Amway v. P&G
Order and Partial Judgment (cont'd)

Through the extensive discovery taken in this case Amway has had access to all of the factual information P&G and Dinsmore relied on in support of their allegations in the Texas complaint. P&G and Dinsmore have come forward with 163 pages listing the nature of the evidence on which they relied in asserting that Amway has not been enforcing the rules and has allowed its business to become an illegal pyramid scheme. (25) The evidence includes news articles, internal Amway memoranda, Amway motivational tapes, trial testimony from other cases filed against Amway, and correspondence. P&G and Dinsmore have come forward with evidence that certain Amway distributors earn far more in their sale of motivational tools than from the sale of Amway products. They have produced evidence that although Amway set a 20% guideline for as a way to ensure proportionality of BSM sales to Amway product sales in 1983, some distributors have exceeded this guideline. They have produced evidence that many Amway distributors almost totally ignore the 10 customer rule. They have produced evidence that the operation of Amway's buyback rule may not be adequate, given the Ninth Circuit's ruling in Webster v. Omnitrition, 79 F.3d 776, 783-84 (9th Cir. 1996), that the restocking fee prevented summary judgment on the issue of whether Omnitrition was an illegal pyramid scheme. See Omnitrition, 79 F.3d at 783-84.

What P&G and Dinsmore knew about Amway also came from other claims that had been filed against Amway. Since the 1979 FTC decision, a number of cases have been filed against Amway alleging pyramid and RICO claims. P&G has produced evidence that Amway settled the Hanrahan case, which included a RICO count. (26) Another court dismissed an action and counterclaim between Amway distributors on the basis that the transactions between the parties amounted to a pyramid scheme which was unenforceable as being against the public policy of the State of New York. Schaffer v. Talerico, 118 Misc. 2d 66, 67, 459 N.Y.S. 2d 716 (City Ct. N.Y. 1983).

P&G and Dinsmore have produced internal Amway memoranda expressing the concerns of those at the top of the Amway corporation that the motivational tools business, if allowed to go unchecked, had a potential for becoming an illegal pyramid scheme. (27) Amway has not only addressed the issue of pyramid concerns internally, it has also publicly addressed the issue of whether Amway is an illegal pyramid on the Amway website. (28) In addition to the information P&G and Dinsmore had when they filed the Texas case, discovery in this case has revealed internal Amway memoranda from Mulham and Halliday which reveal that Amway's highest executives were concerned about an illegal pyramid. (29)

Because Amway is a closely held corporation, all the details about how it operated were not available to P&G and Dinsmore. However, the record reveals that they did some investigation and had information from which they could reasonably conclude that their allegations were true. Despite Amway's extraordinary access in this case to the internal documents of P&G and its attorneys, Amway has not been able to come forward with any evidence that P&G and Dinsmore knew that their allegations were false or that they acted in reckless disregard of the falsity of their allegations against Amway.

While all of the evidence produced by P&G and Dinsmore is subject to qualification and explanation by Amway, it is clear that the pyramid and RICO allegations are in the marketplace of ideas and are subject to vigorous debate. There may be an issue of fact as to the truth of P&G and Dinsmore's claims, but given the long-standing dispute, the many complaints raised by former distributors, and Amway's own concerns about maintaining an appropriate balance between recruitment and retail sales, no reasonable juror could find that the claims made by P&G and Dinsmore are so objectively false that actual malice can be inferred.

Amway contends that P&G and Dinsmore's malice is also evidenced by their litigation campaign against Amway. In this context it is worth noting that Amway's motion to strike the pyramid scheme allegations from the Texas complaint was denied by the Texas court. (30) Moreover, Amway does not advance its showing of actual malice by pointing to the dismissal of the pyramid claims by the Fifth Circuit. The Fifth Circuit affirmed the dismissal the Lanham Act and RICO claims based on Amway's allegedly illegal pyramid scheme for lack of standing, and not on the falseness of the substance of those claims.

Amway contends that P&G has pursued Amway on the Satanism rumor since the rmid-1980s, as evidenced by the Court's rebuttable presumption that P&G had targeted Amway to pin the blame for the Satanism rumor on for competitive reasons. While the rebuttable presumption is evidence of the longstanding rivalry and ill will between the parties, it does not have any relevance to the issue of what P&G and Dinsmore knew regarding the truth of the pyramid and RICO claims.

