Free Other Notice - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 The following is the joint Proposed Final Pretrial Order to be considered at the Final Pretrial Conference set for August 19, 2005 at 4:00 p.m. A. COUNSEL FOR THE PARTIES Plaintiff and Third-Party Defendants: Steven M. Weinberg ([email protected]) Brian J. Schulman ([email protected]) Kimberly A. Warshawsky ([email protected]) GREENBERG TRAURIG, LLP 2375 E. Camelback Road, Suite 700 Phoenix, Arizona 85016 Phone: (602) 445-8000 Fax: (602) 445-8100 v. Group Vision International, L.L.C., et al., Defendants. Awareness Corporation, Plaintiff, IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA No. CV03-2024-PHX-DGC [PROPOSED] FINAL PRETRIAL ORDER

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Defendants: G. Gregory Eagleburger The Eagleburger Law Group 2999 North 44th Street, Suite 303 Phoenix, Arizona 85018 Phone: 602-840-6533 Fax: 602-808-9402 Curtis D. Drew ([email protected]) 2342 North Pima Road Scottsdale, Arizona 85257-2405 Phone: (480) 994-5796 Fax: (480) 949-1556 B. STATEMENT OF JURISDICTION 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.
C. STIPULATIONS AND UNCONTESTED FACTS AND LAW 1. proof: The following material facts are admitted by the parties and require no

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1.

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. 2. 3. 4. 5. 6.
1

Defendant Group Vision International Inc., ("GVI") is a multilevel Awareness and GVI sell their products to distributors. The distributors sell The distributors for both Awareness and GVI are independent contractors. In 2003, Awareness had 30,000 distributors.1 Awareness has been in business since 1994.

marketing company the products to customers or use the products for their own purposes.

This fact is uncontested as to GVI only.
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7. 8. 9.

The Distributor Defendants are GVI distributors.2 Mark Tahiliani was at all times material, Awareness' President and Chief The Mattices resigned as Awareness distributors on August 1, 2003; The

Executive Officer. Remelskis resigned as Awareness distributors on August 7, 2003; The MacGregors resigned as Awareness distributors on August 25, 2003; and the Betts resigned as Awareness distributors on September 11, 2003. 10. Mary Schmidt is an Awareness distributor and, following Defendant Paige Mattice's voluntary resignation, was selected to become the senior upline distributor for Mattice's former downline organization. 11. The relationship of the Distributor Defendants Kelly and Paige Mattice ("Mattice"); Renie and Lynn Remelski ("Remelski); Kevin and Cheryl MacGregor ("MacGregor"); and David and Suzanne Betts ("Betts"), collectively (the "Distributor Defendants") to Awareness were as independent distributors of Awareness products for the entire period that they were Awareness distributors. 12. 13. about 1996. 14. 15. 16.
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The Distributor Defendants were each Awareness distributors prior to Defendants Paige and Kelly Mattice became Awareness distributors in or Defendants David and Suzanne Betts became Awareness distributors on Defendants Lynn and Rene Remelski became Awareness distributors on Defendants Kevin and Cheryl MacGregor became Awareness distributors

voluntarily terminating their respective Awareness Distributorships.

or about May 9, 1996. or about January 9, 1999. on or about June 9, 1999. This fact is uncontested as to GVI only.
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17. 18. 19. 20.

Group Vision International, LLC ("GVI") is a multi-level marketing Awareness' primary product line at all relevant times includes Experience, Since its inception as a company, Awareness created product labels for the On October 15, 2003 Awareness obtained a certificate of copyright from

company engaged in the sale of dietary supplements in the United States and Canada. Clear, Daily Complete, Female Balance, Harmony, and Pure Gardens. Awareness products Clear and Experience. the U.S. Copyright Office covering its claim of copyright in this proprietary software system, identified as the "Awareness Distributorship Extranet Software. 21. New distributors are introduced to Awareness by (I) existing Awareness distributors, (ii) Awareness' national and regional promotional advertisements, and (iii) other means, such as via the internet or word of mouth. 21. 22. earned. 23. 24. 25. 26. 27. Awareness changed its Policies and Procedures in December 2003. Awareness has placed its corporate telephone number on all labels of Each new distributor is assigned to the business organization (or Section X of the July 23, 2003 P&P provides that "every new application If a new distributor does not ask to be placed in a particular downline, Awareness was responsible for calculating the commissions and bonuses Commissions and bonus checks sent by Awareness to its distributors were on a monthly basis for all of their distributors. always accompanied by a listing of sales of downline members and applicable bonuses

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Awareness products. "downline") of an existing distributor. has the right to choose who will be his or her sponsor.". he/she will be placed into a downline chosen by Awareness.
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28. 29. 30.

