Procter & Gamble Co. v. Amway Corp.

                                                      United States Court of Appeals
                                                               Fifth Circuit
                                                               F I L E D
             Revised July 21, 2004                              July 19, 2004

                       In the                            Charles R. Fulbruge III
                                                                 Clerk
  United States Court of Appeals
             for the Fifth Circuit
                  _______________

                    m 03-20202
                  _______________




      THE PROCTER & GAMBLE COMPANY;
THE PROCTER & GAMBLE DISTRIBUTING COMPANY,

                                      Plaintiffs-Appellants,

                      VERSUS

         AMWAY CORPORATION, ET AL.,

                                      Defendants,

             AMWAY CORPORATION,

                                      Defendant-Appellee.


            _________________________

     Appeals from the United States District Court
          for the Southern District of Texas
           _________________________
Before GARWOOD, HIGGINBOTHAM, and                       The Utah court granted Amway’s motion
  SMITH, Circuit Judges.                             to dismiss the Third Amended Complaint.
                                                     P&G later filed a Fourth Amended Complaint
JERRY E. SMITH, Circuit Judge:                       asserting claims for product disparagement,
                                                     based on allegations that Amway had told con-
   The Procter & Gamble Company and the              sumers that P&G’s Crest toothpaste scratches
Procter & Gamble Distributing Company                teeth, and asserting fraud, but the Utah court
(jointly referred to in the singular as “P&G”)       dismissed that complaint as untimely filed.
appeal a summary judgment in favor of
defendant Amway Corporation, alleging that              Meanwhile, P&G sued in the United States
the district court gave improper res judicata        District Court for the Southern District of
effect to a judgment of the United States            Texas, alleging causes of action for unfair
District Court for the District of Utah.             competition, negligent supervision, negligence,
Concluding that the Utah court’s judgment is         business disparagement, defamation, tortious
entitled to res judicata effect, we affirm.          interference with prospective business
                                                     relations, vicarious liability, fraud, violations of
                       I.                            RICO, violations of the Lanham Act, and
   The dispute between Procter & Gamble and          violations of the Texas Business and
Amway has been before this court on two              Commerce Code. These causes of action were
prior occasions. See Procter & Gamble Co. v.         based on the Satanism rumor, the Crest rumor,
Amway Corp., 242 F.3d 539 (5th Cir. 2001)            and Amway’s alleged pyramid scheme. In
(“P&G I”); Procter & Gamble Co. v. Amway             April 1999, the Utah court entered a final
Corp., 280 F.3d 519 (5th Cir. 2002)                  judgment dismissing all of P&G’s claims.
(“P&G II”). Because the complete factual
history is set out in those opinions, we only            The instant case went to trial in May 1999.
summarize the relevant procedural history.           At the close of P&G’s case, Amway moved
                                                     for judgment as a matter of law. The district
    P&G has long been the subject of rumors          court granted the motion and dismissed P&G’s
linking it to Satanism and has attempted to          Lanham Act claim on the basis of the res
identify Amway and its distributors as the           judicata effect of the Utah court’s judgment.
source of those rumors. In 1995, P&G sued            It also dismissed P&G’s remaining claims on
Amway and other defendants in federal district       the merits. After the Texas court had entered
court in Utah. P&G then filed a second               judgment, but before we heard the appeal, the
amended complaint alleging defamation, com-          Tenth Circuit affirmed in part, reversed in part,
mon law unfair competition, violations of the        and remanded the Utah district court’s
Utah Truth in Advertising Act, tortious              judgment. See Procter & Gamble Co. v.
interference, negligent supervi sion and             Haugen, 222 F.3d 1262 (10th Cir. 2000)
violations of the Lanham Act, and vicarious          (“Haugen I”).
liability arising out of the Satanism rumor.
P&G later filed a third amended complaint               In P&G I, we affirmed in part and reversed
alleging that Amway’s distribution method was        in part the district court’s rulings on the
an illegal pyramid scheme, and claiming fraud        merits. Most importantly, we found that at the
and product disparagement.                           time P&G I was decided, there was no res


