MLM Perspective Updated Jan 14th, 2013: Former Melaleuca Distributors Share Their Perspectives On Policy 20

LegalPerspective

Terry Dorfman & Natalie Foeller were once top income producing Melaleuca distributors who from talking with them loved the products, company culture and the founder of the company Frank Vandersloot. Yet today, these two are in the middle of lawsuits which on the surface did not make sense to me. How in the world can top performing distributors who love a company and seem close to the owners, end up in a situation such as these two? I also want to clarify, I have reached out to Ryan Nelson, chief counsel of Melaleuca, and Frank Vandersloot, the founder of Melaleuca to get a response. I believe if we can address the issues facing both company owners and distributors, then we can work towards creating best practices, that can lower if not eliminate these types of lawsuits. Melaleuca Responds As Of January 14th 2013 – See Below!

I have copied the policy in question below:

“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 Organizations. 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
(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 to 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 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’s 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.”

Ok, so this bring up several questions so I cover in an editorial from 2012 (click here)

However, in this case I have some deeper questions we need to look at. Far to many times we try devide direct selling aka network marketing aka MLM, as company against distributor or distributor against company. I think that attitude is wrong, and is the basis of most issues we face in legal disputes between the two.

So as I studied the above interview, and reviewed many of the lawsuits I have read, here are the questions I came up with and some of the conclusions I have developed, and others the judicial community have decided for us.

Question: Should distributors be held to the policies and procedures they have agree to abide by when they joined the company?

Troy’s Conclusion: When two parties enter into any agreement, then each party should read what is in the agreement, and decide if they are going to agree to each policy or if they are going to ask for an exemption to one of the policies and sign something more exclusive to their wants and needs.

If this is not done, and both parties agree to the published policies and procedures of the company, then they need to realize if they violate any of the policies, then they will be held accountable… Distributor and/or company.

Question: Who really owns the downline and customers?

Troy’s Conclusion: This will always be a point of contention in the direct selling profession. Having been on both sides of the issue, I have come to my own conclusion. I should state the many judicial rulings have made it clear the “LOS” (Line of Sponsorship) aka sales organization or downline is an asset of the company.

Before the internet, I think this was not near as gray of an area as it is today. Back then most organizations were local based, where the top ranked distributors, were buying the products, and acting as the local distribution channel. However, after 1995, when the internet took off all this changed!

Today, many online “system” companies, such as one of the original “ProSTEP” build online support, training, marketing and lead generation systems where the distributors are building their own LOS before they ever join a company. Or in some cases, the new downline member, joined them in the online system first, which now raises huge issues.

I personally believe once again we have to look at the agreement signed by both the original distributor. If the distributor is joining a company and has decided they are joining the company to build a marketing and distribution organization “for” this company, which is what each set of policies and procedures I have ever read state distributors are doing, then unless the distributor is willing to ask the company for a specific exclusion to the LOS policy which states “the company owns the LOS” then a distributor by law could be seen as violating this policy if caught building another company and contacting their former customers and distributors.

Although a bit wordy, let me continue. One of the issues I hear from distributors who feel they have been wrongfully terminated is the fact, if it wasn’t for them the company would never have grown! Although, I fully understand where they are coming from, I also realize, that if an entrepreneur or a group of entrepreneurs had not taken the financial risk to launch the company in the first place, then the distributor would never have join, and would never have been terminated for violating a policy.

See how frustrating this can be for both sides?

So the best practice for both sides, is for the distributors to fully read and understand the policies and procedures. If a Network Marketing Pro is attracted to a company, and the company is willing to invest in bringing them into he company. Then before signing anything, they must read every word of the agreement, and decide if they need amendments to the agreement or a whole new agreement.

And company executives, need to realize that when they are willing to invest in top-tier talent, they risk, having someone other company make a better offer down the road. They should not expect a leader to shout from the rooftops when they join their company, then act like they are at a funeral when they leave. So companies need to be very careful how they attract new top-tier talent! Make sure your agreements are very clear as to what is expected, how long the agreement will lass. And finally I suggest adding a divorce clause to the agreement.