Awareness distributors can market and sell Awareness' products to Awareness distributors can purchase Awareness products for resale to A distributor senior to other distributors in a downline (an "upline

customers and can encourage their customers to become distributors. customers or order products requested by customers from Awareness. distributor") benefits financially from his or her own sales and the sales of his or her downline distributors. 31. A distributor senior to other distributors in a downline (an "upline distributor") benefits financially from the direct sales of distributors downline from him/her and from the sales of the downline distributors' own downline distributors. 32. 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. 33. 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. 34. Section X.B. of the July 2003 P&P prohibits Awareness distributors from "directly or indirectly soliciting" 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." 35. Section XIX.B. of the July 2003 P&P states that all distributors whose distributorships are cancelled for any reason will discontinue using Awareness'
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trademarks and names, as well as all literature, signs, labels, posters, stationery, or advertising materials related to Awareness, its products, and its marketing materials. 36. Under Section XX.F. of the July 2003 P&P, a distributor who voluntarily resigns "loses 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...." 37. 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.3 38. 39. 40. The July 2003 P&P prohibits distributors from changing sponsors or Section VIII. E. of the July 2003 P&P provides that distributors "may not Section VII.F. of the July 2003 P&P advises distributors that Awareness positions in their downlines while maintaining the same distributorship. sell, assign, or otherwise transfer his or her Distributorship or rights." has the right "from time to time and in its sole discretion" to contact Distributors by "email blasts, facsimiles, postal mailing and telephone" for purposes of keeping distributors informed of "changes, updates and/or enhancements to the Awareness marketing programs." 41. Awareness notified the Distributor Defendants of these alleged 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 could result in suspension or termination of the defendants' respective Awareness distributorships. 42.
3

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On or about August 21, 2003, counsel for Awareness sent defendants

MacGregors a notice of suspension of their Awareness distributorships resulting from Uncontested as to GVI only.
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the MacGregors' alleged failure to comply with Awareness' requests to discontinue certain product advertising. 43. On or about July 31, 2003, Awareness sent defendants Betts a notice of suspension of their Awareness distributorships resulting from the Betts' alleged failure to comply with Awareness' requests to discontinue certain product advertising. 44. customers. 45. Section XIV of the July 2003 P&P requires that, pursuant to the Company Team Member/Distributor guarantee, distributors provide a 100% money back guarantee to consumers who try Awareness' products. 46. 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. 47. Section XX.B of the July 2003 P&P further provides that, should Awareness be required to refund a distributor's customer's money as a result of what Awareness determines to be the distributor's "pattern of refusal to refund" that customer, 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. 48. 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. 49. Section X.D. of the July 2003 P&P provides in part that "Currently the Company is operating a lead generation program that offers its Distributor/members the
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Section IV of the July 2003 P&P requires each Awareness distributor to

honor the Company Team Member/Distributor guarantee with each of his or her

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ability to purchase "qualified leads" at nominal cost. The company generates these leads through a regional and national lead generation program to expand potential consumer awareness of its products and to aid its team members to expand their customer base and/or downline. Regional and national TV/radio spots offer introductory promotional product offers of Awareness products to generate "hot leads" of new paying customers that have already sampled one of its products. These hot leads are then offered, when available, to existing distributors at certain levels at nominal cost . . . ."4 50. 51. 52. Defendants Betts purchased leads from Awareness. The July 2003 P&P does not expressly obligate Awareness to promote Section II. C of the July 2003 P&P provides that Awareness shall not be

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certain products, or to include (or exclude) certain ingredients from its products. 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 reasonable control of Awareness. 53. 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 party's control. 54. Section XX of the July 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 distributor. 55. 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 Uncontested as written as to GVI. The Distributor Defendants contest all but the first sentence of paragraph 49.
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Team Member/Distributor in building his or her own business. received from the Company to any other firm, entity, or corporation." 56.

The Team

Member/Distributor shall not disclose any proprietary or confidential information 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. Distributors can access this information through the "eoffices" provided to distributors by Awareness. 57. A "genealogy report" is a regularly updated business record showing all of the distributors in a specific distributor's downline organization, and all of their contact information, their purchasing history with specific order information. 58. 59. 60. A specific distributor's downline "organization" consists of all of the The Awareness e-offices are password protected. Awareness has always produced, using its accounting system, commission distributors and their customers from which that distributor shares in sales revenue.5

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statements as to commissions earned by each distributor, which statements were sent with the distributor's commission check. 61. Corporation. 62. In an agreement dated December 10, 2001 (the "transfer agreement") Paige Mattice agreed "to exclusively market and promote the Awareness Distributor Uncontested as written as to GVI. Uncontested as to the Distributor Defendants in the following form: A specific distributor's downline "organization" consists of all of the distributors from which that distributor shares in sales revenue.
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Section XIX.E of the July 2003 P&P specifically provides that radio

advertising will only be permitted with prior written permission from Awareness

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program including all Awareness products and not participate in other competing multilevel marketing programs giving full efforts to [her] Awareness downline." 63. The transfer agreement further required Mattice to agree at all times to follow the P&P's and "at all times remain a positive proponent for Awareness Corporation and its products and at no time make disparaging or negative comments regarding Awareness Corporation, its principals, products or programs." 64. 65. Mattice was a senior, influential and respected Awareness distributor. With the exception of the Betts, all of the Distributor Defendants were in

the downline organization in which Mattice was the second most upline distributor, under Gord Allcock. 66. 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. 67. In an agreement dated February 20, 2003 between Awareness and Paige Mattice, she agreed that she would not in the future 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. 68. 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. 69. 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

