Opinion
Case No. 2:03-CV-272 TS.
November 25, 2004
MEMORANDUM DECISION AND ORDER FINDING DEFENDANTS IN CONTEMPT FOR VIOLATION OF COURT ORDER
This matter is before the court on Plaintiff's Motion for Civil Contempt Sanctions. An evidentiary hearing was held on May 17 and 20-21, 2004. On July 9, 2004, the parties filed simultaneous briefs.
As stated in the court's simultaneous Memorandum and Order Denying Defendant's Motion to Quash Injunctions, Whole Living is a holding company that owns all of Brain Garden's stock and conducts no ongoing business. For convenience, the court will refer herein to Brain Garden and Whole Living jointly as "Plaintiff."
I. PROCEDURAL BACKGROUND
A. OverviewThis case generally involves Plaintiff's claims for breach of contract and misappropriation of trade secrets and Defendant Don Tolman's counterclaims for breach of contract and unauthorized use of name. This case began in March 2003 with Plaintiff's request for a Temporary Restraining Order (TRO) and Preliminary Injunction to prevent Defendants' alleged use of its product formulas, its promotional and sales aids, its distributor lists, and to enforce an alleged two-year covenant not to compete.
On April 3, 2003, the court entered a TRO pending hearing on a preliminary injunction on April 10, 2003. On April 11, 2003, pursuant to the parties' stipulation that the terms of the TRO be continued pending briefing and decision, the court continued the TRO. On August 4, 2003, the court issued a Preliminary Injunction Order prohibiting Defendant's use of Plaintiff's sales promotional materials and formulas and prohibiting Defendant Don Tolman from engaging in certain actions in competition with Plaintiff's business "pending entry of Judgment in this case." Order Granting Plaintiff's Motion for a Preliminary Injunction and Preliminary Injunction, at 10-11 (August 4, 2003).
The injunction was based, in part, on the two-year covenant not to compete clause in Don Tolman's consulting contract. The court found that Plaintiff had shown that it was likely to prevail on the merits of its claim that the clause had begun to run on April 11, 2002, and that there were violations of that clause. Defendants admitted that they had largely copied Plaintiff's website, in some instances not even changing the name to the name of their new company, Defendant Great American.
Defendants strongly disputed the validity of the non-compete clause but, as noted in the August 4, 2004, Preliminary Injunction, Defendants conceded that an injunction was appropriate for trade secrets such as the product formulas, the website and promotional materials, and the distributor lists. As a result, Defendants stipulated that a permanent injunction be entered on those matters. Id. at 6, 8-9.
On January 23, 2003, an Initial Pretrial Conference was held and a trial date of February 14, 2005, was set. The parties have engaged in extensive discovery disputes before the Magistrate Judge. The disputes include Plaintiff's Motion to Compel pursuant to which the Magistrate Judge made the following finding:
The Court is convinced Jefferson Fairchild committed perjury during the 4/10/03 hearing. The Court recommends that Plaintiff's counsel refer the matter for investigation and/or prosecution.
Order on Plaintiff's Motion to Compel Production of Documents (Jefferson Fairchild) (May 13, 2004). That Order was not appealed. Jefferson Fairchild is Don Tolman's personal attorney. Mr. Fairchild testified at the April 10, 2003, preliminary hearing in support of his client's testimony regarding dates of certain events at issue in the contractual disputes. Jefferson Fairchild's testimony supported Defendant's position that the non-compete clause was invalid.
B. Related Motions
On February 23, 2004, Defendants filed an Amended Motion to Quash Preliminary Injunction and Prior TRO Nunc Pro Tunc to Dates of Origination. In that Amended Motion to Quash the Injunction Orders, Defendants alleged that Plaintiff's multi-level marketing program was an illegal pyramid, offered unregistered investment securities, or was a lottery. Defendants contended that the injunction should be quashed, nunc pro tunc to their date of issue under their theory that it is against public policy to protect illegal sales operations from competition by court injunction. By separate order, the court has denied the Amended Motion to Quash the Injunction Orders.
On March 12, 2004, Defendants filed a Motion to Modify Preliminary Injunction of August 4, 2003. In that Motion, Defendants sought, for the first time, to modify the Injunction to have Defendant's non-compete prohibition end on April 11, 2002.
Briefing on the Amended Motion to Quash the Injunction Orders and on the Motion to Modify Preliminary Injunction was completed on March 24, and April 9, 2004, and they were set for hearing on May 17, 2004. However, on May 4, 2004, Plaintiff filed the present Motion for a Temporary Restraining Order, Motion for an Order to Show Cause, and Motion for Contempt. On May 7, 2004, the court denied the new Motion for a Temporary Restraining Order on the grounds that the August 4, 2003, Preliminary Injunction Order was still in place. The court set the contempt matter for hearing beginning on May 17, 2004, and the evidentiary phase continued on May 20 and 21, 2004. Following the evidentiary hearing, the parties filed simultaneous briefs and proposed findings on July 9, 2004. In defense of the contempt proceeding, Defendants relied upon and adopted arguments made in their Motion to Quash the August 4, 2003, Preliminary Injunction Order, thereby requiring resolution of the Motion to Quash prior to the issuance of this Order.
On August 31, 2004, Plaintiff filed a new Motion for an Order to Show Cause against Defendants seeking criminal sanctions. As of the date of this order, there has been no response to that motion.
II. INJUNCTION
The August 4, 2003, Preliminary Injunction provides as follows:
ORDERED that, pending entry of Judgment in this case, the following are enjoined:
A. Don Tolman shall not solicit anyone on behalf of Think Again, Inc., d/b/a Great American Whole Food Farmacy, or any of its other d/b/as or related entities) (hereafter Great American), and shall not talk to any of Whole Living Inc.'s distributors (past or present) about any aspect of either business;
B. Don Tolman shall not defame Whole Living Inc.'s business or products;
C. Don Tolman shall not, directly or indirectly, engage in (whether as an employee, distributor, consultant, proprietor, partner, director, or otherwise) or have any ownership interest in, or participate in the financing, operation, management or control of, Think Again, Inc., d/b/a The Great American, the Wholefood Farmacy and shall not rewrite its website;
D. Don Tolman shall take no action in competition with Whole Living, Inc.
E. Defendants Don Tolman, Mark Bowen, Think Again, Inc., d/b/a Great American, the WholeFood Farmacy and their officers, agents, servants, employees and attorneys and those persons in active concert or participation with them who receive actual notice of this Preliminary Injunction shall not utilize, in whole or in part, any portion of the past, current or future Whole Living promotional and sales materials, including websites;
F. Defendants Don Tolman, Mark Bowen, Think Again, Inc., d/b/a Great American, the WholeFood Farmacy and their officers, agents, servants, employees and attorneys and those persons in active concert or participation with them who receive actual notice of this Preliminary Injunction shall not utilize the original content proportions set forth in the formulas sold to Whole Living on or about November 30, 1998, or any other product from such proportions, including, but not limited to, PhiPhi.
Preliminary Injunction, at 10-11 (emphasis added). The court finds that this Preliminary Injunction is not complex. Construing it strictly, it contains no ambiguities and is "clear enough to place Defendants on notice of what he must do to comply." F.T.C. v. Kuykendall, 371 F.3d 745, 761 (10th Cir. 2004).
III. CONTEMPT LAW
This court has the power to "punish by fine or imprisonment, at its discretion, . . . disobedience or resistance to its lawful . . . order." 18 U.S.C. § 401. In this civil contempt proceeding, Plaintiff seeks a determination of contempt and an award of monetary sanctions, including attorneys' fees and costs. The recent Tenth Circuit case, Kuykendall, supra, collects the applicable law on contempt. "[A] contempt sanction is considered civil if it `is remedial, and for the benefit of the complainant.'" Id. at 752 (quoting International Union, United Mine Workers of America v. Bagwell, 512 U.S. 821, 827 (1994) (additional quotation omitted).