And for the record, if a person buys a product from any company, even if they are also stating they may also sell the product, they are still customers of the company! This is a fine line, but one that is valid for a company.

Question: Should a company have the right to just withhold commissions before rendering a final decision?

Troy’s Conclusion: NO! In this case, I think the company should do as most organizations do, place the distributor on paid suspension until a final decision is rendered, and all appeals (within the policies and procedures are exhausted.) Suspension would include NOT discussing the pending issues with anyone in their downline or upline, who were not directly involved in the original violation the company is investigating.

Now, this does bring up an additional question, based on the interview above… Should a company be allowed to go back to the original date of the violation to collect past commissions paid?

This is a tougher one for me, and it took me a while to determine how I would handle it, if I were in the company’s shoes.

If the violation has harmed the company during the time period before it was discovered, then I can see a company wanting their money back. An example of this would be, if during a specific time period, the distributor was cross recruiting their original downline into a new company. Or if they were providing trade secrets. Or if a regulatory body found that the distributor had been presenting the company wrong and the company was also charged with compliance issues. However, if the distributor can prove that during the time period in question, they continued to build their original marketing and distribution organization, and they continued to receive rank advancements and additional sales bonuses in the original company, then they should not lose their commissions.

I hope to talk with Ryan Nelson or Frank Vandersloot in the next few days to get their side of this issue. If for some reason they are not able to talk about the specific cases above, my goal will be to get them to discuss the company as a has.

I have many friends who are Melaleuca distributors who love the company, products and most of all the leadership. And I have learned over the years, there are always at least two sides to an issue, and my goal is not to determine who is right, but to look at the underlying issues and help find ways to eliminate the need for court battles.

Living An Epic Adventure,

Troy Dooly

To read the Dorfman Complaint Click Here

The most current Court Documents as of January 15th, 2013.

Melaleuca repsonds through their general counsel Ryan Nelson! (You can read the original letter by clicking here)

Melaleuca Letterhead

__________________________________

3910 South  Yellowstone Hwy. • Idaho  Falls, Idaho 83402-6003

Legal Department • 208 522-0700. Fax 208 534-2063

January 14, 2013

Via e-mail

Troy Dooly

E-mail: (Personal Email Address Removed By Troy Dooly)

Dear Mr. Dooly:

I am writing in response to your recent article, “MLM Perspective: Former Melaleuca Distributors Share Their Perspectives On Policy 20,” which includes a recording of your interview with Terry Dorfman and Natalie Foeller and your related commentary (the “Article”). First, let me say that we trust you have the intention to provide accurate and helpful information to your readers and listeners.  Assuming that is indeed your intent, your Article does not meet

this journalistic standard.  We were surprised not only that you decided to publish your interview

before Melaleuca had the chance to respond, but also at several gross inaccuracies and misrepresentations of the facts in statements made by Terry Dorfman, Natalie Foeller and even you during the interview.

The public court records themselves prove many of the statements made by Terry Dorfman and Natalie Foeller to be false.  The inaccuracies in their statements are so significant that it would be irresponsible of you not to remove the Article from your website, as it misinforms the public as

to the facts of several court cases involving Melaleuca, including the Foeller, Dorfman, and Max

International and Dunn cases.  These cases are in the public record.  Even minimal research would inform you or any other interested party that many of the statements that Ms. Dorfman, Mrs. Foeller, and you made during the interview were false.

Since you did not have an accurate picture of the situation, we are disappointed that you commented in the Article about what Melaleuca should have done.  If you had been presented with the actual facts about Ms. Dorfman’s violations of Policy 20, I believe you would recognize that Melaleuca has been patient and more than fair under the circumstances.

