Free Other Notice - District Court of Arizona - Arizona

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GREENBERG TRAURIG, LLP
ATTORNEYS AT LAW SUITE 700 2375 EAST CAMELBACK ROAD PHOENIX, ARIZONA 85016 (602) 445-8000

Steven M. Weinberg, SBN 016817, [email protected] Brian J. Schulman, SBN 015286, [email protected] Kimberly A. Warshawsky, SBN 022083, [email protected] Attorneys for Plaintiff Awareness Corporation and Third Party Defendants Allcock and Schmidt IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Awareness Corporation, Plaintiff, Group Vision International, L.L.C., et al., Defendants. No. CV03-2024-PHX-DGC PLAINTIFF AWARENESS CORPORATION'S PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW

In accordance with the Court's June 1, 2005 Order Setting Final Pretrial Conference, Plaintiff Awareness Corporation ("Awareness") hereby submits its proposed findings of fact and conclusions of law. I. PROPOSED FINDINGS OF FACT. 1. This Court has jurisdiction in this matter pursuant to 28 U.S.C. §§ 1331, 1338,

and 1367. Venue is proper in this Court pursuant to 28 U.S.C. §§ 1391 and 1400. The parties do not dispute this Court's exercise of jurisdiction. 2. Awareness Corporation (hereinafter "Awareness") is a multi-level marketing company that sells herbal dietary products engaged in the sale of dietary supplements in the United States and Canada.

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3. company. 4.

Defendant Group Vision International Inc., ("GVI") is a multilevel marketing The Mattices, Remelskis, Macgregors and Betts (the "Distributor

Defendants") were formerly Awareness distributors and have been GVI distributors since terminating their Awareness distributorships. 5. Awareness and GVI purchase their products from independent manufacturers and sell their products to distributors. The distributors sell the products to customers or use the products for their own purposes. 6. 7. 8. revenue. 9. distributors. 10. 11. 12. Mark Tahiliani is Awareness' President and Chief Executive Officer. Third party defendant Gordon Allcock is Awareness founding distributor, and, Third party defendant Mary Schmidt is an Awareness distributor and, As of December 2003, Awareness had recruited approximately 30,000 The distributors for both Awareness and GVI are independent contractors. Awareness has been in business since 1994. As of December 2003, Awareness was generating $11 million in annual

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as such, is the most senior upline distributor in Awareness. following Defendant Paige Mattice's voluntary termination from Awareness was selected to become the senior upline distributor for Mattice's former downline organization. As the upline distributor, Schmidt is required to assist and support the downline organization and its customers. 13. about 1996. 14. Defendants David and Suzanne Betts became Awareness distributors on or about May 9, 1996.
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Defendants Paige and Kelly Mattice became Awareness distributors in or

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15. 16. 17.

Defendants Lynn and Rene Remelski became Awareness distributors on or Defendants Kevin and Cheryl MacGregor became Awareness distributors on The Mattices terminated as Awareness distributors on August 1, 2003; The

about January 9, 1999. or about June 9, 1999. Remelskis terminated as Awareness distributors on August 7, 2003; The MacGregors terminated as Awareness distributors on August 25, 2003; and the Betts resigned as Awareness distributors on September 12, 2003. 18. 19. 20. 21. 22. 23. 24. Awareness' has never had a health-related complaint filed against it by any Awareness primary product line includes Experience, Clear, Daily Complete, Since 1993, the herbalist Ahmad Aboukhazaal has manufactured Experience Awareness gave Mr. Aboukhazaal substantial autonomy in manufacturing Prior to July 2003, Mr. Aboukhazaal had final approval of changes to the Mr. Aboukhazaal provided Awareness with certified statements regarding the To the best of Awareness' knowledge, these certified statements did not of its distributors or customers, or by any governmental agency. Female Balance, Harmony, Pure Gardens, and Mediterranean Synergy. and Clear. Mr. Aboukhazaal is an independent contractor unrelated to Awareness. Awareness product lines. ingredients of Awareness products, including Experience and Clear. herbal ingredients contained in each product. contain the products' exact recipes, but they enabled Awareness to create product labels in compliance with federal and state laws. 25. As a quality control measure, Awareness conducted microbial tests on the products received from Mr. Aboukhazaal before releasing them for sale to Awareness distributors and to the general public. Because these microbial tests did not, and could not,
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reveal the exact formulation of Awareness' products, Awareness relied upon Mr. Aboukhazaal's certified statements to create labels and product information. 26. New distributors are introduced to Awareness by (i) existing Awareness distributors, (ii) referrals from third parties not affiliated with Awareness, (iii) leads generated by Awareness lead generation programs, including but not limited to Awareness national and regional promotional advertisements, and (iv) other means, such as via the internet or word of mouth. 27. Persons interested in becoming an Awareness distributor are signed up when their name, address, social security number, telephone number, e-mail, and credit card number are entered into the Awareness system. 28. 29. The Awareness system is a computer-based, password protected online On October 15, 2003 Awareness obtained a certificate of copyright from the database created by and proprietary to Awareness. U.S. Copyright Office covering its claim of copyright in this proprietary software system, identified as the Awareness Distributorship Extranet Software. The elements protected by this copyrighted software system include the underlying computer code, the user interfaces, all of the text and graphics of the system and all of the data as organized and compiled in the system, including distributor downline and customer information, distributor genealogy information, sales reports, and all of the other reports than can be generated by the system. 30. 31. distributor. 32. 33. If a new distributor is not asked to be placed in a particular downline, he/she Awareness can transfer individual distributors or entire downlines to a
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Once a distributor has been signed up as a distributor, he or she is assigned to New distributors can ask to be placed in the downline of an existing

the business organization (or downline of an existing distributor).

will be placed into a downline by Awareness.

