MLM on MLM action: tortious interference, trade secret, but not false advertising

Works Marketing, Inc. v. Melaleuca, Inc., 2021 WL 1650266, No.
8:20-cv-1743-T-KKM-TGW (M.D. Fla. Apr. 27, 2021)

Works is a MLM company that sells health and beauty products that requires
distributors to sign a noncompete agreement and provides for arbitration (which
allows “any party” to sue in court for IP claims, practically meaning that It
Works can choose to sue if it wants). Melaleuca is a MLM competitor; individual
defendants were former It Works distributors, but Melaleuca was never a party
to the agreement.

claims are mostly the kind of trade secret/tortious interference claims you’d
expect from this setup, and I won’t say much about them, but there is also a
false advertising claim about alleged misrepresentations of distributors’
income with Melaleuca. “For example, Melaleuca endorses fake, high-amount
checks, which the Distributor Defendants then post on social media and message
to It Works distributors to entice them to leave It Works and join Melaleuca.”

Florida, a non-signatory can use equitable estoppel to compel a signatory to
arbitrate claims if (1) the non-signatory shows that the signatory is relying
on the agreement to assert its claims against the non-signatory and (2) the
scope of the arbitration provision covers the dispute. Here, It Works’ dispute
with Melaleuca fell outside the scope of the arbitration clause.

the court proceeded to address the motion to dismiss, and found tortious
interference and trade secret claims properly pleaded.

advertising under the Lanham Act: Failed because It Works didn’t plead that
distributors were “consumers” under the Lanham Act. Solicitations directed to a
potential distributor or employee aren’t covered because they aren’t
“consumers.” (That isn’t actually an element, but this may be complicated by
the fact that MLM businesses have some special reasons to talk carefully about
whether their “distributors” are ordinary “consumers.”) Second, It Works relied
on allegedly false statements that Melaleuca distributors made, allegedly at
Melaleuca’s direction or encouragement, not on Melaleuca advertising. That was
a contributory false advertising claim, but It Works didn’t actually allege
contributory false advertising by Melaleuca.

from Blogger

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