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Melaleuca, Inc. v. Shan

United States District Court, D. Idaho

April 24, 2018

MELALEUCA, INC., an Idaho corporation, and MELALEUCA CHINA WELLNESS PRODUCTS CO., LTD., a wholly-owned subsidiary of Melaleuca, Inc., Plaintiffs,
v.
KOT NAM SHAN, an individual, and SHAKLEE CORP., a Delaware corporation, Defendants.

          MEMORANDUM DECISION AND ORDER

          David C. Nye, U.S. District Court Judge

         I. OVERVIEW

         There are three Motions pending before the Court. First, Plaintiffs Melaleuca, Inc. (“Melaleuca”) and Melaleuca (China) Wellness Products Co., Ltd. (“Melaleuca China”) have moved for a preliminary injunction to, in general, enjoin Defendant Kot Nam Shan (“Kot”) from working for or with Defendant Shaklee Corporation (“Shaklee”) while this litigation is ongoing. Dkt. 40. In response, Shaklee filed a Motion to Dismiss for Forum Non Conveniens (Dkt. 43) and Kot filed a Motion to Dismiss on several grounds (Dkt. 47). The Court set an expedited briefing schedule for these three Motions and then held oral argument on March 23, 2018. For the reasons set forth below, the Court finds good cause to GRANT Kot's Motion to Dismiss on personal jurisdiction grounds and forum non conveniens grounds. Accordingly, the Court DISMISSES the claims Plaintiffs have asserted against Kot and directs Plaintiffs to refile it claims against Kot (and any other pertinent party, such as Shaklee China) in China. The Court also finds it must DENY Shaklee's Motion for Forum Non Conveniens. Finally, the Court DENIES the Motion for Preliminary Injunction as moot.

         II. BACKGOUND

         A. Factual Background

          Melaleuca is an international consumer goods company that formulates, manufactures, and markets unique nutritional, personal care, cosmetic, and household products. Melaleuca is based in Idaho Falls, Idaho, but sells its products in 18 countries. Melaleuca has formed wholly owned subsidiaries in many of the foreign countries in which it sells its products. For example, Plaintiff Melaleuca China is Melaleuca's subsidiary in China.

         Melaleuca has invested significant time and resources in developing its distribution operations and sales in China, “a key international market for Melaleuca.” The relationships between Melaleuca's corporate executives and independent marketing executives in China is crucial to Melaleuca's growth and success in China. Accordingly, Melaleuca's competitors in China have tried to poach Melaleuca's corporate executives in order to exploit their relationships with Chinese marketing executives.

         In 2010, Melaleuca hired Kot, a citizen of Hong Kong, as Director of Sales with Melaleuca Southeast Asia Malaysia Sdn. Bhd. (“Melaleuca Malaysia”). On April 26, 2010, Kot and Melaleuca entered into a “Key Employee Non-Interference and NonCompetition Agreement” (“2010 Non-Competition Agreement”). Dkt. 40-5. Melaleuca Malaysia was not a party to this Agreement. Under this Agreement, Kot was prohibited from, among other things, promoting direct competitors of Melaleuca, speaking with a direct competitor's “independent business owners or sales representatives, ” and representing himself as a former Melaleuca employee for a 12-month period following his “Termination Date.” Id. at 3-4. The Agreement specifically identified Shaklee as a direct competitor of Melaleuca. Id. On April 26, 2010, Kot and Melaleuca also entered into a “Confidentiality and Non-Solicitation Agreement” (the “2010 Confidentiality Agreement”) (collectively “2010 Agreements”).[1] Dkt. 40-6. Among other things, the Confidentiality Agreement prohibits Kot from sharing certain identified categories of Melaleuca's confidential and proprietary information. Id. Both of these Agreements provide that they are governed by the laws of the State of Idaho and that “the courts of the Seventh Judicial District Court of the State of Idaho or of the United States District Court for the District of Idaho” have “exclusive jurisdiction” over “any action arising out of or in any way related to the interpretation and enforcement of the Agreement.” Dkts. 40-5, at 5; 40-6, at 4.