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particular distributor as part of the downline. Awareness transferred to Paige Mattice the established downline organizations of Steve O'Brien, Mary Louise Allcock, and Tim Rocco and provided her with additional qualified leads. These transferred organizations constituted the overwhelming majority of distributors in Mattice's downline. Gord Allcock was upline to Paige Mattice. 34. 35. Awareness distributors can market and sell Awareness products to customers In a multi-level marketing organization, new distributors are put into the and can encourage their customers to become distributors. organization of a pre-existing distributor. The existing distributor is said to be "upline" to the new distributor. The line of distributors below a given upline distributor is known as a "downline." 36. 37. Awareness distributors can sell "direct" to customers or can place customers An upline distributor benefits financially from the sales of distributors' on "auto-ship or other programs." downline from him/her to customers and from the sales of the downline distributors own downline distributors. 38. Awareness' relationship with its distributors is purely contractual, and is defined by four separate documents: (i) the Distributor Application; (ii) the Terms and Conditions; (iii) the Policies and Procedures ( P&P) ; and (iv) the Compensation Plan (collectively, the contract). 39. Awareness regularly updates the Policies and Procedures. All changes are binding on Awareness distributors when published or otherwise communicated to the distributors. The July 2003 version of the P&P governs many of the issues in this lawsuit. Earlier versions of the P&P govern activities prior to July 2003. 40. The July 2003 P&P does not restrict Awareness' right to change and/or improve any of its business practices.
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41.

In recruiting distributors for GVI and in targeting recipients of their false and

misleading communications, the Distributor Defendants used information that was confidential within the meaning of the P&Ps. 42. The Distributor Defendants and GVI could not have recreated Awareness customer and distributor genealogy reports and other downline information from sources independent of Awareness, as there is no independent source for this data or the compilation in which the data is organized. 43. Awareness genealogy and e-office software was developed, through great expense to Awareness, to assist Awareness distributors in the promotion and sale of Awareness products. Awareness software was available only pursuant to the terms of the confidentiality provisions of the P&P to AwarenessLife distributors, including the Distributor Defendants, through distributor e-Offices, and gave distributors access to the personal and business information of the members of the downline of which they were members solely for the purpose of assisting distributors in promoting and selling Awareness product. 44. The Awareness downline information consists of a one-of-a-kind compilation In general, when a new distributor joins of non-public customer and distributor information that was available only through Awareness password protected website. Awareness, they provide Awareness with certain contact information. Only some of that information is public. Awareness compiles that non-public information and processes it through its proprietary software program that tracks such things as order history, sales history, customer information, products ordered, level of activity and enrollment in Awareness auto-ship program (which identifies Awareness most substantial purchasers of products). All of this information is part of the Awareness downline, and Awareness protects this compilation of data by requiring a password to access it and by limiting that access only to each distributor and to upline distributors who are part of the same genealogy.
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Awareness customers and distributors are not known to competitors. 45. The customer information compiled by Awareness identifies individuals from within the general public who (i) have shown an interest in buying and/or selling products from multi-level marketing companies; (ii) are users or sellers of herbal dietary products; and (iii) who are successful distributors and salespersons. This information is critical to Awareness and is not available to its competitors. 46. 47. 48. The 2003 P&P does not give distributors the right to personally own or control Each distributor is responsible for its own Awareness business. No distributor None of the Distributor Defendants, while Awareness distributors, ever any information regarding other distributors, or customers or sales. owns any other distributor's Awareness business. asserted orally or in writing to Awareness that any customer, sales or downline distributor information, was owned by that Distributor or was not owned by Awareness . 49. 50. Awareness never orally or in writing told any Distributor Defendant that it had None of the Distributor Defendants has produced any agreement or other any ownership rights in any information relating to that distributor's business. document on which they support their claim to own any genealogy information relating to their Awareness distributorships. 51. The Distributor Defendants have acknowledged that the only agreement which (sic) Awareness has with them is the Policies and Procedures. None of the Distributor Defendants nor GVI has produced any agreement or other document on which they support their claim to own any distributor, sales or customer information relating to their Awareness distributorships. 52. None of the individual defendants have produced any document or testimony from multi-level marketing companies other than GVI that evidence that distributors owned any genealogy, sales, customer or other distributor information, or had the right to use any
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of that information after they ended their relationship with any other company. 53. No Awareness distributors other than the Distributor Defendants have ever claimed prior to this litigation to own any genealogy, sales, customer or other distributor information used in their Awareness distributorship, or that he/she had the right to use any of that information after they ended their relationship with Awareness. 54. 2002. 55. To join AwarenessLife, any person, including current Awareness distributors, were required to apply for a new AwarenessLife distributorship using an online application form entitled the Awareness Corporation/AwarenessLife Online Electronic Distributor Application and Agreement (the electronic Distributor Agreement). Each applicant was required to input his or her personal and billing information, and tax identification or social security number or an electronic distributorship agreement form, review the Terms and Conditions presented on the electronic application form, and affirmatively choose the Agree option under the Terms and Conditions. 56. By enrolling in the AwarenessLife program and by choosing the Agree option, the Distributor Defendants each agreed to be bound by the Terms and Conditions of the Electronic Distributor Agreement. 57. By enrolling in the AwarenessLife program, each of the Distributor Defendants agreed under Section 15 of the Electronic Distributor Agreement as follows: "I understand and agree [that] the Company, its directors, officers, shareholders, employees, assigns and agents hall not be liable for, and I release the Company and its affiliates from, and waive all claims for any loss of profits, indirect, special, or consequential damages, or any other loss incurred or suffered by me as a result of: (a) my breach of this Agreement or the Polices and Procedures;"
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The Distributor Defendants enrolled in the AwarenessLife program in January

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58.

