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Medallion Products, Inc. v. McAlister

October 9, 2008


The opinion of the court was delivered by: Geraldine Soat Brown, United States Magistrate Judge

Judge John W. Darrah


Before the court is the "Motion to Compel Production of Evidence Based on Crime Fraud Exception to Attorney-Client and Work Product Privileges" ("Mot.") filed by Plaintiffs Medallion Products, Inc., Envera, LLC, and Performance Chemicals, Inc. (sometimes collectively, "Plaintiffs"). [Dkt 317.] The motion is directed against defendants Nature's Pillows, Inc., Direct Response, Inc., Media Enterprises, Inc., William McAlister, and Brad Specter (sometimes collectively, "NPI Defendants"), as well as Plymouth Direct, Inc. (f/k/a H.C.T.V., Inc.), Harriet Carter Gifts, Inc., and Steven Silbiger*fn1 (sometimes collectively, "Plymouth Defendants"). The NPI Defendants and Plymouth Defendants filed a consolidated opposition to the motion (dkt 339), and Plaintiffs filed a reply (dkt 348). For the following reasons, the motion is denied.


Plaintiffs' Claims In This Case

In this case, Plaintiffs allege, in summary, that they developed a pet-stain-removal solution for a product called "Urine Gone," and that the Plymouth Defendants, who marketed Urine Gone, agreed to purchase the solution exclusively through Plaintiffs. (Fourth Am. Compl. ¶¶ 33-36, 41.) [Dkt 305.] Plaintiffs allege that the Plymouth Defendants and their joint venturers, the NPI Defendants, breached the agreement to purchase Urine Gone exclusively from Plaintiffs and substituted a counterfeit product produced by the "ICC Defendants" (defendants International Chemical Corporation d/b/a Innovative Chemical Corporation and James Timlin) that was falsely marketed as the same as Plaintiffs' solution. (Id. ¶¶ 17, 18, 68-86.) Plaintiffs assert various claims, and certain Defendants have filed counterclaims.*fn2

The Present Motion

In their motion, Plaintiffs contend that Defendants' continued selling of "a substitute product" as having features possessed only by Plaintiffs' version of Urine Gone is a fraud. (Mot. at 1.) The gravamen of Plaintiffs' motion is that "Defendants' counsel actively aided that fraud by intentionally misleading the Federal Trade Commission in its investigation of the product for possible violation of the Federal Trade Commission Act . . . ." (Id.) Plaintiffs contend that Defendants' counsel "created" a fraudulent new defense: "it works and has enzymes," as a result of "counsel-directed investigations and product testing" that Defendants have not produced. (Mot. at 9.) Plaintiffs argue that the court should apply the crime-fraud exception to the attorney-client privilege and abrogate the privilege with respect to communications and actions in furtherance of the alleged fraud.

In particular, Plaintiffs argue that a letter written by an attorney for defendant Plymouth Direct, Inc. to the FTC in April 2006 is a "smoking gun" evidencing that Defendants "knew the Innovative product did not meet adverted [sic] statements of performance: Medallion's product works as advertised and Innovative's substitute cleans 'and has enzymes.'" (Mot. at 9; Reply at 3.)

While not suggested by the motion's title, Plaintiffs also argue that communications at a meeting among the defendants are not protected by the common interest doctrine. (Mot. at 8.)

Notably, the motion does not request any particular documents, for example, by reference to a privilege log. Rather, Plaintiffs ask the court to compel the Plymouth and NPI Defendants to produce categories of documents, including memoranda reflecting interviews, investigations, testing or other communications by or among Defendants' counsel relating to using product testing in responding, inter alia, to the FTC or this lawsuit. (Mot. at 15-16.) Plaintiffs also seek to take the depositions of various Defendants and their attorneys "regarding matters revealed in these documents." (Id. at 16.)


The parties have submitted more than four inches of briefs and materials on the motion. The motion contains serious accusations against counsel. The court has carefully reviewed the materials submitted by both sides to separate argument and inference from the actual evidence. That process was complicated by Plaintiffs' failure to cite any evidence or part of the record for certain factual statements.*fn3 Arguments in a brief, unsupported by documentary evidence, are not evidence. United States v. Stevens, 500 F.3d 625, 628-29 (7th Cir. 2007) (quoting Campania Mgmt. Co. v. Rooks, Pitts & Poust, 290 F.3d 843, 853 (7th Cir. 2002) ("[I]t is universally known that statements of attorneys are not evidence."). As it must, the court has disregarded any unsupported factual statements made by any party.

