youngevity-logoThe spat between Youngevity and Wakaya Perfection continues.

Since our initial article covering Youngevity’s lawsuit, Wakaya has sought to strike various counts in Youngevity’s complaint. Youngevity has hit back by filing for a permanent injunction.

Separately, we learned that Wakaya Perfection has filed its own lawsuit against Youngevity. They actually got in first, filing six days before the Youngevity complaint.

In their lawsuit Wakaya Perfection had sought a temporary restraining order against Youngevity, but the motion has since been withdrawn.

Wakaya Perfection file Motion to Strike

Wakaya Perfection’s initial response to the lawsuit filed against them has been to file a Motion to Strike.

In it, Wakaya Perfection want counts one, two, three and eight against them struck with prejudice.

The basis for this motion is that Counts 1, 2, 3, and 8 of Youngevity’s Complaint, in whole or in part, arise out of Defendants’ exercise of their right to free speech under the relevant State and Federal Constitutions in connection with an issue of public interest, and it is not probable that Youngevity will prevail on its claims.

The counts cited in Youngevity’s complaint are:

  • Intentional interference with prospective advantage (count 1)
  • Intentional interference with contract / Inducing breach of contract (count 2)
  • Conspiracy (Count 3) and
  • Breach of fiduciary duty (Count 8)

Youngevity files for preliminary injunction

On May 18th, Youngevity filed for a preliminary injunction against Total Nutrition Team, Inc., Todd Smith, and Blake Graham.

The injunction relates to Total Nutrition Team’s use of Youngevity properties to continue to market and profit off the sale of Youngevity products.

Dr. Wallach is a celebrity in the field of nutrition.

Dr. Wallach has granted Youngevity an exclusive license for commercial use of his name and likeness.

Only with Youngevity’s approval may Youngevity distributors use Dr. Wallach’s name and likeness and the Youngevity name.

That approval has been denied Total Nutrition Team, Inc; Todd Smith; and Blake Graham, yet they, Youngevity competitors, persist in that unauthorized use.

Public policy prohibits TNT from using and profiting from Youngevity’s registered trademark without consent.

Nevertheless, despite having been denied that consent, TNT makes commercial use of and profits from Youngevity’s trademark in selling Youngevity products on wallachonline.com and Yteamtools.com.

On March 21, 2016, Youngevity demanded that Todd Smith, Blake Graham, and TNT cease unauthorized use of, and transfer ownership to Youngevity of, wallachonline.com and 1-800-Wallach.

Despite efforts of counsel to resolve the matter and repeated requests for cessation of unauthorized uses, TNT has refused.

Youngevity suffers irreparable harm resulting from Todd Smith, Blake Graham, and TNT’s unauthorized use of those marks and from the associated unauthorized trade upon the Wallach and Youngevity’s names.

Youngevity asks this Court to issue a preliminary injunction compelling Todd Smith, Blake Graham, TNT and their agents to cease further use of 1-800-Wallach and delete wallachonline.com and Yteamtools.com.

Owing to it only being a recent filing, Wakaya Perfection have yet to respond.

Wakaya Perfection filed their own lawsuit against Youngevity

Named plaintiffs in Wakaya Perfection’s 17th March lawsuit are Wakaya Perfection, Todd Smith, Blake Graham, Dave Pitcock, Barb Pitcock, Andre Vaugh and Total Nutrition INC.

Defendants listed are Youngevity International, Steve Wallach, Michelle Wallach and Dave Briskie.

As per an amended complaint filed on April 15th, Wakaya claim they

commenced this lawsuit to address Youngevity’s breaches of contract, as well as the individual defendants’ independently tortious behavior.

Blake Graham (through Total Nutrition INC.), Andre Vaugh, Dave Pitcock and Barb Pitcock were all, up until recently, Youngevity affiliates.

Despite jumping ship to join Wakaya Perfection, they claim

without justification, Youngevity terminated (their) distributorships.

As a result, businesses have been damaged and their livelihoods threatened.

The ex-affiliates are also challenging

the interpretation and enforceability of certain purported restrictive covenants entered into between Youngevity and its distributors that, on information and belief, Youngevity is attempting to use as a tool to prevent current Youngevity distributors from becoming Wakaya distributors.

Sounds to me like these guys want to continue to earn on their Youngevity positions, despite abandoning the business to focus on building Wakaya Perfection.