It is well-established in our circuit that compensatory contempt actions are appropriately held before a judge, applying a clear and convincing standard for liability and a preponderance of the evidence standard for sanctions.
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In a civil contempt context, a plaintiff must prove liability by clear and convincing evidence. Reliance Ins. Co v. Mast Constr. Co., 159 F.3d 1311, 1315 (10th Cir. 1998). This means the [plaintiff] "has the burden of proving, by clear and convincing evidence, [1] that a valid court order existed, [2] that the defendant[s] had knowledge of the order, and [3] that the defendant[s] disobeyed the order." Id.Kuykendall, 371 F.3d at 754 and 756-757 (internal citations partially omitted).
"The contemnor's disobedience need not be `willful' to constitute civil contempt. Indeed, a district court is justified in adjudging a person to be in civil contempt for failure to be reasonably diligent and energetic in attempting to accomplish what was ordered." Bad Ass Coffee Co. of Hawaii, Inc. v. Bad Ass Coffee Ltd. Partnership, 95 F.Supp.2d 1252, 1256 (D. Utah 2000) (citation and footnote omitted).
An injunction binds those parties to the injunction, their agents and employees, and also binds "persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise." Fed.R.Civ.P. 65(d).
Individual corporate officers may be liable for a corporation's contempt. "A command to the corporation is in effect a command to those who are officially responsible for the conduct of its affairs." Id. (quoting Wilson v. United States, 221 U.S. 361, 376 (1911)). A corporate officer who is responsible for the corporation's operations must "take appropriate action within [his or her] power for the performance of the corporate duty" and may appropriately be held jointly liable for the contempt. Id. (quoting Wilson, 221 U.S. at 376 and citing United States v. Voss, 82 F.3d 1521, 1526 (10th Cir. 1996), for the proposition that it holds" that individual liability for contempt `may arise from the agent's general control over the organization's operations'").
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The [plaintiff and prior panel] emphasized our holding in Voss that "an individual who is responsible for insuring that a corporation complies with a court order cannot escape liability merely by removing himself from the dayto-day operations of the corporation and washing his hands of responsibility." See id. at 1526 (quoting Colonial Williamsburg Foundation v. Kittinger Co., 792 F.Supp. 1397, 1406 (E.D. Va. 1992)). We agree, but before this becomes a relevant issue, the [plaintiff] must have met its burden of providing clear and convincing evidence that [an individual] had the management control or power to prevent the contempt in the first place.Id. at 761.
A court may find individuals in contempt of injunctions like that involved here under three circumstances. One is . . . involves the failure of an individual in control of a corporation to prevent the corporation's violation of an injunction. See Wilson, 221 U.S. at 376; Voss, 82 F.3d at 1526.
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Second, a direct, personal violation of the terms of an injunction would, of course, be a legitimate basis for holding an individual liable. See Voss, 82 F.3d at 1526. . . . Finally, an individual could agree contractually in the Permanent Injunction to insure the compliance of a corporate entity.Id., at 759-760.
Defendants may assert a defense to civil contempt by showing by clear and convincing evidence that "all reasonable steps" were taken in good faith to ensure compliance with the court order and that there was substantial compliance, or relatedly by proving "plainly and unmistakably" defendants were unable to comply with the court order.Bad Ass Coffee Co. of Hawaii, 95 F.Supp.2d at 1256 n. 8 (quoting Bauchman v. West High School, 906 F.Supp. 1483, 1494 (D. Utah 1995)).
"Sanctions for contempt may only be employed for either or both of two distinct remedial purposes: (1) to compel or coerce obedience to a court order. . . . and (2) to compensate the contemnor's adversary for injuries resulting from the contemnor's noncompliance." Id. at 1256 (quoting O'Connor v. Midwest Pipe Fabrications, Inc., 972 F.2d 1204, 1211 (10th Cir. 1992) (additional quotation omitted).
If the court finds that there was substantial compliance with a court order, there may not be any reason to impose coercive sanctions. Id. at 1257.
Where the court imposes a fine upon the contemnor "`for compensatory purposes, the amount of the fine must be based upon the complainant's actual losses sustained as a result of the contumacy.'" Id. (quoting Perfect Fit Indus., Inc. v. Acme Quilting Co., Inc., 646 F.2d 800, 810 (2d Cir. 1981)). Clearly, the amount of any compensatory fine must be justified by evidence demonstrating the amount of loss to a reasonable degree of certainty.Id.
In Kuykendall, a case brought by the FTC to compensate consumers for violations of an FTC Act-authorized injunction, the Tenth Circuit held that gross receipts may be an appropriate measure of damages, where there is evidence of "pervasive, persistent contempt." Kuykendall, 371 F.3d at 765 (finding gross receipts may be awarded in civil contempt action to compensate injured consumers for violations of injunction). However, the court must find clear and convincing evidence of a "pattern and practice" of contempt to support such an award. Id.
For the court to be able to "accurately calculate actual loss, the defendants must be allowed to put forth evidence showing that certain amounts should offset the sanction assessed against them." Id. Thus, once a Plaintiff puts forth sufficient evidence to show the amount of its loss, the burden then shifts to the contemnor to show the figures are inaccurate or to present evidence that certain amounts should be offset. Id. It is the contemnor, however, who bears the burden of uncertainty of the calculation of damages caused by their contumacy. Id. If there is substantial compliance and where damages for the contempt would be coextensive with damages on the merits of the Plaintiff's claim, a court may defer damages to trial rather than award them on the basis of evidence of loss of gross revenues. Bad Ass Coffee Co. of Hawaii, 95 F.Supp.2d at 1257.
IV. FINDINGS OF FACT
A. Introduction
The court finds that Plaintiff has shown clear and convincing evidence that the August 4, 2003 Preliminary Injunction is a valid court order, that the defendants had knowledge of the order, and they disobeyed the order. Defendants violated the August 4, 2003, Preliminary Injunction Order in the following general areas: (1) Tyler Tolman, acting as agent for or employee of Defendants Don Tolman, Mark Bowen, and Great American when he solicited Plaintiff's distributors, used Plaintiff's sales and promotional aids, and promoted and arranged Don Tolman's solicitation of distributors for and investors in Great American; (2) Defendant Don Tolman solicited financing and investors for Great American, retained and controlled his beneficial interest in Great American, exercised control of and was involved in the operation, management, or control of Great American, and used Plaintiff's sales and promotional aids; (3) Defendant Mark Bowen extensively used Plaintiff's sales and promotional aids, controlled and directed many of Tyler Tolman's actions in violation of the Injunction, and acted in concert with Don Tolman in his continual competition with Plaintiff; (4) Defendant Great American acted through its CEO, its beneficial owner, and its agent and employees to violate the injunction by using Plaintiff's promotional and sales materials, its CEO's direction of violations, and by acting in concert and participation with Don Tolman, Tyler Tolman and Mark Bowen in their violations of the Injunction. There is clear and convincing evidence that Tyler Tolman, Don Tolman, Mark Bowen and Great American acted in concert to violate the Preliminary Injunction. Defendants have failed to establish any defense to their violations. The court will award damages plus attorneys fees and costs.
B. Plaintiff's Sales and Promotional Materials
Plaintiff's promotional and sales materials include the depictions, scripts and pitches used to sell and promote its products. Plaintiff's Vice President of Marketing Communications and Product Development, Bill Fifield, testified regarding his role in developing many of Plaintiff's promotional and sales aids. Mr. Fifield developed some of the aids by taping promotional talks Don Tolman gave when he worked for Plaintiff. Mr. Fifield then edited and rewrote the promotional talks as scripts and used them to produce audio presentations recorded by Don Tolman.