The Parties And Their Principals

Plaintiffs: Medallion Products, Inc. ("Medallion") designs and markets consumer products. (Fourth Am. Compl. ¶ 5.) Monica Kroeger ("Kroeger") and Sheetal Ghai ("Ghai") are officers and employees of Medallion. (Medallion, Envera, Kroeger, & Ghai's Answer to Plymouth's Restated Countercl. ¶¶ 4, 5.) [Dkt 368.] Performance Chemicals, Inc. ("Performance") manufactures and sells chemical products. (Fourth Am. Compl. ¶ 6.) Performance's president is Joe Coligado. (Id. ¶ 27.) Envera, LLC ("Envera") provides biochemical technical and laboratory services, including the development and testing of biochemical agents. (Id. ¶ 7.) Michael Matheny ("Matheny") is Envera's managing partner. (Mot., Ex. 5, Aff. of Michael Matheny ¶ 1.)

Plymouth Defendants: Plymouth Direct, Inc. ("Plymouth") markets and distributes products on television and other media. (Plymouth Defs.' Answer to Fourth Am. Compl. ¶ 14.) Harriet Carter Gifts, Inc. ("Harriet") sells products through catalogs and internet sales. (Id. ¶ 15.) Plymouth and Harriet share common ownership. (Id. ¶ 16.) Plaintiffs allege that Steven Silbiger ("Silbiger") is an officer and employee of Plymouth and HCTV. (Third Am. Compl. ¶ 12.) According to Plaintiffs, William Garbose, who is not a defendant, is the president of Harriet and vice president of Plymouth. (Mot. at 7.)

NPI Defendants: Nature's Pillows, Inc. ("NPI"), Direct Response, Inc. ("Direct Response"), and Media Enterprises II, Inc. d/b/a Media Enterprises, Inc. ("Media Enterprises") are companies that market and sell consumer products. (NPI Defs.' Answer to Fourth Am. Compl. ¶¶ 10-12.) William McAlister and Brad Specter own NPI, Direct Response, and Media Enterprises. (Id.)

ICC Defendants: International Chemical Corporation d/b/a Innovative Chemical Corporation ("Innovative" or "ICC") develops, manufactures, and sells chemical products. (Innovative & Timlin's Answer to Fourth Am. Compl. ¶ 17.) James Timlin is one of Innovative's owners and its chief executive officer. (Id. ¶ 18.)

Medallion's Letter To Defendants

On October 21, 2005, Michael Lake, an attorney for Medallion, sent a letter addressed to Silbiger at HCTV (the predecessor of Plymouth), to Messrs. McAlister and Specter at NPI, and to Innovative, stating that Medallion had purchased a bottle of Urine Gone in a Walgreen's store and had tested its contents, and that the solution did not perform as the Medallion product does. (Mot., Ex.6.) The letter stated that the solution "does not eliminate the glow from a urine stain as seen under black light," "does not chemically react with urine residue to eliminate the odor-producing chemicals 'as seen on TV,'" and "there are almost no detectable enzymes in the solution," "[h]ence, no 'enzyme action.'" (Id. at 2.) Medallion's attorney demanded a report from NPI and HCTV by October 24, 2005, and threatened legal action, including an FTC investigation. (Id. at 3-4.)

The subsequent exchange of letters is relevant to Plaintiffs' argument about the common interest doctrine.*fn4 Responses to Lake's letter were sent by attorney Deborah Chadsey (of the Kavinoky Cook law firm) on behalf of Innovative, attorney Matthew Adler (of the Pepper Hamilton law firm) for NPI and Direct Response, and attorney Martin Faigus (of the Caesar, Rivise, Bernstein, Cohen & Pokotilow law firm) for Plymouth, on October 23, 24, and 28, 2005, respectively. (Opp'n, Ex. 1.) Ms. Chadsey and Mr. Adler both stated that their clients rejected any contention that Innovative's products are defective, and requested data supporting Mr. Lake's statements. (Id.) Mr. Adler referred to the possibility of his clients bringing claims against Medallion, and Ms. Chadsey stated that "Innovative is fully prepared to enforce and defend its rights and reputation." (Id), unnumbered attachments.) Mr. Adler sent copies of his letter to Ms. Chadsey and Mr. Faigus. (Id.) Mr. Lake sent a further letter to Mr. Adler and Ms. Chadsey on November 4, 2005, and copied Mr. Faigus. (Id.) Mr. Adler responded on November 10, 2005, copying both Ms. Chadsey and Mr. Faigus. (Id.)