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("GVI"). 6 70. 71. 72. 24, 2003. 73. 74. 75. 76. 77. products. 78. 79. 80.
6 7 8 9

Defendants Mattice and MacGregor met with GVI while they were still Defendants the Mattices and Remelskis purchased their GVI distributor Defendants the MacGregors purchased their GVI distributor kits on July Defendants Betts purchased their GVI distributor kits on August 15, 2003. Defendants Mattices, Remelskis, and MacGregors sponsored a GVI The initial line of GVI products consisted of products named InnerGVI shipped its first products during the last week of July 2003. Each of the Distributor Defendants knew prior to terminating their

Awareness distributors.7 kits on July 22, 2003.

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conference in Phoenix, Arizona on or about August 21, 2003.8 Strength and Inner-Clarity.9

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relationship with Awareness that some GVI products would compete with Awareness Each of the Distributor Defendants knew that their Awareness customers Each of the Distributor Defendants knew that other Awareness distributors Paige Mattice and Susan Betts, prior to their resignations as Awareness

would be natural customers for GVI's competitive products. could be effective GVI distributors.

Uncontested as to the Distributor Defendants only. Uncontested as to the Distributor Defendants only. Uncontested as to the Distributor Defendants only. Uncontested as to GVI only.
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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.10 81. Defendants Betts sent their email regarding "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. 82. 83. 84. Defendant Betts forwarded a communication entitled "How to Terminate Each of the Distributor Defendants contacted and encouraged Awareness The Distributor Defendants have admitted to sharing the names and Your Awareness Distributorship" to an Awareness distributor on September 26, 2003. distributors to sell GVI products. addresses of paige Mattice's downline taken from Awareness e-offices with each other and third parties to build their respective GVI businesses. 85. 86. 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.11 following Distributor websites: (i) mygroupvision.com/thelifetree, (ii) herbalgarden.net, (iii) freeyourself.com, (iv) HerbalHealthrx.com, and (v) thelifetree.com.12 87. Betts. 88. Section 4(c) of the The Group Vision P&P's provide that no use of the Group Vision name, trademarks, and the like of Group Vision can be made without 10 Uncontested as to GVI only.
11 12

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Mygroupvision.com, herbalgraden.net and thelifetree.com are all owned

by Defendant Kevin MacGregor. Freeyourself.com is owned by Defendant Suzanne

Uncontested as to the Distributor Defendants only. Uncontested as to the Distributor Defendants only.
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Group Vision's prior written approval. 89. 90. 91. nutritionist13. 92. 93. The Mattices, MacGregors, and GVI claimed that GVI's product Prior to listing senna as an ingredient, Awareness' product label for the InnerStrength helps with cholesterol levels and high or low blood pressure. 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 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.14 94. 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.15 95. Awareness' product Experience is an herbal supplement and is not an OTC The Mattices, Bettses, and GVI claimed that GVI's products are based The Mattices and Bettses claimed that GVI's products are based on the The MacGregors and GVI claimed that Paige Mattice is a certified upon the "time-tested" recipes of a "trained Master Herbalist" from "the Middle East." "original recipes" of Awareness' Experience and Clear products.

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13 14

Uncontested as to the Distributor Defendants only.

Uncontested as written as to GVI Contested by the Distributor Defendants with respect to the last sentence only.
15

Uncontested as to GVI only.
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drug. Therefore, it is not subject to the FDA's OTC labeling requirements.16 96. 97. health.18 98. 99. Two capsules of Clear contained .0108 mg of thujone, the active GVI received formal notice of Mattice's and Remelski's alleged unlawful ingredient in wormwood. 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 thought it knew about Mattice's and Remelski's improper conduct. 100. 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. 101. 102. GVI did not reply to the August 15 letter. The GVI P&Ps contain the following provisions:
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
16 17 18

Awareness' Experience does not, and has not in the past, caused laxativeThe amount of active wormwood in Clear was not dangerous to one's

dependency syndrome in users following the directions listed on the product's label.17

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Uncontested as to GVI only. Uncontested as to GVI only. Uncontested as to GVI only.
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PRIOR WRITTEN PERMISSION. *** ALL ADVERTISING COPY, DIRECT MAILING, RADIO, TV, NEWSPAPER AND DISPLAY COPY MUST BE APPROVED IN WRITING BEFORE BEING DISSEMINATED, PUBLISHED OR DISPLAYED WITH THE EXCEPTION OF BLIND ADS WHERE NO REFERENCE IS MADE TO GVI NAME AND PRODUCT NAME.

