Market America Inc v. Rossi ( 2000 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
MARKET AMERICA, INCORPORATED, 
Plaintiff-Appellant,
v.
RAY ROSSI; TANDY BROWN; CRAIG
MELTON; PHIL LANE; JULIA LANE;
SHERI FREY CONNERS,
Defendants-Appellees,  No. 99-2245
and
KATHLEEN FRAME; PETE TORTOLINI;
MIKE PERRAULT; GEORGE SMITH;
DICK CUTHREL; RICK MOCCIA,
Defendants.

MARKET AMERICA, INCORPORATED, 
Plaintiff-Appellee,
v.
RAY ROSSI; TANDY BROWN; CRAIG
MELTON; PHIL LANE; JULIA LANE;
SHERI FREY CONNERS,
Defendants-Appellants,  No. 99-2333
and
KATHLEEN FRAME; PETE TORTOLINI;
MIKE PERRAULT; GEORGE SMITH;
DICK CUTHREL; RICK MOCCIA,
Defendants.

Appeals from the United States District Court
for the Middle District of North Carolina, at Durham.
James A. Beaty, Jr., District Judge.
(CA-97-891-1)
2 MARKET AMERICA v. ROSSI
Argued: September 27, 2000
Decided: November 14, 2000
Before WILKINSON, Chief Judge, and NIEMEYER and
LUTTIG, Circuit Judges.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: Pressly McAuley Millen, WOMBLE, CARLYLE, SAN-
DRIDGE & RICE, P.L.L.C., Raleigh, North Carolina, for Appellant.
Jonathan A. Berkelhammer, SMITH, HELMS, MULLISS &
MOORE, L.L.P., Greensboro, North Carolina, for Appellees. ON
BRIEF: Keith W. Vaughan, Sean E. Andrussier, WOMBLE, CAR-
LYLE, SANDRIDGE & RICE, P.L.L.C., Raleigh, North Carolina, for
Appellant. Allison K. Overbay, Monica F. Speight, SMITH, HELMS,
MULLISS & MOORE, L.L.P., Greensboro, North Carolina, for
Appellees.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
This appeal presents several related issues arising from an intra-
enterprise dispute between Market America, Inc., a pyramid-style
marketing company, and some of its contract-distributors. When sev-
eral of Market America’s distributors attempted to serve also as dis-
tributors for another, similar type of company, Market America filed
MARKET AMERICA v. ROSSI 3
this action against them to enforce its non-compete agreements. The
distributors filed counterclaims for defamation arising from state-
ments made by Market America during the enforcement effort and for
the violation of unfair competition laws.
The district court ruled as a matter of North Carolina law, which
was made applicable by the agreements, that the non-compete clause
was unenforceable because it was not geographically limited. The
court submitted the parties’ numerous other claims to a jury, which
rejected Market America’s claims and ruled in favor of the distribu-
tors on their defamation claims, awarding each defendant $30,000 in
compensatory damages. The district court trebled the jury’s awards
pursuant to applicable state law. From the judgment entered, both par-
ties appealed.
On appeal, Market America argues that the district court erred in
ruling (1) that its non-compete agreement was unenforceable; (2) that
it is entitled to judgment as a matter of law on the defamation claims;
(3) that the North Carolina Unfair Trade Practices Act ("UTPA") was
not applicable to the defendants who are Virginia residents; and (4)
that the district court erred in trebling damages under the UTPA. On
their cross-appeal, the distributors argue (1) that the district court
erred in finding that Market America’s communications to its distrib-
utors enjoyed a qualified privilege; (2) that the district court erred in
reducing some of the defendants’ damages awards; and (3) that the
district court abused its discretion in denying them attorneys fees. For
the reasons that follow, we affirm.
I
Market America describes itself as a "product brokerage company"
that sells a variety of products such as health and nutritional products,
jewelry, and household cleaners through individuals who are indepen-
dent contractors or "distributors." These distributors are encouraged
to recruit other distributors to join Market America, and these other
distributors, who are most often friends or family of the recruiter,
become part of their recruiter’s "downline." Every distributor’s
income is based on his own sales, as well as a commission from sales
generated by distributors in his downline. Market America began its
4 MARKET AMERICA v. ROSSI
business in 1992, and by 1999 it had 70,000 distributors and sub-
distributors who generated gross sales of $66.3 million.
Ray Rossi and Tandy Brown, two of the defendants in this case,
became distributors of Market America in 1994. The other defendants
joined Market America as part of Rossi and Brown’s downline over
the next two years. All of the defendants were successful, and Rossi
and Brown, through their own sales and those of their downline,
earned more than $300,000 in annual commissions.
