Melaleuca Inc v. Bartholomew et al

Filing 13

MEMORANDUM DECISION AND ORDER granting 8 Motion for TRO. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (dks)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
MELALEUCA, INC., an Idaho
corporation,

Case No. 4:12-cv-00216-BLW

Plaintiff,

MEMORANDUM DECISION AND
ORDER

v.
BRIAN BARTHOLOMEW and
ANGELIQUE BARTHOLOMEW,
husband and wife,
Defendants.

INTRODUCTION
The Court has before it Plaintiff’s Motion for a Temporary Restraining Order and
Preliminary Injunction (Dkt. 8). The Court heard oral argument on the motion on May
10, 2012. The Court will grant the motion in part for the reasons explained below.
BACKGROUND
Melaleuca is a consumer goods company that sells primarily nutritional, personal
care, and household products. Melaleuca sells products directly to its customers by using
independent contractors called Marketing Executives. Melaleuca’s Marketing Executives
refer customers to Melaleuca and earn commissions on purchases made by those
customers. Additionally, Marketing Executives earn commissions through a somewhat
complicated structure, which generally rewards them for training, motivating, and
otherwise supporting other Marketing Executives in their efforts to refer customers. Each
Melaleuca Marketing Executive has a Marketing Organization which consists of the

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customers referred by that Marketing Executive and the other Marketing Executives he or
she supports, plus the customers and Marketing Executives referred or supported by those
Marketing Executives, and so on.
When Marketing Executives join Melaleuca, they sign what is called an
Independent Marketing Executive Agreement with Melaleuca. In this case, Defendants
Angelique Bartholomew and Brian Bartholomew each signed an agreement on November
10, 2005 when they first joined Melaleuca as Marketing Executives. LaClare Decl., Ex.
A (Dkt. 8-4). The signature line of that agreement indicates that the Marketing Executive
agrees to the terms on the front and back of the agreement. The back side of the
agreement is titled Terms and Conditions. Section 9 of the Terms and Conditions reads:
“I have carefully reviewed the Melaleuca Compensation Plan and Statement of Policies
and acknowledge that they are incorporated as part of this Agreement in their present
form and as modified from time to time by Melaleuca at its sole discretion.” Id. A copy
of the Melaleuca Compensation Plan and Statement of Policies in effect at the time the
Bartholomews signed their agreement in 2005 is not attached to the agreement, nor was it
provided to the Court.
On November 30, 2007, Angelique Bartholomew signed a second agreement,
which incorporated an amended version of the Statement of Policies. Second LaClare
Decl., Exs. D & E (Dkt. 11-2). On December 11, 2011, Angelique Bartholomew signed a
third agreement, which incorporated the current version of Melaleuca’s Statement of
Policies. Second LaClare Decl., Ex. F (Dkt. 11-2). Policy 20 of the current Statement of
Policies, which is set forth in its entirety here, states,
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20 Non-Solicitation and Conflicts of Interest
Marketing Executives are independent contractors and may be active in other
business ventures while they are Marketing Executives for Melaleuca. However,
to qualify for compensation under Melaleuca’s Compensation Plan, Marketing
Executives have the ongoing responsibility to service, supervise, motivate, train
and assist the Marketing Executives in their Marketing Organization. They also
have the responsibility to promote Melaleuca products and the Melaleuca income
opportunity. Melaleuca and its Marketing Executives have made a great
investment in the establishment of organizations consisting of Customers and
Marketing Executives. This constitutes one of Melaleuca’s most valuable assets.
Melaleuca reserves the right to cease paying compensation to any Marketing
Executive who recruits any Melaleuca Customer or Marketing Executive to
participate in another business venture. In order to protect the efforts of all
Marketing Executives in building and maintaining their individual Marketing
Organizations and Customer bases, and in order to protect Melaleuca’s interest in
the overall Customer base, Marketing Executives and all members of their
Immediate Household are required to abide by the following policies:
(a)
Non-Solicitation of Melaleuca Customers and Marketing
Executives:
(i)
During the period that their Independent Marketing Executive
Agreements are in force Marketing Executives and all members
of their Immediate Household are prohibited from directly,
indirectly or through a third party recruiting any Melaleuca
Customers or Marketing Executives to participate in any other
business venture
(ii)
For a period of twelve months after cancellation or termination
for any reason of a Marketing Executive’s Independent
Marketing Executive Agreement, the Marketing Executive and
all members of his or her Immediate Household are prohibited
from directly, indirectly or through a third party recruiting to
participate in any other business venture any Melaleuca
Customers or Marketing Executives:
(1) who were in the Marketing Executive’s Marketing
Organization or Support Team at any time during the term
of his or her association with Melaleuca;
(2) with whom the Marketing Executive had contact during
the term of his or her association with Melaleuca;
(3) whose contact information (name, address, phone number
or email address, etc.) the Marketing Executive or
members of his or her Immediate Household has obtained
at any time during the term of his or her association with
Melaleuca; or