Once again the question of whether an affiliate truly owns their position in an MLM compensation plan is being raised.

For all the marketing spiels about going into business for yourself and being an independent entrepreneur, ultimately if an MLM company can terminate you at whim – isn’t that the same as working for someone else?

Logically if Youngevity affiliates truly owned their affiliate positions, they’d be able to park them and continue to earn residually.

To what extent “preventing current Youngevity distributors from becoming Wakaya distributors” involved cross-recruitment however, is a seperate issue.

Certainly if current Youngevity affiliates abandon the company and launch a competitor to the active detriment of the company they wish to continue to earn in, an MLM company has to have some sort of redress.

Launching and running a successful MLM company takes considerable time and effort. That sneaky marketers can dismantle the company from within and expect to be paid for it, has to have consequences.

Argue Wakaya Perfection and their defector affiliates;

On information and belief, the standard distributor agreement used by Youngevity is a one-page document combined with an application document.

As potentially relevant to this lawsuit, the Policies and Procedures contain the following clause relating to Youngevity distributors’ right and ability to terminate their relationship with Youngevity and become a distributor for another direct sales company:

All Distributors are Independent Contractors; the Company [Youngevity] imposes no restrictions on any Distributor’s participation or sales activities in other businesses or programs other than Youngevity except as said activities or programs would cause or create a violation of Distributor’s agreement with Company or any of these policies and procedures.

As quoted above, the Restrictive Covenant on its face expressly allows Youngevity distributors to affiliate with other companies and other sales programs.

Further, nothing in the Distributor Agreement precludes Youngevity distributors from choosing to become Wakaya distributors.

Well, it does if joining and promoting Wakaya is “a violation of (their) Distributor’s agreement with (Youngevity)”.

And I have a sneaking suspicion that launching your own company and hoping to fill it with Youngevity affiliates, whilst simultaneously collecting a residual income from Youngevity, is a case of wanting to have your cake and eat it too.

Of interest is Wakaya Perfection’s response to some of the allegations in Youngevity’s on lawsuit.

In particular, clarification on Todd Smith’s alleged unsanctioned marketing of Youngevity in Mexico.

Despite a long and successful career in Youngevity, Todd became disenchanted with the company because of a series of increasingly bitter personal disputes with Briskie, Michelle Wallach, and Steve Wallach, as well as several serious instances of company mismanagement.

By way of example, at a Youngevity event in January 2015, Briskie, then Chief Financial Officer and director of international development for Youngevity, announced that Youngevity had completed all of the requirements for allowing Youngevity businesses in Mexico.

Based on Briskie’s announcement, Todd began preparations to set up Youngevity distributorships in Mexico.

He booked meeting spaces and organized several large events, which cost a substantial amount of money.

However, the day before Todd was due to fly to Mexico to begin operations, Briskie informed him that Youngevity had not, in fact, completed the requirements to enter the Mexican market.

Upon investigating, Todd discovered Youngevity was nowhere near ready to conduct lawful operations in the country and was, in fact, shipping Youngevity products into Mexico in furniture crates.

On information and belief, Youngevity took these measures to avoid customs inspections.

Youngevity lied to its affiliates and was illegally shipping product into Mexico?

Oh dear.

Following the Mexico debacle, Todd decided to leave Youngevity to pursue other opportunities, including founding a line of healthy, Asian-inspired restaurants.

He sold his interest in TNT to Blake, leaving Blake Graham to operate the TNT Youngevity distributorships.

Youngevity allege that Smith continued to profit from the TNT Youngevity distributorships. They claim the sale of TNT to Smith was just a ruse, with profits from the distributorships used to bankroll the founding of Wakaya Perfection.

Wakaya Perfection’s lawsuit claims otherwise;

Graham Blake was not involved with the purchase of Wakaya, or its conversion to a multilevel marketing company.

At no time prior to March 29, 2016, was Blake a distributor for or otherwise involved in Wakaya.

Here’s where things get interesting.

In or about February of 2016, Youngevity summarily terminated the TNT distributorships and began to withhold TNT’s commission payments.

On information and belief, Youngevity’s decision to terminate the TNT distributorships was driven by Todd’s founding of Wakaya, which Youngevity viewed as a threat.