At the time the defendants joined Market America as distributors,
they executed agreements by which they recognized certain trade
secrets and agreed not to compete. The noncompetition clause pro-
vides in relevant part:
I agree not to enter into competition with Market America
by participating as a[n] Independent Contractor, consultant,
officer, shareholder, director, employee or participant of
another company or direct sales program using a similar
matrix marketing structure or handling similar products to
that of Market America or involving a Distributor of Market
America in such a program for a period of six months from
my written resignation or termination as an Independent
Distributor of Market America.
In January 1997, Rossi and Brown became involved with another
pyramid-style company, the now-defunct International Heritage Inc.,
which sold high-end consumer products such as golf clubs and hand-
bags. Rossi and Brown also had members of their downline become
distributors for International Heritage. But Rossi and Brown, as well
as its downline members under International Heritage, continued to
work for Market America. They did not, however, advise Market
America of their participation in the International Heritage program.
When Market America learned of the defendants’ involvement
with International Heritage, it suspended them and filed an action in
a North Carolina state court, obtaining a temporary restraining order
prohibiting the defendants from communicating with any other dis-
tributor regarding the litigation. At the same time, Market America
circulated a three-page letter to every distributor in Rossi and
MARKET AMERICA v. ROSSI 5
Brown’s downline, as well as to others. This letter was sent to 7,200
persons.
The letter, the text of which formed the basis of defendants’ coun-
terclaims for defamation, stated that Market America had "received
hard proof that [defendants’] unscrupulous activities and plans to
undermine the company and business continue, and in fact, have
intensified." It went on to allege that "there ha[ve] been outright
threats made to some Distributors" and that "[defendants’] intentions
are to undermine Market America and Distributors’ businesses." The
letter accused the defendants of being "bandits" and closed by noting
that "we are not letting the fox in the hen house. WE WILL NOT LET
THEIR GREED AND AVARICE UNDERMINE OR DESTROY
THE UNFRANCHISE SYSTEM." Most of the letter is devoted to a
stinging lecture about the company’s dedication to pursue vigorously
all its legal remedies against individuals who breach the non-compete
clause. The three single-spaced pages contain a multitude of hyper-
bolic statements regarding the danger to the company posed by such
breaches.
In addition to sending out the letter, Market America circulated an
audiotape to several thousand persons broadcasting a similar message
about "Ray Rossi, Tandy Brown and some people in their organiza-
tion" whose names could be obtained by "call[ing] up your upline
Advisory Council or trainer or . . . the legal department at the com-
pany." The text of audiotape statements was similar to the text of the
letter.
After being served through process that issued from the state court,
the defendants removed the case to federal court and filed numerous
counterclaims against Market America. As the pleadings stood before
the district court, Market America alleged claims against the distribu-
tors for breach of contract, misappropriation of trade secrets, unfair
and deceptive trade practices, and tortious interference with contract,
and, through their counterclaims, the defendant-distributors alleged
claims against Market America for libel, slander, unfair deceptive
trade practices, and illegal restraint of trade.
Following cross-motions for summary judgment, the district court
framed the issues for trial and ruled, as a matter of law, that the non-
6 MARKET AMERICA v. ROSSI
compete clause did not apply to defendants’ conduct because it pro-
scribed only conduct occurring in the six-month window following,
not before, defendants’ termination or resignation. The district court
also found as a matter of North Carolina law that the non-compete
clause constituted an unenforceable, illegal restraint of trade, because
the clause was "not ‘reasonable both as to time and territory.’" Most
of the parties’ claims were submitted to the jury which returned a ver-
dict in favor of the defendants. Because the court instructed the jury
that Market America’s communications to its distributors were quali-
fiedly privileged, the defendants were required to carry the greater
burden on their defamation claims of showing that the defamatory
statements were made with malice or were excessively published. The
jury found that Market America had not acted with malice when it
wrote and distributed the letter, but that it had acted with malice when
it recorded and distributed the follow-up audiotape. The jury also
found that Market America had excessively published the letter as to
some of the defendants. It awarded each defendant $30,000 in com-
pensatory damages, and the court trebled those damages under the
UTPA. The court denied the distributors’ claims for attorneys fees
requested under the UTPA.
II
Market America contends first, relying on Market Am., Inc. v.