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(4) whose contact information (name, address, phone number
or email address, etc.) the Marketing Executive or
members of his or her Immediate Household obtained at
any time from another person who obtained the
information because of any other person’s association
with Melaleuca.
The prohibitions under clauses (a)(i) and (ii) above include but are not limited to,
presenting or assisting in the presentation of other business ventures to any
Melaleuca Customer or Marketing Executive or implicitly or explicitly
encouraging any Melaleuca Customer or Marketing Executive to join any other
business ventures. It is a violation of this policy to recruit a Melaleuca Customer
or Marketing Executive to participate in another business venture even if the
Marketing Executive does not know that the prospect is also a Melaleuca
Customer or Marketing Executive. It is the Marketing Executive’s responsibility
to first determine whether the prospect is a Melaleuca Customer or Marketing
Executive before recruiting the prospect to participate in another business venture.
(Please refer specifically co the definition of “recruit” in the Definitions of Terms
at the end of these Policies.)
(b) During the period that their Independent Marketing Executive
Agreements are in force, and for a period of twelve months after the
cancellation or termination thereof for any reason, Marketing
Executives and all members of their Immediate Household are further
prohibited from the following:
(i)
Producing any literature, tapes or promotional material of any
nature (including but not limited to websites and emails)
which is used by the Marketing Executive or any third person
to recruit Melaleuca Customers or Marketing Executives to
participate in another business venture;
(ii)
Selling. offering to sell or promoting any competing products
or services to Melaleuca Customers;
(iii) Offering any non-Melaleuca products, services or business
ventures in conjunction with the offering of Melaleuca
products, services or income opportunity or at any Melaleuca
meeting. seminar, launch, convention, or other Melaleuca
function.
(c)(i)Violation of any provision of this Policy 20 constitutes a Marketing
Executive’s voluntary resignation and cancellation of his/her Independent
Marketing Executive Agreement, effective as of the date of the violation,
and the forfeiture by the Marketing Executive of all commissions or
bonuses payable for and after the calendar month in which the violation
occurred.
(ii)If Melaleuca pays any bonuses or commissions to the Marketing
Executive after the date of the violation, all bonuses and commissions for
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and after the calendar month in which the violation occurred shall be
refunded to Melaleuca.
(iii)Melaleuca may seek and obtain from the violating Marketing Executive
both injunctive relief and damages for violations of this Policy 20.
Melaleuca, may, at its option, elect to enforce this Policy by lawsuit in a
court of competent jurisdiction in Idaho rather than by arbitration.
(iv)In addition to being entitled to a refund of bonuses and commissions
and to damages as described above, in the event a person or entity violates
this Policy 20, Melaleuca and any Marketing Executive that experiences an
adverse financial impact as a result of such person or entity’s violation of
this Policy 20 shall be entitled to an accounting and repayment of all
profits, compensation, commissions, remunerations or other benefits which
the person or entity directly or indirectly receives and/or may receive as a
result of, growing out of, or in connection with any violation of this Policy.
Such remedy shall be in addition to and not in limitation of any damages, or
injunctive relief or other rights or remedies to which Melaleuca is or may
be entitled at law or in equity.
(d) Violations of this Policy 20 are especially detrimental to the growth and sales
of other Marketing Executives’ Independent Melaleuca Businesses and to
Melaleuca’s business. Consequently, Marketing Executives who have knowledge
that any Marketing Executive has violated this Policy must immediately report
that information to Melaleuca’s Policy Administration Department. The failure of
a Marketing Executive to report such information to Melaleuca will also constitute
a violation of this Policy. The names of those reporting violations of this Policy 20
will be held in confidence.
LaClare Decl., Ex. B (Dkt. 8-4).
The endorsement line on the back of checks Melaleuca used to pay Ms.
Bartholomew, including one as recent as March 2012, states that “[b]y endorsing,
depositing or cashing this check I affirm that I am currently in compliance with, and
reaffirm and agree to be bound by and to comply with, all terms and conditions of my
Independent Marketing Executive Agreement and Melaleuca’s Policies, as amended from
time to time.” Second LaClare Decl., Ex. G (Dkt. 11-3).
The Bartholomews recently (less than 12 months ago) left Melaleuca and
apparently joined another multi-level marketing company called Independent Energy
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Alliance (“IEA”). Melaleuca claims that the Bartholomews have breached Policy 20 by
soliciting other Melaleuca Marketing Executives to join IEA. There is evidence that Ms.
Bartholomew has attempted to recruit at least one Melaleuca Marketing Executive whom
she met while she was a Marketing Executive. LaClare Decl., Ex. C, Latwanas Affidavit
(Dkt. 8-4).
Melaleuca asks the Court to enjoin the Bartholomews from “recruiting Melaleuca
Marketing Executives and/or Customers in violation of Policy 20 of Melaleuca’s
Statement of Policies or assisting or aiding other current and former Melaleuca Marketing
Executives or any corporation or other entity with which they are associated, or their
officers, agents, employees, servants, and/or anyone acting in concert or participating
with them, in encouraging or inducing other Melaleuca Marketing Executives in violating
their IMEAs.” Pf’s Opening Brief, p. 17 (Dkt. 8-1).
LEGAL STANDARD
A plaintiff seeking a preliminary injunction must establish that: 1) it is likely to
succeed on the merits; 2) it is likely to suffer irreparable harm in the absence of
preliminary relief; 3) the balance of equities tips in its favor; and 4) an injunction is in the
public interest. Reed v. Town of Gilbert, Ariz., 587 F.3d 966, 973-74 (9th Cir. 2009)
(citing Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7 (2008). A
preliminary injunction is “an extraordinary remedy never awarded as of right.” Id. at 376.
In each case, courts “must balance the competing claims of injury and must consider the
effect on each party of the granting or withholding of the requested relief.” Id.
ANALYSIS
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A.