Following the termination of the TNT distributorships and Youngevity’s decision to withhold the commission checks, Blake was approached by another Youngevity distributor with an offer to purchase wallachonline.com, 1-800-WALLACH, and the media items Blake and Todd had created.

On information and belief, Youngevity told the buyer it would not approve of the sale if any of the profits would flow to Blake or Todd.

Fearful of reprisal from Youngevity, the buyer backed out.

Why would the buyer back out, unless this was all just a charade to continue to funnel profits to Graham Blake and/or Todd Smith?

Youngevity clearly stated this was the only reason they’d block the sale, so what else did the buyer have to lose if they adhered to that stipulation?

I’d be willing to give the buyer the benefit of the doubt, but given Youngevity’s claims of the TNT affiliate position being used to bankroll Wakaya Perfection, this kind of does look like a thwarted attempt at subterfuge.

And it’s in Wakaya Perfection’s own lawsuit no less, so it’s not like they can claim Youngevity are spreading false information.

In defense for his joining Wakaya Perfection, Andre Vaugh claims

he became increasingly disillusioned with the company because of inappropriate and unprofessional behavior on the part of senior management, including Dr. Wallach, Michelle Wallach, and Briskie.

For example, Andre observed Dr. Wallach and Michelle Wallach yelling at company employees in public, intimidating and bullying distributors, and generally undermining morale.

More damning, the Wallachs engaged in and tolerated cross-line recruiting within Youngevity.

Damning indeed, considering cross-recruitment is at the heart of Youngevity’s lawsuit.

The Wallachs used their personal standing within the company to engage in this prohibited practice to the benefit of themselves and their favored distributors.

Taking advantage of the influence he held as founder of Youngevity, Dr. Wallach routinely attempted to coerce distributors, including Andre, into inserting Dr. Wallach’s personal friends into favored positions in the distributors’ organization.

Not the old gravy train for friends and family story! Why MLM, why?

When distributors protested the Wallachs’ manipulation of their organizational structures, the Wallachs reacted in vindictive and defensive ways.

For example, when any distributor refused to insert Dr. Wallach’s friends into their organization, Dr. Wallach threatened to never help them promote their business.

Often this threat from the founder of the company was enough to compel compliance.

Vaugh claims he was

fed up with the Wallachs’ self-dealing, favoritism, and unprofessional behavior, Andre began looking for other opportunities outside of Youngevity.

After hearing through the grapevine that Todd was starting up Wakaya, Andre approached Todd about becoming a Wakaya distributor.

At all times, Andre wanted to and intended to retain his Youngevity business while also pursuing other opportunities.

Youngevity terminated Andre’s distributorship and withheld his commission payments when it learned of his interest in Wakaya.

Co-plaintiffs Barb and Dave Pitcock share a similar story to Vaugh;

Both Barb and Dave clashed with Youngevity management, including Dr. Wallach, Michelle Wallach, and Briskie, because of management’s inappropriate and unprofessional behavior.

For example, Barb objected to Dr. Wallach’s attempts to force distributors to insert his friends into their organizations, which Barb viewed as an abuse of power and highly damaging to the morale of Youngevity’s distributors.

Youngevity management purportedly didn’t take too kindly to Pitcock’s objection.

Consistent with their usual practice, Youngevity senior management reacted defensively and vindictively.

For example, Michelle Wallach fabricated emails accusing Barb of cross-recruiting.

On information and belief, these fabricated emails were intended to discredit Barb and damage her reputation both within Youngevity and in the larger direct marketing community.

This, among other things, prompted Dave Pitcock to leave Youngevity in 2014.

Barb remained with Youngevity and managed the distributorships until Youngevity terminated them in March of 2016.

Regarding other Youngevity affiliates who have expressed interest in signing up with Wakaya Perfection, the lawsuit alleges

because other Youngevity distributors have expressed interest in Wakaya, Youngevity has threatened litigation against both the Distributor Plaintiffs (or current distributors with the intent of trying to intimidate them and thereby prevent distributors from leaving to join Wakaya) and against Wakaya, claiming the Restrictive Covenant or some other aspect of the Policies and Procedures prevent the Youngevity distributors from terminating their relationship with Youngevity to begin distributing the Wakaya Products instead of, or in addition to, the Youngevity Products.