                                                 2
judicata effect from the Utah case. We held           clusion, or ‘pure’ res judicata, is the
that the district court had correctly accorded        ‘venerable legal canon’ that insures the finality
the Utah court’s judgment res judicata effect         of judgments and thereby conserves judicial re-
and that dismissal had been proper when               sources and protects litigants from multiple
granted. The Tenth Circuit’s subsequent re-           lawsuits.” United States v. Shanbaum, 10
versal and remand eliminated, however, any            F.3d 305 (5th Cir. 1994). Res judicata applies
res judicata bar occasioned by the reversed           where “(1) the parties to both actions are iden-
and remanded judgment. P&G I, 242 F.3d at             tical (or at least in privity); (2) the judgment in
546. Accordingly, we vacated on the ground            the first action is rendered by a court of
of res judicata.                                      competent jurisdiction; (3) the first action
                                                      concluded with a final judgment on the merits;
   The issues we considered in P&G II did             and (4) the same claim or cause of action is
not concern Amway or the appeal before us             involved in both suits.” Ellis v. Amex Life Ins.
today. We did, however, note that after               Co., 211 F.3d 935, 937 (5th Cir. 2000). If
P&G I and P&G II, “the only claims                    these conditions are satisfied, all claims or de-
current ly before the district court relate to        fenses arising from a “common nucleus of op-
spreading the Satanism and Crest toothpaste           erative facts” are merged or extinguished. Ag-
rumors.” P&G II, 280 F.3d at 524.                     rilectric Power Partners, Ltd. v. Gen. Elec.
                                                      Co., 20 F.3d 663 (5th Cir. 1994).
   On remand from the Tenth Circuit, the
Utah court dismissed all of P&G’s claims.                 In P&G I, 242 F.3d at 544, we noted that
Procter & Gamble Co. v. Haugen, 158 F.                “[t]his suit is based on the same transactions,
Supp. 2d 1286 (N.D.Utah 2001), aff’d, 317             and involves substantially the same parties, as
F.3d 1121 (10th Cir. 2003). Shortly after the         does the Utah suit.” Having already decided
Tenth Circuit’s affirmance, the Texas district        that res judicata based on the Utah court’s
court granted Amway’s motion for summary              judgment in Haugen I would have been
judgment, dismissing P&G’s remaining claims.          appropriate but for the fact that the judgment
P&G filed a timely notice of appeal, and the          had been reversed and remanded, we now
district court subsequently entered judgment          conclude that res judicata was appropriate
pursuant to FED. R. CIV. P. 54(b), thus               based on the Utah court’s affirmed judgment
assuring our jurisdiction over this appeal.           on the merits in Haugen II.1

                     II.
                                                         1
   We review a summary judgment de novo,                    P&G was not permitted to amend its Utah
using the same standards as did the district          complaint to include claims for disparagement of
court. BP Oil Int’l, Ltd. v. Empresa Estatal          Crest toothpaste. This leaves open the possibility
                                                      that the events giving rise to the Crest disparage-
Petoleos de Ecuador, 332 F.3d 333 (5th Cir.
                                                      ment claim were not a part of the common nucleus
2003). The res judicata effect of the Utah            of operative facts giving rise to the Satanism
judgment is a question of law that we also re-        claims, which would make res judicata inapplic-
view de novo. P&G I, 242 F.3d at 546.                 able to the Crest claims.

                     A.                                   P&G, however, has waived this argument by
   Under the law of this circuit, “[c]laim pre-       failing to raise it in its opening brief, which men-
                                                                                              (continued...)

                                                  3
   P&G contends that the district court erred               consider and affirm the Utah court’s decision
in according the Utah court’s judgment res                  on the merits. This, highlights a flaw in P&G’s
judicata effect, alleging (1) that it was                   argument: The proper remedy for an allegedly
improperly based on the res judicata effect of              erroneous judgment is direct appeal to the
the later-reversed opinion of the Texas court in            proper court, not an attempt to avoid the res
P&G I, (2) that it was based on incorrect legal             judicata effect of that judgment in another suit
conclusions, contrary to those established in               against the same party for the same cause of
P&G I, and (3) that it was entered without                  action.
giving P&G fair opportunity to be heard.
P&G’s arguments amount to the contention                       All the issues P&G raises assert errors of
that the Utah court decided the case wrongly,               law that would undermine the correctness of
or at least differently from how the Texas                  the Utah court’s judgment. The question
court would have done so under this circuit’s               whether that judgment on the merits was cor-
law.                                                        rect, however, does not enter into our inquiry
                                                            on the subject of res judicata, for even an in-
   P&G’s first allegation is faulty, inasmuch as            correct judgment is entitled to res judicata ef-
the Tenth Circuit recognized the potential                  fect. See Parsons Steel, Inc. v. First Ala.
difficulty of the Utah court’s basing its                   Bank, 474 U.S. 518, 525 (1986).
decision on res judicata and proceeded to
                                                                “The general rule [of res judicata] stated in
                                                            this Section requires that errors underlying a
   1
                                                            judgment be corrected on appeal or other
     (...continued)
                                                            available proceedings to modify the judgment
tions only that Amway should be estopped from
                                                            or to set it aside, and not made the basis for a
asserting that the Crest claim does arise from the
common nucleus of operative facts, but does not             second action on the same claim.
provide contentions, facts, legal citations, argu-          RESTATEMENT (SECOND) OF JUDGMENTS §19
ments, or analysis to allow us to conclude that it          cmt. a (1982). As a learned treatise puts it,
the Crest disparagement claim survives the res jud-         “[r]es judicata applies even if the next court
icata effect of the Utah judgment. Failure ade-             to visit the dispute believes that the second
quately to brief an issue on appeal constitutes             court’s res judicata ruling was wrong.” 18
waiver of that argument. See FED R. APP . P.                WRIGHT, MILLER & COOPER, FEDERAL
28(a)(9)(A); United States v. Martinez, 263 F.3d            PRACTICE AND PROCEDURE: JURISDICTION 2D
436 (5th Cir. 2001) (noting the rule); State v.             § 4404 (2d ed. 2002). Even where the second
Thames, 214 F.3d 608, 611 n.3 (5th Cir. 2000)               court incorrectly gives preclusive effect to the
(waiver for failure to include argument in statement        first court’s judgment, the first court is bound
of issue or body of brief); L&A Contracting Co. v.          by the res judicata effect of the second court’s
S. Concrete Servs., 17 F.3d 106 (5th Cir. 1994)
                                                            judgment. In re Brady, Tex., Mun. Gas Corp.,
(waiver for failure to cite authority); United States
v. Beaumont, 972 F.2d 553, 563 (5th Cir. 1992)
                                                            936 F.2d 212 (5th Cir. 1991).
(failure to argue issue adequately); United States v.
Torres-Aguilar, 352 F.3d 934, 936 n.2 (5th Cir.                 When two suits proceed simultaneously, as
2003) (argument deemed abandoned by appellant               in this case, res judicata effect is given to the
“only briefly mentioning it in a footnote of his            first judgment rendered. Chicago, Rock Island
opening brief without providing any legal citation          & Pac. R.R. v. Schendel, 270 U.S. 611 (1926);
or analysis”).