Finally, Amway contends that the actual malice of Sidney Schwartz can be attributed to P&G and Dinsmore because they were members of a conspiracy. Amway must show that P&G and Dinsmore individually acted with actual malice. It has not been able to make this showing.

After extremely exhaustive discovery in this case, the circumstantial evidence Amway has produced on the subject of P&G and Dinsmore's actual malice is too weak to sustain Amway's burden of coming forward with substantial evidence from which a jury could find actual malice by clear and convincing evidence. Accordingly, the Court finds that P&G and Dinsmore are entitled to a judgment of dismissal on Amway's claim of tortious interference with actual and prospective business relations.

VII.

A separate and independent ground for granting summary judgment in favor of P&G and Dinsmore is the fair reporting privilege.

Defendants contend they cannot be held liable for providing relevant pleadings and open court filings to Schwartz because any suggestion that civil liability could attach to publishing a copy of a complaint filed in a court would raise profoundly serious constitutional issues. Amway contends this issue was already resolved in its favor by this Court when it denied P&G and Dinsmore's motions for dismissal.

Amway's assertion deliberately ignores the different standards of review this Court applies on a 12(b)(6) motion for dismissal for failure to state a claim and a Rule 56 motion for summary judgment. At the 12(b)(6) stage this Court had to accept as true all factual allegations in Amway's complaint, and construe all ambiguous allegations in Amway's favor. See In re Sofamor Danek Group, Inc. 123 F.3d 394, 400 (6th Cir. 997). Dismissal would not have been proper under Rule 12(b)(6) unless it appeared beyond doubt that Amway would not be able to recover under any set of facts that could be presented consistent with the allegations of the complaint. See Bower v. Federal Express Corp., 96 F.3d 200, 203 (6th Cir. 1996).

In an opinion and order dated August 21, 2000, (31) this Court denied Dinsmore's argument that it was entitled to dismissal of Plaintiffs complaint on the basis that its actions came with the fair reporting privilege. This Court rejected Dinsmore's broad argument that the conduct complained of, that a consulting expert engaged by Dinsmore published copies of publicly available filed court pleadings provided to him by Dinsmore, does not, as a matter of law, constitute a basis for a claim because Dinsmore and Schwartz had an absolute, constitutionally protected privilege to publish official court records. The Court noted that Plaintiff had alleged the publication not of a judicial opinion, but only the publication of the allegations on one side of the proceedings, which Plaintiff alleged contained unfair and misleading statements about Amway, and which were accompanied on the website by other "vulgar, false, and defamatory statements about Amway", and were "calculated to paint Amway in a false and negative light." Third Amended Complaint ¶ 13. The Court also noted that Amway had alleged that the reporting of the proceedings was unfair and misleading. Based upon the allegations in the complaint, this Court was compelled to deny the motion to dismiss because it could not say that there was no set of facts that could support Amway's claim. The Court did not have the evidence before it. The Court did not know what documents P&G and Dinsmore had given to Schwartz, what was posted on the Schwartz website, and what input P&G and Dinsmore had into the contents of the Schwartz website.

Now the Court stands in a different position. This is a Rule 56 motion for summary judgment. Discovery is presumably complete. The Court is now required to examine the evidence to determine if there are issues of fact for trial. "The existence of a privilege that immunizes a defendant from liability for libel is a question of law." Northland Wheels Roller 5kating Center, Inc. v. Detroit Free Press., Inc., 213 Mich.App. 317, 324-328. 539 N.W.2d 774 (1995).

There is no dispute as to what documents P&G and Dinsmore gave to Schwartz that are at issue in this case. They were all publicly available litigation documents. The documents were full and complete. Amway's counsel admitted during oral argument on the motions for summary judgment that Schwartz posted the full document of the Texas complaint. (32) Although Amway had moved the Texas court to strike certain aspects of that complaint, that motion was denied. The Texas complaint is still on file in Texas. it is a public copy, and anyone can obtain a copy and post it on the internet. The same is true as to all of the other documents P&G and Dinsmore allegedly provided Schwartz. (33) They were complete copies of assorted publicly available court documents. They had not been stricken from the record and neither had they been filed under seal. They had not been edited. Nothing was added to them, and nothing was deleted. They were just what they purported to be. Amway has not come forward with evidence that there was anything unfair or misleading about any of the documents P&G and Dinsmore provided to Schwartz that were published on Schwartz's website.