Medallion's Letter To The FTC

On December 15, 2005, Mr. Lake wrote to the FTC's Midwest Division and the FTC's Division of Advertising, stating, in summary, that Medallion had developed a proprietary enzyme-based solution for eliminating urine stains; that Medallion's product, along with a black light used to detect and monitor the stains, was the subject of nation-wide infomercial marketing but that the companies who were filling the orders generated from the infomercials, while still promising "enzyme action" "As Seen on TV," had substituted "a non-enzyme based product" for sale in the retail market (retail stores, catalogue, and internet). (Opp'n, Ex. 1 at 1.) Medallion asserted that Defendants were perpetuating a "significant deception of millions of customers" because the retail Urine Gone kits had "no enzymes, no citric acid, and an ineffective black light." (Id. at 6.) Mr. Lake attached the letters from Ms. Chadsey, Mr. Adler, and Mr. Faigus, which he called "threatening, and unhelpful." (Id. at 3.)*fn5

Specifically, Medallion claimed that the ingredients for the product sold at retail had been changed significantly. (Opp'n, Ex. 1 at 3.) Mr. Lake told the FTC, "Medallion has had multiple samples from various retailers tested for the presence of enzymes and has found no evidence of any enzymes in the solution. See Table of Test Results (Tables) below." (Id. (emphasis added).) Mr. Lake further said that a sample bought from the Harriet Carter catalogue "was also subsequently found to contain no enzymes, as seen in the Table below." (Id. (emphasis added).)

Medallion argued to the FTC that:

[T]he infomercials sell hard the fact that "enzyme action" will treat urine stains in a way that soap and water cannot. . . . "Enzyme action" is the scientific basis for the product and is the key ingredient for the claims and the independent laboratory testing done to verify the statements used in the infomercial and label packaging. Without enzymes in the formulation (and enzymes that work with the speed and effectiveness of the genuine solution), the product is not the same "As Seen on TV". Additionally, the package labeling of the non-Medallion product states that it has "enzyme action" when as seen in the Table below, no enzymes exist. (Id. at 4 (italicized emphasis added).)

The "Table" in Lake's letter compares test results for Urine Gone acquired by Medallion at retail (i.e., Innovative's version) with test results for Medallion's solution. (Id. at 5.) Defendants particularly contest the column entitled "Enzyme Count per gram/milliliter," which reports that for the retail Urine Gone, the count was less than 10 CFU. (Id.) (The result for Medallion's formula is blacked out.) Notably, the test results purportedly supporting the "enzyme count" column reported the "aerobic plate count," not enzymes. (Opp'n Ex, 1, attachments J & K.) Aerobic plate count is a measurement of bacterial activity, in which oxygen is measured to determine the amount of bacteria in a given sample. (Opp'n, Ex. 2, 12/18/07 Dep. of Michael Matheny at 69.) CFU generally means "colony forming unit," which measures the amount of bacteria needed to give rise to one colony on an auger plate. (Id. at 71-72.)

During his deposition, Mr. Matheny, managing partner of Envera, testified that aerobic plate counts and CFU measurements are used to determine the presence of bacteria, not enzymes. (Id. at 69, 71-72.) He stated that enzymes and aerobic plate count "are totally different things." (Opp'n, Ex. 3, 2/27/08 Matheny Dep. at 50.) Mr. Matheny also admitted that Medallion's letter to the FTC used the word "enzyme" "incorrectly"; that if he had seen a copy of the letter before it was sent he "would not have allowed it to go through like this"; and he agreed that it was "sort of inconsistent" for the letter's table to list colony forming unit counts under the heading "Enzyme Count." (12/18/07 Matheny Dep. at 131-33.) Neither Ms. Kroeger nor Mr. Matheny saw the letter before Lake sent it, although Ms. Kroeger saw a rough draft (Matheny could not recall whether he saw a draft). (Reply Ex. B, Dep. of Monica Kroeger at 123; Reply, Ex. C, 12/18/07 Matheny Dep. at 124-27.)

The FTC's Letter to Plymouth

On March 8, 2006, Alysa Bernstein, a staff attorney for the FTC, sent a letter of inquiry to Silbiger at Plymouth, notifying him that the claims being made for Urine Gone sold through retail marketing channels might be in violation of Section 5 of the Federal Trade Commission Act. (Mot., Ex. 18.) The letter stated that the packaging of Urine Gone being sold through retail marketing channels included the claim that the product was "As Seen on TV" and "with Enzyme Action," and that while the infomercials for Urine Gone appeared to discuss enzyme action as "the key active ingredient" acting as an "odor and stain eliminator," the ingredients listed on the label failed to list any active enzyme ingredient. (Id.)