                                                        4
see also 18 WRIGHT, MILLER & COOPER,                     court and Tenth Circuit on particular issues
supra, JURISDICTION 2D § 4404 (citing Jones              may conflict with our holdings on those issues,
v. Sheehan, Young & Culp, 82 F.3d 1334,                  P&G has identified a potential source of
1338-39 n.3. (5th Cir. 1996); In re Hansler,             conflict between the application of collateral
988 F.2d 35, 38-39 (5th Cir. 1993)).                     estoppel based on the Utah judgments and the
Maintaining such a litigation strategy almost            law of the case or mandate of the Texas case.
assures that at some point one of the cases will         This difficulty does not arise, however, where
become barred by a judgment in the other; the            res judicata operates not to determine issues
successful party will find that all its claims and       within a case but to extinguish the case as a
defenses have merged into the judgment, while            whole.
the unsuccessful party will find that its have
been extinguished. “There is no reason why                   Although law of the case and res judicata
defendants should be required to defend, or              are somewhat related preclusive doctrines,
courts to hear, additional or multiple cases,            “the law of the case doctrine is merely a rule of
free from the protections of res judicata, simp-         practice, based upon sound policy,” while
ly because the plaintiff chose to file them              “[r]es judicata . . . is categoric and requires
piecemeal at the same time rather than in suc-           that respect be accorded the prior judgment.”
cession.” Sidag Aktiengesellschaft v. Smoked             Loumar, Inc. v. Smith, 698 F.2d 759, 762 (5th
Foods Prods. Co., 776 F.2d 1270 (5th Cir.                Cir. 1983). In discussing the relationship be-
1985). A party gets only “one bite at the                tween the doctrines of law of the case and res
apple” and is not allowed to take two bites              judicata, the Supreme Court noted that “there
simply because it attempts to take both at               is a difference between such adherence [to law
once rather than seriatim.                               of the case] and res judicata; one directs
                                                         discretion, the other supersedes it and compels
                       B.                                judgment. In other words, in one it is a
   P&G contends that, in according the Utah              question of power, in the other of submission.”
judgment res judicata effect, the district court         S. R.R. v. Clift, 260 U.S. 316, 319 (1922).
improperly disregarded the law of the case as            The application of res judicata in this case
established by this court and slighted the man-          does not conflict with this court’s rulings or
date in P&G I. This objection is misguided.              mandates on the merits of P&G’s claims.
Nothing in our prior rulings has established             Rather, it bars them a priori.
that a valid judgment from the Utah court
should not be given res judicata effect by the             The district court properly dismissed
Texas court; quite to the contrary, we stated            P&G’s claims. The judgment, accordingly, is
that the Texas court’s invocation of res                 AFFIRMED.
judicata in P&G I was proper but for the fact
that the Utah court’s decision was later
reversed and remanded. It did not, therefore,
run afoul of our mandate for the district court
to accord the Utah judgment res judicata
effect.

   To the degree that the decisions of the Utah


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