Organo Gold Int'l, Inc v. Ventura et al, No. 2:2016cv00487 - Document 27 (W.D. Wash. 2016)

Court Description: ORDER granting plaintiff's 10 Motion for TRO by Judge Richard A Jones. Defendants L&A Ventura Management, Inc. and Luis Ventura are ORDERED to show cause on or before 5/12/2016 why the Court should not convert this temporary restraining order into a preliminary injunction. (AD)

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Organo Gold Int&#039;l, Inc v. Ventura et al Doc. 27 HONORABLE RICHARD A. JONES 1 2 3 4 5 6 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 7 8 ORGANO GOLD INT’L, INC., 9 Plaintiff, CASE NO. C16-487RAJ 10 11 v. ORDER LUIS VENTURA, et al., 12 Defendants. 13 I. INTRODUCTION 14 This matter comes before the Court on Plaintiff Organo Gold Int’l, Inc.’s 15 16 (“Organo”) Motion for Temporary Restraining Order (“TRO”) and for a Preliminary 17 Injunction. Dkt. # 10. Defendant L&A Ventura Management, Inc. (“L&A Ventura”) has 18 filed an Opposition. 1 Dkt. # 15. The Court heard oral argument on April 27, 2016. For 19 the reasons set forth below, the Court GRANTS Organo’s Motion. 20 21 22 23 24 25 26 27 28 1 According to the Opposition, Defendants Luis Ventura and Luz Angela Ventura have not yet been served. See Dkt. # 15 at 2 n.1. This Court’s Local Rules require that moving parties “serve all moving papers on the opposing party before or contemporaneously with the filing of the motion and include a certificate of service with the motion.” Local Rules W.D. Wash. LCR 65(b)(1). The certificate of service accompanying Plaintiff’s Motion does not provide much detail as to whether Mr. and Mrs. Ventura have been properly served. Still, it is clear that Mr. Ventura has notice of the Motion and suit. See Dkt. # 2 (Ventura Decl.). However, since the Venturas have since divorced, it is not clear that Mrs. Ventura has been served. See id. ¶ 3. As a result, the Court will not impose a TRO on Mrs. Ventura until Organo can show that she has received adequate notice of this Motion. ORDER – 1 Dockets.Justia.com II. BACKGROUND 1 Organo is a multi-level marketing (“MLM”) company that distributes ganoderma- 2 3 based coffee products 2 with operations in the United States, Mexico, and more than 30 4 other countries. See Dkt. # 1-2 (“Compl.”) ¶¶ 1, 8; Dkt. # 11 Ex. 8 (Perrett Decl.) ¶ 5. 5 Defendants Luis Ventura and Luz Angela Ventura are husband and wife and reside in 6 Texas. Id. ¶ 2. They are also the sole shareholders of L&A Ventura. Id. ¶ 3. Mr. 7 Ventura joined Organo in July 2009 after having previously worked in the MLM 8 industry. See Dkt. # 16 (Ventura Decl.) ¶¶ 2-4. He apparently was solicited by another 9 Organo distributor, John Sachtouras. See id. ¶¶ 4-5. Mr. Ventura remained an 10 independent contractor throughout his tenure with Organo. Id. ¶ 9. Eventually, the 11 Defendants reached the rank of “Crown Diamond” – the second highest qualification 12 rank within Organo’s compensation plan. See id. ¶ 16. Roughly four years into his tenure at Organo, Mr. and Mrs. Ventura signed an 13 14 “Independent Distributor Application” with Organo on February 24, 2013. 3 See Dkt. # 15 11 (Bulthuis Decl.) Ex. 1; Dkt. # 16 (Ventura Decl.) ¶ 8. The terms and conditions of the 16 application included a clause stating: 19 15. [The applicants] shall not, while participating as an Organo Gold Distributor, or for 12 months after [their] termination, cancellation, or other separation from the Organo Gold program, participate in any other opportunity that directly competes with Organo Gold in offering ganoderma-based products.” 20 Id. at 6. 21 Those terms and conditions also included a provision stating that the applicants 22 agreed to “abide by the Organo Gold Code of Conduct as detailed in the Organo Gold 17 18 23 24 25 26 2 As best as this Court can tell, ganoderma (which is a mushroom of some sort) based products are of particular importance to Organo’s business and to the non-compete clauses at issue. See Compl. ¶ 6; Dkt. # 11 Ex. 1 at 6, Ex. 9 (Zelaya Decl.) Ex. C at 89. 3 27 All Parties appear to agree that Washington law applies to this case. Both the Distributor Application and the Policies and Procedures are governed by Washington law. See Dkt. # 11 (Bulthuis Decl.) Ex. 1 at 6; Dkt. # 11 (Zelaya Decl.) Ex. C at 91. 28 ORDER – 2 1 Policies and Procedures.” Id. The Policies and Procedures also include a non-compete 2 clause. That provision states: 3 X. Non Competition Agreement 4 6 Any Distributor that is terminated and/or cancels his or her Distributor Status, shall not compete with the Company or any of its affiliates by soliciting existing customers of the Company to any ganoderma or healthy beverage business similar to the Company in a multi level marketing setting or its equivalent, for a period of twelve (12) months. 7 Dkt. # 11 (Zelaya Decl.) Ex. C at 89. 8 The Policies and Procedures also prohibit distributors from engaging “in 5 9 deceptive, unlawful, or unethical business or recruiting practices (including cross 10 sponsoring or recruiting)”. Id. at 70. No party seriously disputes that “cross sponsoring” 11 or “raiding” includes the practices of recruiting or attempting to recruit a representative 12 from another distributor’s “downline” 4 or trying to do the same to a representative from 13 one’s own “downline.” See Compl. ¶ 21. The Distributor Application and the Policies and Procedures also have alternative 14 15 dispute resolution provisions. Specifically, the Distributor Application provides that In the event of a dispute between an Independent Distributor and Organo Gold arising from or relating to the Agreement, or the rights and obligations of either party, the parties shall attempt in good faith to resolve the dispute through nonbinding mediation as more fully described in the Policies and Procedures. 16 17 18 Dkt. # 11 (Bulthuis Decl.) Ex. 1 at 6. 19 Oddly, the Policies and Procedures do not actually specify any nonbinding 20 21 22 23 24 25 26 mediation process. Nevertheless, they do set forth a binding arbitration procedure. See Dkt. # 11 (Zelaya Decl.) Ex. C at 91. Notably, the arbitration procedure does not “prevent [Organo] from applying to and obtaining from any court having jurisdiction, a writ of attachment, an injunction, or other relief available to safeguard and protect [its] interest prior to, during, or following the filing of any arbitration.” Id. 4 27 A distributor’s “downline” is defined as “[t]jhe organization of a Distributor, including those who are directly or indirectly sponsored by the Distributor and continuing down the lines of sponsorship through infinite levels and legs.” Dkt. # 11 (Zelaya Decl.) Ex. C at 71. 28 ORDER – 3 Ultimately, Mr. Ventura was terminated as an Organo Distributor on February 19, 1 2 2016. See Dkt. # 11 (Zelaya Decl.) ¶ 6; Dkt. # 16 (Ventura Decl.) ¶¶ 17-18, 20. At that 3 time, Organo held its Project 50K event in Las Vegas, Nevada, a training event held 4 exclusively for the benefit of Organo’s distributors. See Dkt. # 11 (Perrett Decl.) ¶ 7. Mr. Ventura associated with another company, Total Life Changes, LLC (“TLC”), 5 6 in February 2016. 5 See Dkt. # 16 (Ventura Decl.) ¶ 22. TLC is another MLM company. 7 Id. TLC sells a range of products, such as teas, oils, cleansing products, and weight loss 8 products. Id. It also sells coffee infused with ganoderma. See Dkt. # 11 (Perrett Decl.) ¶ 9 9; Dkt. # 16 (Ventura Decl.) ¶ 22; Dkt. # 17 (Licari Decl.) ¶ 2 (5.7% of TLC’s total sales 10 attributable to ganoderma-infused coffee). Mr. Ventura was indisputably in Las Vegas at 11 the time of the Project 50K event and indisputably discussed TLC with other Organo 12 distributors. See Dkt. # 16 (Ventura Decl.) ¶ 21 (“I responded that I might join another 13 MLM company or specifically identified TLC”) (emphasis added). 6 14 In February 2016, Organo received reports from its distributors that Mr. Ventura 15 had approached them and attempted to recruit them to join TLC. See Dkt. # 11 (Zelaya 16 Decl.) ¶ 8; Dkt. # 11 (Sachtouras Decl.) ¶ 5. 7 Indeed, Organo presents evidence that Mr. 17 5 18 19 20 21 22 23 24 25 26 27 28 The Parties disagree as to whether Mr. Ventura associated with TLC prior to his termination or immediately after his termination. 6 No party addresses the provision, but the Policies and Procedures prohibit former distributors “from promoting another company’s business, during [Organo]-related or sponsored activities or any activity promoted as such.” Dkt. # 11 (Zelaya Decl.) Ex. C at 89. 7 Although L&A Ventura objects to this evidence, the fact that Organo’s distributors have approached Organo’s employees regarding solicitation is not hearsay. First, the statements are not necessarily being offered to show Mr. Ventura actually solicited these individual distributors. Second, Mr. Ventura’s statements to the distributors are, of course, not hearsay when offered against him. See Fed. R. Evid. 801(d)(2). Even if inadmissible, the Court may consider inadmissible evidence in ruling on a preliminary injunction. “Due to the urgency of obtaining a preliminary injunction at a point when there has been limited factual development, the rules of evidence do not apply strictly to preliminary injunction proceedings.” Herb Reed Enters., LLC v. Florida Entm’t Mgmt., Inc., 736 F.3d 1239, 1250 n.5 (9th Cir. 2013) (citing Republic of the Philippines v. Marcos, 862 F.2d 1355, 1363 (9th Cir. 1988)). Here, many of the individuals complaining of Mr. Ventura’s solicitation could easily present testimony regarding Mr. Ventura’s statements, disarming most of L&A Ventura’s objections. ORDER – 4 1 Ventura invited other Organo distributors to hear him present a new opportunity on 2 February 19, 2016. See Dkt. # 11 (Sachtouras Decl.) ¶ 4, Ex. A; Dkt. # 20 (Herrera 3 Decl.) ¶ 5. Indeed, Mr. Ventura directly approached Mr. Herrera and indicated that he 4 was considering leaving Organo for TLC. Dkt. # 20 (Herrera Decl.) ¶ 4. III. LEGAL STANDARD 5 6 The standard for a TRO is essentially the same as that for a preliminary injunction. 7 See Stuhlbarg Int’l Sales Co., Inc. v. John D. Brush & Co., Inc., 240 F.3d 832, 839 n.7 8 (9th Cir. 2001). In order to obtain preliminary relief, a party “must establish that [it] is 9 likely to succeed on the merits, that [it] is likely to suffer irreparable harm in the absence 10 of preliminary relief, that the balance of equities tips in [its] favor, and that an injunction 11 is in the public interest.” Am. Trucking Ass’ns, Inc. v. City of Los Angeles, 559 F.3d 12 1046, 1052 (9th Cir. 2009) (quoting Winter v. Natural Resources Defense Council, Inc., 13 555 U.S. 7, 20 (2008)). “In addition, a ‘preliminary injunction is appropriate when a 14 plaintiff demonstrates that serious questions going to the merits were raised and the 15 balance of hardships tips sharply in the plaintiff's favor,’ provided the plaintiff also 16 demonstrates that irreparable harm is likely and that the injunction is in the public 17 interest.” Andrews v. Countrywide Bank, NA, 95 F. Supp. 3d 1298, 1300 (W.D. Wash. 18 2015) (quoting Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1134-35 (9th 19 Cir. 2011)). IV. DISCUSSION 20 21 Organo pleads several causes of action against the Defendants, but the only ones 22 particularly pertinent to the instant Motion are those for breach of contract and for 23 tortious interference because they form the basis for Organo’s request for injunctive 24 relief. See Compl. ¶¶ 42-56. 25 a. Likelihood of Success on the Merits for Breach of Contract Claims 26 Organo argues that they are likely to succeed on their claim that Defendants 27 breached the non-compete clauses in the Distributor Agreement and the P&Ps. See Dkt. 28 ORDER – 5 1 # 10 at 10-12. A breach of contract claim in Washington requires “proof of four 2 elements: duty, breach, causation, and damages.” BP W. Coast Prods. LLC v. SKR Inc., 3 989 F. Supp. 2d 1109, 1121 (W.D. Wash. 2013) (citing Baldwin v. Silver, 269 P.3d 284, 4 289 (Wash. Ct. App. 2011)). 