Christman-Orth, 520 S.E.2d 570 (N.C. App. 1999), which upheld the
very same agreement in a different action, that the district court erred
in concluding that its non-compete agreement was unenforceable. The
distributors, as well as the district court, noted, however, that the
Christman-Orth case was a lower court decision and that the Supreme
Court of North Carolina has never upheld a non-compete clause with-
out any geographical limitation. They cite to Professional Liab. Con-
sultants, Inc. v. Todd, 478 S.E.2d 201 (N.C. 1996), reh’g denied, 483
S.E.2d 175 (1997), and American Hot Rod Ass’n, Inc. v. Carrier, 500
F.2d 1269 (4th Cir. 1974). Were we to decide this issue, our task
would be to offer our best judgment about what we believe the North
Carolina Supreme Court would do if faced with the issue. See Food
Lion, Inc. v. Capital Cities/ABC, Inc., 194 F.3d 505, 512 (4th Cir.
1999). We explained in Food Lion that in determining what the North
Carolina Supreme Court would do, we would have to "consider all of
the authority that the [North Carolina Supreme Court] would, and we
MARKET AMERICA v. ROSSI 7
should give appropriate weight to the opinions of [North Carolina’s]
intermediate appellate courts." Id.In this case, we need not conduct this analysis, however, because
the only remedy available to Market America, were we to agree with
its legal position, would be to vacate the district court’s summary
judgment and order a new trial. Yet Market America has requested
only reversal of the district court’s rulings on the non-compete issue
and entry of a judgment as a matter of law in its favor. Market Amer-
ica does not request a new trial, and at oral argument, it made clear
to the court that it did not want the court to order a new trial even if
that were the only available remedy for its appeal. Without permitting
us to award a new trial, Market America forecloses our authority to
review the enforcement of the non-competition agreement because we
may not provide an advisory opinion. See Maritime Overseas Corp.
v. NLRB, 955 F.2d 212, 223 (4th Cir. 1992).
Market America next argues that it was entitled to judgment as a
matter of law on the defendants’ defamation counterclaims. It main-
tains that the statements published by Market America "were neither
excessively published nor published with actual malice." We believe,
however, that these questions were properly submitted to the jury.
The contents of the letter and the audiotape contain evidence from
which the jury could have based a finding of actual malice. In addi-
tion, the jury could have found that circulation to over 7,000 persons
was excessive publication. The fact that Market America chose to cir-
culate an audiotape after it had already circulated a letter could also
be found to constitute both malice and excessive publication, either
of which would have been sufficient to overcome the qualified privi-
lege found by the district court to exist in this case.
Market America contends that several of the defendants who were
not named in the audiotape explicitly could not succeed on their defa-
mation claims. North Carolina law, however, authorizes defamation
claims even where the defamatory publication only refers to persons
implicitly. See Arnold v. Sharpe, 246 S.E.2d 556, 560 (N.C. App.
1978), rev’d on other grounds, 251 S.E.2d 452 (N.C. 1979). The only
requirement in such a case is the existence of some evidence that a
recipient of the communication knew to whom the communication
was referring. In this case, the jury had evidence that the tape went
8 MARKET AMERICA v. ROSSI
to some of the same people to whom the letter was sent and that some
of these people who received both communications were in Rossi and
Brown’s downline. Because the letter named the defendants explic-
itly, a person receiving both the tape and the letter would understand
that the tape was referring explicitly to the persons named in the let-
ter.
Market America argues also that the UTPA does not apply to the
defendants because they are Virginia residents. However, the district
court did not err in concluding that North Carolina has "a substantial
relationship to the particular conduct giving rise to the unfair and
deceptive trade practices claim." Jacobs v. Central Transp., Inc., 891
F. Supp. 1088, 1111 (E.D.N.C. 1995), rev’d in part on other grounds,
83 F.3d 415 (4th Cir. 1996). In this case, Market America, a North
Carolina company, took action against its distributors with business
operations in North Carolina by sending a defamatory letter to over
7,000 persons, at least 1,600 of whom were distributors residing in
North Carolina. We believe that this provides a sufficiently substan-
tial relationship with the state to justify application of the state’s
UTPA.
Finally, we reject Market America’s challenge made to the district
court’s trebling of the defamation awards on the ground that many of
the statements were made without malice. Market America would be
entitled to a malice standard only if it were a public figure, which it
is not. See Philadelphia Newspapers, Inc. v. Hepps, 475 U.S. 767,
774-75 (1986).
Because the distributors have succeeded in their defense of the def-
amation verdict, we need not reach their contention that the verdict
should not have been subject to the higher standard imposed when
statements are qualifiedly privileged. We also conclude that the dis-
trict court did not abuse its discretion in interpreting the jury’s dam-
age awards of some defendants to give them a lesser amount and in
denying defendants an award of attorneys fees.
For the foregoing reasons, the judgment of the district court is
AFFIRMED.