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DAROVEC MARKETING GROUP, INC. v. BIO-GENICS
September 27, 2000
DAROVEC MARKETING GROUP, INC., AN ILLINOIS CORPORATION, JOSEPH M. DAROVEC, AND HEATHER L. HARRINGTON, PLAINTIFFS,
BIO-GENICS, INC., A UTAH CORPORATION, D/B/A E`OLA INTERNATIONAL, FRED ROGERS AND BERT TUCK, DEFENDANTS.
The opinion of the court was delivered by: Gettleman, District Judge.
MEMORANDUM OPINION AND ORDER
In this diversity action, plaintiffs Darovec Marketing Group
("DMG"), Joseph Darovec ("Darovec") and Heather Harrington
("Harrington") have filed a fourth amended complaint alleging
that: Bio-Genics, Inc., d/b/a/ E`ola International ("E`ola") and
Fred Rogers ("Rogers") defamed plaintiffs when they published an
"Official Memorandum" ("the memorandum") to E`ola distributors
(Counts I and II); defendant Bert Tuck ("Tuck") defamed
plaintiffs when Tuck republished the memorandum (Counts III and
IV); and E`ola breached its distributorship contract with DMG
when E`ola terminated the DMG distributorship (Count V).
Currently pending before the court are three motions: 1)
defendants' motion for summary judgment on all counts; 2) Tuck's
motion to dismiss Counts III and IV pursuant to Fed.R.Civ.P.
12(b)(2) and 15(c)(2); and 3) E`ola's and Rogers' motion to
strike portions of plaintiffs' summary judgment exhibits and
affidavits. For the reasons set forth below, the court grants
defendants' motion for summary judgment on all counts and
disposes of this action in its entirety.
The E`ola distributorship agreement incorporates the terms of
the E`ola Policies and Procedures manual ("E`ola policy") and
gives E`ola the right to terminate distributors "at any time" if
they breach their agreement or engage "in any conduct that may
bring disrepute upon E`ola." E`ola policy adds to this conduct
requirement the following: distributors must, at all times, "act
in good faith in [their] dealings with the company, with other
distributors and with customers" (Policy 28(B)) and they shall
not act "in such a way as to negatively affect the company's
image, good name or good will" (Policy 28(E)). Further,
distributors are required to "supervise, train and have ongoing
communications and coordination with [their] downline" if they
choose to establish such a downline (Policy 5(A)) and
distributors must immediately refer any inquiries by the media
pertaining to E`ola immediately to the company (Policy 23).
Distributors are prohibited from "promoting the company's labels
or product names in any form of media advertising" including
newspapers (Advertising Policy 2(B)), and from "advertising
specific prices of any of the company's products" (Advertising
Between May and December 1997, E`ola was contacted at least
forty-seven times regarding the DMG distributorship; a minimum of
seventeen other E`ola independent distributors and five E`ola
customers registered complaints about plaintiffs during this
time. E`ola responded directly to each individual who complained.
In most instances, Rogers called the complaining individual.
Rogers also kept track of all complaints in a detailed log.
Throughout the investigation of these complaints, plaintiffs were
contacted by E`ola at least nine times to discuss compliance with
company policy and/or the complaints made against them. The
following is a chronology of the relevant events that occurred
1. From March to December, plaintiffs leased "mall
carts" at the Spring Hill and Stratford Square malls
in the Chicago area. Mall carts, also known as
kiosks, are the small display structures in the
middle of a mall concourse area. The original lease
of the Stratford Square cart, which was subsequently
extended, provided for a base monthly rent plus 15%
of gross sales at the cart in excess of $6,000.
During the time plaintiffs leased this cart,
plaintiffs and various distributors downline from
plaintiffs sold E`ola products from the cart. Despite
agreeing to pay Stratford Square a percentage of
their gross sales in excess of $6,000 per month,
plaintiffs failed to keep records of the gross cart
sales and, in fact, did not ask the other
distributors working the cart to report their sales.
At the end of each month, Darovec took a "stab in the
dark" when filling out the sales report form that had
to be turned in to the management at Stratford Square
2. During this time, plaintiffs and members of
their downline (at the insistence of plaintiffs) sold
E`ola products from the mall carts for prices
significantly below the company's suggested retail
price. Plaintiffs sold E`ola's "Liqua Thin" and "Amp
II Pro Drops" for $17.50 a bottle or $35.00 a set,
which was only slightly above their wholesale costs
of $15.00 a bottle and $30.00 a set and well below
the suggested retail price of $25.00 a bottle or
$50.00 a set.