5 The Parties do not seriously dispute most of these elements. Instead, the Parties 6 focus their arguments on whether the non-compete provisions are enforceable. L&A 7 Ventura argues that Organo’s breach of contract claim necessarily fails because Organo 8 failed to engage in pre-dispute mediation, the non-compete clauses are unenforceable for 9 lack of consideration, and the non-compete clauses are unreasonable under Washington 10 law. See Dkt. # 15 at 9-14. i. 11 12 13 Whether Mediation is a Condition Precedent to Litigation L&A Ventura argues that the Action should be dismissed because Organo has not yet engaged in nonbinding mediation prior to engaging in litigation. See Dkt. # 15 at 9. 14 The alternative dispute resolution provisions of the Distributor Application and 15 Policies and Procedures provide for mandatory pre-litigation mediation. See Dkt. # 11 16 (Bulthuis Decl.) Ex. 1 at 6 (“In the event of a dispute between an Independent Distributor 17 and Organo Gold . . . the parties shall attempt in good faith to resolve the dispute through 18 nonbinding mediation”). However, the alternative dispute resolution provisions are also 19 further detailed in the Policies and Procedures, which clarify that “[n]othing in this 20 Agreement shall prevent [Organo] from applying to and obtaining from any court having 21 jurisdiction, . . . an injunction, or other relief available to safeguard and protect [its] 22 interest prior to, during, or following the filing of any arbitration or other proceeding.” 23 See Dkt. # 11 (Zelaya Decl.) Ex. C at 91. 24 There is little doubt that the instant dispute arises out of the Parties’ contractual 25 agreements – and there is little question that the plain language of the agreements permits 26 Organo to seek injunctive relief prior to initiating arbitration proceedings. Organo’s 27 request therefore is not subject to the nonbinding mediation condition precedent. 28 ORDER – 6 L&A Ventura’s cited cases do not compel a different result. In Delameter v. 1 2 Anytime Fitness, Inc., the parties entered into a franchise agreement which contained a 3 non-compete clause. See 722 F. Supp. 2d 1168, 1171-72 (E.D. Cal. 2010). The franchise 4 agreements also included a mandatory pre-litigation or arbitration mediation provision, 5 except where the defendant believed it necessary to seek equitable relief. See id. at 1172. 6 In contrast to the instant Action, however, it was the plaintiff who sued, seeking a 7 declaratory judgment. Id. at 1173. As a result, the court held that the mediation 8 condition applied. See id. at 1180-81. That simply is not the case here, where the plain 9 terms of the Policies and Procedures permits Organo to seek injunctive relief aside and 10 apart from the binding alternative dispute resolution provisions. ii. 11 Whether the Non-Compete Clauses Fail for Lack of Consideration Next, L&A Ventura argues that Organo did not provide independent consideration 12 13 for the non-compete clauses in the Distributor Application and Policies and Procedures 14 entered into in 2013. See Dkt. # 15 at 10. The Court disagrees. In Washington, “[i]f a prospective employee agrees to a noncompete restriction 15 16 when he or she is first hired, employment by itself may be sufficient consideration.” 17 McKasson v. Johnson, 315 P.3d 1138, 1141 (Wash. Ct. App. 2013) (citing Labriola v. 18 Pollard Grp., Inc., 100 P.3d 791, 794 (Wash. 2004)). 8 However, “when an existing at- 19 will employee agrees to a noncompete restriction some time after he or she was hired, the 20 restriction is enforceable only if the employer gives the employee independent 21 consideration at the time of their agreement.” Id. Such consideration must be something 22 “other than continuing employment.” Id. at 1142. 23 24 25 26 27 28 8 The applicability of this principle is an open question. The contracts at issue do not provide for employment – they merely grant distributors the right to sell Organo products, to enroll others as Organo distributors, and to earn commissions for a fixed term. See Dkt. # 11 (Balthuis Decl.) Ex. 1 at 6. Nothing in either the Distributor Application or the Policies and Procedures obligates Organo to renew an applicant’s distributor status, meaning that each term would be supported by independent consideration. ORDER – 7 1 The plain terms of the Distributor Application and the Policies and Procedures 2 provides for a one year term subject only to cancellation under the terms of the Policies 3 and Procedures. See Dkt. # 11 (Balthuis Decl.) Ex. 1 at 6 (“The term of this agreement is 4 one year”); Dkt. # 11 (Zelaya Decl.) Ex. C at 74 (“The term of the Distributor Status is 5 one year from the date an Application is accepted by [Organo]”). Moreover, the 6 agreements must be renewed every year (and Organo must accept them). The Court sees 7 little distinction between this and the week-by-week non-compete clauses explicitly 8 approved in Labriola. See 100 P.3d at 794-95 (citing Racine v. Bender, 252 P. 115 9 (Wash. 1927)). 10 In short, even if treated as a non-compete clause entered into subsequent to at-will 11 employment, the Distributor Application is likely supported by independent 12 consideration. “[A] fixed term of employment” serves as adequate independent 13 consideration. Id. at 794 (citing Schneller v. Hayes, 28 P.2d 273, 274 (Wash. 1934)). 