Organo Gold Int'l, Inc. v. Ventura

• Decision Date: 03 May 2016
• Docket Number: CASE NO. C16-487RAJ
• Parties: ORGANO GOLD INT'L, INC., Plaintiff, v. LUIS VENTURA, et al., Defendants.
• Court: U.S. District Court — Western District of Washington

ORGANO GOLD INT'L, INC., Plaintiff, v. LUIS VENTURA, et al., Defendants.

CASE NO. C16-487RAJ

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE

May 3, 2016

HONORABLE RICHARD A. JONES

ORDER

I. INTRODUCTION

This matter comes before the Court on Plaintiff Organo Gold Int'l, Inc.'s ("Organo") Motion for Temporary Restraining Order ("TRO") and for a Preliminary Injunction. Dkt. # 10. Defendant L&A Ventura Management, Inc. ("L&A Ventura") has filed an Opposition.¹ Dkt. # 15. The Court heard oral argument on April 27, 2016. For the reasons set forth below, the Court GRANTS Organo's Motion.

II. BACKGROUND

Organo is a multi-level marketing ("MLM") company that distributes ganoderma-based coffee products² with operations in the United States, Mexico, and more than 30 other countries. See Dkt. # 1-2 ("Compl.") ¶¶ 1, 8; Dkt. # 11 Ex. 8 (Perrett Decl.) ¶ 5. Defendants Luis Ventura and Luz Angela Ventura are husband and wife and reside in Texas. Id. ¶ 2. They are also the sole shareholders of L&A Ventura. Id. ¶ 3. Mr. Ventura joined Organo in July 2009 after having previously worked in the MLM industry. See Dkt. # 16 (Ventura Decl.) ¶¶ 2-4. He apparently was solicited by another Organo distributor, John Sachtouras. See id. ¶¶ 4-5. Mr. Ventura remained an independent contractor throughout his tenure with Organo. Id. ¶ 9. Eventually, the Defendants reached the rank of "Crown Diamond" - the second highest qualification rank within Organo's compensation plan. See id. ¶ 16.

Roughly four years into his tenure at Organo, Mr. and Mrs. Ventura signed an "Independent Distributor Application" with Organo on February 24, 2013.³ See Dkt. # 11 (Bulthuis Decl.) Ex. 1; Dkt. # 16 (Ventura Decl.) ¶ 8. The terms and conditions of the application included a clause stating:

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."

Id. at 6.

Those terms and conditions also included a provision stating that the applicants agreed to "abide by the Organo Gold Code of Conduct as detailed in the Organo GoldPolicies and Procedures." Id. The Policies and Procedures also include a non-compete clause. That provision states:

X. Non Competition Agreement

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.

Dkt. # 11 (Zelaya Decl.) Ex. C at 89.

The Policies and Procedures also prohibit distributors from engaging "in deceptive, unlawful, or unethical business or recruiting practices (including cross sponsoring or recruiting)". Id. at 70. No party seriously disputes that "cross sponsoring" or "raiding" includes the practices of recruiting or attempting to recruit a representative from another distributor's "downline"⁴ or trying to do the same to a representative from one's own "downline." See Compl. ¶ 21.

The Distributor Application and the Policies and Procedures also have alternative 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.

Dkt. # 11 (Bulthuis Decl.) Ex. 1 at 6.

Oddly, the Policies and Procedures do not actually specify any nonbinding 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.

Ultimately, Mr. Ventura was terminated as an Organo Distributor on February 19, 2016. See Dkt. # 11 (Zelaya Decl.) ¶ 6; Dkt. # 16 (Ventura Decl.) ¶¶ 17-18, 20. At that time, Organo held its Project 50K event in Las Vegas, Nevada, a training event held 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"), in February 2016.⁵ See Dkt. # 16 (Ventura Decl.) ¶ 22. TLC is another MLM company. Id. TLC sells a range of products, such as teas, oils, cleansing products, and weight loss products. Id. It also sells coffee infused with ganoderma. See Dkt. # 11 (Perrett Decl.) ¶ 9; Dkt. # 16 (Ventura Decl.) ¶ 22; Dkt. # 17 (Licari Decl.) ¶ 2 (5.7% of TLC's total sales attributable to ganoderma-infused coffee). Mr. Ventura was indisputably in Las Vegas at the time of the Project 50K event and indisputably discussed TLC with other Organo distributors. See Dkt. # 16 (Ventura Decl.) ¶ 21 ("I responded that I might join another MLM company or specifically identified TLC") (emphasis added).⁶