         In 2011, Melaleuca China hired Kot as the Assistant General Manager of Melaleuca China and, later that year, promoted him to General Manager of Melaleuca China. On April 12, 2011, Kot entered into a Key Employee Non-Interference and NonCompetition Agreement (“2011 Non-Competition Agreement”) and a Confidentiality and Non-Solicitation Agreement (“2011 Confidentiality Agreement”) (collectively “2011 Agreements”) with Melaleuca China.[2] Like with the 2010 Non-Competition Agreement, the 2011 Non-Competition Agreement, among other things, prevented Kot from promoting direct competitors of Melaleuca, speaking with a direct competitor's “independent business owners or sales representatives, ” and holding himself out as a former Melaleuca employee, but this time for a period of 18 months after his “Termination Date.” Dkt. 40-7, at 3-6. The 2011 Agreements are “governed in all respects by the laws of the People's Republic of China” and provide that “[t]he parties agree to submit to the non-exclusive jurisdiction of the Courts of the People's Republic of China.” Dkts. 40-7, at 8; 40-8, at 5. The 2011 Non-Competition Agreement also required Melaleuca China to pay Kot a monthly base compensation in order to enforce the non-compete obligation for the “Period of Restriction.”[3]

         On September 19, 2017, Kot informed his supervisor, Jerry Felton, that he would be resigning from his position “to help his wife expand her bridal boutique business into China and other markets and to begin importing and selling luxury cars.” Dkt. 40-2, at 14. Based on Kot's representations, Melaleuca China did not provide Kot with the monthly base pay the 2011 Non-Competition Agreement requires to trigger Kot's non-compete restrictions.

         In December 2017, Melaleuca's CEO, Frank L. VanderSloot, received an anonymous email with a subject line indicating that Kot had joined Shaklee as its general manager. Id. at 15. Jerry Felton, President of Melaleuca's International Department, contacted Kot directly to ask him if he had joined Shaklee. Kot denied that he had and insisted that he planned only to work on his wife's bridal business and his luxury car import business. Ryan Nelson of Melaleuca also reached out to a senior Shaklee representative, Marjorie Fine, regarding Kot. Fine denied that Shaklee had hired Kot. The parties dispute whether Fine made any statements regarding Shaklee's recruitment of Kot.

         On January 8, 2018, Kot joined Shaklee (China) Co. Ltd. (“Shaklee China”).[4] That same day, Melaleuca received WeChat messages from one of its Marketing Executives that contained photographs of Kot on stage at a Shaklee event, with Shaklee personnel, and shaking hands with the CEO of Shaklee. Later that day, Felton received a text message from Kot stating that he had joined Shaklee. Melaleuca's Senior Vice President Danny Xu also received a phone call from Kot in which Kot stated that he was going to be introduced as a Shaklee employee. Thereafter, Plaintiffs assert, Kot engaged in conduct prohibited by the 2010 and 2011 agreements, including meeting with Shaklee employees and sales representatives, holding himself out as a former Melaleuca employee, sharing confidential information about Melaleuca, and contacting Melaleuca sales representatives in an attempt to get them to leave Melaleuca for Shaklee.

         B. Procedural Background

         Melaleuca filed suit against Kot and Shaklee in the Seventh Judicial District of the State of Idaho, in and for the County of Bonneville, on January 17, 2018. Concurrently therewith, Melaleuca filed a Motion for Temporary Restraining Order and Expedited Discovery. The next day, the state court issued an order granting the Motion for Temporary Restraining Order and Expedited Discovery. Melaleuca then posted a cash bond of $10, 000 in accordance with the order. The state court also scheduled a hearing on the Motion for Preliminary Injunction for February 6, 2018.

