I alleging violation of Section 43(a) of the Lanham A c t based upon the use of the "Freedom" trademark; Count III alleging misappropriation of tra d e secrets; Count IV alleging conversion; and Count V alleging conspiracy based on trade s e c re t misappropriation. The Sixth Circuit has established a four-part test for determining when collateral e sto p p e l bars relitigation of an issue: (1) the precise issue raised in the present case must have been raised and a c tu a l ly litigated in the prior proceeding; (2) determination of the issue must h a v e been necessary to the outcome of the prior proceeding; (3) the prior p ro c e ed in g must have resulted in a final judgment on the merits; and (4) the p a r ty against whom estoppel is sought must have had a full and fair o p p o rtu n ity to litigate the issue in the prior proceeding. K o sinsk i v. Comm'r, 541 F.3d 671, 675 (6th Cir. 2008) (quoting United States v. Cinemark U S A , Inc., 348 F.3d 569, 583 (6th Cir. 2003)).

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A lth o u g h Plaintiff disagrees with the Court's prior rulings, Plaintiff acknowledges that th e Court has ruled on each of the issues listed above and that collateral estoppel appears to b a r further litigation of these issues. (Dkt. No. 103, Pl.'s Resp. to Mot. for Summ. J.). Upon review the court is satisfied that collateral estoppel bars relitigation of these is s u e s. Accordingly, the Driving Force Defendants' motion for summary judgment on the is s u e s previously decided against Plaintiff will be granted. IV. A ll of the Defendants have moved for summary judgment on the remaining portions o f Plaintiff's Lanham Act and conspiracy claims in Counts I and V on the basis that there is in s u f f i c ie n t evidence to sustain the claims against them. As noted above, these remaining c la im s are based on Plaintiff's allegation that Defendants have falsely told and have c o n sp ire d amongst each other to falsely tell potential customers and actual customers that th e re is a licensing agreement with Plaintiff for the manufacture and sale of ProFuel. In order to bring a false advertising claim under the Lanham Act a plaintiff must be a b le to establish the following five elements: 1) the defendant has made false or misleading statements of fact concerning h is own product or another's; 2) the statement actually deceives or tends to d e c e i v e a substantial portion of the intended audience; 3) the statement is m a te ria l in that it will likely influence a deceived consumers' purchasing d e c is io n s ; 4) the advertisements were introduced into interstate commerce; 5) th e re is some causal link between the challenged statements and harm to the p la in tif f .

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B a la n c e Dynamics Corp. v. Schmitt Indus., Inc., 204 F.3d 683, 689 (6th Cir. 2000) (quoting A m . Council of Certified Podiatric Physicians and Surgeons v. Am. Bd. of Podiatric Surgery, In c ., 185 F.3d 606, 613 (6th Cir.1999)). In their motions for summary judgment Defendants focus on the first element of the L a n h a m Act claim. The Amway Defendants contend that there is no evidence that they had a n y involvement in any statements that were allegedly false or misleading or that allegedly c a u se d confusion as to Defendants' association with Plaintiff or as to Plaintiff's sponsorship o r approval of Defendants' goods or commercial activities. The DNS and Driving Force D e f en d a n ts contend that there is no evidence that they made any false assertions that ProFuel w a s a licensed product of Polar Molecular or Mark Nelson. In response to Defendants' motions for summary judgment, Plaintiff relies on its c o m p lain t, the affidavit of Mark Nelson, the deposition of George Peintner, and the affidavit o f Jennie Holtz. (Dkt. No. 102, Pl.'s Resp.) Plaintiff's reliance on the allegations in its complaint is inappropriate. A summary ju d g m e n t motion "requires the nonmoving party to go beyond the pleadings." Celotex, 477 U .S . at 324. "When a motion for summary judgment is properly made and supported, an o p p o sin g party may not rely merely on allegations or denials in its own pleading; rather, its re sp o n se must ­ by affidavits or as otherwise provided in this rule ­ set out specific facts s h o w in g a genuine issue for trial." Fed. R. Civ. P. 56(e)(2). Accordingly, for purposes of thes e summary judgment motions, the Court will not consider the allegations in Plaintiff's c o m p lain t.

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P lain tiff also relies on the affidavit of its CEO, Mark Nelson. Nelson's affidavit in c l u d e s statements regarding information he was allegedly told by Amway distributors. (D k t. No. 102, Pl.'s Resp., Ex. 1, Nelson Aff. ¶ 27.) Nelson states that he has "been in f o rm e d by Quixtar distributors that Bill Newton, Jeff Selzer and Robert Disberger et. al. h a d told them along with potential and actual customers, throughout the country, that they h a d purchased the rights to Polar's technology from Alticor for the manufacture and sale of `F r e e d o m 2' (a/k/a ProFuel X-2) with the permission from myself and Polar." (Id.) Rule 56(e) requires that opposing affidavits be made on "personal knowledge" and to set forth facts that would be admissible in evidence, and to "show affirmatively that the a f f ia n t is competent to testify to the matters stated therein." FED. R. CIV. P. 56(e). Nelson's s t a te m e n ts regarding what he was told by Amway distributors are hearsay. They are not b a se d on personal knowledge and they would not be admissible in evidence. "A party o p p o s in g a motion for summary judgment cannot use hearsay or other inadmissible evidence to create a genuine issue of material fact." Sperle v. Michigan Dept. of Corrections 297 F.3d 4 8 3 , 495 (6th Cir. 2002) (citing Weberg v. Franks, 229 F.3d 514, 526 n.13 (6th Cir. 2000) (d is re g a rd in g many of the plaintiff's allegations because they were based upon hearsay rather th a n personal knowledge). Accordingly, the Court will not consider the statements in N e ls o n 's affidavit that are not based upon personal knowledge. T h e only other relevant evidence Plaintiff presents in opposition to Defendants' m o tio n s for summary judgment are the deposition of George Peintner, a diamond level

