Nerium lawsuit against Modere uncovers alleged corporate sabotage
On December 30th, 2016, Nerium International filed a lawsuit against Modere.
Nerium claims the lawsuit, which also sought a Temporary Restraining Order, was an attempt to stop
two of its high-ranking salespeople and a paid Nerium consultant from raiding Nerium’s salesforce and customers, in direct violation of their non-competition and non-solicitation agreements, for a competing company named Modere.
Both Nerium and Modere operate in the personal care MLM niche.
According to Nerium, Modere is
stealing distributors from Nerium (because it’s) apparently unable to achieve any success whatsoever as a network-marketing company on its own merits.
The defendants in question are Doug Burdick, Don Creek and Anna Woodward. Creek and Woodward are former Nerium affiliates, Burdick a former consultant.
Nerium claims Modere has conspired with Burdick, Creek and Woodward to ‘poach unlawfully Nerium’s Brand Partners away from Nerium‘.
The Individual Defendants and Modere have recently engaged in an organized and coordinated campaign to solicit, recruit, and enroll as many Nerium Brand Partners as possible before the end of 2016.
But Modere has no intention to compete fairly or honestly.
Because the quality of Modere’s products and sales force are apparently not enough to recruit legitimately any salespeople into the Modere sales organization, Modere has induced the Individual Defendants and other Nerium Brand Partners to violate their confidentiality, noncompetition and non-solicitation agreements with Nerium.
Among other things, Modere and the Individual Defendants are offering all-expense paid trips to Utah, and even cash bonuses and other incentives, to Nerium Brand Partners to convince them to enroll with Modere and use Nerium’s highly confidential Brand Partner contact information to solicit other Nerium Brand Partners to follow them to Modere.
A public announcement from Burdick, Creek and Woodward was purportedly scheduled for release on December 31st.
If permitted to go ahead, Nerium claimed it would be unable to
protect its business and, more importantly, the businesses of more than one hundred thousand Brand Partners, who depend on their Nerium businesses to support their families.
The TRO Nerium requested sought to “protect the status quo” and prevent its top leaders from announcing they’d left.
Nerium’s lawsuit suggests Don Creek and Anna Woodward joined Nerium in May of 2016. Doug Burdick and his company Paradise Life were hired by Nerium as consultants in September, 2015.
Update 5th February 2017 – Anna Woodward has been in contact to clarify she joined Nerium in April, 2012. /end update
Nerium purportedly became aware of the trio’s attempts to solicit Nerium affiliates into Modere in late December.
On Monday December 26, 2016, for example, Jen Cromling received a telephone call from Don Creek, an individual in Ms. Cromling’s upline.
Creek said “everything is falling apart” at Nerium, then reported that he and others in Ms. Cromling’s upline were leaving Nerium, and that he wanted Ms. Cromling and her husband to go with him.
Creek told Ms. Cromling that he intended to join Modere, a competing network marketing company based in Utah.
During the telephone call, Creek forwarded to Ms. Cromling a marketing video for Modere and encouraged Ms. Cromling and her husband to watch it.
Creek then offered to fly the couple to Utah, at Modere’s expense, to attend a presentation by Modere about the opportunity.
Creek told Ms. Cromling that Modere would pay for the travel, the airfare, and the accommodation to attend the presentation.
When Cromling replied that she couldn’t attend the presentation, Creek offered to schedule another one “in the coming weeks”, again at Modere’s expense.
According to Ms. Cromling, Creek has reached out and attempted to solicit others to leave Nerium and join Modere.
Anna Woodward is accused of similar conduct.
Monica Dawson, a Three-star International Marketing Director at Nerium, received a text message from Anna Woodward, on December 27, 2016, asking if Ms. Dawson was available to talk.
After speaking on the phone regarding (their) Nerium business for five or ten minutes, Woodward said she had something “confidential” that she wanted to share, that she was “going out on a limb”, but wanted to share her plans.
Woodward then told Ms. Dawson that she intended to leave Nerium.
Woodward said that she found a “sleeping giant” and made the decision to move on from Nerium.
Woodward reported reported that some Nerium leaders intended to “submit their resignations” during the first week of January, that it would be “the shot heard round the world,” and that it was “going to really rock” the company.
Woodward told Ms. Dawson that she intended to join Modere, and that she was talking and working with Defendant Doug Burdick, who was also working with Modere to recruit Nerium Brand Partners.
Woodward told Dawson that she and Burdick could arrange for a “fly-in” for Dawson and other Nerium Marketing Directors.
Woodward further told Dawson that all of this could be kept “completely confidential,” further stating: “When you see who all is coming over, trust me, you’re going to wish you had gotten in front of it.”
Nerium contend the targeting of their affiliates was done via use of “confidential information” Burdick, Creek and Woodward had as a result of their relationship with Nerium.
In an amended complaint, