Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Wash.: Terminated product distributor enjoined from breaching non-compete, (May 5, 2016)

By Greg Hammond, J.D.

A terminated distributor of mushroom-based products has been preliminarily enjoined from violating the terms of its distributorship contract by competing with its former supplier. The federal district court in Seattle concluded that the supplier demonstrated a likelihood of success on the merits for its breach of contract claim, that it would likely suffer irreparable harm in the absence of an injunction, that the balance of the equities tipped in favor of the supplier, and that an injunction was in the public interest (Organo Gold Int’l, Inc. v. Ventura, May 3, 2016, Jones, R.).

Organo Gold Int’l, Inc.—a multi-level marketing company that distributes mushroom-based coffee products—filed suit against L&A Ventura Management, Inc. and its owners, claiming that one owner—Ventura—breached his Independent Distributor Application by competing with Organo after his application was terminated. Organo moved for a preliminary injunction.

Reasonable, enforceable non-compete provisions. The court granted the motion for preliminary injunction, finding first that the non-compete provisions were reasonable and enforceable. The non-compete clauses in Organo’s policies and procedures were necessary to protect Organo’s business because its most valuable assets were its sales organization—the network of distributors and customers that market and sell Organo’s products and services. In addition, the non-compete clause in the Distributor Application, which prohibits terminated distributors from joining any business selling mushroom-based products, was found to be reasonably necessary because it served to protect Organo’s business model. The provisions were not overly broad, according to the court, because they simply prevented the defendants from plying their trade in the mushroom-based products industry, not from engaging in any directly competing opportunity.

Likelihood of success. Next, the court concluded that Organo demonstrated a likelihood of success on the merits of its breach of contract claim against Ventura. Organo presented substantial evidence supporting the allegation that the defendants participated in soliciting distributors to sell mushroom-based products that directly competed with Organo. In addition, evidence was presented that the defendants approached Organo’s distributors and attempted to recruit them to join a competitor, Total Life Changes, LLC.

Remaining factors. The court also found that Organo would likely suffer irreparable harm in the absence of injunctive relief because Organo’s business records demonstrated a decrease in distributors, which could cripple Organo’s viability. The requested restrictions did not seriously impinge upon Ventura’s chosen field, the court next determined, finding that the balance of equities tipped in favor of Organo. Lastly, the court found that an injunction was plainly in the public interest—the enforcement of reasonable and necessary non-compete agreements.

The case is No. C16-487RAJ.

Attorneys: Kevin Arnold Bay (Tousley Brain Stephens PLLC) for Organo Gold Int'l, Inc. Brandon Q. Tran (Buchalter Nemer) for Luis Ventura.

Companies: Organo Gold Int’l, Inc.; L&A Ventura Management, Inc.

Cases: FranchisingDistribution WashingtonNews