Michigan's fair reporting privilege is codified by statute:

Damages shall not be awarded in a libel action for the publication or broadcast of a fair and true report of matters of public record, a public and official proceeding, or of a governmental notice, announcement, written or recorded report or record generally available to the public, or act or action of a public body, or for a heading of the report which is a fair and true headnote of the report.

M.C.L.A. 600.2911(3).

The Michigan statute is consistent with the Restatement (Second) of Torts which provides:

The publication of defamatory matter concerning another in a report of an official action or proceeding or of a meeting open to the public that deals with a matter of public concern is privileged if the report is accurate and complete or a fair abridgement of the occurrence reported.

RESTATEMENT SECOND) TORTS § 611. This section was changed from the First Restatement in several respects, including the deletion of Clause (b), which made it a condition of the privilege that the publication not be "made solely for the purpose of causing harm." RESTATEMENT (SECOND) TORTS § 611, Reporter's Note. The comments to § 611 of the Second Restatement explain that the privilege is absolute,(34) that the privilege applies even if the person knows the report contains a false and defamatory statement, (35) and that the privilege is not limited to the media. (36)

Michigan case law is also consistent with the comments in the Second Restatement. A report is "fair and true" if the information "substantially represent[s] the matter contained in the court records." Koniak v. Heritage Newspapers, Inc., 190 Mich.App. 516, 523, 476 N.W.2d447(1991). "The primary question when determining whether the privilege applies concerns not the truth of the questioned statement itself, but whether the statement accurately reports a matter contained in a public record, regardless of the accuracy of the public record." Mayfield v. Detroit News, 1996 WL 767474. 24 Media L. Rep. 2566 (Mich.App. 1996).

Because all of the documents Defendants P&G and Dinsmore allegedly gave to Schwartz were accurate reports of matters of public record, P&G and Dinsmore are protected by the fair reporting privilege for giving those documents to Schwartz.

VIII.

Defendant Sidney Schwartz has also filed a motion for summary judgment. Schwartz focuses on one theme in his motion for summary judgment: that Amway cannot prove that its website statements about his business are false because since 1983 Amway has known about and sanctioned the illegal tools business discussed on Schwartz's website. In supportof this theme Schwartz has presented evidence that two high level distributors make most of their money through sales of the business support materials (BSMs or tools), rather than on Amway products, but do not tell distributors this fact.

In reviewing Defendant Schwartz's motion, it is important to observe that Schwartz is in a completely different posture in this case than Defendants P&G and Dinsmore. Defendant Schwartz's website consists of nearly one thousand pages of text. It includes far more than the litigation documents Schwartz allegedly received from P&G and Dinsmore. It also includes Schwartz's commentary, e-mail he has received, and links to other websites. Schwartz has complete control over what documents to post, what portions of documents to post, how to introduce the documents, and what editorial comments he wishes to post.

Schwartz is also positioned differently than P&G and Dinsmore, because Amway's case against him is not limited to the pyramid and RICO statements. Amway claims Schwartz has issued other defamatory statements including statements regarding cultism. Amway also claims Schwartz has engaged in other acts such as destroying evidence, breaking into websites operated by Amway distributors, posing as Rich DeVos on the Internet, sending spam e-mail messages to distributors, mounting a campaign to convince the Chinese government to keep Amway out of China, attempting to convince regulatory agencies to investigate Amway, spying on BSM motivational organizations, seeking to get negative publicity for Amway in the press, and using Amway in his websites' meta tags in order to have his website show up anytime someone researches Amway.

Schwartz has testified that he was only attempting to present a balanced picture of Amway and had confidence in the truth of what was on his site. (37) Amway has presented evidence that Schwartz knew that some of his statements on the website were false. Amway has also presented evidence that Schwartz's website has a vindictive tone, and that he and his cohorts proudly compliment themselves on their success in drawing distributors away from Amway.

Viewing the evidence in the light most favorable to Amway, the Court is satisfied that there is a question of fact as to whether Schwartz acted with actual malice and whether he is liable for tortious interference with business relations. Defendant Schwartz's motion for summary judgment will accordingly be denied.

An order and partial Judgment consistent with this opinion will be entered.

Date: September 14, 2001

ROBERT HOLMES BELL
CHIEF UNITED STATES DISTRICT JUDGE

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