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in d e p e n d en t business distributor with Amway, and the affidavit of Jennie Holtz, a downline in d e p e n d en t business owner ("IBO"). Peintner testified that after speaking with Defendant D is b e rg e r, he sent an email down-line to IBOs which contained the following information w ith respect to ProFuel: H e llo Gang. Great news. Those IBOs that enjoyed Freedom Fuel additive can f in d the product on the Quixtar website again. The name of the new product is ProFuel. ProFuel is twice as concentrated and a third to half the cost of F r e e d o m . . . . ProFuel has an info web page that gives you all the info on how to order and questions about the product. . . . Go to www.profuelproducts.com . . . and enter freedom2 for both the user name and pass code. There you will f in d how to order the product on shop.com. Any questions about the product c a n be answered by emailing ProFuel at the following address: in f o @ p r o f u e lp r o d u c ts .c o m . (P l.'s Resp., Ex. 7, Peintner Dep. 23-25; Pl.'s Resp., Ex. 8, Holtz Aff. ¶¶ 4-5.) Jennie Holtz received a copy of this email from her upline IBO. (Holtz Aff. ¶ 4.) A f ter going to the ProFuel website it appeared to Holtz that "the information pertaining to P r o F u e l was identical to the information describing and promoting Freedom Fuel when it was in c lu d e d in the Quixtar product line." (Id. at ¶ 6.) Peintner testified that he obtained the information for this email from Defendant D is b e rg e r, who asked for Peintner's help in promoting the product. (Peintner Dep. 25.) P eintn er assumed that Disberger had obtained clearance to market the product on Amway's s h o p .c o m website, but later found out that the DNS Defendants had marketed ProFuel th ro u g h Isabelle Lighting on Amway's shop.com website without Amway's knowledge. (Id. a t 25-27.) Peintner testified that ProFuel was marketed on shop.com for only a short period

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o f time, and that as soon as it was brought to Amway's attention, Amway took corrective m e a s u re s and ProFuel was removed from the website. (Id. at 19, 27.) Peintner did not believe that ProFuel was the same product as Freedom Fuel. (Id. at 2 2 .) According to Peintner, ProFuel was not marketed as Freedom Fuel, but as a replacement f o r Freedom Fuel. (Id. at 29.) Peintner testified that the DNS Defendants led him to believe th a t "they had acquired the patent on the product and so it was going to be very similar if not th e same." (Id. at 31.) Peintner's understanding was that "the ProFuel product was e ss e n tia lly the Freedom Fuel product with one difference and that was concentration. They f e lt like they had a different product because the concentration levels were different." (Id.. at 35-36.) Plaintiff contends that the evidence of record is sufficient to create an issue of fact as to whether Defendants took deceptive action to cause confusion as to the affiliation, c o n n e ctio n or association of ProFuel with Plaintiff and caused confusion as to the origin, s p o n s o r sh i p , or approval of ProFuel. The Court disagrees. P lain tiff has produced no evidence linking the Amway Defendants to any statements o r activities connected with ProFuel. Although ProFuel was sold for a short period of time o n Amway's shop.com website, the evidence is unrefuted that the Amway Defendants did n o t authorize the marketing of ProFuel on its website, and that they had ProFuel removed f ro m the website as soon as they became aware of it. The evidence is also unrefuted that the A m w a y Defendants had nothing to do with the ProFuel testimonial on the ProFuel website. (D k t. No. 87, Amway Defs.' Br., Ex. 3, Disberger Dep. 114.)

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P la in tif f attempts to attribute the statements and actions of Amway distributors and IB O s to Amway under an express or implied agency theory. Contrary to Plaintiff's

