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Melaleuca, Inc., An Idaho Corporation v. Organo Gold Int'l

August 9, 2011


The opinion of the court was delivered by: Honorable Larry M. Boyle United States Magistrate Judge


Currently pending before the Court is Defendant Holton Buggs' Motion to Dismiss and In the Alternative, Motion for Transfer of Venue (Dkt. No. 29). The Court heard oral argument on June 15, 2011, and took the motion under advisement. Having considered the parties' arguments and written submissions, the Court issues the following Memorandum Decision and Order denying the motion.


A. General

The Court will set forth the underlying facts as alleged in Plaintiff's Amended Complaint. The following are alleged facts only and this recitation should not be interpreted by the parties as a finding of fact by the Court in any respect. However, as set forth on pages five and six hereafter, in ruling on the pending motion to dismiss, the Court must take the uncontroverted factual allegations as true.

Plaintiff Melaleuca, Inc. is a consumer goods company, based in Idaho Falls, Idaho, and operating in approximately 15 countries. Amend. Cmplt., ¶ 1. It employs more than 1,500 people in Idaho and over 2,700 people around the world. Id.

Melaleuca sells its consumer goods products directly to customers but with the help of independent contractors called Marketing Executives ("ME"). Id. at 15. Marketing Executives earn commissions from Melaleuca by referring customers and by training, motivating or otherwise supporting other Marketing Executives in their efforts to refer customers. Id. at 17.

Each Melaleuca Marketing Executive has a "Marketing Organization" made up of customers referred by that Marketing Executive, other Marketing Executives he or she supports, as well as the customers they each referred and Marketing Executives they each support, and so on "down the line." Id. at 18.

Marketing Executives sign an Independent Marketing Executive Application and Agreement, which incorporates the Melaleuca Statement of Policies. Id. at 21. Included amongst these policies is a Proprietary Information and Trade Secrets clause governing certain Melaleuca information accessed by the Marketing Executives, and a Non-solicitation and Conflicts of Interest clause prohibiting Marketing Executives from soliciting Melaleuca customers or other Marketing Executives for competing business. Id. at ¶¶ 22 & 23.

Defendants Organo Gold Int'l Inc., a Nevada corporation, and Organo Gold International, LLC, a Washington limited liability corporation (collectively "Organo"), are together a newly incorporated "network marketing" company that is also selling household products. Id. at ¶¶ 7 & 25. According to the Organo website, Defendant Holton Buggs, a Texas resident, is the Vice President of Sales for Organo, a "Crown Diamond Marketing Associate"*fn1 and Organo's "top earner."*fn2 Id. at 8.

Plaintiff alleges that Organo, in a conspiracy with Defendant Buggs, is expanding its company by unlawfully duplicating "key portions" of Melaleuca's business model, using its proprietary information, and "raiding" its Marketing Executives and customers.

B. Allegations of Defendant Buggs' Actions

From September 2008 to August 2009, Defendant Buggs was a Melaleuca Preferred Customer.*fn3 Id. at 35. As a Preferred Customer, he had access to Melaleuca meetings where he would have interacted with other Melaleuca Marketing Executives and customers, and would have or should have been aware of Melaleuca's non-solicitation policy applicable to its Marketing Executives. Id.

In or around May or June 2009, Defendant Buggs, along with a then Melaleuca Marketing Executive Jose Ardon, hosted a meeting at Buggs's home in Houston, Texas, which was attended by other then currently contracted Melaleuca Marketing Executives including Sandra Zapata, Alberto Godinez, Marcela Hinojosa and her husband, and Rosa Chavez. Response to Holton Buggs's Motion to Dismiss and in the Alternative, Motion for Transfer of Venue (Dkt. 37) ("Response"), Statement of Facts, ¶¶ 2 -3; Affidavit of Sonia Schuetz in Support of Response to Holton Bugg's Motion to Dismiss or Transfer (Dkt. 37-4) ("Scheutz Affid."), ¶ 6. During the meeting, Buggs made a presentation to the group about Organo, asked the attendees to "join" Organo, and encouraged them to solicit other Marketing Executives in their individual Marketing Organizations to join Organo. Response, Statement of Facts, ¶¶ 2-5. Afterward, Jose Ardon and at least one of the attendees cancelled his or her Melaleuca account and enrolled as an Organo Marketing Associate "down the chain" from Defendant Buggs. See id. at ¶ 10; Amend. Cmplt. ¶¶ 38- 42. Accordingly, Defendant Buggs received income from the enrollment of the former Melaleuca Marketing Executives and their customers. See id. at ¶ 43.

After the former Melaleuca Marketing Executives became members of Organo, Buggs (with Organo) encouraged them to solicit other then current Maleleuca Marketing Executives to become Organo Marketing Associates, using their Melaleuca customer information and in violation of their non-solicitation agreements. Id. at ¶ 44. Plaintiff alleges that Defendants had knowledge of the agreements and intended to "reap the benefits" of their breaches. Id. at ¶¶ 44; 48 - 51.

Plaintiff alleges that Defendant Buggs has assisted Organo in systematically soliciting hundreds of Melaleuca Marketing Executives to become Organo Marketing Executives, id. at 45, and offered financial incentives to induce them into breaching their Melaleuca non-solicitation and confidential obligations. See generally Amend. Cmplt. Plaintiff attributes the exodus of dozens of individuals from Melaleuca to Organo to Buggs's and Organo's cooperative unlawful activities.*fn4

Plaintiff brings four causes of action against Defendants: One - Tortious Interference with Contractual Relations; Two - Tortious Interference with Prospective Economic Advantage; Three - Unfair Competition; and Four - Civil Conspiracy. Plaintiff initiated this action in Idaho District Court in Bonneville County, and Defendants removed to this Court.

Defendant Buggs has moved pursuant to 28 U.S.C. ยง 1406(a) and Fed. R. Civ. P. 12(b)(2) and (3) to dismiss this action for lack of personal jurisdiction over Defendant Buggs and improper venue. Alternatively, he requests a change of venue to his home state of Texas for the convenience of the parties and the ...

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