Plaintiff's promotional and sales aids include the following:
1. Big Fat Lie. An audio presentation developed by Mr. Fifield for Plaintiff. Plaintiff's script for this audio presentation includes testimonials by Plaintiff's clients. This presentation includes sections touting the "low pressure chamber" method of preparing foods. This presentation is sometime used as part of Plaintiff's promotional package called Daniel's Challenge.
2. Dirt on Salt. An audio presentation developed by Don Tolman and Mr. Fifield for Plaintiff.
3. Gaynor/ Carillon Bowl picture. Plaintiff's promotional and sale aid for a product called a Carillon Bowl included a picture of Mitchell Gaynor with the bowl.
4. Signature Foods. Plaintiff uses a specific series of pictures as a demonstrative exhibit to illustrate the theory of the signatures of food for purposes of promotion and sales. See Ex. 15, p. 3. It was used as a pitch extensively in Plaintiff's promotional materials such as its Message of Life video and its Signatures newsletter.
5. Sacred Foods/Ancient Origins. Advocacy of whole food meals that were once considered sacred by various ancient peoples is a fundamental promotional device used by Whole Living. Plaintiff's sales and promotional materials use this idea that whole food meals were sacred to a listing of ancient peoples and that Don Tolman rediscovered this secret. This pitch includes a discussion of the sacred proportions of foods.
6. Top Ten Things at a Grocery Store. A promotional and sales presentation that lists ten specific products such as Marlboro cigarettes. See Pl.s Ex. 15 at 2.
7. Weapons of War. A promotional presentation used by Whole Living in 2002.
8. Thompson Drawing. Tyler Thompson drew a picture of Don Tolman when he was a consultant with Whole Living, a drawing that was used as one of Plaintiff's promotional materials
9. Pulse. The distinct name used by Plaintiff for its major food product. Preliminary Injunction, at 5.
Defendants presented testimony by one Boyd Jentzsch, an attorney who works for a fitness company. He claims that in 1998, he worked as a researcher developing intellectual property for a French company called Essante and wrote a speech that uses materials that are the basis of the Big Fat Lie speech. However, he acknowledged that it would not have included such things as the testimonials used in the Big Fat Lie. The court finds Mr. Jentzsch's testimony to be irrelevant because Defendants admit that their versions of the Big Fat Lie and Dirt on Salt presentations are taken from Plaintiff's transcripts and large portions are identical to those previously used by Plaintiff as promotional and sales aids.
Defendants also introduced evidence that on October 16, 1998, Don Tolman sold the Brain Garden and its products to one Ron Williams, reserving any interest Don Tolman had in a program called Mental Muscle. However, subsequently, on November 30, 1998, Brain Garden, the company and Don Tolman as an individual, sold certain assets of the Brain Garden, including, "any other products being distributed by the Business or contemplated by the management of the Brain Garden not otherwise specified above." For purposes of this contempt proceeding, the court need not determine the ownership of the Mental Muscle program.
C. Tyler Tolman's Violations
1. Agent/Employee
Tyler Tolman is Defendant Don Tolman's son. When he is not traveling for Great American, Tyler Tolman lives above the Great American offices and production facilities in Rogersville, Tennessee. He is a distributor for Great American. The court finds that he also acted as an agent and/or an employee of Don Tolman, Mark Bowen, and Great American from at least October 2003, through the time of the evidentiary hearing.
Shortly after its issuance, Mark Bowen, acting president and CEO of Great American explained the August 4, 2004, Preliminary Injunction Order in great detail to Tyler Tolman. According to Tyler Tolman, Mr. Bowen told him exactly what he could say and not say and what his father and the company could do, and not do, under the Injunction and that thereafter he acted strictly according to those directions. Mr. Bowen told Tyler Tolman to say that his father had an injunction against him and could not be part of the company until April 12, 2004. Mr. Bowen also told him Great American could continue to use Plaintiff's promotional materials if they removed Don Tolman's picture and voice.
At the evidentiary hearing, Defendants attempted to portray Tyler Tolman as an independent distributor acting on his own behalf or on behalf of his "upline" Great American distributors whom he claims pay all of his expenses. However, Mr. Bowen admitted that there is an agreement for stock to be transferred to Tyler Tolman in the future. Further, in Great American's version of Plaintiff's Dirt on Salt sales aid, Mr. Bowen introduces Tyler Tolman as a stock holder in Great American. Pl.'s Ex. 32. Contrary to Tyler Tolman's testimony, Mr. Bowen testified that Great American had advanced money for Tyler's expenses. His compensation includes housing at Great American's facilities.
The court finds that at all times between the Injunction and the evidentiary hearings, Tyler Tolman agreed to and did act under the direction and control of Mr. Bowen as CEO of Great American, and for the benefit of Great American in conducting business on behalf of Great American. As set forth in greater detail below, that business included acting as Great American's representative in dealing with third parties such as Plaintiff's distributors, investors, the public, and Great American's own distributors. The evidence is clear and convincing that he receives compensation, including a promise of stock, for these efforts. The evidence is clear and convincing that Tyler Tolman was acting as the agent for Defendants Mark Bowen, Don Tolman and Great American.
The evidence would also support the alternative finding that Tyler Tolman was an employee of Great American, working for the company under the express direction and control of Mr. Bowen in exchange for compensation in the form of housing, other expenses, and future stock.
There is clear and convincing evidence that Tyler Tolman had actual knowledge of the Injunction from its inception, although he was careful to not read the Injunction and says he relied upon Mr. Bowen to interpret it for him. The court finds that as a result of the careful and detailed explanations he received regarding the Injunction that he otherwise had knowledge of the Injunction within the meaning of Rule 65(d). 2. Soliciting and Recruiting
Tyler Tolman has acted as Defendant Don Tolman's, Mark Bowen's, and Great American's agent when he solicited investments to be made in Great American through Don Tolman and recruited Plaintiff's distributors such as Kim Kinsella under Don Tolman's auspices.
Ms. Kinsella and her husband have been distributors for Plaintiff since November 2002. In October 2003, she traveled to a convention and paid for a double booth for the purpose of engaging in her business of selling Plaintiff's products. While at this booth, she was approached by Tyler Tolman. Tyler Tolman was at the same convention and had a booth selling Great American's rival products. Tyler Tolman went through the products displayed at Ms. Kinsella's booth and told her that Great American's products were basically Plaintiff's products in a different form. He invited her over to his booth for Great American's products. At his booth, he showed her the products that he claimed were the same as Plaintiff's products, using Plaintiff's name for the products. He gave her a brochure of those products. He attempted to recruit her to become a distributor for Great American Products on the basis that Plaintiff would soon be out of business. He told her that Plaintiff had treated his father unfairly regarding Plaintiff's stock and that if Plaintiff did not dismiss this action it would soon be out of business. He gave her a business card and represented that if she called the number she could talk to both him and his father about the business opportunity with Great American. He represented that his father would be glad to discuss Great American with her, as well as its income potential. He further told her that she could go to Great American's website to sign up as a distributor if, when the website asked if she was a Brain Garden distributor, she would indicate "no." Tyler Tolman represented that Don Tolman would be back with Great American by at least April of 2004. These actions were in active concert and participation with Don Tolman, Mr. Bowen and Great American in Don Tolman's violation of paragraphs A, C, and D of the Injunction.
Hereinafter, all paragraphs reference are from the August 4, 2003, Preliminary Injunction.