14 And as discussed above, the agreements expressly provide for a fixed one-year 15 distributorship term, thereby providing sufficient independent consideration. Even 16 beyond this, pursuant to the Distributor Application, Organo recognized and permitted 17 Mr. Ventura to add L&A Ventura to his distributorship, even if it was not necessarily 18 required to do so. See Dkt. # 11 (Balthuis Decl.) Ex. 1 at 7-8; Dkt. # 11 (Zelaya Decl.) 19 Ex. C at 74. That also likely serves as independent consideration. See Labriola, 100 20 P.3d at 794 (holding that “independent consideration involves new promises or 21 obligations previously not required of the parties”). The Court finds that the Distributor 22 Application was sufficiently supported by independent consideration. iii. 23 24 25 26 Reasonableness of Non-Compete Clauses That brings the Court to the question of whether the non-compete clauses at issue are reasonable. Unsurprisingly, the Parties disagree. “Generally, restrictive covenants in employment contracts are enforceable so long 27 as the restrictions therein are ‘not greater than are reasonably necessary to protect the 28 ORDER – 8 1 business or good will of the employer, even though they restrain the employee of his 2 liberty to engage in a certain occupation or business, and deprive the public of the 3 services, or restrain trade.’” Seabury & Smith, Inc. v. Payne Fin. Grp., Inc., 393 F. Supp. 4 2d 1057, 1062 (E.D. Wash. 2005) (quoting Alexander & Alexander v. Wohlman, 578 P.2d 5 530, 539 (Wash. Ct. App. 1978)); Pac. Aerospace & Elecs., Inc. v. Taylor, 295 F. Supp. 6 2d 1205, 1216 (E.D. Wash. 2003) (citing Perry v. Moran, 748 P.2d 224, 228-29 (Wash. 7 1987)). Washington courts have applied a three part test to determine whether a non- 8 compete clause is reasonable: “1) the restraint is necessary for the protection of the 9 business or good will of the employer; 2) the restraint on the employee is greater than is 10 reasonably necessary; and 3) the degree of injury to the public from the loss of the service 11 and skill of the employee is great enough to warrant nonenforcement of the covenant.” 12 Seabury, 393 F. Supp. 2d at 1062 (citing Alexander, 578 P.2d at 539). “If a court finds a 13 restraint unreasonable, it can modify the agreement by enforcing it only ‘to the extent 14 reasonably possible to accomplish the contract's purpose.’” Amazon.com, Inc. v. Powers, 15 No. C12-1911RAJ, 2012 WL 6726538, at *8 (W.D. Wash. Dec. 27, 2012) (quoting 16 Emerick v. Cardiac Study Ctr., Inc. (“Emerick I”), 286 P.3d 689, 692 (Wash. Ct. App. 17 2012)). 18 “Washington courts have typically looked favorably on restrictions against 19 working with an employee’s former clients or customers.” Id. In contrast, “Washington 20 courts have been more circumspect when considering restrictions that would prevent an 21 employee from taking on any competitive employment.” Id. at *9. To justify a general 22 restriction on competition not tied to specific customers, the employer must point “to 23 specific information about the nature of its business and the nature of the employee’s 24 work” to justify the restriction. See id. 25 The first issue is whether the non-compete clauses are necessary to protect 26 Organo’s business or goodwill. See Emerick v. Cardiac Study Ctr., Inc., P.S. (“Emerick 27 28 ORDER – 9 1 II”), 357 P.3d 696, 701-02 (Wash. Ct. App. 2015). The Court finds that the non-compete 2 provisions are necessary. The non-compete clause in the Policies and Procedures prohibits distributors from 3 4 “soliciting existing customers of the Company to any ganoderma or healthy beverage 5 business similar to the Company in a multi level marketing setting or its equivalent, for a 6 period of twelve (12) months.” Dkt. # 11 (Zelaya Decl.) Ex. C at 89. This clause makes 7 sense, as “[a]mong Organo’s most valuable assets is its sales organization – the network 8 of Distributors and customers that market and sell Organo’s products and services – as 9 well as the contact information and the customer data within the sales organization.” 10 Dkt. # 11 (Perrett Decl.) ¶ 6. That interest is squarely recognized under Washington law. 11 See Pac. Aerospace, 295 F. Supp. 2d at 1216 (recognizing an employer’s “legitimate 12 interest in protecting its customer base from depletion by a former employee”). There is 13 little doubt that this clause is necessary to protect Organo’s business. The non-compete clause in the Distributor Application is somewhat broader, 14 15 providing that a distributor shall not “participate in any other opportunity that directly 16 competes with Organo Gold in offering ganoderma-based products.” Dkt. # 11 (Bulthuis 17 Decl.) Ex. 1 at 6. 9 Whether this clause is reasonably necessary is a closer question – it 18 essentially prohibits terminated distributors from joining any business selling ganoderma- 19 based products. However, in this Court’s view, the clause serves to protect Organo’s 20 business model – a network of distributors and customers selling Organo’s ganoderma- 21 based products would be invaluable to any other such business, even if ganoderma-based 22 products make up only a portion of their overall business. In fact, this provision serves to 23 9 24 25 26 27 28 L&A Ventura argues that the non-compete clauses conflict and therefore only the narrower clause prohibiting customer solicitation should be enforced. See Dkt. # 15 at 14-16. The Court disagrees – the two clauses may easily be read in harmony. The clause in the Policies and Procedures prohibits soliciting only Organo’s customers to another MLM setting and only for ganoderma or healthy beverage businesses. The clause in the Distributor Application, in contrast, prevents distributors from participating in any business directly competing with Organo in selling ganoderma-based products. That likely encompasses participating in such business where distributors’ “downlines” or other network marketing information derived from affiliating with Organo would be invaluable. ORDER – 10 1 protect one of the very legitimate business interests L&A Ventura recognized at oral 2 argument: protecting businesses from departing employees unfairly leveraging personal 3 contacts or confidential information acquired during their tenure. As applied here, Mr. 4 Ventura may very well leverage his intimate knowledge of Organo’s distributor policies, 5 procedures, or practices to entice distributors to join TLC. Whether the identity of those 6 distributors is public or not, Mr. Ventura’s insight into their employer’s guidelines may 7 unfairly advantage him in recruiting for a competing MLM firm. 8 9 