The Distributor Defendants also agreed under Section 15 of the Electronic

Distributor Agreement that the entire liability of Awareness of any claim whatsoever related to the relationship of the Company and myself, including but not limited to any cause of action sounding in contract, tort or equity shall not exceed, and shall be limited to, the amount of products I have purchased from the Company under this Agreement or any other agreements that are in resalable condition. 59. Further, the Distributor Defendants agreed under Section 15 of the Electronic Distributor Agreement that [i]n no event shall the Company be liable for any consequential damages (including good will) for breach of warranty or otherwise. 60. Each of the Distributor Defendants entered an End User Agreement when they registered in Awareness e-Office program, by which they each agreed that Awareness compilation of customer and distributor information accessed through the e-Office (identified as the product in the Agreement) belonged to Awareness and not to them. The End User Agreement provides, in relevant part: "You acknowledge Company's ownership of all rights in the Service, title, ownership rights, and intellectual property rights in and to the content accessed through the product . . . This agreement grants no rights to such content to user." 61. Section IX.B of the July 2003 P&P requires Awareness distributors to renew their Awareness distributorships each year. Section IX.B further provides that renewals are not automatic, and all distributorships not manually renewed by the distributor will expire on the anniversary of the distributor's registration with Awareness. 62. Section IX.B of the July 2003 P&P provides that all Awareness distributors who fail to renew their respective Awareness distributorships will be assumed to have voluntarily terminated their Awareness distributorships. 63. Section IX.B of the July 2003 P&Ps provides that terminating distributors lose
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all rights to his or her downline. "The lost rights include, but are not limited to sales commissions, overrides, rebates, bonuses, awards, downline rights, or any compensation whatsoever from the Company." 64. Section X.B. of the July 2003 P&P prohibits Awareness distributors from directly or indirectly solicit[ing] any person whom the [distributor] knows or should have known is a [distributor] of the Company to sell other products of any nature, by or through another direct sales plan, or attempt to build or establish a business that would cause a detrimental effect or be at the expense of the other [distributors], their downline, or the Awareness Corporation. Accordingly, the July 2003 P&P prohibits the following two activities: (1) solicitation of any person whom the distributor knows or should have known is an Awareness distributor to sell non-Awareness products of any nature, by or through another direct sales plan, and (2) the attempt by a distributor to build or establish a business that would cause a detrimental effect to or be at the expense of Awareness. 65. Section XIX.B. of the July 2003 P&P prohibits all distributors whose distributorships are cancelled for any reason from using Awareness trademarks and names, as well as all literature, signs, labels, posters, stationery, or advertising materials related to Awareness, its products, and its marketing materials. 66. 67. 68. The July 2003 P&P allows Awareness to transfer downlines or individual Awareness has transferred downlines to Awareness distributors. Awareness transferred to Paige Mattice the established downline organizations distributors from one distributor to another.

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of Steve O'Brien, Mary Louise Allcock, and Tim Rocco and provided her with additional qualified leads. These downline organizations consisted of approximately 7,301 people, comprising 93% of the entire downline for which Mattice was the second most senior upline distributor, under Gord Allcock. 69. The July 2003 P&P prohibits distributors from changing sponsors or otherwise
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transferring downlines to or from other distributors. 70. 71. No version of the P&P gives to upline distributors seniority of control and/or No version of the P&P gives to upline distributors seniority of control and/or ownership of any of the personal information of downline distributors or of their customers. ownership of any of the purchasing and/or sales information relating to downline distributors or their customer sales. 72. 73. 74. No version of the P&P gives distributors the right to personally own or control No version of the P&P gives any distributor the right to engage in any form Section IX.E. of the July 2003 P&P requires distributors to honestly and fairly any information regarding other distributors or customers, or regarding their sales. of advertising not authorized by Awareness. represent Company products and programs in all discussions, seminars, and meetings and in the distribution of promotional material given to customers. Distributors are not permitted to make false claims about any of the Company products. 75. 76. Section XIX.E. of the July 2003 P&P prohibits a distributor from using radio Section XIX. M. of the July 2003 P&P prohibits distributors from making or television advertising or promotion without Awareness' express prior approval. claims as to the therapeutic or curative properties about the products except those officially approved by the Company, or as contained in the official Company literature. 77. During the course of their Awareness distributorships, the Distributor Defendants, including defendants Mattice, Betts, and MacGregors, were making false and unauthorized product claims regarding Awareness products on their individual Awareness websites. 78. Awareness notified the Distributor Defendants of these violations, and requested that the Distributor Defendants discontinue such advertising. Awareness further notified the Distributor Defendants that the failure to fully comply with Awareness' request
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could result in suspension or termination of the defendants respective Awareness distributorships. 79. On or about August 21, 2003, counsel for Awareness sent defendants MacGregors a notice of suspension of their Awareness distributorships resulting from the MacGregors failure to comply with Awareness requests to discontinue certain product advertising. 80. On or about July 31, 2003, Awareness sent defendants Betts a notice of suspension of their Awareness distributorships resulting from the Betts failure to comply with Awareness requests to discontinue certain product advertising. 81. 82. Section IV of the July 2003 P&P requires each Awareness distributor to honor Section XIV of the July 2003 P&P requires that, pursuant to the Company the Company Team Member/Distributor guarantee with each of his or her customers. Team Member/Distributor guarantee, distributors provide a 100% money back guarantee to consumers who try Awareness products. 83. Section XX.B of the July 2003 P&P required all distributors to respond to all customer purchase inquiries or customer refund requests within 48 hours of their initial contact. Failure to so respond to customer requests is a presumptive violation of the P&P. 84. Section XX.B of the July 2003 P&P further provides that, should Awareness be required to refund a distributor customer money, Awareness is permitted to withhold all such refunds from the distributors future commission checks or take administrative action against the distributor, including termination, for failure to adhere to the P&Ps. 85. During the course of her Awareness distributorship, Mattice did not honor requests for product refunds from her customers, and did not otherwise follow the Company Team Member/Distributor guarantee. Because of Mattice's failure to honor the Company Team Member/Distributor guarantee, Awareness provided refunds to Mattice's customers. 86. Mattice's claims for alleged unpaid commissions against Awareness must be
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reduced by the amount of money Awareness refunded to Mattice's customers. 87. Section X.D. of the July 2003 P&P specifically notified distributors that Awareness was operating a lead generating program through the use of regional and national TV/Radio spots. 88. This lead generating program consisted of 30-second product commercials featuring Awareness products Female Balance and Daily Complete. In addition to generating leads, this program had as a purpose assisting distributor sales by increasing Awareness brand identity. 89. 90. for each lead. 91. 92. Awareness' lead generation program promoted Awareness products Daily Section X.D. of the July 2003 P&P, states that these regional and national Complete and Female Balance. TV/Radio spots offered introductory promotional product offers to generate hot leads of new paying customers who already had sampled Awareness products. 93. program. 94. 95. 96. The July 2003 P&P does not obligate Awareness to promote certain products, The July 2003 P&P does not obligate Awareness to fulfill customer orders Section II. C of the July 2003 P&P provides that Awareness shall not be or to include (or exclude) certain ingredients from its products. within any particular time period. responsible for delays and failures in performance of its duties under the P&P when performance is made commercially impracticable due to circumstances beyond the
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This lead generation program existed from January 2002 until August 2004. The leads generated from this program were made available to all Awareness