Kelly Madsen is an investigator hired by Plaintiff. On February 14, 2004, in her role as an undercover investigator, Ms. Madsen spoke to Tyler Tolman at a conference. Tyler Tolman had a Great American booth promoting its products. He told her that his father, Don Tolman, was the founder of Great American and was still in charge of the company. She told him she was interested in making a substantial investment in Great American. He responded that he would arrange for her to have a telephone conversation with Don Tolman. He told her that Don Tolman was still formulating everything for Great American, and was very much involved in the company. He also told her that his father was also starting camps for children. She told him she was not interested in the camps. Later in the day, Tyler Tolman told her he had made the arrangements and that she would receive a phone call from Don Tolman at an appointed time and telephone number. Subsequently, Don Tolman called Ms. Madsen at the time and phone number arranged by Tyler Tolman. These actions were in active concert and participation with Don Tolman, Mr. Bowen and Great American in Don Tolman's violation of paragraphs A, C, and D of the Injunction.
3. Promotional/Sales Materials
In September of 2003, at the direction and under the control of Mr. Bowen, Tyler Tolman re-recorded two of Plaintiff's promotional and sales videos, The Big Fat Lie and Dirt on Salt, using Plaintiff's scripts. At the October 2003, meeting with Ms. Kinsella, Tyler Tolman gave her a brochure of Great American's products and a CD audio called The Big Fat Lie — a recording she recognized as one of Plaintiff's promotional and sales aids. These actions were in violation of paragraph E of the Injunction. These actions were in active concert and participation with Don Tolman, Mr. Bowen and Great American in their violation of paragraph E.
At the February 14, 2004, meeting with Ms. Madsen, Tyler Tolman gave her a cassette recording of a conference call tape. Pl.'s Ex. 13. The tape is a recording of a promotional conference call made in February or March 2003, when Don Tolman launched Great American. On the conference call tape, Don Tolman promotes his company, Great American, and its products using Plaintiff's promotional and sales material. These actions were in active concert and participation with Don Tolman, Mr. Bowen and Great American in Don Tolman's violation of paragraphs A, C, and D.
On May 7 and May 10, 2004, Tyler Tolman appeared at meetings in Helena, Montana and Loveland, Colorado for distributors and spoke on behalf of Great American. These were the third and fourth of a series of four such meetings where his father was scheduled and advertised to appear to promote his company Great American.
David Lobree, one of Plaintiff's distributors, was invited to attend the Loveland, Colorado meeting. The advertisement stated it was a "free, informal private presentation." Pl.'s Ex. 1. Mr. Lobree recorded part of the meeting and several other of Plaintiff's distributors attended. As part of his presentation at the May 10, 2004, meeting, Tyler Tolman used Plaintiff's sales and promotional materials, including: The Top Ten Things at a Grocery Store, Weapons of War, and Signature Foods. These actions were in violation of paragraph E of the Injunction.
Tyler Tolman testified initially that no one from Great American had anything to do with his setting up the May 10, 2004, meeting and that he personally had gathered the information he presented on the Weapons of War. However, when informed by the court that it would not tolerate perjury, he suddenly recalled that Mr. Bowen had given him some of the information he presented at the May 10, 2004, meeting. Tyler Tolman's testimony regarding the role of Mr. Bowen and Great American in setting up and advertising the meetings was inconsistent and typical of the lack of credibility that distinguished his testimony. For example, although Tyler Tolman claimed his participation at the May 10, meetings was last-minute, the Great American website clearly showed he was always scheduled to appear with his father at the Loveland meeting. These actions were in violation of paragraph E. These actions were also in active concert and participation with Don Tolman, Mr. Bowen and Great American in Don Tolman's violation of paragraphs A, C, and D of the Injunction and Mr. Bowen's and Great American's violation of paragraph E of the Injunction.
4. Active Concert
As noted, Tyler Tolman admits that the Injunction was explained to him in great detail by Mr. Bowen on behalf of Great American. He admits that he re-recorded the Dirt on Salt and Big Fat Lie audio presentations at Mr. Bowen's direction and for Great American to use in its business. However, he denies ever having seen the Injunction until shortly before the evidentiary hearings and there is no evidence that Plaintiff ever had him served personally with the Preliminary Injunction. The court finds that Tyler Tolman's violations of the Injunction were in active concert and participation with Don Tolman, Mr. Bowen and Great American in their violations of the Injunction. The court finds that they are established by clear and convincing evidence and that they were pervasive, persistent and part of a pattern and practice of contempt directed by Mr. Bowen and Don Tolman on behalf of themselves and their company Great American. As a result, his actions form part of those Defendants' willful violation of the Injunction. Further, his actions as agent or employee of Great American and under the direction and control of Mr. Bowen are binding on the Corporation and Mr. Bowen personally. The court finds that Tyler Tolman has failed to establish any defense to these violations of the Injunction. However, as he was clearly acting in a position as agent/employee throughout the violations, and was not in control of Great American and was not in a position to ensure its compliance with the Injunction, the court will not find him individually liable for the damages.
D. Don Tolman's Violations
1. Ownership and Control
Don Tolman testified that he had knowledge of the terms of the Injunction. He testified that his wife, Amber Tolman, currently holds Great American stock in her name. However, there is an unwritten understanding that as soon as he is free of this lawsuit, he will receive formal ownership in the company. As with the situation with Ms. Tolman's holding of stock to be put in Tyler Tolman's name at a future date, it appears that she holds legal title to the stock while others, such as Don and Tyler Tolman hold beneficial interest. Don Tolman's testimony that he does not know how much of the Great American stock she now holds and how much he will receive as soon as he is "free" of this litigation is not credible. As late as June 2003, Don Tolman continued to hold the Great American Wholefood business license in his name. The court finds these actions in violation of paragraph C.
Don Tolman testified that he works in Rogersville, Tennessee, ostensibly at the restaurant next to Great American. Don Tolman and Ms. Tolman personally own the buildings in Rogersville, Tennessee that house the operation of Great American. Those premises consist of three buildings located side by side, sharing common walls with connecting doorways. Great American maintains its manufacturing facilities and recording studio in some of the buildings, and a restaurant is periodically operated in another of the three buildings. Great American pays rent to Don and Amber Tolman which exceeds the mortgage payment owed by them. The excess amount covers "most of" their house payment on their private home. The court finds that this payment is clearly a means by which Great American continues to provide compensation to Mr. Tolman by paying his personal house payment in return for efforts for the company. These actions are in knowing violation of paragraph C.
In January 2003, before Great American had launched or made any sales, it paid Ms. Tolman $9,600. From January through October, 2003, Great American paid Ms. Tolman approximately $49,500, not including the rent payments for its business premises, payments which as noted, paid the Tolmans' personal house payment.
Don Tolman is also paid between $60 and $72 a week from the restaurant. That small income is what he uses to pay child support. Notwithstanding the fact that Don Tolman claims that he earns only the minimal amount he uses to pay for child support, he travels extensively and spends anywhere from ten days to two weeks a month outside of Rogersville, Tennessee, "getting away, writing and finishing up." (Tr. at 276). For example, when Don Tolman called Ms. Madsen, he told her he was in Spokane, Washington and would be traveling on to Seattle, and could meet with her in Burley, Idaho.
Avoidance of a garnishment for child support was one of the reasons for Don Tolman's April 2002, termination of his previous Consulting Agreement with Plaintiff. See Preliminary Injunction, at 3-4.
Although he claims he is "pretty much broke" (Tr. at 282), he also claims to have no idea where the money comes from to pay for his extravagant lifestyle of travel to get away, write, and speak at meetings in such places as Delaware, New York, and California.
Don Tolman testified that his extensive travel and soliciting since the issuance of the August 4, 2003, Preliminary Injunction Order has been on behalf of a company called Oneironautica, a company that he started in 2001 and incorporated in 2003 for the presentation of training, education, memory, and leadership seminars. He testified that during the period of the injunction, he has received no income from the seminars he claims were for Oneironautica, that Oneironautica has received no income from his work on its behalf and that he has not found a single investor for Oneironautica.