3. In May Rogers began receiving complaints about
plaintiffs. The first complaint was from a
distributor who was afraid to reveal his or her
identity. Then, Darlene Marsiglia ("Marsiglia"), an
E`ola independent distributor downline from
plaintiffs, requested that she be transferred from
4. Thereafter, Harrington was quoted in an article
in the Sunday edition of the local newspaper. The
article named and discussed the benefits of E`ola's
Liqua Thin and Amp II Pro Drops, contained a picture
of the Liqua Thin drops, and quoted plaintiffs'
selling price of $17.50 a bottle for each product.
The article also stated that customers could purchase
the product at Randhurst Shopping Center and Spring
Hill Mall.*fn3 The article was brought to the
attention of Rogers through a fax sent to E`ola by
Lori Atkins ("Atkins"), an E`ola independent
distributor who was downline from plaintiffs.
5. Since all media inquiries were supposed to be
referred to the company and since any form of
advertising was strictly prohibited, Rogers called
Darovec twice to speak to him about the newspaper
article. Rogers also wrote a letter to Harrington
explaining that the article was a violation of
several company policies and that plaintiff's
involvement, "according to policy, is sufficient
grounds for account termination."*fn4 From that
point on, plaintiffs were the subject of an ongoing
investigation by Rogers.
6. In June, yet another member of plaintiffs'
downline asked to be transferred; Atkins and her
husband wrote to E`ola they would not "tolerate being
lied to" and that plaintiffs offered no training,
assistance, or advice for the previous eight months
despite the Atkins' repeated requests. Around that
same time, Jean Swaya ("Swaya"), another E`ola
independent distributor, wrote to E`ola to register
various complaints against plaintiffs.
7. After contacting both Atkins and Swaya to
investigate their complaints, Rogers felt that it was
essential to try to work out whatever problems
existed between plaintiffs and the other
distributors. To that end, Rogers spoke to Karl
Prazak ("Prazak"), a high-ranking E`ola independent
distributor who was upline from plaintiffs. Prazak
later contacted Harrington during a trip he made to
Chicago, but the problems were not resolved.
9. In July, numerous complaints were made against
plaintiffs by members of their downline. One specific
complaint came from Doris Reeves-Skonie
("Reeves-Skonie"), who called Rogers and played a
recorded message from her telephone answering machine
in which Darovec used profanity and threatened to sue
10. As a result of these more recent events, Rogers
and Mike Brosnan ("Brosnan"), E`ola's Director of
Sales and Distributor Relations, spoke to plaintiffs
in late July and again explained E`ola's position and
reluctance to tolerate plaintiffs' actions,
misbehavior and repeated violations of E`ola policy.
During that conversation, it was agreed by all that
it would be best if Darovec no longer interacted with
E`ola distributors or was involved with E`ola except
for his ongoing bookkeeping function for Harrington.
11. Despite plaintiffs' assurances, however, E`ola
continued to receive complaints. In August, another
member of plaintiffs' downline, Patricia Wallace
("Wallace"), requested a transfer.*fn6 Thereafter,
Rogers was informed that another distributor,
Michelle Roberts ("Roberts") was forced to mediate a
refund dispute between Harrington and a customer by
the name of Lynn Gould ("Gould"). Gould later
contacted E`ola herself to complain about
Harrington's treatment of customers and Rogers
followed up by issuing Gould a refund directly from
E`ola's corporate office. In addition, Swaya
contacted Don Rivers ("Rivers"), owner of E`ola,
twice to complain about plaintiffs' conduct.
12. Other calls received by E`ola from late August
to mid-September prompted Rogers and Brosnan to
contact Darovec and again and reiterate E`ola's
position that distributors are expected to comply
with E`ola policies and procedures, act
professionally and politely to members of their
downline and to their customers, and that they are
supposed to train and support their downline.
13. Still, the complaints about plaintiffs
continued. On September 12, distributor Chris Rogers
(no relation) sent Rogers a letter detailing
complaints against plaintiffs. The letter states, "I
am sorry to inform you that I have not met one person
in this group who has not been injured in some way
directly by . . . Harrington or . . . Darovec," and
continues with explanations of how plaintiffs had
taken or attempted to take other distributors'
customers (including two of her own), how they do not
adequately train members of their downline, and how
they had taken credit for sales made by members of
their downline at the carts. Rogers spoke to Chris
Rogers thereafter regarding her complaints and also
called every other distributor who had made
complaints about plaintiffs up to that date to
15. The next day, Atkins wrote a letter to Rogers
and Reis that stated that although she had positive
feelings about E`ola, "if every step of the way I'm
going to be undermined and undercut by the very
person [referring to Harrington] that is suppose[d]
to be helping me [then] forget it." Atkins also
reported that Harrington had called her "a disgrace
to E`ola" because she chose to sell products at their
suggested retail price and not ...
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