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distributors on a first-come, first serve basis. A distributor taking a lead was charged $8.00

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Defendants Betts purchased leads generated by Awareness lead generation

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reasonable control of Awareness. 97. Section XXII of the July 2003 P&P similarly provides that Awareness shall not be responsible for any delays and failures in performance where performance is made commercially impracticable due to circumstances beyond either parties' control. 98. distributor. 99. A distributor terminated for violating Awareness P&P must repay to Awareness any benefit, program, price, inventories, bonuses, or other compensation received after the date of the activities causing termination. 100. Section III of the July 2003 P&P provides that Awareness will supply data processing and reporting information for Team Members/Distributors regarding their personal downline sales only. The Team Member/Distributor agrees that such information is proprietary and confidential to the Company, and is transmitted to the Team Member/Distributor in building his or her own business. The Team Member/Distributor shall not disclose any proprietary or confidential information received from the Company to any other firm, entity, or corporation. Through virtual (online) offices owned and created by Awareness "e-offices" , which are part of the copyrighted Awareness system, and which reside on Awareness computer servers, Awareness supplies data processing and reporting information to distributors regarding sales by distributors in their downline sales organization, including genealogy reports, mailing labels, sales information, personal contact information, sales reports and other reports. 101. A genealogy report is a proprietary, regularly updated business record showing all of the distributors in a specific distributor downline organization, and all of their contact information, their purchasing history with specific order information. 102. A specific distributor downline organization consists of all of the distributors
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Section XX of the 2003 P&P provides that if a distributor fails to comply with

the terms of Awareness July 2003 P&P, Awareness could suspend or terminate the

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and their customers from which that distributor shares in sales revenue. 103. 104. 105. 106. The Awareness e-offices are password protected, and Awareness may restrict Section XIX of the July 2003 P&P allows Awareness to advertise its own Section XIX. F of the July 2003 P&P allows Awareness to discontinue Awareness permitted Paige Mattice to produce and broadcast radio programs distributors access to their e-offices at any time. products in any manner it chooses. distributor advertising for any reason. in Canada only for Awareness products on the condition that Mattice obtained written approval for the content of each radio broadcast program prior to running each program (the Canadian Radio Programs). Section XIX.E of the July 2003 P&P specifically provides that radio advertising will only be permitted with prior written permission from Awareness Corporation. 107. 108. 109. 110. 111. 112. The Canadian Radio Programs promoted Awareness cleanse packs, which Certain distributors downline from Mattice also were permitted by Awareness Mattice was the only distributor, other than those distributors downline from Mattice benefited from the broadcast by these distributors of the Canadian Awareness never permitted Paige Mattice or any of the other Distributor In an agreement dated December 10, 2001 (the "Transfer Agreement) Paige contained Awareness Clear, Experience, and Harmony products. in writing to broadcast the Mattice-produced Canadian Radio Programs in Canada only. Mattice, that was permitted by Awareness to run radio broadcasts. Radio Programs because she earned commissions on sales resulting from these broadcasts. Defendants to broadcast radio programs for Awareness products in the United States. Mattice agreed to exclusively market and promote the Awareness Distributor program including all Awareness products and not participate in other competing multi-level
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marketing programs giving full efforts to [her] Awareness downline.

The transfer

agreement further required Mattice to agree at all times to follow the P&P and at all times remain a positive proponent for Awareness Corporation and its products and at no times make disparaging or negative comments regarding Awareness Corporation, its principals, products or programs. 113. 114. 115. Allcock. 116. During the respective terms of each of the Distributor Defendants' distributorships, they accepted and cashed all Awareness commission checks and bonuses without written or verbal dispute as to the amounts of those checks and bonuses. 117. Mattice and certain distributors downline to her attempted to increase their Awareness revenues by making product claims about Awareness products that Awareness objected to pursuant to its rights under the P&P. 118. During the course of her distributorship, Mattice engaged in activities to which Awareness objected, including the unauthorized broadcasting of a radio program in the United States through various radio stations. 119. In an agreement dated February 20, 2003, Paige Mattice acknowledged that she had made use of unauthorized marketing materials, including a radio program not approved by Awareness, making inappropriate product claims about Awareness' products, abusing the Awareness auto-ship program, and failing to promptly respond to customer complaints. 120. In that same Agreement, Paige Mattice agreed that she would not in the future
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Mattice participated in a competitive multi-level marketing program, namely Mattice was an senior, influential and respected Awareness distributor. With the exception of the Betts, all of the Distributor Defendants were in the

Group Vision International, while still an Awareness distributor.