However, the evidence shows that Oneironautica was operating as a corporation in August of 2001, in Rogersville, Tennessee as a whole foods sales, production, and education company. Don Tolman was its President and Mr. Bowen and Ms. Tolman were officers. Oneironautica produced and sold whole food products in 2002, including a product similar to Plaintiff's main Pulse product. It operated continuously until sometime in March 2003, when its bank accounts were closed. According to Mr. Bowen, Great American launched in approximately March 2003, the same month as Oneironautica closed its accounts. By June 2003, Oneironautica's business licence expired. The court finds that Oneironautica was a business that became defunct when Don Tolman, Ms. Tolman, and Mr. Bowen launched Great American and closed Oneironautica's accounts. The court finds that, during the period of the Injunction, Don Tolman occasionally used the name Oneironautica, a defunct business, as a front in an attempt to conceal his work on behalf of Great American.
During his extensive travels around the country, Don Tolman charges his expenses to a credit card, but claims that he does not know how the credit card bill is paid — testimony so unbelievable that it can only described as fantastic. The evidence is clear that his expenses in this period were not paid by Oneironautica, which was defunct, had closed bank accounts, and, according to Don Tolman, had no investors and no income from his activities.
Don and Amber Tolman have joint credit cards which they use to purchase goods and services. Mr. Bowen says that prior to the Injunction, Great American paid for the charges on the credit cards used by Don and Amber Tolman jointly, but after the Injunction they paid for Ms. Tolman's expenses only. However, the nature and amounts of those expenses are not disclosed.
This evidence together is clear and convincing evidence of Great American's extensive financial compensation for the benefit of Don Tolman during the period of Don Tolman's continued ownership, control, and involvement with Great American throughout the Injunction period in knowing violation of paragraph C.
In addition, Don Tolman's continued ownership interest in and control of Great American is evidenced by representations of such ownership and control made to Ms. Madsen, discussed below, and such things as his ability to direct the hiring and firing of persons for Great American.
Adele Henkel, a Great American distributor, met Don Tolman on October 17 and 18, 2003, at meetings in Santa Monica, California. She asked about a job with Great American. He told her he wouldn't be hiring until the new year. She followed up with emails and her resume. In November 2003, Don Tolman told her she could come to Tennessee and work for Great American. She moved to Rogersville, Tennessee and started work for Great American around the first of the year, initially receiving housing and various subsistence assistance in lieu of a salary. Don Tolman gave her a tour of Great American's facility and explained that he was producing informational videos and materials for sale on the Great American website. Ms. Henkel worked only briefly for Great American, under Ms. Tolman's supervision. When the job did not work out, Don Tolman was the person who told her that the other employees did not want to work with her. He also explained that there had been approximately thirty other Great American employees who had not worked out and that his staff was burnt out. Ms. Henkel later attempted to sue Don Tolman and learned that he claimed his business was Oneironautica, Think Again, Inc., and the Wholefood Farmacy — a mix of the names of his defunct and present corporations.
Ms. Henkel is a disgruntled former employee of Great American. However, the court found her testimony regarding Don Tolman's control of her hiring and firing at Great American to be credible and, as such, is clear and convincing evidence of his continued participation in the operation, management and control of Great American in violation of paragraph C.
As early as January 2004, Don Tolman and Mr. Bowen began preparing the marketplace for Don Tolman's public re-emergence as the founder and president of Great American by the presentation of Don Tolman on an Internet website entitled dontolman.net. Don Tolman maintained this personal website but asked Mr. Bowen to handle the details.
The court finds by clear and convincing evidence that Don Tolman knowingly and willfully violated the Injunction paragraphs C and D by maintaining his ownership in, participating in obtaining financing for, and the operation, management, and control of Great American throughout the Injunction period. Great American was founded to compete with Plaintiff in the whole foods industry and Don Tolman continued to participate in Great America and promote it throughout the Injunction period in violation of paragraphs A, C, and D of the Injunction.
2. Soliciting/Recruitment
In addition to his continued ownership, control of and involvement with Great American, Don Tolman used various subterfuges to continue soliciting and recruiting on its behalf in violation of paragraph A. Don Tolman used Tyler Tolman as his agent to allow him to secretly continue his solicitation of distributors and investments in Great American. For example, he used Tyler Tolman to convey to Ms. Kinsella the advantages of doing business with Great American and to provide the phone number where she could talk directly to both of them about business opportunities with Great American.
Similarly, Don Tolman also used Tyler Tolman as an intermediary to arrange a phone conversation where he solicited investments in Great American with Ms. Madsen. He used Tyler Tolman to pass out a tape of his conference call, wherein he engaged in promotional and solicitation activities subsequently enjoined and thereby effectively continued the very activities prohibited by paragraphs A, C, D, and E.
As noted above, on the afternoon of February 14, 2004, as arranged by Tyler Tolman, Don Tolman called Ms. Madsen at her hotel room in Los Angeles, California to talk about her proposed investment in Great American. Don Tolman told Ms. Madsen that he had started Great American and that he had brought back the sacred meals. Don Tolman explained to Ms. Madsen that she could be a distributor or that she could invest money and get a return on the money. He told her that he was going to keep 100 percent control of Great American, would maintain 65 percent of the finances, and that the public could keep up to 35 percent. He told her it was a new company, that he was going to take it public and that there would be explosive growth. Don Tolman told Ms. Madsen that he could meet her in Burley, Idaho to discuss the company and see if she wanted to make an investment.
Defendants argue that the new company he was discussing was Oneironautica. However, the evidence is clear and convincing that the discussion was about Great American. Further, the evidence is clear and convincing that Great American is a much newer company than the defunct Oneironautica.
From April 3, 2003, through August 4, 2003, Don Tolman was enjoined from soliciting anyone on behalf of Great American. Temporary Restraining Order, ¶ (a) (April 3, 2004); Order Continuing Injunction, ¶ (a) (April 11, 2003); Preliminary Injunction, ¶ A (August 4, 2003). Between April 2003 and December 2003, Great American collected approximately $550,000 from individual investors. Don Tolman admits that, during the period of the Injunction, he spoke with persons who invested monies with Great American after August 2003. Although he claims he was soliciting investors for Oneironautica during this same period, he did not obtain a single investor for that company. From the evidence at the hearing, it was clear that he has engaged in extensive soliciting of investors/distributors in Great American in violation of the Injunction. For example, he told Ms. Henkel in late December 2003 or early January 2004, that he was on the road in Georgia raising funds.
In addition to violating the Injunction by using his son as an intermediary to solicit investors and distributors, and to give out the conference tape of him promoting Great American, Don Tolman also violated it by soliciting distributors directly by e-mail and promoted the company directly to distributors. On November 6, 2003, Don Tolman sent an email to Trent Ritchie, then a distributor for Whole Living in Australia. He also sent this email to numerous other individuals in Australia when he knew that Whole Living had distributors in Australia. The email subject line reads: "Re: Great American" and the email reads:
Hey, Great Australia Wholefood Farmacy is on its way. If you have any interest at all please contact Steve Truscott.
Pl.'s Ex. 30.
Don Tolman appeared on behalf of Great American at two distributor meetings prior to April 2004. As discussed above, on October 17, 2003, Don Tolman attended a private meeting of Great American distributors in Santa Monica, California. Prior to the October 17 meeting, Ms. Henkel was asked by her upline distributor to distribute written flyers which invited people to attend a public presentation by Don Tolman scheduled for October 18, 2004. Printed on the side of the flyers is "Oneironautica presents: Don Tolman Imaginist/Dreamer." In much larger print at the top of the flyer, it advertises: "Don Tolman Unplugged!" Pl.'s Ex. 4.