Next, the Court considers the scope of the restriction. See Emerick II, 357 P.3d at 703. Courts typically analyze this prong by considering the geographic and temporal 10 limitations. Id. (citing Wood v. May, 438 P.2d 587, 590 (Wash. 1968)). Although both 11 non-compete clauses here are reasonable as to time – a one year non-compete is relatively 12 short and reasonable (see Seabury, 393 F. Supp. 2d at 1063) – they do not contain a 13 geographical limitation. Organo argues that this is necessary because of the nature of the 14 MLM business. See Dkt. # 10 at 12. Indeed, Organo distributors are not limited to 15 selling in any particular geographic area. See Dkt. # 11 (Perrett Decl.) ¶ 5. Washington 16 courts have recognized that an “employer is entitled to a restrictive covenant that is as 17 broad in scope as the business which the covenant seeks to protect.” ISC-Bunker Ramo 18 Corp. v. Altech, Inc., 765 F. Supp. 1310, 1336 (N.D. Ill. 1990) (citing Cent. Credit 19 Collection Control Corp. v. Grayson, 499 P.2d 57, 59 (Wash. Ct. App. 1972)). And other 20 courts have found nationwide non-compete provisions to be reasonable in the MLM 21 context. See e.g., PartyLite Gifts, Inc. v. MacMillan, 895 F. Supp. 2d 1213, 1226 (M.D. 22 Fla. 2012) (finding nationwide non-compete provision to be reasonable); YTB Travel 23 Network of Illinois, Inc. v. McLaughlin, No. 09-CV-369-JPG, 2009 WL 1609020, at *4 24 (S.D. Ill. June 9, 2009) (finding that lack of a geographic limitation was irrelevant in 25 network marketing involving online business). 26 Still, L&A Ventura argues that the Distributor Application’s non-compete clause 27 is still unreasonably broad because it prohibits Defendants from engaging in any directly 28 ORDER – 11 1 competing opportunity. Dkt. # 15 at 12-13. If the clause categorically prohibited 2 distributors from joining any of Organo’s potential competitors, then the Court would 3 likely find the clause impermissibly broad. Indeed, the cases L&A Ventura cites provide 4 some support for the proposition that non-compete provisions prohibiting working for 5 any competitor may be unreasonable. See Labriola, 100 P.3d at 800 (Madsen, J., 6 concurring); Sheppard v. Blackstock Lumber Co., Inc., 540 P.2d 1373, 1376 (Wash. 7 1975) (finding non-compete provision prohibiting “any competitive activity anywhere or 8 anytime, with the determination of what constituted ‘competitive activity’ to be made by 9 respondent’s board of directors” to be unreasonable). However, the provision here does 10 no such thing – it only prohibits joining a very specific type of competitive venture: those 11 selling competitive ganoderma-based products. That does not amount to an outright 12 prohibition on Defendants’ ability to make a living – rather, it simply prevents them from 13 plying their trade in the ganoderma-based products industry. 10 L&A Ventura also argues that the Policies and Procedures’ restriction on 14 15 Defendants’ solicitation of Organo’s existing customers is overly broad because it 16 encompasses both the ganoderma and “healthy beverage” businesses. See Dkt. # 15 at 17 13. L&A Ventura also argues that the term “soliciting” is overly broad. See id. The 18 Court disagrees with both contentions. First, Courts have routinely held that non- 19 compete clauses are reasonably limited in scope when they apply only to “clients and 20 prospective clients who were solicited or serviced during [an] employee’s term of 21 service.” Seabury, 393 F. Supp. 2d at 1063. Second, Washington courts have routinely 22 rejected the same argument that the term “solicit” is ambiguous. See id. at 1062-63 23 (citing Racine, 252 P. at 116). The term has “a commonsense and ordinarily applied 24 25 26 27 28 10 L&A Ventura’s contentions that TLC is not a “direct” competitor because of its small offering of ganoderma-based products or marketing stance are misplaced. Even if TLC only offers a few ganoderma-based products, distributors recruited from Organo inevitably will have substantial experience with selling such products, suggesting a quick increase in sales of those products. Whether TLC and Organo market themselves in different ways is irrelevant – what matters is whether they directly compete in the ganoderma-based product market. ORDER – 12 1 meaning,” particularly in the instant context. See id. at 1063 (citing Pac. Aerospace, 295 2 F. Supp. 2d at 1218). Finally, the Court must “balance possible harm to the public by not enforcing the 3 4 covenant against the employer’s right to protect its business.” Emerick II, 357 P.3d at 5 705 (citing Wood, 438 P.2d at 589). Neither party seriously argues this point, nor could 6 they do so. L&A Ventura itself acknowledges that the public would not be deprived of 7 ganoderma-based products if the non-compete provisions were enforced. See Dkt. # 18 8 (Steinberg Decl.) ¶ 4. Given this analysis, the Court finds that the non-compete provisions are reasonable 9 10 and enforceable. iv. 11 Whether Defendants Have Breached the Contracts All this brings us to whether Organo has shown that the Defendants have breached 12 13 the non-compete provisions. L&A Ventura appears to argue that Defendants have not 14 breached the clauses for three reasons: (1) soliciting distributors is not expressly 15 prohibited by the non-compete provisions, (2) Organo has not presented any evidence 16 that Defendants have solicited Organo’s customers, and (3) because TLC is not a “direct 17 competitor” of Organo. See Dkt. # 15 at 15-16. The Court agrees that Organo has not 18 presented any evidence that Defendants have solicited Organo’s customers – they appear 19 to admit as much – but the issue is largely irrelevant. 11 See Dkt. # 20 at 2. Whatever the case, the Court disagrees with L&A Ventura on its other two points. 