The FTC asked that Plymouth provide, among other things: an assay of the ingredients for every formulation of Urine Gone sold from March 2005 through the letter's date; the name of any retailer who has sold each formulation; the advertising that was disseminated during the time each formulation was sold; and any testing upon which Plymouth relied to substantiate all claims made in the advertising and on the packaging for any version of the product sold through retail marketing channels, including substantiation for the claim that the product is a "stain & odor eliminator" with "Enzyme Action." (Id.)

Plymouth's Retention Of Counsel

Richard McElroy, one of Defendants' attorneys accused by Plaintiffs in the motion, was retained by Plymouth, along with Blank Rome (then his law firm), in March 2006 to represent Plymouth in connection with the FTC inquiry. (Opp'n, Ex. 4, Decl. of Richard P. McElroy ¶ 6.) Mr. McElroy asked a Blank Rome associate, Lesli Esposito, to assist him in the representation. (Id. ¶ 7.) Ms. Esposito had been a staff attorney in the Competition Bureau of the FTC prior to being hired by Blank Rome a year earlier in March 2005. (Id.) On March 17, 2006, Ms. Esposito contacted Ms. Bernstein at the FTC to see if the FTC was flexible on the date for Plymouth's response to the FTC's letter. (Id. ¶ 8.) Ms. Esposito subsequently signed the April 12, 2006 response letter to the FTC, which Plaintiffs call the "smoking gun." (Mot., Ex. 20.)

The Eckhaus Litigation

On March 2, 2006, Pamela Eckhaus filed a putativeclass action in the Eastern District of New York against NPI, McAlister, Specter, and Silbiger ("the Eckhaus litigation"). (See Class Action Compl., Eckhaus v. Nature's Pillows, Inc. et al.) [Dkt 1, 06 C 985, U.S. Dist. Ct., E.D.N.Y.] That complaint alleged claims for consumer fraud and unjust enrichment arising out of the Eckhaus defendants' alleged deception of consumers with respect to the advertising, promotion, and sale of Urine Gone. (Id. ¶ 1.) The Eckhaus defendants were served with the class action complaint March 15, 2006. (See Summons, Eckhaus v. Nature's Pillows, Inc. et al., 06 C 985, U.S. Dist. Ct., E.D.N.Y.) Messrs. Adler and Massey, with others, were counsel of record for NPI, Mr. McAlister, and Mr. Specter. (See generally Eckhaus, 06 C 985, U.S. Dist. Ct., E.D.N.Y.) Mr. McElroy, along with others, represented Mr. Silbiger.

Defendants' Meeting

At some point after receiving the FTC letter, Messrs. Garbose, Silbiger, Timlin, and possibly others met to discuss responding to the FTC letter as well as a letter Plymouth had received from the Electronic Retailing Self-Regulatory Program. (Opp'n, Ex 17, Dep. of William Garbose at 159-165.)*fn6 Ken Massey, an attorney from the law firm Pepper Hamilton, was present by phone. (Id. at 160; Mot. at 7.) The parties disagree about the date of the meeting, with Plaintiffs initially contending it was "early March 2006" (Mot. at 7), Defendants contending that it was May 18, 2006 (pointing to an entry of that date on Massey's time sheets (Opp'n, Ex.16)), and Plaintiffs in reply citing Mr. Timlin's testimony about meeting a person he believed was named Steve Silbiger in Harriet Carter's offices in April 2006. (Reply at 15, citing Ex. H, Dep. of James Timlin at 110.)*fn7

The evidence in this record does not conclusively establish the date, although Mr. Garbose's testimony places it sometime after March 24, 2006, the date of the ERSP letter. (Garbose Dep. at 158.)

Plaintiffs' motion contains a number of factual statements about that meeting (see, e.g., n. 3 above), but very little actual evidence about the meeting was submitted to the court. There is nothing in the record to support Plaintiffs' claim that "Defendants have stated that Mr. Massey was assigned to listen solely to protect such discussions from disclosure . . . ." (Mot. at 7.) Plaintiffs submitted only four pages of Mr. Garbose's deposition, consisting primarily of colloquy among counsel, Mr. Garbose's testimony that he did not remember the date of the meeting, and his affirmative answer to the question whether the purpose was to gather information to formulate a strategy to respond to the FTC and ERSP. (See Mot., Ex. 19, Garbose Dep. at 162.) Mr. Garbose's counsel instructed him not to answer deposition questions about the substance of the meeting, asserting Defendants' common interest in the attorney-client privilege and work product protection over that discussion. (Opp'n, Ex 17, Garbose Dep. ...

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