arg u m en t, there is no law or evidence to support Plaintiff's argument that Peintner, D is b e rg e r, Newton and Selzer are agents of the Amway Defendants and that their actions and s ta te m e n ts can be attributed to the Amway Defendants. Those cases that have considered the A m w a y Defendants' operations have unanimously held that Amway IBOs are not agents of A m w a y, and that Amway is not vicariously liable for their actions. See, e.g., Procter & G a m b le Co. v. Haugen, 317 F.3d 1121, 1127-28 (10th Cir. 2003) (holding that Amway had n o t vested its distributors with actual, express, or implied authority, and noting that the d is trib u to rs act virtually autonomously in determining in what manner to sell Amway p ro d u c ts); Lomax v. Henry, 119 A.D.2d 638, 639, 501 N.Y.S.2d 84, 85 (N.Y.A.D. 2 D e p t.,1 9 8 6 ) (finding no legal basis for finding that Amway distributors were functioning as agents rather than independent contractors of Amway). The Amway IBO Registration A g ree m en t and the Amway Rules of Conduct specify that IBOs are independent contractors a n d that they are not employees, agents, or legal representatives of Amway. (Dkt. No. 104, A m w ay Defs.' Reply Br., Ex. 11, 12.) The only evidence Plaintiff has offered in support of its agency theory is Holtz's s ta te m e n t that as a Quixtar IBO she "received updates, new and pertinent information and g u id e lin e s from Quixtar's corporate headquarters including information regarding upcoming Q u ix ta r products through communications from our up-line, individuals authorized by

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Q u ix ta r to supervise IBOs within their organization including myself." (Holtz Aff. ¶ 3.) T h is evidence is wholly insufficient to create an issue of fact as to whether Peintner, D is b e rg e r, Newton, or Selzer was an agent of the Amway Defendants. Because Plaintiff has p re se n te d no evidence linking the Amway Defendants to any statements or activities c o n n e cte d with ProFuel, the Amway Defendants are entitled to summary judgment on the re m a in in g portions of Counts I and V. Plaintiff does not fare any better with its claims against the DNS and Driving Force D e f en d a n ts . Although Plaintiff claims that these Defendants told others that they purchased the rights to manufacture and sell ProFuel from the Amway Defendants with Plaintiff's p e rm is s i o n , the only direct evidence Plaintiff has offered in support of this claim is the a f f id a v it of Nelson. (Nelson Aff. ¶ 27.) As noted above, Nelson's statement to this effect is not based on personal knowledge and is not competent evidence. The only other evidence Plaintiff has presented against the DNS and Driving Force D e f e n d a n ts is the Peintner email and the Peintner deposition testimony. The Peintner email d o e s not mention Polar or Mark Nelson at all. Peintner understood that ProFuel was similar to Freedom Fuel, and that it was being marketed as a replacement for Freedom Fuel. His e m a il regarding a new product called ProFuel reflects this understanding. The email directs i n q u i ri es about the product to www.profuelproducts.com. The Court understands that the e m a il's references to "freedom2" as the user name and pass code and to the ability to order the product from shop.com could conceivably create some confusion as to ProFuel's

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c o n n e ctio n with Amway. However, even if the email is evidence that the DNS and Driving F o rc e Defendants improperly implied a connection between ProFuel and Amway, there is n o th in g in Peintner's email to suggest that those associated with ProFuel made any false or m isle a d in g statements about any relationship between ProFuel and Plaintiff, or its president, M a rk Nelson. Plaintiff has presented only one other piece of evidence in support of its claim that D e f en d a n ts made false statements regarding the relationship between ProFuel and Plaintiff. T h is evidence is Peintner's testimony that the DNS Defendants said they had "acquired the p a te n t on the product and so it was going to be very similar if not the same." (Peintner Dep. a t 31.). This testimony is ambiguous at best. It does not indicate what any of the DNS D e f en d a n ts said, or what patent was allegedly acquired. Defendants Disberger, Newton and S e lze r have all denied telling anyone that Plaintiff licensed, sponsored, or approved their to m a n u f ac tu re or sale of ProFuel. (Dkt. No. 87, Amway Defs.' Br., Ex. 3-5, Disberger Dep. 1 1 2 -1 5 , Newton Dep. 35-36, Selzer Dep. 57-59.) Peintner's testimony regarding the patent c la im can be understood to be consistent with the unrebutted evidence that the DNS and D riv in g Force Defendants developed ProFuel by reverse engineering Plaintiff's DurAlt f o rm u la based on a sample of DurAlt and the expired DurAlt patent. (Dkt. No. 83, 3/31/08 O p . 11.) If Defendants were referring to the expired DurAlt patent, there is no misstatement. If Defendants were referring to a patent for ProFuel, there is no misstatement. It is only if D e f en d a n ts were referring to an unexpired DurAlt patent that this might be evidence of a

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m iss tate m e n t. However, given the ambiguous and isolated nature of this alleged comment, t h e Court finds that this evidence is not sufficient to create an issue of fact for trial on P la in tif f 's Lanham Act false advertising and conspiracy claims. Plaintiff has not presented su ff icien t probative evidence to permit a finding in Plaintiff's favor on more than mere s p e c u la tio n , conjecture, or fantasy. See Lewis v. Philip Morris Inc., 355 F.3d 515, 533 (6th C ir . 2004) ("In order to survive a motion for summary judgment, the non-moving party must b e able to show sufficient probative evidence [that] would permit a finding in [its] favor on m o re than mere speculation, conjecture, or fantasy." (internal quotations omitted)). F o r the reasons stated above, Defendants' motions for summary judgment will be g ra n te d . An order consistent with this opinion will be entered.

Dated: December 4, 2008

/s/ Robert Holmes Bell ROBERT HOLMES BELL UNITED STATES DISTRICT JUDGE

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