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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,
V.
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.

FACTS*fn1

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 Policy 6).

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 during 1997:

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 Mall.
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 plaintiffs' downline.
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.
8. In fact, the problems worsened. On June 27, distributor Diane Forman ("Forman") complained about E`ola's failure to respond to the numerous complaints about plaintiffs. Forman also informed E`ola that due to the fact that the May article quoted a price of $17.50 per bottle of Liqua Thin or Amp II Pro Drops (whereas she was selling sets of the bottles for $45.00) and stated that the products could be purchased from Randhurst Mall, she was forced to close her cart at that mall. Forman wrote, "Our customers feel lied to and cheated. Now we must sell [these products] for wholesale or go out of business . . . [because] our mall was mentioned in [the] article but we never asked for that or were ever informed. Customers now come waving the . . . article!"*fn5 Rogers contacted Forman to discuss her complaints.
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 Reeves-Skonie.
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 investigate further.
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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