At the October 17, 2003, distributor meeting Don Tolman told the Great American distributors in attendance that he was under a restriction and could not talk about Great American or its products. However, samples of Great American's products were passed around during the meeting. He talked on memory, discussed this lawsuit, and also said that individuals associated with Plaintiff had embezzled funds.
A violation of paragraph B of the Injunction.
The public presentation to distributors held the next day, on October 18, 2003, featured Don Tolman, was attended by Great American distributors and was used to showcase and provide samples of Great American's products.
Sometime shortly after the Injunction, Mr. Bowen and Don Tolman determined that after April 11, 2004, Don Tolman could again publicly compete with Plaintiff. As early as October 2003, they had Tyler Tolman communicate this decision to Plaintiff's distributors and others.
On May 7, 2004, the Great American webpage on the Internet listed, under the heading "Meetings and Events," promotional events to be attended by Don Tolman in May 2004. Two were to be held in California, one in Helena, Montana, one in Loveland, Colorado, and one in Johnson City, Colorado. Don Tolman attended the promotional events for and on behalf of Great American in Santa Ana, California on May 5, 2004, and in San Diego, California on May 8, 2004. As noted above, Don Tolman did not appear at the Loveland, Colorado meeting and Tyler Tolman appeared as his replacement. These actions are in violation of paragraphs A, C, and D.
On April 13, 2004, Great American formally reintroduced Don Tolman as its president and founder on its webpage. The April 13, 2004, version of Great American's webpage promotes its business and its products using the Tyler Thompson picture. These actions and uses were directed by Mr. Bowen and authorized by Don Tolman in violation of paragraphs A, C, D, and E.
Don Tolman was aware of the Injunction and its terms. The court finds that his decision to appear at promotional events for distributors, to solicit investments, and his authorization of the use of Plaintiff's promotional and sales aids were not in good faith. He was aware that the Injunction continued until entry of judgment in this case. Although Don Tolman knew that court action was required to alter the Injunction, and that his attorney had attempted to obtain a modification, he simply decided on self-help. He knew the terms of the Injunction and made his decision to violate it for his own reasons. The court finds his testimony on the issue of his understanding of the clear language of the Injunction to be self-serving and unbelievable.
3. Sales and Promotional Aids
Don Tolman has consistently used Plaintiff's promotional and sales material since the Injunction. As noted above, on February 14, 2004, he used his son as his agent to distribute his conference call tape, a method whereby he could continue his enjoined actions of promoting his new company, Great American, using Plaintiff's promotional material.
Don Tolman's personal website used Plaintiff's sales and promotional aids. On January 14, 2004, by a picture of himself, Don Tolman states: "Hi, I'm Don Tolman, the guy who discovered ancient methods of hand crafting whole food meals that were once considered sacred." This is a use of Plaintiff's sacred-meals-rediscovered-by-Don-Tolman promotional materials.
As noted above, Don Tolman was aware of and authorized the use and sale by Great American of The Big Fat Lie audio presentation. He also authorized the use of Plaintiff's promotional and sales aids on Great American's website. These actions are in violation of paragraph E. 4. Willful Violations
At all material times, Don Tolman had actual notice of the Injunction and its terms. The court finds that his violations of its terms were deliberate, knowing, and willful. The court finds totally unbelievable his position that he believed the company could use Plaintiff's promotional aids if the voice were changed and that he would not be bound by the Injunction after April 11, 2004. The court finds the evidence to be clear and convincing that Don Tolman's violations were pervasive and persistent and part of pattern and practice of contempt directed by himself and Mr. Bowen on behalf of themselves and their company, Great American.
5. Acted in Concert
Don Tolman's testimony included several variations on the theme that he "never runs the day to day stuff" of his business (Tr. at 291) and thereby could not provide information about himself or his companies. The court finds this testimony to not be credible and to be merely an attempt to avoid responsibility for his decision to violate the Injunction by using his son, his company (Great American), Mr. Bowen, Plaintiff's sales and promotional aids, and all of his own time and efforts to promote and develop Great American in competition with Plaintiff throughout the Injunction period. At all material times, Don Tolman used Tyler Tolman to act on his behalf to continue to promote Great American and its products as well as to solicit investors. At all material times, Don Tolman authorized Mr. Bowen to act on his behalf regarding finances, his compensation from Great American, the Great American stock, the dontolman.net website, and Great American's website. In these actions, he was in active concert and participation with Tyler Tolman, Mr. Bowen, and Great American in their deliberate pattern and practice of violating the Injunction. The court finds that Don Tolman has failed to establish any defense to these willful, pervasive and persistent violations.
E. Mark Bowen's Violations
As noted, Mr. Bowen is Great American's acting president and CEO. He owns twenty percent of its stock. He was also involved in Oneironautica, its predecessor corporation. Mr. Bowen is an experienced businessman. Mr. Bowen was fully aware by actual notice of the terms and conditions of the Injunction from its inception. He, like the corporate defendant and Don Tolman, stipulated to be permanently enjoined from using Plaintiff's promotional materials and distributor lists. Preliminary Injunction, at 6 and 8.
The court finds that the evidence of Mr. Bowen's violations of the Injunction are so pervasive and persistent that they are not easily listed by category. At all material times, Mr. Bowen ran the business together with Ms. Tolman and Don Tolman. Mr. Bowen directed and controlled Tyler Tolman in all of his violations of the Injunction on behalf of himself, the company, Great American, and Don Tolman. His direction and authorization of the use of Plaintiff's scripts, the production of audio presentation from them, and his authorization of the sale of the aids are in violation of paragraph E.
Mr. Bowen directed the activities of the dontolman.net website. Mark Bowen made the decisions on what to place on the website throughout the injunction period. He admits he had access to remove some items, but claims he couldn't fully control it because he had trouble contacting the person who helped him set it up. The court finds that testimony as to lack of full access to be unbelievable, because he had access to add and remove items when it suited him to do so.
The January 14, 2004, version of dontolman.net contained a section entitled "the language of plants" which included the images previously used by Whole Living to illustrate the concept of the "Signatures" of foods and the Gaynor/Carillon Bowl picture. In the April 19, 2004, version of dontolman.net, some of Plaintiff's promotional and sales aids were removed. However, the April 19th version of dontolman.net contains "An Open Letter of Personal Invitation" that includes the Signature Foods, Thompson Drawing, and Pulse names. The May 7, 2004, version of dontolman.net continued to contain the opening page statement concerning sacred meals, the open letter of personal invitation with the reference to "Pulse", and the Gaynor/Carillon Bowl picture. These actions were in violation of paragraph E.
Don Tolman and Mark Bowen used dontolman.net to maintain Don Tolman's connection to and association with the products being sold by Great American and Plaintiff. Mr. Bowen directed the company's resumption of its public affiliation with Don Tolman after April 11, 2004. He admits that he did not take the decision lightly. At the time Mark Bowen made the decision to violate the preliminary injunction by reintroducing Don Tolman in the company's promotional materials and scheduling Don Tolman to appear at promotional events for the company and reintroduce Don Tolman as its founder and president, he knew that the Preliminary Injunction entered in this case was to continue until the trial of this matter. He testified that since Plaintiff did not instantly complain, he thought it was the right thing to act in violation of the express terms of the Order. The court finds that selfserving testimony to be disingenuous and unbelievable.
There is no evidence that he notified Plaintiff of these actions.
When Great American again stopped offering Plaintiff's Big Fat Lie and Dirt on Salt sales aids in Spring 2004, it was inundated with questions about those audio presentations. In response, on May 13, 2004, Mr. Bowen sent an e-mail to all of Great American's distributors stating, "Due to circumstances beyond our control a few of our products and sales aids will be temporarily unavailable and have been removed from the website . . . and we are doing everything in our power to bring them back as soon as possible." Ex. J. This e-mail clearly signaled Mr. Bowen's intent to continue to use Plaintiff's promotional and sales aids as soon as possible in violation of paragraph E.