20 21 First, the language of the Distributor Application likely prohibits soliciting distributors 22 (though it may certainly have been better drafted). Defendants are prohibited from 23 “participat[ing] in any other opportunity that directly competes with Organo Gold in 24 offering ganoderma-based products.” Dkt. # 11 (Balthuis Decl.) Ex. 1 at 6. Clearly 25 soliciting distributors to sell ganoderma-based products – particularly in a similar MLM 26 27 28 11 Perhaps the difficulty here is that Organo relies heavily upon its independent distributors to drive its sales. ORDER – 13 1 setting – would be such an opportunity. And Organo has presented substantial evidence 2 supporting that fact. See Dkt. # 11 (Sachtouras Decl.) ¶ 4, Ex. A; Dkt. # 20 (Herrera 3 Decl.) ¶¶ 3-5, 8, Ex. A; see also Dkt. # 11 (Zelaya Decl.) ¶ 11, Ex. A. Second, the fact 4 that only a small fraction of TLC’s total sales were derived from ganoderma-infused 5 coffee is immaterial. The fact is that TLC offers ganoderma-based products for sale in 6 direct competition to Organo. See Dkt. # 16 (Ventura Decl.) ¶ 22; Dkt. # 17 (Licari 7 Decl.) ¶ 2. In fact, as Organo rightly contends, it is reasonable to believe that the 8 proportion of TLC’s sales attributable to ganoderma-based products is likely to increase, 9 given the influx of distributors more experienced in selling such products. Defendants’ 10 11 12 participation in that “opportunity” constitutes breach. Accordingly, the Court finds that Organo has shown a likelihood of success on the merits for its breach of contract claims. 13 b. Likelihood of Success on the Merits for Tortious Interference Claims 14 Next, the Court considers whether Organo has shown likelihood of success on the 15 merits for its tortious interference claims. 16 Under Washington law, the elements for tortious interference are: “(1) the 17 existence of a valid contractual relationship or business expectancy; (2) that defendants 18 had knowledge of that relationship; (3) an intentional interference inducing or causing a 19 breach or termination of the relationship or expectancy; (4) that defendants interfered for 20 an improper purpose or used improper means; and (5) resultant damage.” T-Mobile USA, 21 Inc. v. Huawei Device USA, Inc., 115 F. Supp. 3d 1184, 1194 (W.D. Wash. 2015) 22 (quoting Leingang v. Pierce Cty. Med. Bureau, 930 P.2d 288, 300 (Wash. 1997)). 23 For reasons unknown to the Court, L&A Ventura does not respond to this portion 24 of Organo’s brief (though it did address this issue at oral argument). Whatever the case, 25 Organo has presented some evidence to support its claim. Specifically, Organo has 26 presented evidence that Mr. Ventura actively sought out Organo distributors – individuals 27 apparently under contract with Organo – to promote a new “opportunity.” See Dkt. # 11 28 ORDER – 14 1 (Sachtouras Decl.) ¶ 4, Ex. A; Dkt. # 20 (Herrera Decl.) ¶¶ 3-5, 8, Ex. A; see also Dkt. # 2 11 (Zelaya Decl.) ¶ 11, Ex. A. As a result of this, many of Organo’s distributors – 3 including high ranking distributors – apparently have defected to TLC after terminating 4 their relationship with Organo. See Dkt. # 11 (Perrett Decl.) ¶¶ 14-19; 12 Dkt. # 20 5 (Zelaya Decl.) ¶ 7. As a result, Organo plainly has suffered substantial damage – by 6 Organo’s admission, unless it can stem the tide of defecting distributors, Organo will no 7 longer be a viable as a going concern within a few months. See Dkt. 11 (Perrett Decl.) ¶ 8 28. 9 The question, however, is whether Defendants’ interference as wrongful. 10 “Interference is wrongful if it is done for an improper purpose or by improper means.” 11 Life Designs Ranch, Inc. v. Sommer, 364 P.3d 129, 139 (Wash. Ct. App. 2015) (citing 12 Pleas v. City of Seattle, 774 P.2d 1158, 1163-64 (Wash. 1989)). However, “[e]xercising 13 in good faith one's legal interests is not improper interference.” Experience Hendrix, 14 L.L.C. v. HendrixLicensing.com, LTD, 766 F. Supp. 2d 1122, 1147 (W.D. Wash. 2011) 15 (quoting Leingang, 930 P.2d at 300). In fact, “[t]o be improper, interference must be 16 wrongful by some measure beyond the fact of the interference itself, such as a statute, 17 regulation, recognized rule of common law, or an established standard of trade or 18 profession.” Moore v. Commercial Aircraft Interiors, LLC, 278 P.3d 197, 200 (Wash. Ct. 19 App. 2012) (citing Pleas, 774 P.2d at 1163). It is not clear what the improper purpose or motive is here – Defendants’ apparent 20 21 purpose in soliciting Organo distributors was simply to seek additional compensation. 22 See Dkt. # 16 (Ventura Decl.) ¶ 15; Dkt. # 20 (Herrera Decl.) ¶ 4. Organo does not point 23 to any other basis for showing that the alleged interference was wrongful and does not 24 show that Defendants were motivated by an improper purpose, such as malice or ill will. 25 26 27 28 12 The Court overrules L&A Ventura’s objection that there is no basis for this evidence. See Dkt. 15 at 25. Mr. Perrett is a senior vice president of Organo and could easily verify the number of distributors leaving Organo’s organization by accessing its business records. See Dkt. # 11 (Perrett Decl.) ¶¶ 2-3. ORDER – 15 1 2 Accordingly, the Court finds that Organo has not shown a likelihood of success on the merits for its tortious interference claim. 3 c. Whether Organo Will Suffer Irreparable Harm 4 Next, Organo must show that it is “likely to suffer irreparable harm in the absence 5 of preliminary relief.” Winter, 555 U.S. at 20. This element is considered the most 6 important prerequisite for the issuance of a preliminary injunction. See Dex Media W., 7 Inc. v. City of Seattle, 790 F. Supp. 2d 1276, 1288 (W.D. Wash. 2011) (quoting Kotok v. 8 Homecomings Fin., LLC, No. C09–662RSM, 2009 WL 1652151, at *2 (W.D. Wash. 9 June 12, 2009)). Irreparable injury cannot be established where harm is measurable in 10 damages. See id. (citing eBay, Inc. v. MercExchange, LLC, 547 U.S. 388, 391 (2006)). 11 Beyond its arguments regarding the validity or applicability of the non-compete 12 clauses, L&A Ventura argues that Organo cannot show irreparable harm because it 13 delayed in seeking an injunction, that only a small number of Organo’s distributors have 14 actually left, and that Organo has only suffered monetary damages. See Dkt. # 15 at 19- 15 20. The Court disagrees with these points. 