Likelihood of Success on the Merits
Melaleuca asserts a claim for breach of contract against the Bartholomews.

Specifically, Melaleuca asserts that the Bartholomews violated the non-solicitation
agreement outlined in Policy 20 of the Statement of Policies, which is generally
incorporated by reference into Independent Marketing Executive Agreements signed by
Melaleuca Marketing Executives.
In Idaho, like many other states, “[r]estrictive covenants not to compete in an
employment contract, though enforceable, are disfavored and will be strictly construed
against the employer.” Freiburger v. J-U-B Engineers, Inc., 111 P.3d 100, 104 (Idaho
2005). In order to be enforceable, the covenant “must be ancillary to a lawful contract
supported by adequate consideration, and consistent with public policy.” Id. In addition,
it “must be reasonable as applied to the employer, the employee, and the public.” Id.
Idaho also has a statute regarding restricting covenants and other similar
agreements. It states that an independent contractor may enter into a written agreement or
covenant that protects the employer’s legitimate business interests and prohibits a key
independent contractor from engaging in employment or a line of business that is in
direct competition with the employer’s business after termination of employment. I.C.
§ 44-2701. The agreement or covenant is enforceable if it “is reasonable as to its
duration, geographical area, type of employment or line of business, and does not impose
a greater restraint than is reasonably necessary to protect the employer’s legitimate
business interests.”

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Policy 20, which is entitled Non-Solicitation and Conflicts of Interest, may not fall
within the technical definition of a non-compete agreement. However, it is similar
enough to a non-compete agreement that it is appropriate to apply the same legal standard
for determining its enforceability. At the very least, the non-solicitation policy needs to
meet a reasonableness standard like the one applied to non-compete agreements or the
one found in the Idaho statute governing restrictive covenants. Thus, the non-solicitation
agreement is only enforceable to the extent it is reasonable in duration, geographical area,
type of employment or line of business, and does not impose a greater restraint than is
reasonably necessary to protect the employer’s legitimate business interests.
Policy 20 does not appear to meet this standard. As outlined above in its entirety,
Policy 20 is a very expansive provision. During the period their agreements are in force,
it prohibits the Marketing Executives and all members of their Immediate Household1
from directly, indirectly or through a third party recruiting any Melaleuca Customers2 or
Marketing Executives to participate in any other business venture. Moreover, this
prohibition continues for 12 months after cancellation or termination of a Marketing
Executive’s agreement. During that period, the Marketing Executive and all members of
his or her Immediate Household are prohibited from directly, indirectly or through a third
party recruiting to participate in any other business venture any Melaleuca Customers or