The court finds the evidence is clear and convincing that Mr. Bowen directed and authorized a pattern and practice of persistent and pervasive violations of the Injunction. He did so in active concert and participation with Tyler Tolman, Don Tolman, and Great American. Mr. Bowen is the corporate officer who was in control of Great American and was in charge of insuring that it complied with the Injunction. Instead, he personally directed and authorized many of the violations and, as such, these willful violations are direct and personal violations of the Injunction. The court finds that Mr. Bowen has failed to establish any defense to the injunction.
F. Great American's Violations
Great American is charged with the knowledge of its officers and directors. As noted, Mr. Bowen, who was in charge of the company, had actual knowledge of the express provisions of the Injunction. Great American is liable for Mr. Bowen's deliberate decisions to direct and control actions of Tyler Tolman in violation of the Injunction as set forth above, his actions in setting up the dontolman.net website, using Plaintiff's promotional and sales aids, as well as his actions in active concert and participation with Don Tolman's violations of the Injunction as set forth above.
Great American acted through its officer, Mr. Bowen, its agent, Tyler Tolman, and its beneficial owner and agent, Don Tolman, to violate the Injunction as set forth above. In addition, Great American violated the Injunction by acting in concert and participation with Don Tolman's action which violated the Injunction.
G. Failure to Establish Defenses
Pursuant to the above findings, no Defendant has established any defense to their violations. Defendants admit, but attempt to minimize, many of their violations. They contend that they have substantially complied with the Injunction. The court finds that Defendants have not established substantial compliance, and that in fact, the evidence is quite the opposite.
Defendants next contend that no damages are awardable to Plaintiff because it operates an illegal pyramid scheme. The court has rejected that argument in its earlier Order denying the Motion to Quash the Injunction.
Defendants argue that Ms. Madsen entrapped them into violating the Injunction, a position the court finds ludicrous. It appears instead that her mild subterfuge revealed what appears to be the tip of the iceberg of Mr. Tolman's solicitation on Great American's behalf during the period of the Injunction. Further, Ms. Madsen's evidence was the basis of only a small part of the court's findings.
Defendants argue that they should not be held responsible for their violations because the Preliminary Injunction extended Don Tolman's two-year covenant not to compete beyond April 11, 2004. This totally ignores the shocking but consistent evidence presented at this hearing and the earlier Preliminary Injunction hearing that Don Tolman has competed with Plaintiff throughout the two-year period. He began his competition prior to the initiation of this action by setting up and launching his competing company, Great American. The evidence in this contempt matter is that since the issuance of that Injunction, he has ceaselessly continued his many efforts in competition with Plaintiff to the benefit of his new company, Great American. Unfortunately for Plaintiff, he appears to have been unable to so compete without using Plaintiff's products, (including using a wordfor-word copy of Plaintiff's website — an action enjoined by the Preliminary Injunction), or by using its promotional and sales aids after the issuance of the Preliminary Injunction. Thus, even absent his violations of the paragraphs which relate to the non-compete clause, Don Tolman, individually and together with the other Defendants, has continued in persistent and pervasive violation of paragraph E, a paragraph that is independent of the two-year non-compete clause.
Finally, the court finds that there is no evidence of substantial compliance with the Injunction or that all reasonable efforts were made in good faith to comply with any portion of the Injunction. Instead the clear and convincing evidence is that Defendants barely paid lip service to the Injunction's existence and instead embarked wholeheartedly on their persistent and pervasive scheme to continue the enjoined activities.
G. Damages
1. Actual Damages
In the Preliminary Injunction the court found that Plaintiff would suffer irreparable injury if an injunction were not issued as a result of "confusion in the marketplace as to its products and loss of market share and the loss of confidence by its distributors." Preliminary Injunction at 9.
Unfortunately, the record shows that such irreparable damages have now been incurred by Plaintiff. Insofar as it is possible to quantify the damages, the record establishes the following damages by a preponderance of evidence.
Since November, 2003, Whole Living's gross monthly revenues have decreased significantly. In October 2003, Whole Living had gross revenues from the sale of its products totaling $1,100,000, but by April 2004, Whole Living's monthly revenues had gone down to just over $600,000.
The decrease in Whole Living's monthly revenue from October 2003 to April 2004, was caused in part by the confusion created in the marketplace by Great American's advertising and sale of virtually identical products as well as the loss of confidence by Whole Living's distributors occasioned by Great American's business tactics. For example, in October 2003, Tyler Tolman told Plaintiff's distributor, Ms. Kinsella, that Great American had a lot of Plaintiff's products, only with different names, and stated that Great American still had the Pulse product, basically Pulse in a Bag, called Pi. He described Great American's current products using Plaintiff's names for the original products. Tyler Tolman actively recruited her and told her how to avoid the filter on Great American's website that was designed to prevent recruitment of Plaintiff's distributors. Ms. Kinsella testified as to the negative impact of his actions on her sales at that convention as well as the actual confusion of customers reporting to her the sale of the same products at Tyler's booth. Ms. Kinsella had a similar negative experience at another convention held in February 2004.
Other Whole Living distributors, like Mr. Lobree, have lost the benefit of distributors who formerly worked in their downline when those distributors switched from selling Plaintiff's products to selling Great American's products. Further, the evidence established that distributors in a multi-level marketing business invest a substantial amount of their own time and money in developing their business and will not do so if they have no confidence in the business due to a competitor's sale of substantially similar products.
Mr. Burdick testified as to the time and resources that Plaintiff spent in the years prior to the Injunction promoting Don Tolman as its company representative using such promotional and sales aids as signatures of foods and sacred foods/ancient origins. The areas of the country where Don Tolman was scheduled to travel for Great American in violation of the Injunction are the same areas where he was previously heavily promoted by Plaintiff.
Among the damages difficult to quantify are the loss of the time and attention of Plaintiff's officers, such as Doug Burdick, caused by the continual violations. An important part of a multi-level marketing company like Plaintiff's is training and motivating distributors, a job Mr. Burdick is unable to do when he expends the considerable energy that these injunction and contempt hearings require.
Whole Living has not operated at a profit, but prior to the violations at issue, it was increasing revenues and building its business. The court finds that the loss in revenue between Whole Living's gross revenues in October 2003, and those experienced in April 2004, are directly attributable to and the result of Don Tolman's, Mark Bowen's, Tyler Tolman's and, Great American's respective violations of the Preliminary Injunction. These lost revenues are greater than the difference between the October 2003 total and the April 2004 total because there were losses in each of those months between October 2003 and April 2004. However, the $500,000 difference is clearly supported by the testimony.
Defendants argue that nothing happened in the Fall of 2003 that could account for the decrease in Plaintiff's revenues and opines that the losses must have been caused by Plaintiff's ceasing to use Don Tolman's likeness and its modifications to its sales and commission programs. To the contrary, the court finds that the evidence establishes by a preponderance of evidence that Defendant's activities were the cause of Plaintiff's decrease in sales and gross revenues. In summary, that evidence was clear and convincing that beginning almost immediately after its entry in August 2003, Defendants, with full knowledge of the Injunction, engaged in a willful, pervasive, and persistent pattern and practice of violation of the Injunction. In September, 2003, Defendants re-recorded Plaintiff's foundational promotional and sales aids in preparation for their sale. In October 2003, Tyler Tolman appeared as Defendants' agent at a convention recruiting Plaintiff's distributors, distributing Plaintiff's promotional and sales aids, telling Plaintiff's distributors that his father would be running a competing company in April 2004, and representing that he could arrange a phone call with Don Tolman about business opportunities with that rival company. In the same month, Don Tollman personally appeared at two Great American distributor meetings promoting its products and alleging serious wrongdoing by Plaintiff's officers. In November, Don Tolman solicited Plaintiff's investors in Australia. In December, Don Tolman hired an employee for Great American and otherwise acted for Great American. By January, 2004, Don Tolman directed Mr. Bowen to set up dontolman.net. Under Mr. Bowen's direction, that website was using Plaintiff's promotional and sales aids and setting the stage for Don Tolman's resumption of overt competition. During this same time, Great American, at the express direction and control of its CEO, had already sold over 1,000 of Plaintiff's sales aids such as the Big Fat Lie, on its own website. Throughout the period of the damages, Great American continued to compensate Don Tolman for his continual efforts to solicit investors in and promote the company. Thus, by the time Don Tolman's work for Great American resurfaced in public in March and April, much of the serious damage to Plaintiff's business had already been inflicted through Defendants acting in concert to violate the Injunction.