16 To be sure, a long delay before seeking injunctive relief may undermine a party’s 17 claim of irreparable harm. See Citizens of Ebey’s Reserve for Healthy, Safe & Peaceful 18 Env’t v. U.S. Dep’t of the Navy, 122 F. Supp. 3d 1068, 1083-84 (W.D. Wash. 2015) 19 (quoting Lydo Enters. v. City of Las Vegas, 745 F.2d 1211, 1213 (9th Cir. 1984)). But 20 the delay here was a mere six weeks, not the severe delay sufficient to deny injunctive 21 relief found in other cases. See id. (sixteen months); see also Oakland Tribune, Inc. v. 22 Chronicle Publ’g Co., 762 F.2d 1374, 1377 (9th Cir. 1985) (exclusivity provisions sought 23 to be enjoined had “been in effect for a number of years”). In fact other courts have 24 found longer delays to be permissible. See Rodriguez v. Robbins, 715 F.3d 1127, 1145 25 n.12 (9th Cir. 2013) (roughly three month delay “was not particularly belated”); see 26 Gilder v. PGA Tour, Inc., 936 F.2d 417, 423 (9th Cir. 1991) (finding that several month 27 28 ORDER – 16 1 delay was not unreasonable); Legal Aid Soc. of Hawaii v. Legal Servs. Corp., 961 F. 2 Supp. 1402, 1417 (D. Haw. 1997) (nine months held to be permissible). 3 Moreover, Organo is not faced with only monetary injury. Organo has presented 4 substantial evidence that its very business model relies upon forming robust sales 5 networks of distributors. See Dkt. # 11 (Perrett Decl.) ¶¶ 6, 26. Given Organo’s heavy 6 reliance on this form of distribution, it seems clear “that the nature of its business makes 7 it vulnerable to losing customers after its relationship” with a distributor ends. See 8 MetroPCS Pennsylvania, LLC v. Arak, No. C15-0769JLR, 2015 WL 3893155, at *3 9 (W.D. Wash. June 24, 2015). Indeed, Washington courts have held that “[i]rreparable 10 harm is a likely consequence of permitting an employee to pursue his former customers 11 in violation of a valid restriction.” Amazon.com, 2012 WL 6726538 at *12. That logic 12 appears equally applicable to a company’s distributors in the MLM sphere. See Neways 13 Inc. v. Mower, 543 F. Supp. 2d 1277, 1289 (D. Utah 2008) (holding that irreparable 14 injury was likely where former MLM distributors attempted to recruit plaintiff’s current 15 distributors). 16 Finally, the Court finds that L&A Ventura has not raised any serious doubts about 17 the robustness of Organo’s distributor numbers by merely citing various (likely hearsay) 18 statements. See Dkt. # 16 (Ventura Decl.) ¶ 21; Dkt. # 18 (Steinberg Decl.) ¶ 5, Ex. 8. 19 Neither Mr. Ventura’s “understanding that Organo had over 1,000,000 active distributors 20 worldwide” nor an unverified third party research report shed any light as to Organo’s 21 internal difficulties. Organo’s business records, on the other hand, suggest serious 22 attrition of both low and high level distributors immediately following February 2016. 23 See Dkt. # 11 (Perrett Decl.) ¶¶ 14-19. That stands in stark contrast to the relatively low 24 level of attrition occurring in the six months immediately prior. Id. ¶ 21. 25 The Court is convinced that Organo has shown irreparable harm is likely to occur 26 in the absence of an injunction. Indeed, continued loss of distributors may cripple 27 Organo’s viability as a going concern. Id. ¶ 28. That concern further justifies a finding 28 ORDER – 17 1 of irreparable harm. See Southtech Orthopedics, Inc. v. Dingus, 428 F. Supp. 2d 410, 418 2 (E.D.N.C. 2006) (citing Fed. Leasing v. Underwriters at Lloyd's, 650 F.2d 495, 500 (4th 3 Cir.1981); Turnage v. United States, 639 F.Supp. 228, 232 (E.D.N.C.1986)) (“Generally, 4 it is in cases where a defendant's conduct threatens to cripple or substantially alter a going 5 concern that irreparable harm will be found”). 6 d. The Balance of the Equities 7 Next, the Court finds that the balance of the equities tips in favor of Organo. 8 Organo argues that without an injunction, it will soon lose its viability as a going 9 concern. See Dkt. # 11 (Perrett Decl.) ¶ 28. L&A Ventura counters by arguing that 10 imposing an injunction will prevent Mr. Ventura from supporting his family and working 11 in his chosen field. See Dkt. # 15 at 23. 12 The requested restrictions here do not seriously impinge upon Mr. Ventura’s 13 chosen field. For one, they are narrowly tailored as they only prevent Defendants from 14 soliciting Organo’s distributors and customers and preventing him from participating in 15 opportunities that involve the sale of ganoderma-based products. Indeed, Defendants are 16 still permitted to work in the MLM space so long as the opportunity does not involve 17 ganoderma-based products. See Dkt. # 11 (Balthuis Decl.) Ex. 1 at 6. In fact, Mr. 18 Ventura admits that he has had substantial success throughout the MLM industry, not just 19 in selling ganoderma-based products. See Dkt. # 16 (Ventura Decl.) ¶ 2. He has 20 participated in companies selling “a wide range of products” including “gasoline 21 additives to nutritional products to hygiene products.” Id. Indeed, Mr. Ventura has 22 apparently had substantial success selling non-ganoderma products in his current position 23 at TLC – although he has only sold $45.62 worth of products at TLC (id. ¶ 23), he has 24 generated over $44,000 in income (see Dkt. # 2 (Ventura Decl.) ¶ 7). Moreover, the 25 requested injunction is for a relatively short period of time – just one year. In short, Mr. 26 Ventura likely could successfully ply his trade in the MLM industry regardless of 27 whether he associates with a company selling ganoderma-based products or not. 28 ORDER – 18 1 e. Whether an Injunction is in the Public Interest 2 Finally, the Court addresses whether the requested injunction serves the public 3 interest. Winter, 555 U.S. at 20. Organo argues simply that “the public interest benefits 4 from the enforcement of business contracts, including reasonably necessary non-compete 5 and non-solicitation agreements.” See MetroPCS, 2015 WL 3893155 at *3 (citing MWI 6 Veterinary Supply Co. v. Wotton, 896 F. Supp. 2d 905, 914 (D. Idaho 2012); Perry, 748 7 P.2d at 229). L&A Ventura, on the other hand, argues that the public interest is best 8 served by unrestrained competition and to preserve the public’s access to services. See 9 Dkt. # 15 at 23. It argues, essentially, that enjoining Defendants would deprive the public 10 11 of options and services. See id. The Court finds that an injunction is plainly in the public interest here – the public 12 interest being the enforcement of reasonable and necessary non-compete agreements. 