One of the false statements that you made in the interview is that Melaleuca has not won all of its court cases, including a case brought against Ken Dunn.  Contrary to your suggestion, for more than a decade, Melaleuca has consistently won or settled to its advantage every Policy 20 case in which it has been involved. 1  That includes several of the cases discussed in the interview with

1  See, e.g., Melaleuca, Inc. v. Max Int’l, eta!., No. 09-CV-572-WFD, slip op. at 5-6 (D. Idaho Jan. 7, 2010) (granting preliminary injunction based on unlawful solicitations ofMelaleuca Marketing Executives); Melaleuca, Inc. v. Foeller, No. CV-09-2616 (Idaho 7th Dist. Dec. 21,

2011) (granting summary judgment to Melaleuca); Melaleuca v. Miles, No. CV-09-4915 (Idaho

7th Dist. Dec. 20, 2010) (judgment for over $18,000); Melaleuca v. Agren, No. CV-09-5070

Ms. Dorfman and Mrs. Foeller, including the case that Melaleuca brought against Max International and Ken Dunn.  In that case, Melaleuca obtained a far-reaching injunction preventing Max and Ken Dunn from engaging in any unlawful recruitment of Melaleuca Marketing Executives.  Max and Ken Dunn each separately settled with Melaleuca and Melaleuca received substantial compensation in those settlements.  Indeed, as set forth in the attached joint statement by Max and Melaleuca, “Max … agreed to pay $1.2 million to Melaleuca to resolve the case” and “apologize[d]  to Melaleuca” for its actions.

Both Mrs. Foeller and Ms. Dorfman violated Melaleuca’s anti-raiding policy, Policy 20. Contrary to Mrs. Foeller’s  assertions in the interview, every single relevant decision issued by the Idaho district court in the Foellers’ case specifically found that the Foellers had violated Melaleuca’s  Policy 20.  Any claim or suggestion to the contrary is manifestly false.  It would be irresponsible for you to participate in any effort by Ms. Dorfman or Mrs. Foeller to misinform the public when you know or should know, based on public court documents, that their statements concerning these court cases are false.  Ultimately, the court found that the Foellers were liable for damages of $23,856.41-the exact amount sought by Melaleuca from the court.

While Melaleuca believes that the Foellers caused even greater damage to Melaleuca, Melaleuca decided not to pursue those additional damages.

Among other things, Mrs. Foeller’s  assertion that she only recruited close family members to join Max is simply false.  Your publishing those false assertions without correcting them makes you an accomplice to her slanderous and defamatory statements.  And while the Foellers have appealed the court’s  decision that found them liable and awarded damages against them, they have notably not challenged the underlying finding they violated their contract, only the amount of damages awarded.  Melaleuca is confident that the Idaho Supreme Court will agree with the lower court’s  ruling that the Foellers are responsible to reimburse Melaleuca for those damages.

Ms. Dorfman’s  case is currently in discovery and Melaleuca finds it curious that she would seek to litigate her arguments through you, rather than before the court in the case that she brought against Melaleuca.  Indeed, Ms. Dorfman’s  motivations behind her lawsuit are suspect, as she published her complaint publicly over the Internet as soon as the complaint was filed.  At this stage, Melaleuca will simply note that Ms. Dorfman’s statements to you about her case were neither accurate nor complete.  Melaleuca has already identified several inaccurate statements contained in Ms. Dorfman’s  complaint based on actual recordings of statements and conversations, and Ms. Dorfman herself has fully acknowledged violating Melaleuca’s  policies. Melaleuca is confident that it will prevail in Ms. Dorfman’s  case.

(Idaho 7th Dist. May 26, 2011) Qudgment for over $50,000); Jordan v. Melaleuca, Inc., No. CV-

00-2480 (Idaho 7th Dist. May 8, 2001) Qudgment for over $29,000);  Blood v. Melaleuca, Inc. , No. CV-00-2479, at 16 (Idaho 7th Dist. Mar. 22, 2001) (granting summary judgment to Melaleuca); Melaleuca, Inc. v. Independence Energy Alliance, et al., No. CV-2012-520 (Idaho

7th Dist. Dec. 17, 2012) (granting preliminary injunction based on unlawful solicitations of

Melaleuca Marketing Executives).