103.

Awareness' August 15, 2003 letter to GVI's Doug Reinstra placed GVI on

formal notice that Awareness believed 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's and Remelski's 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's competing products and respective management, and to lure those distributors away from Awareness.19 104. In an e-mail dated October 14, 2003, for example, Susan Betts reminded Doug Reinstra, GVI's co-founder and officer, that "we are talking to our folks about Group Uncontested as written as to the Distributor Defendants only. Uncontested as to GVI in the following form: Awareness' August 15, 2003 letter to GVI's Doug Rienstra placed GVI on formal notice that Awareness believed 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's and Remelski's 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' products and management, and to lure those distributors away from awareness.
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Vision, and switching them over from AW."20 105. In an email exchange with Steven Powell, a former Awareness distributor who 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 [sic] 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. 114. 115. 116. Each distributor is responsible for their own Awareness business. No distributor Awareness never orally or in writing told any Distributor Defendant that it had Defendants Betts sent their email entitled "Internal Herbal Cleansing Update

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owns any other distributor's AWR business. any ownership rights in any information relating to that distributor's business from Suzanne & David Betts, New Products!" to Awareness distributors on January 2, 2004 (the "January 2 email"). The January 2 email stated as follows: "[in September 2003, we resigned from representing the Awareness Corporation because of the introduction of the herbs Senna and Wormwood into their products Experience and Clear. We feel these herbs should be avoided. Many of you are familiar with these products and we recommend you take the time to investigate the long-term effects of these herbs before consuming them." 117.
20

Defendants Betts posted their website "Our Reply to the Awareness Email and

US Mail Letter" on or before March 15, 2004, which reprinted, in its entirety, Awareness' Uncontested as to the Distributor Defendants only.
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February 10, 2004 email to Awareness distributors entitled "AWARENESS SUES FORMER DISTRIBUTORS IN FEDERAL COURT." 118. Defendants Betts, Mattices, and Remelskis sent their email regarding "We Tested Experience Product, See Results" to Awareness distributors on August 11, 2004 (the "August 11 email"). The August 11 email stated as follows: "[we believe that everyone who consumes a health product has the right to know what is in it. This is particularly important if a person is sensitive or allergic to a certain ingredient. We, and our customers, did not realize that a product we were selling and taking had an ingredient in it that was not shown on the label. If you or anyone you know has had a health problem that you or they believe may have been caused by taking experience, please contact us." 119. 120. 121. 122. 2. None. 3. The following issues of law are uncontested and stipulated to by the parties: A. Awareness Claims Awareness' attorneys helped draft the February 10, 2003 email by Awareness The testing of Awareness products by ICB in July 2003 showed the presence of Awareness has no written resignations relating to this case from any distributors GVI was established in 2003. The following material facts, although not admitted, will not be contested to certain distributors. senna in Experience. other than the Distributor Defendants.

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at trial by evidence to the contrary:

Copyright Infringement The Copyright Act, 17 U.S.C. § 106, prohibits the unauthorized copying or printing of copyrighted works, and of the distribution of such copies. The copyright in the Awareness Extranet Software, as alleged in the Complaint, is
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federally registered by Awareness under Registration Number TXu1-112-819, registered October 15, 2003. Lanham Act "Any person who, on or in connection with any goods or services, . . ., uses in commerce any word, term, name symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which - - . . . in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person' s goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act." (15 U.S.C. §1125(a)(1)). The elements of a false advertising claim under section 43 of the Lanham Act, 15 U.S.C. § 1125, are: (I) a false statement of fact by the defendant in a commercial advertisement or promotion about its own or another' products; (ii) the statement actually s deceived or has the tendency to deceive a substantial segment of its audience; (iii) the deception is material in that it is likely to influence purchasing decisions; (iv) the defendant caused its false statement to enter interstate commerce; and (v) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a lessening of goodwill associated with plaintiff'product. Southland s Sod Farms, v, Stover Seed Co. 108 F.3d. 1134, 1139 (9th Cir. 1997) "Puffing is exaggerated advertising, blustering, and boasting on which no reasonable buyer would rely and is not actionable under the Section 43(a)." Id. at 1145. The legal standard of care is that of a reasonably prudent person. Under the Lanham Act, deliberately false statements are presumably deceptive and material. A false statement is material within the meaning of the Lanham Act where it is likely to influence the purchasing decision. Such influence is presumed where the misrepresentation
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pertains to an inherent quality or characteristic of the product. Where a manufacturer or distributor continues to supply its product to one whom it knows or has reason to know is engaging in a violation of the Lanham Act, the manufacturer or distributor is contributorily liable for any harm done as a result of the act, even if the distributor lacked direct control of the infringing party. Direct proof of causation and damages is not required under the Lanham Act in the case of deliberate falsehoods. Breach of Contract The elements for a breach of contract claim are the existence of a contract and its breach. Section X(B) of the 2003 P&P states that "Team Members/Distributors shall not directly or indirectly solicit any person whom the Team Member/Distributor knows or should have known is a Team Member/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 other Company Team Members/Distributors, their downline, or the Awareness Corporation." Tortious Interference One who, without a privilege to do so, induces or otherwise purposely causes a third person not to enter into or continue a business relation with another is liable to the other for the harm caused thereby. The elements of the tort of intentional interference with a business relationship are: (I) the existence of a valid contractual relationship or business expectancy; (ii) knowledge of the relationship or expectancy on the part of the interferer; (iii) intentional interference that caused a breach or termination of the relationship or expectancy; (iv) the conduct was improper; and (v) resultant damage to the party whose relationship or expectancy has been disrupted.
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Unfair Competition The term "unfair competition" is used to describe a commercial tort involving competitive behavior that in its totality is "unfair." Chaffee, "Unfair Competition," 53 Harv. L. Rev. 1289 (1940). "The law of unfair competition is the umbrella for all statutory and nonstatutory causes of action arising out of business conduct which is contrary to honest practice in industrial or commercial matters." American Heritage Life Ins. Co. v. Heritage Life Ins. Co., 494 F.2d 3 (5th Cir. 1974); Professional Golfers Ass' v. Bankers Life & Casualty Co., 514 F.2d 665 (5th n Cir. 1975). The California Supreme Court has stated: "When a scheme is evolved which on its face violates the fundamental rules of honesty and fair dealing, a court of equity is not impotent to frustrate its consummation because the scheme is an original one. There is a maxim as old as law that there can be no right without a remedy, and in searching for a precise precedent, an equity court must not lose sight, not only of its power, but of its duty to arrive at a just solution of the problem." American Philatelic Soc'y v. Claibourne, 3 Cal. 2d 689, 46 P.2d 135 (1935), quoted in, Academy of Motion Picture Arts & Sciences v. Benson, 15 Cal. 2d 685, 104 P.2d 650, 46 U.S.P.Q. 488 (1940).Conduct that constitutes intentional interference with contractual relationships is actionable as unfair competition. In proving unfair competition, the aggrieved party does not have to prove anything more than the defendants engaged in a scheme which on its face violates the fundamental rules of honesty and fair dealing , even though the scheme may or may not include any other commercially tortious act. Damages In Lanham Act and similar common law cases, the plaintiff is not required to prove the amount of damages with mathematical certainty. A plaintiff is entitled to damages proximately caused by defendants' actions.
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B.

The Distributor Defendants Counter Claims At this time the parties do not agree on the applicable law.