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downline organization in which Mattice was the second most upline distributor, under Gord

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engage in the use of unauthorized marketing materials, including a radio program not approved by Awareness, make inappropriate product claims about Awareness products, abuse the Awareness auto-ship program, fail to promptly respond to customer complaints, or make disparaging comments about Awareness. 121. In that same Agreement, she acknowledged that she must operate [her] Awareness business in compliance with Company policies if [she is] to continue as an Awareness Distributor. 122. In early Summer 2003, while still an Awareness distributor, Mattice came in contact with a group of multi-level marketing professionals who were planning a new health supplement company, which was to be named Group Vision International "GVI". 123. The founders of GVI previously had not marketed or sold or been in a company marketed or sold products that were equivalent to the Awareness products Experience and Clear, which were Awareness' largest selling products. 124. 125. While still an Awareness distributor, Mattice planned to become a GVI These activities included arranging for the reverse engineering of the distributor, and engaged in activities in furtherance of her acting as a GVI distributor. Awareness products Experience and Clear, arranging for the unauthorized reproduction of significant pages and portions of the copyrighted Awareness Extranet software, and soliciting other Awareness distributors to abandon Awareness and join GVI. 126. Mattices, Remelskis and Macgregors, while still Awareness distributors, met with the founders of GVI, Doug Rientsa and Daniel Pearson, and planned how they could compete with Awareness. 127. While still Awareness distributors, all of the other Individual Defendants planned to become GVI distributors and engaged in activities in furtherance of their acting as the GVI distributors. 128. Defendants Mattice and MacGregor admit to meeting with GVI and helping
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create the GVI business and product line while they were still Awareness distributors. 129. 130. 131. 132. 133. Defendants the Mattices and Remelskis purchased their GVI distributor kits Defendants the MacGregors purchased their GVI distributor kits on July 24, Defendants Betts purchased their GVI distributor kits on August 15, 2003. Defendants Mattices, Remelskis, and MacGregors sponsored a GVI While still an Awareness distributor, Mattice played a role in convincing the on July 22, 2003, prior to terminating their Awareness distributorships. 2005, prior to terminating their Awareness distributorships.

conference in Phoenix, Arizona on or about August 21, 2003. founders of GVI and their investors that the company's first line of products should include products that were competitive with Awareness Experience and Clear products. 134. products. 135. The initial line of GVI products consisted of products named Inner-Strength and Inner-Clarity, which were advertised by GVI distributors as direct nock-offs of Awareness products Experience and Clear. 136. Paige Mattice and Cheryl McGregor, prior to their resignations as Awareness Distributors contacted the FDA in 2003 and represented to the FDA that the Awareness Experience product was missing two key ingredients and was not effective, and that Awareness was misbranding the Experience labels. 137. 138. 139. 140. As a result of these complaints, the FDA contacted Awareness and inquired Awareness responded to that inquiry and provided the FDA enforcement No further action was initiated by the FDA. Each of the Individual Defendants knew prior to terminating their relationship
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Experience and Clear were at that time two of Awareness best-selling

about its product label and place of manufacture. office with its requested information.

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with Awareness that GVI products would compete with Awareness products. 141. 142. 143. 144. Each of the Distributor Defendants knew that their Awareness customers Each of the Distributor Defendants knew that other Awareness distributors Each of the Distributor Defendants planned to and did solicit Awareness Defendant Mattice sent her form Termination Letter announcing her would be natural customers for GVI's competitive products. could be effective GVI distributors. distributors to become GVI distributors. resignation from Awareness to Awareness distributors on or about July 31, 2003 one day before notifying Awareness of the voluntary termination of her Awareness distributorship. 145. Defendants Betts sent their email entitled "Special Announcement", which announced their resignation from Awareness to at least 54 Awareness distributors and invited them to join their new company, GVI, on October 14, 2003. 146. At least 18 of 54 Awareness distributors terminated their Awareness distributorships, otherwise stopped purchasing Awareness products, and/or purchased GVI products as a result of the Special Announcement email. 147. Defendant Betts forwarded a communication entitled "How to Terminate Your Awareness Distributorship" to at least one, but apparently many Awareness distributors on September 26, 2003. 148. 149. 150. 151. Mattice began selling GVI products in July 2003, but did not terminate her Defendants Lynn and Renie Remelski voluntarily terminated their Awareness Defendants Kevin and Cheryl MacGregor voluntarily terminated their Defendants David and Suzanne Betts voluntarily terminated their Awareness
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Awareness distributorship until August 1, 2003. distributorships on August 7, 2003. Awareness distributorships on August 25, 2003.

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distributorships on September 11, 2003. 152. 153. 154. All of the Distributor Defendants stopped selling and promoting Awareness All of the Distributor Defendants started their GVI business activities prior In the pre-preliminary injunction phase of marketing the GVI products, the products prior to terminating their relationship with Awareness. to terminating their Awareness distributorships. Betts did not create new websites for selling GVI products, but instead continued use of their Awareness business websites and merely changed the names of the Awareness products to those of GVI products. 155. Much of the content on the Distributor Defendants Awareness-related websites was provided by and owned by Awareness. This Awareness content continued to be used without authorization by the Betts on their GVI-related websites. 156. The Distributor Defendants who had Awareness-related websites, in subsequently marketing GVI products, did not remove from their websites meta tags that would result in the listing of these websites in the search results of an Internet search engine search of the name Awareness. 157. The Distributor Defendants copied or contributed to the unauthorized copying of pages and reports and compiled data from their Awareness e-offices, including genealogy reports and related contact and customer information. 158. These copies and the information contained therein were used by the Distributor Defendants in connection with the sales of GVI product, namely to market and solicit Awareness distributors and their customers both before and after these Defendants had terminated their relationship with Awareness. 159. 160. Each of the Distributor Defendants contacted and encouraged Awareness Each of the Distributor Defendants contacted and encouraged Awareness
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distributors to leave Awareness.

