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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 ...

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