Negligent Misrepresentation Breach of Contract At this time the parties do not agree on the applicable law. Trade Secrets To establish a claim for misappropriation of trade secrets under either the common law or the Arizona Trade Secrets Act, the Distributor Defendants must establish that: (I) they owned a trade secret; (ii) Awareness misappropriated it; and (iii) the Distributor Defendants suffered damages. To establish a claim for misappropriation of trade secrets under either the common law or the Arizona Trade Secrets Act, the Distributor Defendants must establish that: (I) they owned a trade secret; (ii) Awareness misappropriated it; and (iii) the Distributor Defendants suffered damages. "Trade Secret" means information, including a formula, pattern, compilation, program, device, method, technique or process, that both: (a) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use, (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. A.R.S. §44-401. "The Restatement adopts a six-factor test to determine whether a trade secret exists: (1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and other involved in its business; (3) the extent of measures taken by the business to guard the secrecy of its information; (4) the value of the information to the business and its competitors; (5) the amount of effort or money expended by the business in developing the information; (6) the ease or difficulty with which the information could be
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properly acquired or duplicated by others." RESTATEMENT OF TORTS §757 cmt. b. The Claimant of a trade secret must show the "efforts that were reasonable under the circumstances to maintain the secrecy." Enterprise Leasing Co. v. Ehmke, 3 P.3d 1064, 1070 (Ariz. Ct. App. 1999). Defamation To be defamatory, a publication must be false and must bring the defamed person into disrepute, contempt, or ridicule, or must impeach the plaintiff' honesty, integrity, virtue or s reputation. The elements for a defamation claim are: (I) a false and defamatory statement concerning another; (ii) an unprivileged publication to a third party; (iii) fault amounting at least to negligence on the part of the publisher; and (iv) either actionability of the statement irrespective of special harm or the existence of special harm caused by the publication. "A libel is any malicious falsehood expressed by writing, printing, or by signs or pictures, which tends to bring any person into disrepute, contempt or ridicule, or to blacken the memory of one who is dead; or any malicious defamation expressed by writing, printing, or by signs or pictures, which tends to impeach the honesty, integrity, virtue or reputation, or publish the natural or alleged defects of one who is alive, and thereby to expose him to public hatred, contempt or ridicule." Berg v. Hohenstein, 479 P.2d 730, 13 Ariz. App. 583 (Ct. of App. Div. 1, 1971). "* * * Written communications which are claimed to be libelous fall into one of the three classes, (a) those which on their face and without the aid of any extrinsic matter come within the definition above set forth, (b) those which on their face do not fall within the definition but which by reason of special extraneous circumstances actually do, and (c) those which even though aided by the surrounding circumstances cannot reasonably be held to fall within it. Class (a) is called ' libelous per se' because it needs no allegation or existence of extraneous surrounding circumstances to make it such. Communications of this kind are assumed to cause damage, and no special damages need be alleged. Class (b) comprises those statements which on their face are not libelous but by reason of certain surrounding circumstances are actually such. These circumstances may be such as are known to the general public or are known only to the persons to whom the communication is published, but in either case in a complaint for libel they must be followed by what is commonly called a colloquium or innuendo setting forth both the extraneous circumstances and the reason why under such
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circumstances the communication, otherwise innocent, becomes libelous. In the case no damages are presumed, but they must be specially alleged and proved." Berg v. Hohenstein, 479 P.2d 730, 13 Ariz. App. 583 (Ct. of App. Div. 1, 1971). C. Distributor Defendants Third Party Claims Tortious Interference One who, without a privilege to do so, induces or otherwise purposely causes a third person not to enter into or continue a business relation with another is liable to the other for the harm caused thereby. The elements of the tort of intentional interference with a business relationship are: (I) the existence of a valid contractual relationship or business expectancy; (ii) knowledge of the relationship or expectancy on the part of the interferer; (iii) intentional interference that caused a breach or termination of the relationship or expectancy; (iv) the conduct was improper; and (v) resultant damage to the party whose relationship or expectancy has been disrupted. Unfair Competition The term "unfair competition" is used to describe a commercial tort involving competitive behavior that in its totality is "unfair." Chaffee, "Unfair Competition," 53 Harv. L. Rev. 1289 (1940). "The law of unfair competition is the umbrella for all statutory and nonstatutory causes of action arising out of business conduct which is contrary to honest practice in industrial or commercial matters." American Heritage Life Ins. Co. v. Heritage Life Ins. Co., 494 F.2d 3 (5th Cir. 1974); Professional Golfers Ass' v. Bankers Life & Casualty Co., 514 F.2d 665 (5th n Cir. 1975). The California Supreme Court has stated: "When a scheme is evolved which on its face violates the fundamental rules of honesty and fair dealing, a court of equity is not impotent to frustrate its consummation because the scheme is an original one. There is a maxim as old as law that there can be no right without a remedy, and in searching for a precise precedent, an equity court must not lose sight, not only of its power, but of its duty to arrive at a just solution
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of the problem." American Philatelic Soc'y v. Claibourne, 3 Cal. 2d 689, 46 P.2d 135 (1935), quoted in, Academy of Motion Picture Arts & Sciences v. Benson, 15 Cal. 2d 685, 104 P.2d 650, 46 U.S.P.Q. 488 (1940).Conduct that constitutes intentional interference with contractual relationships is actionable as unfair competition. In proving unfair competition, the aggrieved party does not have to prove anything more than the defendants engaged in a scheme which on its face violates the fundamental rules of honesty and fair dealing , even though the scheme may or may not include any other commercially tortious act. Defamation At this time the parties do not agree on the applicable law. D. 4. CONTESTED ISSUES OF FACT AND LAW. Contested Issues of Fact: Plaintiff's Claims Issue No. 1: Whether the Mattices, Remelskis and/or the MacGregors intentionally made unauthorized copies of the Awareness Extranet Software and/or intentionally distributed all or portions of these unauthorized copies. Plaintiff Contends: 1. 2. Plaintiff has a valid copyright in its Awareness Extranet Software. Plaintiff The copyright in the Awareness Extranet Software covers the underlying registered the copyright in its Awareness Extranet Software prior to instituting this suit. 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 that can be generated by the system. 3. The Remelskis, Mattices, and MacGregors each copied or printed pages or other protected elements from the Awareness Extranet Software, and distributed copies of same, all without the authorization of Awareness and for a purpose not authorized by
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Awareness. 4. Each of these Distributor Defendants intentionally made copies of and/or distributed pages from the Awareness Extranet Software that contained Awareness distributor genealogy and other contact information, and other protected matter. Distributor Defendants Contend: 1. 2. 3. Copyright. Issue No. 2: Whether Paige or Kelly Mattice contributed to the making or distribution of unauthorized copies of all or portions of Awareness' Extranet Software. Plaintiff Contends: 1. Paige Mattice requested Lynn Remelski, while they were still Awareness distributors to print out numerous pages from the Awareness Extranet Software containing the genealogy, customer and sales information of the Awareness downline in which they were members for the unauthorized purpose of using copyrighted reports and other information contained therein for competing with Awareness, specifically, contacting Awareness distributors to recruit them for the unauthorized Group Vision business they were establishing and to otherwise dissuade them from continuing their relationship with Awareness. 2. 3. Lynn Remelski has admitted that Ms. Mattice made this request. This deliberate request and encouragement by Ms. Mattice for Ms. Remelski Distributor Defendants only copied the names and addresses of their Because the names and addresses were not confidential information of Awareness has not shown that "other protected elements" are covered by the distributors that they had recruited. Awareness, Distributor Defendants could distribute them to anyone to whom they wanted.