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distributors to sell GVI products to their customers. 161. businesses. 162. them. 163. In promoting the GVI products, the Distributor Defendants made numerous false and misleading claims about the origins, efficacy, and purity of the GVI products InnerClarity, InnerPurity, and InnerStrength (collectively, the "GVI Products") which were directly competitive to existing Awareness products. 164. These claims were made (a) in emails and letters from the Distributor Defendants to existing Awareness distributors and their customers and to potential new distributors and customers, (b) during promotional call-in programs sponsored by, run by, and/or featuring GVI principals and/or one or more of the Distributor Defendants, (c) as part of radio infomercials produced, sponsored and run by GVI and/or one or more of the Distributor Defendants, and (d) on one or more of the Distributor Defendants websites. 165. 166. GVI reviews and approves each distributors website and the product GVI approved, in whole or in part, the product statements contained on the statements contained therein. following Distributor websites: (i) mygroupvision.com/thelifetree, (ii) herbalgarden.net, (iii) freeyourself.com, and (v) thelifetree.com. 167. 168. 169. Mygroupvision.com, herbalgraden.net and thelifetree.com are all owned by The Mattices, MacGregors, and GVI claimed that GVI product InnerStrength The Mattices, MacGregors, and GVI claimed that GVI product InnerStrenth
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The Distributor Defendants have admitted to sharing the information taken

from Awareness e-offices with each other and third parties to build their respective GVI GVI was knowledgeable about these competitive activities and encouraged

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Defendant Kevin MacGregor. Freeyourself.com is owned by Defendant Suzanne Betts. stops the growth of cancer.

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prevents AIDS by oxygenating the body. 170. 171. 172. Britain. 173. 174. 175. 176. 177. The Mattices claimed that Mark Tahiliani was convicted of fraud by the FTC. The Mattices, MacGregors, and GVI claimed that persons using GVI The Mattices, MacGregors, and GVI claimed that GVI product InnerStrength The Mattices, MacGregors, and GVI claimed that GVI product InnerStrength The Mattices, MacGregors, and GVI claimed that persons can dramatically The Mattices, MacGregors, and GVI claimed that GVI product InnerStrength The Mattices, MacGregors, and GVI claimed that GVI product InnerStrength The Mattices, Remelskis, and GVI claimed that Senna is banned in Great prevents allergies by oxygenating the body. prevents the formation of tumors by preventing the existence of free radicals.

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InnerStrength will have an enhanced life expectancy. cleanses the organs. purifies a person blood. improve their health and reduce food cravings caused by mineral deficiencies by taking just one ounce of InnerStrength per day. 178. 179. rocks. 180. 181. The Mattices, MacGregors, and GVI claimed that GVI product InnerStrength The Mattices, MacGregors, and GVI claimed that GVI product InnerStrength reverses the aging process. helps with cholesterol levels and high or low blood pressure.
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The Mattices, MacGregors, and GVI claimed that GVI product InnerStrength The Mattices, MacGregors, and GVI claimed that GVI product InnerStrength

prevents fibromyalgia by oxygenating the body. cures one's mineral deficiencies and reduces cravings for cigarettes, alcohol, and eating

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182. 183. 184. 185.

The Mattices, MacGregors, and GVI claimed that GVI product InnerStrength The Mattices, Bettses, and Remelskis claimed that Awareness product The Mattices and Bettses claimed that Awareness product Clear is dangerous Neither GVI nor any of the Distributor Defendants has conducted or arranged

prevents the formation of yeast infections by oxygenating the body. Experience is dangerous because it contains senna. because it contains wormwood. for the conducting of any clinical studies on GVI Products to test their efficacy and/or support the foregoing product claims. 186. 187. Neither GVI nor any of the Distributor Defendants has received clinical study GVI has not conducted any independent research to confirm these product results from the manufacturer of the GVI Products to support the foregoing product claims. claims, nor has it questioned the Distributor Defendants use of such claims, despite its actual knowledge that these product claims were being used to sell GVI products. 188. The Distributor Defendants admit that after reasonable inquiry, the information known or readily obtainable [by them] is insufficient to enable [them] to either admit or deny the truth of these product claims. 189. 190. Neither the Distributor Defendants nor GVI have produced any independent The Distributor Defendants and GVI have admitted that they have no evidence support for any of these product claims. to support the following advertising claims made by the Distributor Defendants: (i) persons using GVI InnerStrength will have an enhanced life expectancy; (ii) GVI InnerStrength cleanses the organs; (iii) InnerStrength purifies a person's blood; (iv) a person can dramatically improve their health and reduce food cravings caused by mineral deficiencies by taking just one ounce of InnerStrength per day; (v) InnerStrength stops the growth of cancer; (vi) InnerStrength prevents AIDS by oxygenating the body; (vii) InnerStrength
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prevents allergies by oxygenating the body; (viii) InnerStrength prevents the formation of tumors by preventing the existence of free radicals; (ix) InnerStrength prevents fibromyalgia by oxygenating the body; and (x) InnerPurity removes parasites and viruses. 191. All of these product and advertising claims deliberately were made by the Defendants to induce purchases of the GVI products and/or to bolster the legitimacy of the GVI products. 192. 193. The Distributor Defendants made numerous statements about Awareness and The Distributor Defendants claimed directly and through innuendo that its products that these Defendants and GVI knew to be false and misleading. Awareness Experience and Clear products were dangerous because they contained the herbal ingredients senna and wormwood, respectively. 194. 195. 196. 197. The amounts of active senna in Experience never has been and is not now Awareness Experience is a safe product for long-term use, provided The Physician Desk Reference for Herbal Remedies notes that adults and Awareness' product label for the product Experience provides that the dangerous to one's health. consumers followed the directions on the product label. children over the age of 12 may be given a total dose of 68.8 mg of sennosides per day. maximum dosage of Experience per day is three capsules, for a total of 11.1 mg of sennosides per day, or 1/6th of the maximum dosages recommended by the Physician Desk Reference. 198. Prior to listing senna as an ingredient, Awareness' product label for the product Experience contained the following warning: NOTICE: This product contains rhubarb root. Read and follow Directions carefully. Do not use if you have or develop diarrhea or abdominal pain. Consult your physician if you have frequent diarrhea. If you are nursing, taking medication, or have a medical condition, consult your physician before
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using this product. Keep out of the reach of children. This warning is nearly identical to the warning placed upon the Experience product label that listed senna as an ingredient. 199. The warning regarding rhubarb root provided consumers of the product Experience with adequate information regarding the use of senna, even though senna was not listed as an ingredient on the product label. 200. 201. 202. 203. wormwood. 204. 205. This low level of thujone has no pharmacological activity whatsoever and There is no evidence that any person suffered any physical harm from using therefore has no effect on the product. either Experience or Clear that was diagnosed as having been caused by using either of these products. 206. The Distributor Defendants claimed that Awareness adds monosodium glutamate to its products, and that some of its products were missing certain key ingredients listed on the product labels. 207. 208. The Distributor Defendants falsely claimed that Mark Tahiliani, Awareness' The Distributor Defendants, including Mattice, while still an Awareness President, had been convicted of fraud by the FTC. distributor and thereafter encouraged current and former Awareness distributors to call the FDA to complain about Awareness and/or its products. 209. GVI admits it had actual knowledge that the Distributor Defendants were
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Awareness product Experience is an herbal supplement and is not an OTC Awareness Experience does not, and has not in the past, caused laxativeThe amount of active wormwood in Clear was not dangerous to one's health. Two capsules of Clear contain .0108 mg of thujone, the active ingredient in