Among other things, Youngevity senior management, including Dr. Wallach and Michelle Wallach, have informed Youngevity distributors wishing to join Wakaya that they would be “pursued and crushed,” or words to that effect.

Sounds a lot like office politics to me. Not so much the independent entrepreneurial dream we so often see used to promote MLM opportunities.

In a nutshell, Wakaya Perfection’s lawsuit alleges Youngevity

has interpreted the Restrictive Covenant to prevent its distributors, including Distributor Plaintiffs, from exercising their freedom to terminate their contractual relationship with Youngevity and instead work as distributors for Wakaya or to join Wakaya and continue to work as Youngevity distributors.

The Distributor Plaintiffs believe and assert that there is no valid contractual or legal basis to support Youngevity’s conduct in attempting to intimidate and coerce its distributors from leaving to become Wakaya distributors or to join Wakaya and continue to work as Youngevity distributors.

The Plaintiffs are asking the court for a declaratory judgement nullifying the Youngevity affiliate agreement.

Somewhat controversially in my opinion, the former Youngevity affiliates are also asking for their affiliate memberships to be reinstated and commissions owed paid out.

Youngevity has breached the Policies and Procedures and/or the Distributor Agreement by summarily terminating the Distributor Plaintiffs’ distributorships without cause and unlawfully withholding Distributor Plaintiffs’ commission payments.

Youngevity’s breach has harmed the Distributor Plaintiffs. Youngevity’s actions have damaged the Distributor Plaintiffs’ businesses, which were built over years and decades with Youngevity.

As a result, the Distributor Plaintiffs have suffered financial hardship because Youngevity has wrongfully withheld payments to which the Distributor Plaintiffs are entitled, leading to direct and consequential damages in an amount to be proven at trial.

Moreover, Youngevity’s breach has deprived the Distributor Plaintiffs of future income streams from their Youngevity businesses in an amount to be proven at trial.

If you buy into the independent entrepreneur dream, those affiliates have every right to demand reinstatement of their affiliate positions.

Regardless of what you believe, commissions owed up until the point of termination should be paid out.

As for “future income streams”, I think it’s a bit of a stretch to expect a company to continue to pay you residually when you’re working for a competitor and actively cross-recruiting.

I mean yeah, independent entrepreneur and all… but at some point a line has to be drawn.

Other claims cited in the Wakaya Perfection lawsuit include

  • Breach of the Covenant of Good Faith and Fair Dealing
  • Conversion
  • Tortious Interference with Existing Contractual Relations
  • Tortious Interference with Prospective Economic Advantage (two claims)
  • Civil Conspiracy
  • Unfair Business Practices
  • Fraud/Negligent Misrepresentation and
  • Injunctive Relief

The Distributor Plaintiffs have been terminated from Youngevity, but the distributor networks they built remain and continue to generate substantial commissions.

On information and belief, Youngevity management intends to collapse the Distributor Plaintiffs’ distributor networks, eliminating the positions once occupied by the Distributor Plaintiffs and thereby funneling more money to those in the Distributor Plaintiffs’ uplines, including Michelle Wallach.

Alternatively, on information and belief, Youngevity management intends to assign the Distributor Plaintiffs’ positions to management’s favored distributors.

In either event, it will be difficult—if not impossible—to unwind the changes should the Distributor Plaintiffs prevail in this lawsuit.

Accordingly, the Distributor Plaintiffs will suffer irreparable harm in the absence of an injunction preserving the status quo.

On April 21st, Youngevity filed a motion seeking to dismiss the lawsuit.

Good cause exists for grant of this motion because this Court lacks jurisdiction over Steve Wallach, Michelle Wallach, and Dave Briskie (collectively, the “Individual Defendants”), and because all claims brought by the Distributor Plaintiffs are subject to binding arbitration under the Youngevity Distributor Agreement that is the foundation for the Distributor Plaintiffs’ Complaint.

Youngevity’s motion for a dismissal has yet to be ruled on.

Citing ‘representations made in Youngevity International, Inc.’s Opposition to Plaintiffs’ Motion for Temporary Restraining Order, as well as in communications between the Parties’ counsel‘, Wakaya Perfection withdrew their motion for a TRO on April 28th.

We’ll keep you updated as the two lawsuits continue to play out.

 

Update 20th November 2017 – On November 7th Wakaya Perfection’s lawsuit was dismissed. An appeal was filed on November 9th.