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to make unauthorized copies of qualitatively significant portions of the Awareness copyrighted software is contributory infringement.
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Distributor Defendants Contend: 1. Awareness. 2. Mattices told other distributors that the names and addresses of their downline distributors and customers were not Awareness confidential information and could be copied. 3. information. Issue No. 3: Whether all or some of the defendants made deliberately false or misleading statements about Awareness products, Mark Tahiliani, Paige Mattice and/or GVI products other than during GVI distributor conference calls. Plaintiff Contends: 1. Each of the Distributor Defendants knowingly and deliberately made false and misleading statements about Awareness products, Mark Tahiliani, Page Mattice and/or GVI products with the purpose of (a) persuading Awareness distributors and their customers to terminate their relationship with Awareness and/or (b) persuading Awareness distrubutors to become GVI distributors, and/or (c) persuading Awareness distributors to stop buying the Awareness products Experience and Clear and to instead purchase the GVI products falsely touted by the Distributor Defendants to be the equivalents of these Awareness products. These false and misleading statements related to specific characteristics of the Awareness products and the GVI products that the Distributor Defendants knew and believed would be material and relied on by Awareness distributors and customers, and thus were deliberately made to achieve these purposes. Similarly, the Distributor Defendants knew and believed that the false and misleading statements made by the Distributor Defendants about Awareness' President, which were intended to brand him as a criminal, would have a material affect on Awareness distributors and their
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Mattices only copied their own information not the Copyrighted Software of

Mattices did nothing more than advise others of their rights to their

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customers and would achieve their purposes. The Distributor Defendants' false and misleading statements regarding Paige Mattice, combined with the known prominence that she had held in the Awareness organization, also were intentionally designed to support the materiality and legitimacy of the false and misleading statements made by her and the other Distributor Defendants the Remelskis and the MacGregors, who made it clear that they were associated with her. 2. The specific false 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) as part of radio infomercials produced, sponsored and run by GVI and/or one or more of the Distributor Defendants (the "GVI Radio Programs"), and (c) on one or more of the Distributor Defendants' websites. 3. The Distributor Defendants and GVI claimed that GVI's products are "very high quality, certified organic herbal products," prior to the time that certified organic ingredients were used. 4. 5. GVI has admitted that these GVI products were not at that time "certified Prior to an herbalist's working with GVI, the Mattices, Bettses, and GVI organic herbal products." falsely claimed that GVI's products are based upon the "time-tested" recipes of a "trained Master Herbalist" from "the Middle East." 6. The Mattices, MacGregors and GVI falsely claimed that: Paige Mattice is a certified nutritionist; (ii) GVI's product InnerStrength cures one's mineral deficiencies and reduces cravings for cigarettes, alcohol, and eating rocks; (iii) taking the product InnerStrength reverses the aging process; and (iv) the product InnerStrength prevents the formation of yeast infections by oxygenating the body. 7. The Mattices and GVI falsely claimed that: (I) GVI's product InnerPurity removes parasites and viruses; (ii) InnerStrength stops the growth of cancer; (iii)
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InnerStrength prevents AIDS by oxygenating the body; (iv) InnerStrength prevents allergies by oxygenating the body; (v) InnerStrength prevents the formation of tumors by preventing the existence of free radicals; (vi) InnerStrength helps with cholesterol levels and high or low blood pressure; (vii) InnerStrength cleanses the organs; (viii) InnerStrength purifies a person's blood; (ix) a person can dramatically improve their health and reduce food cravings caused by mineral deficiencies by taking just one ounce of InnerStrength per day; (x) InnerStrength prevents fibromyalgia by oxygenating the body; (xi) and persons using GVI's InnerStrength will have an enhanced life expectancy. 8. The Mattices and Bettses falsely claimed that GVI's Products were based on the "original recipes" of Awareness' Experience and Clear products and were created by "reverse engineering" Awareness' products. 9. 10. 11. 12. 13. radicals. 14. 15. Great Britain.
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The Mattices, Remelskis, MacGregors, and GVI falsely claimed that the GVI The Mattices, MacGregors, and GVI falsely claimed that GVI's product The Mattices, MacGregors, and GVI falsely claimed that GVI's product The Mattices, MacGregors, and GVI falsely claimed that GVI's product The Mattices, MacGregors, and GVI falsely claimed that GVI's product

product InnerPurity removes parasites and viruses. InnerStrength stops the growth of cancer. InnerStrenth prevents AIDS by oxygenating the body. InnerStrength prevents allergies by oxygenating the body. InnerStrength prevents the formation of tumors by preventing the existence of free The Mattices, Remelskis, MacGregors, and GVI falsely claimed that Paige The Mattices, Remelskis, and GVI falsely claimed that senna was banned in

Mattice is a certified nutritionist.