13 The non-compete clauses at issue here are aimed solely at preserving Organo’s goodwill 14 and customers in the ganoderma-based product (and healthy beverage) industry. Those 15 concerns are legitimate and serve the public interest. 16 In contrast, Defendants’ proffered public interest arguments are easily undermined 17 by the fact that the public may still easily purchase ganoderma-based products with or 18 without his involvement in the industry. See Dkt. # 18 (Steinberg Decl.) ¶ 4 (internet 19 research showed that at least nine additional companies manufacture ganoderma-infused 20 coffee and tea and ten MLM companies are involved in the healthy coffee industry, 21 including five that sell ganoderma-infused coffee). Moreover, L&A Ventura does not 22 argue that the public would be deprived of the option of choosing TLC – either to serve 23 as distributors or as customers. They would not. 24 Accordingly, the Court finds that an injunction would be in the public interest. 25 f. Whether Organo Must Post a Bond 26 Having determined that Organo is entitled to a TRO, the Court must determine 27 whether Organo must post a bond. See Fed. R. Civ. P. 65(c) (“The court may issue a 28 ORDER – 19 1 preliminary injunction or a temporary restraining order only if the movant gives security 2 in an amount that the court considers proper to pay the costs and damages sustained by 3 any party found to have been wrongfully enjoined or restrained.”). The Court has 4 substantial discretion to determine the amount of the security, if any, required. See Diaz 5 v. Brewer, 656 F.3d 1008, 1015 (9th Cir. 2011) (quoting Johnson v. Couturier, 572 F.3d 6 1067, 1086 (9th Cir. 2009)). 7 8 Organo argues that no security is required. See Dkt. # 10 at 15. L&A Ventura contends that any security should be significant – in the realm of $1,000,000. 9 The Court believes that Organo should be required to post security in this case 10 because the Court has some doubts as to its substantive merits. First, Organo has not 11 conclusively established likelihood of success on the merits with respect to its tortious 12 interference claim. Second, the terms of the non-compete clauses are imprecise as to 13 whether solicitation of distributors is permissible or not. Although this Court has 14 concluded that such solicitation (at least to directly competing associations offering 15 ganoderma-based products) is improper, that is not a foregone conclusion. Finally, there 16 are questions as to whether social media posts visible to the public may serve as 17 impermissible solicitations. See Pre-Paid Legal Servs., Inc. v. Cahill, 924 F. Supp. 2d 18 1281, 1291-94 (E.D. Okla. 2013) (collecting cases and finding that Facebook posts were 19 not solicitation). Organo has presented evidence that at least some of its distributors were 20 directly solicited, justifying the injunction. See e.g., Dkt. # 20 (Herrera Decl.) ¶¶ 3-5, 8. 21 But whether Defendants may continue to wax poetic about their current MLM 22 opportunity (as long as it does not involve ganoderma-based products) is a more open 23 question. Additionally, the Court believes Defendants may suffer financial harm as a 24 result of the injunction, even if it is of short duration. See Dkt. # 2 (Ventura Decl.) ¶ 6 25 (outlining income from MLM activities in the past few years). Indeed, Mr. Ventura 26 attests that he would suffer “losses far in excess of $75,000” if he was not able to work 27 for a year. Id. ¶ 8. 28 ORDER – 20 In light of the above, the Court believes that Organo should be required to post a 1 2 bond in the amount of $100,000. 3 V. CONCLUSION 4 For the foregoing reasons, the Court GRANTS Organo’s Motion. Dkt. # 10. 5 Accordingly, the Court will enter a TRO as more fully set forth below. VI. TEMPORARY RESTRAINING ORDER 6 Effective upon posting $100,000 bond or equivalent security with this Court, and 7 8 upon service of this Order, Defendants L&A Ventura Management, Inc. and Luis 9 Ventura 13 are hereby enjoined from taking the following actions: 10 1. Violating the express terms of the Distributor Application with Organo and 11 Organo’s Policies and Procedures, including by competing with Organo by 12 participating in an opportunity that directly competes with Organo by offering 13 ganoderma-based products or by soliciting Organo’s existing customers to any 14 ganoderma or healthy beverage MLM business; 15 2. Soliciting, recruiting, or raiding Organo’s distributors or customers; 16 3. The temporary restraining order will become effective upon formal service of this Order and will remain in effect pending further order of this Court; 17 18 4. Defendants L&A Ventura Management, Inc. and Luis Ventura are ORDERED 19 to show cause on or before May 12, 2016 why the Court should not convert 20 this temporary restraining order into a preliminary injunction. DATED this 3rd day of May, 2016. 21 A 22 23 The Honorable Richard A. Jones United States District Court 24 25 26 27 28 13 As noted, supra, Organo has not satisfactorily shown that Mrs. Ventura has adequately been served, given her divorce from Mr. Ventura. See Dkt. # 2 (Ventura Decl.) ¶ 3. Accordingly, the Court will not impose an injunction on her without notice until she has been served and provided an adequate opportunity to respond. ORDER – 21

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