1

“Immediate Household” is defined as married couples and persons residing in the same home, and with
respect to Marketing Executives and Customers which are entities (e.g., corporations, tax exempt entities, trusts,
etc.) rather than individuals, Immediate Household means the shareholders, owners, directors, officers, trustees,
responsible parties, etc., of such entities and persons married to or residing in the same home with the persons who
are the shareholders, owners, directors, officers, trustees, responsible parties, etc. of such entities.
2
“Customer” is defined as a person who has an Enrollee, has completed, executed and delivered to
Melaleuca’s Customer Membership Agreement and has paid to Melaleuca the appropriate membership fee.
Customers are either Direct Customers or Preferred Customers.
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Marketing Executives: (1) who were in the Marketing Executive’s Marketing
Organization or Support Team at any time during the term of his or her association with
Melaleuca; (2) with whom the Marketing Executive had contact during the term of his or
her association with Melaleuca; (3) whose contact information (name, address, phone
number or email address, etc.) the Marketing Executive or members of his or her
immediate Household has obtained at any time during the term of his or her association
with Melaleuca; or (4) whose contact information (name, address, phone number or email
address, etc.) the Marketing Executive or members of his or her immediate Household
obtained at any time from another person who obtained the information because of any
other person’s association with Melaleuca.
These prohibitions are far too expansive to be reasonably necessary to protect
Melaleuca’s legitimate business interests. By way of example, the Bartholomews would
be in violation of Policy 20 if, during the 12 months after they left Melaleuca, anyone
residing in their home started any business and recruited someone to work for him/her
who happened to be a Customer or Marketing Executive at Melaleuca and whose email
address was obtained because of some association with Melaleuca. Similarly, they would
be in violation of Policy 20 if they recruited any Melaleuca Customer or Marketing
Executive to participate in any business if they simply had had contact with that person
during the term of their association with Melaleuca.
Lesser restrictions in non-solicitation agreements between a distributor and the
multi-level marketing company for whom she contracted have been found reasonable.
For example, in YTB Travel Network of Illinois, Inc. v. McLaughlin, 2009 WL 1609020
MEMORANDUM DECISION AND ORDER - 9

(S.D.Ill 2009), the plaintiff was a multi-level marketing company. It requested
preliminary relief based on a non-solicitation agreement. The plaintiff asked the court for
an order restraining the defendants from recruiting, soliciting or enrolling plaintiffs’
distributors or customers for other network marketing companies. Plaintiff’s distributors
whom defendants personally sponsored at plaintiff’s company were excepted from the
non-solicitation agreement. In evaluating the reasonable success on the merits, the court
found that preliminary relief was appropriate in part because the defendants were not
prevented from taking their “downline” of those individuals they personally recruited or
members of the defendants’ sales team whom they personally sponsored. YTB Travel
Network of Illinois, Inc. v. McLaughlin, 2009 WL 1609020, *4 (S.D.Ill 2009).3
Here, Melaleuca asks the Court to prevent the Bartholomews from recruiting
almost anyone at Melaleuca remotely associated with them. More troubling, Melaleuca
asks the Court to prevent the Bartholomews from recruiting those individuals to any
business, not just to another multi-level marketing operation. Melaleuca has simply
pushed the envelope too far, and its non-solicitation agreement imposes a greater restraint
than is reasonably necessary to protect Melaleuca’s legitimate business interests.
However, the Idaho Supreme Court, in addressing restrictive covenants in
employment contracts, has concluded that a court can modify restrictive covenants
ancillary to employment agreements. Insurance Center, Inc. v. Taylor, 499 P.2d 1252,
1255-56 (Idaho 1972). In Taylor, the Idaho Supreme Court stated that the modification
3

Other Courts have similarly recommended preliminary relief where the non-solicitation agreement was
much more narrowly tailored. See e.g., Talk Fusion, Inc. v. Ulrich, 2011 WL 2681677 (M.D.Fla 2011) (Based on a
Florida statute requiring non-solicitation covenants be reasonable in time, area and line of business, the court
recommended preliminary relief of a more restrictive nature and limited it to 6 months).
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principle “allows a court to escape the rule of arbitrary refusal to enforce a covenant
which, while unreasonable or indefinite in some of its terms, nevertheless serves to
protect a legitimate interest of the parties or the public as the case may be.” Id. at 1255.
The court noted that “[r]ather than choosing between absolute enforcement or
unenforcement, there will be a wide range of alternatives available to meet the particular
facts of the case being tried.” Id. at 1256. It seems the same policy should apply to nonsolicitation agreements like the one at issue here.
Under the circumstances of this case, although the Court finds that Melaleuca is
unlikely to succeed on the merits of its claim asking the Court to enforce Policy 20 as
written, the Court finds that Melaleuca is likely to succeed in enforcing a more
reasonable modification of the policy. Moreover, although the Court also has some minor
concerns with other elements of the breach of contract claim, such as whether the current
Statement of Policies applies to the Bartholomews (particularly Brian Bartholomew), the
Court is not overly concerned with those issues. Accordingly, the Court finds that
Melaleuca is likely to succeed on the merits – in at least some measure.
B.