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16. the FTC. 17. 18. 19. 20. 21.

The Mattices falsely claimed that Mark Tahiliani was convicted of fraud by The Mattices, MacGregors, and GVI falsely claimed that persons using The Mattices, MacGregors, and GVI falsely claimed that GVI's product The Mattices, MacGregors, and GVI falsely claimed that GVI's product The Mattices, MacGregors, and GVI falsely claimed that GVI's product The Mattices, MacGregors, and GVI falsely claimed that GVI's product

GVI's InnerStrength will have an enhanced life expectancy. InnerStrength cleanses the organs. InnerStrength purifies a person's blood. InnerStrength prevents fibromyalgia by oxygenating the body. InnerStrength cures one's mineral deficiencies and reduces cravings for cigarettes, alcohol, and eating rocks. 22. 23. 24. 25. 26. The Mattices, MacGregors, and GVI falsely claimed that GVI's product The Mattices, MacGregors, and GVI falsely claimed that GVI's product The Mattices, Bettses, and Remelskis falsely claimed that Awareness' The Mattices and Bettses falsely claimed that Awareness' product Clear was Awareness' product label for the product Experience provides that the InnerStrength reverses the aging process. InnerStrength prevents the formation of yeast infections by oxygenating the body. product Experience is dangerous because it contains senna. dangerous because it contained wormwood. 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 Physican's Desk Reference. 27. Prior to listing senna as an ingredient, Awareness' product label for the
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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 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.21 28. 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.22 29. 30. 31. 32. Awareness' product Experience is an herbal supplement and is not an OTC The amount of active wormwood in Clear was not dangerous to one's health. Two capsules of Clear contained .0108 mg of thujone, the active ingredient Awareness' Experience does not, and has not in the past, caused laxativedrug. Therefore, it is not subject to the FDA's OTC labeling requirements.23

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in wormwood. dependency syndrome in users following the directions listed on the product's label.24 33. 34.
21

This low level of thujone has no pharmacological activity whatsoever and is There is no evidence that any person has ever suffered any quantifiable

therefore has no effect on the product. Uncontested as written as to GVI Contested by the Distributor Defendants with respect to the last sentence only.
22 23 24

Uncontested as to GVI only. Uncontested as to GVI only. Uncontested as to GVI only.
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physical harm from using either Experience or Clear. 35. 36. 37. 38. 39. Awareness has never had a health-related complaint filed against it by any of 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's Desk Reference for Herbal Remedies notes that adults and The Distributor Defendants falsely claimed that Awareness "adds" its distributors or customers, or by any governmental agency. dangerous to one's health. consumers followed the directions on the product's label. children over the age of 12 may be given a total dose of 68.8 mg of sennosides per day monosodium glutamate to its products, and that some of its products were missing certain key ingredients listed on the product labels. 40. Neither GVI nor any of the Distributor Defendants has conducted or arranged for the conducting of any clinical studies on GVI Products to test their efficacy and/or support of any of their product claims. 41. claims. 42. 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. 43. 44. Neither the Distributor Defendants nor GVI have produced any independent The Distributor Defendants and GVI have admitted that they have no support for any of these product claims. evidence to support the following advertising claims made by the Distributor Defendants: (I) persons using GVI's InnerStrength will have an enhanced life expectancy; (ii) GVI's
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Neither GVI nor any of the Distributor Defendants has received clinical study

results from the manufacturers of the GVI Products to support the foregoing product

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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 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 45. The Distributor Defendants, including Mattice, while still Awareness distributors and thereafter encouraged current and former Awareness distributors to call the FDA to complain about Awareness and/or its products. The FDA responded to one of these false complaints by contacting Awareness, and thereafter permanently abandoned any investigation into the false complaint. 46. Paige Mattice and Susan Betts, 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. 47. 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 for the unfairly competitive purposes referenced above. 48. intentionally. 49. 20, 2003. 50. The Preliminary Injunction Hearing was held in this matter on December 4,
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GREENBERG TRAURIG

LAW OFFICES

All of these false and misleading statements were made deliberately and Awareness filed its complaint against the Distributor Defendants on October

Case 2:03-cv-02024-DGC

Document 354-2

Filed 08/08/2005

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2003. 51. The Court issued its Preliminary Injunction Order on or about December 9, 2003, and prohibited GVI and the Distributor Defendants from making, disseminating, or causing to be made or disseminated to the public the following comments: (I) Awareness products are dangerous because they contain certain ingredients, i.e. senna and wormwood; (ii) Awareness adds monosodium glutamate (MSG) to its products, (iii) Awareness products are missing key ingredients, (iv) Mark Tahiliani has been convicted of fraud by the Federal Trade Commission, (v) Group Vision products manufactured prior to the date of this order are safer than