drug. Therefore, it is not subject to the FDAOTC labeling requirements. dependency syndrome in users following the directions listed on the product label.

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making false and misleading claims about Awareness, and that such claims were being used to advertise GVI products. 210. The commercial communications containing all of these false and misleading claims were directed by the Distributor Defendants at existing Awareness distributors who had been members of the Awareness downlines of which these Distributor Defendants were members. 211. 212. Many Awareness distributors who were the recipients of the Distributor Many Awareness distributors who were the recipients of the Distributor Defendants false and misleading communications stopped ordering Awareness products. Defendants false and misleading communications abandoned their Awareness distributorships. 213. Many Awareness distributors who were the recipients of the Distributor Defendants false and misleading communications stopped selling Awareness products and started selling or purchasing GVI products. 214. 215. Awareness has suffered damage to its reputation and lost revenues and profits GVI maintained a toll-free information line (available at 1-800-809-3541) for as a direct result of the Defendants' false and misleading communications. distributors and consumers of its herbal dietary products at least through March 2004, and those who dialed the number were greeted with the following false advertising claims: (a) (b) (c) 216. InnerStrength includes selenium, a vital antioxidant, which controls blood pressure and cholesterol; InnerStrength is an all-organic, certified, active Aloe Vera based, 100% plant source dietary supplement; and InnerPurity builds up alkalinity levels, restoring the body to such a high level of health that parasites can survive.

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GVI maintains, in addition to its toll-free information line, a corporate website

for distributors and consumers of its herbal dietary products, which as late as November 22,
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2003, included the following false advertising claims: (a) (b) (c) (d) InnerStrength is a certified organic blend of 100% plant source vitamins and minerals in a [sic] enzyme rich base of certified active Aloe Vera; The secret to the effectiveness of the InnerClarity Product is not only in the absolute purity and potency of the herbs used (to the point of having certified documents of authenticity); InnerClarity and InnerPurity are ancient herbal recipes originating from the Mediterranean region; and InnerPurity[ ] ingredients are also 100% certified organic in composition and purity; backed by Certificates of Authenticity making InnerPurity truly unparalleled in its potency and effectiveness!

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217.

GVI financed and permitted Paige Mattice to host conference calls with

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distributors and customers. In the GVI-financed conference calls that took place on August 7, August 14 and August 16, 2003, Mattice made numerous false advertising statements, including the following: (a) (b) (c) (d) (e) InnerPurity has been, is a recipe that been around for hundreds of years; InnerPurity keeps the alkaline level high because parasites cannot live in a body that is high in alkalinity. They just cannot survive that; InnerPurity is [the product] that addresses the parasite issues bad bacteria is a parasite and germs and viruses are a parasite, and parasites are a parasite; All of our products are certified organic and we got these certifications to prove[] it; Lithium is also very high in the InnerStrength product They say it helps with diabetes, with circulation of the blood, keeping the blood clean, high and low blood pressure, high cholesterol and ______________________ (was this way in the e-mail)

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218. 219.

Those statements were literally false. Dan Pearson and Douglas Reinstra, GVI co-founders and officers, were on

those very same conference calls.
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220.

During the period in which these conference calls took place, GVI received

formal notice of Mattice's and Remelski's unlawful conduct, including false advertising, from Awareness. On August 15, 2003, Awareness' counsel sent a letter to Douglas Reinstra, a GVI owner and officer, in which Awareness detailed what it then knew about Mattice's and Remelski's improper conduct. 221. In the August 15 letter to GVI, Awareness' counsel requested that GVI confirm that it was not previously aware of Mattice's and Remelski's violations of Awareness Policies and Procedures or of their use of false advertising and Awareness' proprietary downline to disparage Awareness and solicit Awareness' other distributors. 222. 223. GVI did not reply to the August 15 letter. GVI took no reasonable steps to control the Distributor Defendants

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Distributors before they disseminated additional literally false advertising claims in their self-prepared websites, radio broadcasts and conference calls, including the following: (a) But the reason why they put the senna and wormwood in it is because they are the cheapest herbs you can buy. Because they are dangerous And they are very, very addictive. In fact, they are outlawed senna in Great Britain because its so addictive; The actually, the FTC, um, convicted [Mark Tahiliani] and his brother with fraud and racketeering and they had to pay, what was it? A five million dollar fine?; GVI has exciting new dietary supplements that deliver the traditional benefits you desire backed by high quality standards, clinical studies, and time-tested proven effectiveness; and Paige Mattice is a certified nutritionist.

(b) (c) (d) 224. 225. 226.