During this same period, Great American's revenues jumped up. In August 2003, the month the Preliminary Injunction was issued, revenues were low at $10,476.65. In September sales went up to $12,452.90 and in October they were $23,601.21. Pl.'s Ex. 22. In November and December gross sales revenues were $20,000 a month and $30,000 a month, respectively. Thereafter, there were gross sales of $45,000 in January, 2004, $56,000 in February 2004, $70,000 in March 2004, and $83,000 in April, 2004. Thus, while Great American does not currently show a profit, its product sales steadily increased as a result of the violations of the Injunction, while Plaintiff's sales and distributor participation have markedly decreased as a result of the violations.
Product sales are listed as "other" on the first page of Ex. 22. Tr. at 185-86.
Plaintiff seeks as compensation for the contempt the difference between Great American's gross revenue in December 2003 and May 2004 plus the amounts of profits received by Don and Amber Tolman as lease payments, credit card receipts and "extraordinary compensation" from Great American to Amber Tolman. In order to calculates these amounts, Plaintiff seeks an "audited accounting of Great American's records."
In view of Defendants' demonstrated lack of candor and unbelievable vagueness regarding Don Tolman's financial relations with Great American and Great American's own financial records, the court will not extend this contempt proceeding and delay trial preparation by attempting to obtain audited accountings. Instead the court calculates damages as follows: Using Great American's September 2003 gross revenues as a baseline, seven months of continued revenues at that level would be $87,170.30. As a result of Defendants' contumacies, Great American's gross revenues for this same period were as follows:
$23,601.21 October 2003 $20,000.00 November 2003 $30,000.00 December 2003 $45,000.00 January, 2004 $56,000.00 February 2004 $70,000.00 March 2004 $83,000.00 April 2004. ______________ $327,601.21 Total
Subtracting the first amount from the total of the second, equals $240,430.91, the approximate amount of gross revenue gained by Defendants from their contumacy.
The court believes that the amount of their gain is actually greater because the amounts of training fees and investment in Great American in that period were clearly the results of Defendants Great American and Mark Bowen acting in concert with Defendant Don Tolman to violate paragraph A by soliciting investment and recruiting distributors, and paragraph C regarding ownership and involvement in the company and its operations, financing and management.
For example, in October 2003, training fees and stock investments in Great American were $192,149.
Further, while the record could support an award against the contumacious Defendants in the amount of Plaintiff's demonstrated losses of at least $500,000 between October 2003 and April 2004, the court will defer questions of Plaintiff's total claimed damages to the jury as part of the resolution of the merits of this case at the trial scheduled in less than three months.
Gross revenues are used for this calculation as well as the calculation of Plaintiff's losses in revenues because Defendants failed to take the opportunity afforded them at the evidentiary hearings to meet their burden of showing evidence of any amounts that should be offset against the gross revenues of either company.
The court is mindful that individual defendants are personally liable for contempt only under the circumstances set forth in Kuykendall, 371 F.3d at 759. However, the court has found clear and convincing evidence of Don Tolman's and Mark Bowen's direct personal violations and further found that such personal violations were pervasive, persistent, and willful. In addition, the court found clear and convincing evidence that Mark Bowen, the person in charge of the corporation, failed to prevent its violations of the Injunction and instead actively directed such violations by its agent. Where the individual Defendants always acted in concert and active participation with each other and with their agent Tyler Tolman, in connection with the violations, it is not possible to allocate the damages amongst the individual defendants. Accordingly, the award will be joint and several.
Trial is now only less than three months away. At trial, the parties will have the opportunity to present their respective claims and defenses on the merits and the entire issue of damages can be explored. However, because of the clear and convincing evidence of a pervasive and persistent pattern and practice of contempt, the court will not wait for trial and will award the damages based on the increase of gross revenue resulting from Great American's contumacious conduct.
Finally, the court agrees with Defendants that the evidence showed that neither company was making a profit at the time of the evidentiary hearing. However, the argument that Defendants don't think that their violations are bringing in sufficient revenue is not a reason to relieve them of the liability for their willful and unrelenting violations of the Injunction issued by this court. The lack of profit by either company however, may be an incentive for the parties to attempt to settle this lawsuit. Upon agreement of all parties, the court is always willing to refer a case to a settlement conference.
In view of the large award of damages, the award of attorney fees and costs, the fact that Defendants Mark Bowen, Don Tolman, and Great American are jointly and severally liable for the award, and the nearness of trial, the court does not believe that imposition of a prospective fine is necessary.
2. Attorneys' Fees and Costs
Because the court has found, by clear and convincing evidence, that Defendants Don Tolman, Mark Bowen, and Great American's violations of the Injunction were persistent, pervasive and willful, the court will award Plaintiff reasonable attorney fees and costs in bringing this contempt proceeding. Within twenty days of the filing of this order, Plaintiff shall file a Bill of Costs itemizing the attorneys fees, costs, and expenses incurred in connection with this contempt proceeding in accordance with the procedure set forth in DUCivR 54-29(a)(i) and (iii). Objections shall be made in accordance with DUCivR 54-2(c).
V. CONCLUSION
After careful consideration, the court finds and concludes that the evidence is overwhelmingly clear and convincing that Defendants Mark Bowen, Don Tolman and Great American determined to violate the Injunction. It is clear that they intended to do so from the beginning and, in fact, that they never meaningfully ceased using Plaintiff's sales and promotional aids, distributor lists or basing Great American's business on Don Tolman's competition with Plaintiff. Similarly, there is clear and convincing evidence that Don Toman, Mark Bowen, Great American and their agent/employee Tyler Tolman acted in concert and participation with each other to violate the Injunction as discussed above.
Thus, Plaintiff has met its burden of showing Defendants' contempt of the Preliminary Injunction by clear and convincing evidence, and Defendants have failed to meet their burden of defense. The contempt damages and the award of attorneys fees are high. However, in the court's opinion, they are barely sufficient to compensate Plaintiff for Mark Bowen's, Don Tolman's and Great American's flagrant disregard of the express provisions of the Preliminary Injunction issued by this court.
Pursuant to Fed.R.Civ.P. 54(b), the court finds that there is no just reason for delay in the entry of judgment in favor of Plaintiff and against Defendants Don Tolman, Mark Bowen, and Great American for damages for contempt plus costs and attorneys fees.
VI. ORDER
Based on the foregoing, it is therefore
ORDERED that Don Tolman, individually, Mark Bowen, individually and as an officer of Great American, Great American, and Tyler Tolman, as agent/employee, are in contempt of this court's August 4, 2003, Preliminary Injunction Order. It is further
ORDERED that judgment for damages in the amount of $240,430.91, be awarded in favor of Plaintiff and against Defendants Don Tolman, individually, Mark Bowen, individually and Great American, jointly and severally. It is further
ORDERED that reasonable attorneys fees and costs incurred in connection with this contempt proceeding are awarded in favor of Plaintiff and jointly and severally against Defendants Don Tolman, individually, Mark Bowen, individually, and Great American.