Melaleuca has filed suit against Vital Health alleging cross-recruitment.

For those not familiar with the term, cross-recruitment refers to recruitment of distributors in alleged violation of distributor contracts. It typically occurs when a prominent promoter of one MLM company leaves for another company.

Inevitably recruitment of their former company downline commences. This occasionally prompts legal action by said former company.

In addition to Vital Health, Melaleuca’s August 21st filed lawsuit also targets

  • Jose Alejandro Reynoso (aka Alex Reynoso), former Melaleuca Marketing Executive who joined in 2010
  • Karla Giovana Durazo Acuna, Reynoso’s wife and “Melaleuca business partner” since 2017
  • Elmazguapo NV INC, a Nevada company owned by Reynoso and
  • Rhino Team Holdings INC., a California company owned by Reynoso

Melaleuca cites Reynoso as “top 1% Marketing Executive” it has paid “over $5.2 million” to in commissions.

Before we get into the details of the lawsuit I want to note that, although on the marketing side of things Melaleuca is adamant it’s not an MLM company, in legal filings they clearly define their business as one.

Melaleuca formulates, manufactures, and markets over 400 … products.

Melaleuca sells these products directly to consumers who are referred to Melaleuca by independent contracts called “Marketing Executives”.

Each Melaleuca Marketing Executive has a “Marketing Organization” that consists of the Customer and Marketing Executives referred by the Marketing Executive.

In other words, Melaleuca is a company full of independent contractors marketing Melaleuca products, each of whom has a downline of referred retail customers and recruited affiliates.

Y’know, the classic MLM business model.

With that out of the way, Melaleuca goes on to allege it has filed suit to “protect legitimate business interests”.

Melaleuca cites two specific policies…

Under Policy 20 of Melaleuca’s Statement of Policies, Marketing Executives agree not to harm Melaleuca’s legitimate business interests in several ways, both during their relationship with Melaleuca and for a reasonable period after that relationship ends.

First, Marketing Executives agree not to solicit certain Melaleuca Customers or Marketing Executives, directly or indirectly, to any competing business venture.

Second, they agree not to product promotional material of any kind that would be used to recruit Melaleuca Customers or Marketing Executives to any competing business venture.

And third, they agree not to sell, offer to sell, or promote competing products or services to Melaleuca Customers.

Under Policy 21 … Marketing Executives acknowledge all information they receive in their monthly business reports is Melaleuca’s proprietary trade secret information; that it is unique; and that disclosure fo misuse of it will irreparably harm Melaleuca and other Marketing Executives.

Also under Policy 21, Marketing Executives agree not to disclose such information to any third party or to use it to promote any other business opportunity, either during the Marketing Executives time with Melaleuca or after.

…which it accuses Reynoso and his wife of violating.

The former Marketing Executive Defendants have violated Policy 20 by soliciting one or more Melaleuca Marketing Executives and Customers to a competing business venture, and by promoting competing products to one or more Melaleuca Customers.

Reynoso and his wife are alleged to be using “confidential trade secret information belonging to Melaleuca” to market Vital Health.

Upon information and belief, Defendants have been formulating and manufacturing nutritional supplements purporting to be of similar type as those Melaleuca manufactures, selling them to competing business ventures, and soliciting “independent business owners” to help sell these products in affiliation with Vital Health and nother multi-level marketing company named “Plennia Global”.

Evidently unknownst to Melaleuca until February 2024, since 2018 Reynoso owned a “laboratory that manufactures products for at least six companies that compete with Melaleuca in the health and wellness space”.

It’s unclear how Reynoso and his wife, as Melaleuca Marketing Executives, would have access to Melaleuca’s product formulations and manufacturing processes.

Defendants’ actions have harmed Melaleuca, unlawfully luring away one or more Marketing Executives and Customers.

It’s also unclear how the alleged cross-recruitment is “unlawful”. In breach of Melaleuca’s Statement of Policies, sure. But illegal?

Reynoso’s and Durazo’s “unlawful” cross-recruiting is alleged to have taken place in mid to late 2023.

On November 21, 2023, after receiving reports that Reynoso was involved with competing business ventures … Melaleuca wrote a letter to the Former Marketing Executive Defendants, reminding them of their duties to Melaleuca under Melaleuca’s Statement of Policies.

This lead to Durazo cannling her Melaleuca promoter account in January 2024. Reynoso’s account was put on hold.

On January 27, 2024, Reynoso emailed Melaleuca’s compliance department to ask if Melaleuca had terminated his affiliation with Melaleuca.

Melaleuca responded it had not, but that Reynoso and Elmazguapo’s account was on “hold” status until Melaleuca confirmed they had not violated their Marketing Executive Agreements with Melaleuca.

In March 2024, Reynoso was revealed as Vital Health’s new CEO.

On March 27, 2024, Melaleuca setn Reynoso a third letter, this time after receiving reports that he was publicly announced as being part of Vital Health, including in social media posts promoting him as CEO of that company.

Melaleuca informed Reynoso that others had been using his name to promote Vital Health, including on public social media posts and through private social media direct messages.

Citing alleged disparagement of Melaleuca and its compensation plan, and Reynoso’s lab manufacturing products for competing MLM companies, Melaleuca terminated Reynoso’s promoter account on March 27th.

Melaleuca alleges that after the terminations, Reynoso and Durazo continued to pitch Vital Health to Melaleuca Marketing Executives and Customers.

Across five counts, Melaleuca’s lawsuit accused Reynoso, his companies, Durazo and Vital Health of

  • breach of contract
  • breach of covenant of good faith and fair dealing
  • tortious interference with prospective economic advantage
  • misappropriation of trade secrets and
  • unfair competition

Melaleuca is seeking an injunction prohibiting the alleged “unlawful” conduct, as well as damages and legal costs.

Interestingly enough, while Melaleuca’s lawsuit was originally filed in Idaho state court, the case was moved to Idaho District Court on September 20th.

As per a subsequent filing from Melaleuca;

Melaleuca applied for entry of default on September 18, 2024.

Two days later, Defendants filed a Notice of Removal in this Court on diversity grounds under 28 U.S.C. ยง 1332.

The state court entered default against Defendants on September 23, 2024.

Melaleuca filed a motion requesting the case be remanded back to state court on October 16th. I’m guessing Melaleuca’s play is get the case back to state court and enforce already granted default judgment.

A Scheduling Conference hearing has been scheduled for November 18th. Stay tuned for updates as BehindMLM continues to track the case.