All of these statements were false. GVI admits that it was aware the Distributor Defendants were making false The GVI P&Ps contain the following provisions:

statements about Awareness and its products.

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THE DISTRIBUTOR AGREES NOT TO USE ANY WRITTEN, PRINTED, RECORDED OR ANY OTHER MATERIAL IN ADVERTISING, PROMOTING OR DESCRIBING THE PRODUCT OR GVI MARKETING PROGRAM, OR IN ANY OTHER MANNER, ANY MATERIAL WHICH HAS NOT BEEN COPYRIGHTED AND SUPPLIED BY GVI, UNLESS SUCH MATERIAL HAS BEEN SUBMITTED TO GVI AND APPROVED IN WRITING BY GVI BEFORE BEING DISSEMINATED, PUBLISHED OR DISPLAYED. GVI WILL NOT PERMIT THE USE OF ITS COPYRIGHTS, DESIGNS, LOGOS, TRADENAMES, TRADEMARKS, ETC. WITHOUT PRIOR WRITTEN PERMISSION. *** ALL ADVERTISING COPY, DIRECT MAILING, RADIO, TV, NEWSPAPER AND DISPLAY COPY MUST BE A P P R O V E D I N WR I T I N G B E F O R E BEI N G DISSEMINATED, PUBLISHED OR DISPLAYED WITH THE EXCEPTION OF BLIND ADS WHERE NO REFERENCE IS MADE TO GVI NAME AND PRODUCT NAME. 227. Awareness August 15, 2003 letter to Doug Reinstra placed GVI on formal notice that (i) Mattice and Remelski had downloaded Awareness downlines prior to terminating their distributorships with Awareness, (ii) the downlines were Awareness proprietary trade secrets, (iii) Mattice and Remelski use and disclosure of the downlines post-termination was a violation of Awareness Policies and Procedures, and (iv) Mattice and Remelski were utilizing the downlines, inter alia, as a vehicle by which to send mass e-mails to Awareness other distributors containing false and disparaging statements about Awareness and GVI competing products and respective management, and thus to lure those distributors away from Awareness. 228. In an e-mail dated October 14, 2003, for example, Susan Betts reminded Doug Reinstra, GVI co-founder and officer, "that we are talking to our folks about Group Vision, and switching them over from AW." 229. In an email exchange with Steven Powell, a former Awareness distributor who
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terminated his GVI distributorship following GVI's failure to provide adequate distributor support, the Betts stated: YOU CAN GO SLEEP IN THE SAME BED WITH MARK [TAHILIANI, AWARENESS PRESIDENT] IF YOU LIKE. I GUESS WE ALL ALIGN OURSELVES WITH THE ENERGY FIELD WE RESONATE WITH. I DO NOT HAVE STRONG ENOUGH WORDS TO INSULT MARK, AND I AM NOT PRONE TO SUCH NEGATIVITY. I WOULD ALSO HAVE YOU READ OUR LETTER TO OUR CUSTOMERS WITH EXPLAINS OUR POSITION W I T H A W A R E N E S S A T http://www.freeyourself.com/html/special.html. THINK AGAIN BEFORE YOU DIVE DEEP IN THEIR WATERS. GOD BLESS YOU IN ALL THAT YOU DO, AND MAY YOU BE TRULY HAPPY WITH AND RESPONSIBLE FOR YOUR DECISIONS. 230. 231. Awareness distributors and customers stopped ordering Awareness products Thousands of Awareness distributors stopped purchasing Awareness products as a direct result of the Distributor Defendants literally false commercial advertising claims. and did not renew their distributorships with Awareness as a direct result of the Distributor Defendants literally false commercial advertising claims. 232. GVI was an MLM start-up whose road to success was through the quick acquisition of new distributors to buy and re-sell its products. The Distributor Defendants offered to the owners of GVI the ticket to success: Awareness distributors, and placed in the hands of the Distributor Defendants responsibility for recruiting these Awareness distributors, as was made clear in an email from one of the Distributor Defendants to one of the owners of GVI. 233. It is no coincidence that the first product line for GVI consisted of alternatives to Awareness' top selling products Experience and Clear and that the Distributor Defendants made false and misleading statements to Awareness distributors designed to harm Awareness and its products and to legitimize GVI and its directly competitive products. Indeed, GVI never officially launched the company during the period that the
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Distributor Defendants engaged in their crusade against Awareness, and thus never did the kinds of public activities one would expect a new MLM to engage in to recruit new distributors, such as newspaper ads and announcements made to the general populace. The only evidence that exists of any recruiting done by or for GVI is that done by the Distributor Defendants of Awareness distributors. 234. GVI was thus intimately aware of and supported the efforts made by the Distributor Defendants in recruiting Awareness distributors and the use of the false and misleading statements to achieve their goals. It made money with every new recruit and every new product sale, and benefitted from each lost sale to Awareness. Awareness' counsel put GVI on written notice of these misdeeds and GVI in fact admits that it was aware of the false statements. It also perpetrated these same false and misleading statements on its voice mail, on its website, and in product literature. Its own Policies and Procedures provide that no distributor advertising or marketing that mentions the GVI name or the names of its products can be done without GVI's prior approval. Under the circumstances and the very conspicuous use of its name in marketing by the Distributor Defendants, there is no question that GVI both knew and approved of the falsehoods being made by the Distributor Defendants as well as itself. 235. General economic damages theory requires that damages be measured as the difference between what actually happened and what would have happened assuming no improper conduct. 236. Awareness' economic damages can be measured as the difference between the economic position Awareness would-have-been in had the Distributor Defendants not caused it to lose profits and Awareness' actual economic position. 237. From August 1, 2003 through December 31, 2003, Awareness suffered a dramatic decline in its sales in the downlines in which the Distributor Defendants were members, whereas sales in all other of its downlines remained at a steady level.
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238. realized. 239.

This dramatic decline in sales resulted in lost profits Awareness would have For the period August 1, 2003 through July 31, 2004, Aware