One reason that Melaleuca has won every single lawsuit it has been involved in regarding Policy

20 is that it only uses litigation as a last resort after exhausting every other potential solution. Melaleuca also wins these lawsuits because the court agrees with Melaleuca’s position. Melaleuca has a strong commitment to protect the businesses of its independent Marketing Executives.   We will not tolerate the raiding of those businesses by unscrupulous people who formerly masqueraded as legitimate Marketing Executives while their actual intent was to raid the businesses of the very people who helped them be successful in Melaleuca.  Such unscrupulous raiding practices destroy lives because they destroy the independent businesses of honest, hard-working people.  Melaleuca makes absolutely no apology for protecting the businesses of its Marketing Executives.  You would do Melaleuca a great service by warning everyone who may be considering joining Melaleuca with the intent of later raiding Melaleuca, to stay away.  Their strategies may work with MLM companies but they will not work here.

Note that recently, hundreds of our Corporate and Executive Directors independently signed notarized affidavits expressing their support ofMelaleuca’s enforcement of its anti-raiding policy.  They want to be able to depend on Melaleuca to protect them from these unscrupulous raiding practices.  And they can depend on Melaleuca to do exactly that.  And yes, when necessary, we will use the courts to provide that protection.  So far, after dozens of court cases, the courts have always agreed with Melaleuca.  That’s  because we are fair, evenhanded, and honest in how we protect our Marketing Executives.

The false statements and inaccuracies in your Article are so significant that it would be irresponsible for you not to remove the Article from your website.  Moreover, any continued publication of the Article likely subjects you to liability for having knowingly published those false statements.  We therefore must ask that you remove the Article and publish a retraction.

Sincerely,

(J[)_

Ryan D. Nelson

General Counsel

Enclosure

JOINT STATEMENT  BY MELALEUCA, INC. AND MAX INTERNATIONAL

Melaleuca and Max today announced that they have settled a lawsuit Melaleuca brought  against  Max  in  November  2009  in  the  United  States  District  Court  for  the District of Idaho.   Melaleuca alleged in its complaint that Max had tortiously interfered with  Melaleuca’s   contracts   with  its  Marketing  Executives.     Melaleuca   obtained  a preliminary injunction against Max after Melaleuca demonstrated a likelihood of success on the merits of its claims.

As part of the settlement,  Max has agreed to pay $1.2  million  to Melaleuca  to resolve  the  case.    The  parties  look  forward  to  advancing  their  respective  businesses without the distraction and expense of this litigation.   Max apologizes to Melaleuca and deeply regrets any actions, if any, by its officers, employees or associates that contributed to  any  contract  violations  by former  Melaleuca  marketing  executives.    Max  has  also agreed  to  cooperate  with  Melaleuca’s   pending  actions  against  some  of  the  former Marketing Executives involved in the violations.

Frank VanderSloot, Melaleuca’s CEO, stated, “This settlement was made possible in  part  by the  recent  change  in top  management  at  Max.   Both  Mr.  Bagley  and  Mr. Voyticky  demonstrated  a willingness  to address the serious  nature of this case so that needed progress could be achieved.”

Max Co-CEOs Joseph Voyticky and David Bagley jointly thanked Melaleuca and its  CEO  Frank  VanderSloot  for  helping  to  reach  a  positive  mutual  resolution  in this matter.  Mr. Voyticky stated, “Melaleuca  is a proven leader in consumer direct sales, and made today’s  resolution  a reality.   Max is committed  to best-in-class  practices and we will continue to look to Melaleuca for its tried and true examples of professionalism, innovation and services that complement and protect the businesses that are built through the hard work of valuable independent marketers.”

Mr. Bagley commented further by saying, “Melaleuca  was founded over 25 years ago,  and  continues  to  be  an  industry  innovator  and  leader.    This  doesn’t   happen  by accident.     It requires   a  great  deal  of  hard  work,  vision,   and  commitment.     Mr. VanderSloot  has  incessantly  demonstrated  those  qualities  and  characteristics  over  the years, which is a foundational reason why Melaleuca is what it is today; a thriving global enterprise.     Both  Joe  and  I  commend  Melaleuca  for  its  example  in  the  industry.” Voyticky  and  Bagley  finalized  their  comments  by stating  that  they  were  happy  with today’s  resolution and thankful for Melaleuca’s  assistance.