         Shaklee removed the action to this Court based on diversity jurisdiction on January 25, 2018. On January 29, 2018, Defendants filed a series of motions. Counsel appearing for Kot filed a Motion to Dismiss for a variety of reasons. Dkt. 6. Shaklee filed a Motion to Dismiss for Forum Non Conveniens. Dkt. 7. Shaklee also filed a Motion to Dissolve or Stay or Modify the state court's order granting the Motion for Temporary Restraining Order and Expedited Discovery. Dkt. 8. Finding it appropriate to do so, the Court held a telephonic scheduling conference on January 31, 2018, to discuss a schedule for briefing the pending Motions, including a soon to be filed Motion for Preliminary Injunction, and how the state court order affected these proceedings. After a full discussion, the Court found it appropriate to first determine whether any expedited discovery (as Melaleuca had requested) was appropriate and necessary before setting a briefing schedule for the other pending Motions. Accordingly, the Court set an expedited briefing schedule for Melaleuca's Motion for Expedited Discovery. Dkt. 16. The Court also extended the temporary restraining order put in place by the state court for an addition 14 days. Dkt. 20. The Court ultimately denied the Motion for Expedited Discovery on February 14, 2018. Dkt. 29. It then set an expedited briefing schedule for the three pending motions. Id. When the temporary restraining order expired a few days later, the Court declined to extend it. Dkt. 38.

         Then, on February 19, 2018, Melaleuca, now in conjunction with Melaleuca China, filed an Amended Complaint. Dkt. 39. The Amended Complaint sets forth seven causes of action: (1) breach of the 2010 Non-Competition Agreement (against Kot) (2) breach of the 2010 Confidentiality Agreement (against Kot); (3) tortious interference with 2010 Agreements (against Shaklee); (4) breach of the 2011 Non-Competition Agreement (against Kot); (5) breach of the 2011 Confidentiality Agreement (against Kot); (6) tortious interference with the 2011 Agreements (against Shaklee); and (7) fraud in the inducement with regard to the 2011 Non-Competition Agreement (against Kot). The Amended Complaint mooted the two pending motions to dismiss. Plaintiffs also filed an Amended Motion for Preliminary Injunction. Dkt. 40. After Skaklee refiled its Motion to Dismiss for Forum Non Conveniens (Dkt. 43), and Kot refiled his Motion to Dismiss (Dkt. 47), the Court reset an expedited briefing schedule for all three Motions. Dkt. 49. Significantly, Kot's Motion asserts that this Court should dismiss this case for four reasons: (1) the Court lacks personal jurisdiction over him; (2) Plaintiffs have failed to join Shaklee China, an indispensable party; (3) forum non conveniens; and (4) insufficient service of process. Dkt. 47. The Court scheduled and held oral argument on the three pending Motions on March 23, 2018. The Court starts its analysis with the Motions to Dismiss for Forum Non Conveniens asserted by both Kot and Shaklee.

         III. DEFENDANTS' MOTIONS TO DISMISS FOR FORUM NON CONVENIENS

         A. Legal Standard

         Under the doctrine of forum non conveniens, the Court has discretion to dismiss a case where “litigation in a foreign forum would be more convenient for the parties.” Lueck v. Sundstrand Corp., 236 F.3d 1137, 1142 (9th Cir. 2001). In determining whether to grant a motion for forum non conveniens, the Court must examine: “(1) whether an adequate alternative forum exists, and (2) whether the balance of private and public interest factors favors dismissal.” Id. “The defendant bears the burden of proving the existence of an adequate alternative forum.” Id. (quoting Cheng v. Boeing Co., 708 F.2d 1406, 1411 (9th Cir. 1983)). “Ordinarily, a plaintiff's choice of forum will not be disturbed unless the ‘private interest' and the ‘public interest' factors strongly favor trial in a foreign country.” Id. at 1145.