In February 2016, Organo received reports from its distributors that Mr. Ventura had approached them and attempted to recruit them to join TLC. See Dkt. # 11 (Zelaya Decl.) ¶ 8; Dkt. # 11 (Sachtouras Decl.) ¶ 5.⁷ Indeed, Organo presents evidence that Mr.Ventura invited other Organo distributors to hear him present a new opportunity on February 19, 2016. See Dkt. # 11 (Sachtouras Decl.) ¶ 4, Ex. A; Dkt. # 20 (Herrera Decl.) ¶ 5. Indeed, Mr. Ventura directly approached Mr. Herrera and indicated that he was considering leaving Organo for TLC. Dkt. # 20 (Herrera Decl.) ¶ 4.

III. LEGAL STANDARD

The standard for a TRO is essentially the same as that for a preliminary injunction. See Stuhlbarg Int'l Sales Co., Inc. v. John D. Brush & Co., Inc., 240 F.3d 832, 839 n.7 (9th Cir. 2001). In order to obtain preliminary relief, a party "must establish that [it] is likely to succeed on the merits, that [it] is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in [its] favor, and that an injunction is in the public interest." Am. Trucking Ass'ns, Inc. v. City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009) (quoting Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 20 (2008)). "In addition, a 'preliminary injunction is appropriate when a plaintiff demonstrates that serious questions going to the merits were raised and the balance of hardships tips sharply in the plaintiff's favor,' provided the plaintiff also demonstrates that irreparable harm is likely and that the injunction is in the public interest." Andrews v. Countrywide Bank, NA, 95 F. Supp. 3d 1298, 1300 (W.D. Wash. 2015) (quoting Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1134-35 (9th Cir. 2011)).

IV. DISCUSSION

Organo pleads several causes of action against the Defendants, but the only ones particularly pertinent to the instant Motion are those for breach of contract and for tortious interference because they form the basis for Organo's request for injunctive relief. See Compl. ¶¶ 42-56.

a. Likelihood of Success on the Merits for Breach of Contract Claims

Organo argues that they are likely to succeed on their claim that Defendants breached the non-compete clauses in the Distributor Agreement and the P&Ps. See Dkt.# 10 at 10-12. A breach of contract claim in Washington requires "proof of four elements: duty, breach, causation, and damages." BP W. Coast Prods. LLC v. SKR Inc., 989 F. Supp. 2d 1109, 1121 (W.D. Wash. 2013) (citing Baldwin v. Silver, 269 P.3d 284, 289 (Wash. Ct. App. 2011)).

The Parties do not seriously dispute most of these elements. Instead, the Parties focus their arguments on whether the non-compete provisions are enforceable. L&A Ventura argues that Organo's breach of contract claim necessarily fails because Organo failed to engage in pre-dispute mediation, the non-compete clauses are unenforceable for lack of consideration, and the non-compete clauses are unreasonable under Washington law. See Dkt. # 15 at 9-14.

i. 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.

The alternative dispute resolution provisions of the Distributor Application and Policies and Procedures provide for mandatory pre-litigation mediation. See Dkt. # 11 (Bulthuis Decl.) Ex. 1 at 6 ("In the event of a dispute between an Independent Distributor and Organo Gold . . . the parties shall attempt in good faith to resolve the dispute through nonbinding mediation"). However, the alternative dispute resolution provisions are also further detailed in the Policies and Procedures, which clarify that "[n]othing in this Agreement shall prevent [Organo] from applying to and obtaining from any court having jurisdiction, . . . an injunction, or other relief available to safeguard and protect [its] interest prior to, during, or following the filing of any arbitration or other proceeding." See Dkt. # 11 (Zelaya Decl.) Ex. C at 91.

There is little doubt that the instant dispute arises out of the Parties' contractual agreements - and there is little question that the plain language of the agreements permits Organo to seek injunctive relief prior to initiating arbitration proceedings. Organo's request therefore is not subject to the nonbinding mediation condition precedent.

L&A Ventura's cited cases do not compel a different result. In Delameter v. Anytime Fitness, Inc., the parties entered into a franchise agreement which contained a non-compete clause. See ...