Irreparable Injury
The Court also finds that Melaleuca will suffer irreparable harm if preliminary

relief is not ordered. Multi-level marketing companies such as Melaleuca conduct the
lion’s share of their business through their marketing executives or other distributor type
networks. A multi-level marketing company’s relationship with its distributors is crucial
to the success of the company’s marketing program. In fact, they are probably the most
important asset to the company – even more important than the product. If they are
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recruited away from the company in violation of contractual obligations, the network will
suffer. While it is difficult to calculate damages for these losses, there is no doubt it could
be significant. The Court is satisfied that without preliminary relief, Melaleuca may lose
marketing executives in breach of contract. Thus, Melaleuca will suffer irreparable harm
if at least some form of limited preliminary relief is not issued as discussed below.
C.

Balance of Equities
The Court also concludes that the harm Melaleuca will suffer outweighs the harm

the Bartholomews will suffer, but only if the relief granted is limited in the manner
discussed below. Without the issuance of some injunctive relief, Melaleuca will suffer the
loss of Marketing Executives, which will undoubtedly hurt its bottom line. Melaleuca
may not be able to recover these Marketing Executives or the losses associated with
them.
On the other hand, the Bartholomews will suffer little harm based on the limited
relief the Court intends to issue. The Court notes that granting the specific relief
requested by Melaleuca – complete compliance with Policy 20 – would potentially cause
the Bartholomews much more harm because it could virtually prevent them from entering
into any business venture. However, as explained below, the relief granted here is limited
in both time and scope.
D.

Public Interest
The Court recognizes that the public has an interest in a competitive marketplace.

It is in the public’s interest for the Bartholomews to be productive for themselves, and to
create jobs for others they know. However, the relief granted in this case will not
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unreasonably prevent the Bartholomews from competing in the marketplace. Moreover, it
will uphold the law requiring parties to comply with contractual obligations.
Accordingly, the Court finds that preliminary relief is in the public’s interest.
CONCLUSION
Under these circumstances, the Court will grant Plaintiff’s motion, but will not
grant the specific relief requested. The Court will limit the relief to what it feels is
reasonable based on the limited record before it, and the cursory review of case law the
Court has been able to do in the short time the Court has had the pending motion before
it.
However, because this case is before the Court on a motion for preliminary
injunctive relief, plaintiff’s motion was made on a rushed schedule with expedited
briefing. The Court is also issuing its decision posthaste. “Hasty decisions are rarely wise
decisions, and the law recognizes that fact: Preliminary injunctions are issued on a
showing of a ‘likelihood’ of success; there is no final resolution of any issue.” Watters v.
Otter, 2012 WL 640941, at *1 (D. Idaho Feb. 26, 2012). Accordingly, as with any ruling
on a motion for preliminary relief, the Court’s findings are not final. The Court fully
expects to be further enlightened by the parties about some of the unique aspects of
multi-level marketing companies in general, and Melaleuca specifically. This may affect
the decision made here dramatically. For these reasons, the Court will be receptive to a
proposal to expedite this case if either party wishes to do so. The Court will also be
receptive to a motion to reconsider by either party, with the understanding that the Court
will expect more thorough briefs and more time to address the motion. Alternatively, the
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parties may wish to meet and confer in an attempt to reach a stipulated injunction that
better reflects the facts of this case.
To move this case forward expeditiously, the Court will schedule a telephonic
scheduling conference within a matter of days, and the parties should be prepared to
discuss these matters and potential short deadlines if requested by either party.
ORDER
IT IS HEREBY ORDERED:
1. Plaintiff’s Motion for a Temporary Restraining Order and Preliminary
Injunction (Dkt. 8) is GRANTED as follows – The Bartholomews are enjoined
from recruiting Customers and Marketing Executives, as defined in
Melaleuca’s current definitions, for any other multi-level marketing business,
with the exception of any Customer or Marketing Executive personally
enrolled downline by the Bartholomews, any person in the Bartholomews
Immediate Household as that term is defined in Melaleuca’s current
definitions, any member of the Bartholomews immediate family (parents,
siblings or children), and any Customer or Marketing Executive who has
joined Melaleuca since the Bartholomews left Melaleuca. The Court is not
altogether familiar with terms associated with multi-level marketing
organizations, so to clarify, the Court notes that by “personally enrolled
downline” the Court means Customers and Marketing Executives recruited to
Melaleuca personally by the Bartholomews. The injunction shall be in place
until it is further reviewed by the Court pursuant to motion or until a final
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decision is entered following a trial, but not more than one year from the date
the Bartholomews left Melaleuca.

DATED: May 14, 2012

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

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