         The Ninth Circuit advises that forum non conveniens is “an exceptional tool to be employed sparingly, [not a] . . . doctrine that compels plaintiffs to choose the optimal forum for their claim.” Ravelo Monegro v. Rosa, 211 F.3d 509, 514 (9th Cir. 2000). “The doctrine of forum non conveniens is a drastic exercise of the court's ‘inherent power' because, unlike a mere transfer of venue, it results in the dismissal of a plaintiff's case.” Carijano v. Occidental Petroleum Corp., 643 F.3d 1216, 1124 (9th Cir. 2011). However, ultimately “[a] forum non conveniens determination is committed to the sound discretion of the district court.” Lueck, 236 F.3d at 1143. In analyzing a motion to dismiss for forum non conveniens, the Court must accept as true the facts alleged by Plaintiffs. See Carijano, 643 F.3d at 1122 (citing Vivendi SA v. T-Mobile USA, Inc., 586 F.3d 689, 691 n. 3 (9th Cir.2009)) (accepting the facts alleged in plaintiff's complaint when reviewing defendant's motion to dismiss for forum non conveniens).

         The Ninth Circuit has also directed district courts to “make a choice of law determination in considering whether to dismiss the action [for forum non conveniens].” Lueck, 236 F.3d at 1143. “However, the choice of law analysis is only determinative when the case involves a United States statute requiring venue in the United States, such as the Jones Act or the Federal Employers' Liability Act.” Id. at 1148 (citation omitted).

         Thus, “[t]he purpose of a choice of law inquiry in a forum non conveniens analysis is [only] to determine if one of these statutes would apply.” Id.

         B. Analysis

          1. Choice of Law Determination

          The Court first addresses the choice of law analysis. The Court notes that Plaintiffs have in no way argued that a United States statute mandates venue in a United States district court. Thus, this choice of law analysis is “not determinative.” Id. Nevertheless, the choice of law determination may help guide the Court's subsequent analysis, so the Court undertakes such a determination here.

         “Federal courts sitting in diversity must apply ‘the forum state's choice of law rules to determine the controlling substantive law.'” Fields v. Legacy Health Sys., 413 F.3d 943, 950 (9th Cir. 2005) (citation omitted). Idaho applies the Restatement (Second) Conflict of Laws including the “most significant relation test” as set forth in section 145, Grover v. Isom, 53 P.3d 821, 823-24 (Idaho 2002), and section 187 regarding choice of law clauses, to determine the applicable law. As noted previously, Melaleuca asserts three torts and four contract claims in this case.

         In tort cases, Idaho courts consider the following facts in making their choice of law determination: “(a) the place where the injury occurred, (b) the place where the conduct causing the injury occurred, (c) the domicile, residence, nationality, place of incorporation and place of business of the parties, and (d) the place where the relationship, if any, between the parties is centered.” Grover, 53 P.3d at 824. The most important factor is where the injury occurred. Id.

         In support of their claims for tortious interference with contract against Shaklee, Plaintiffs allege that Shaklee knew about the 2010 and 2011 Agreements and intentionally interfered with them by inducing Kot to work for Shaklee and lying to Melaleuca employees about their actions in recruiting and hiring Kot. In support of their claim for fraud in the inducement, Plaintiffs allege that Kot intentionally lied to them about his future employment plans when he left Melaleuca China's employment so that Melaleuca China would decline to pay him a monthly salary, and, in doing so, free him of any non-competition obligations under the 2011 Agreement.

         The relevant factors favor applying Chinese law to these three torts. First, Melaleuca has repeatedly alleged that Kot's breach of the Agreements harmed its business relationships, operations, and sales in China. Thus, Plaintiffs' injury, as alleged, occurred, and continues to occur, in China. Second, most of the conduct causing the injury-Shaklee China's employment of Kot and Kot's alleged intentional lies about his future plans-occurred in China. The Court notes, however, that Plaintiffs have alleged that some of Shaklee's American employees were involved in the tortious interference claims by recruiting Kot and lying to Melaleuca's employees about their interest in Kot. Presumably, these actions took place in California, where Shaklee's principal place of business is located. Third, Kot's former employer-Melaleuca China-and Kot's apparent current employer-Shaklee China-are located in China. It is true that Melaleuca is incorporated in Idaho and Shaklee is incorporated in Delaware with its principal place of business in California. However, the locations of these two parties do not outweigh the locations of the other, arguably, more relevant parties, which are all located in China. Fourth, the parties' ...


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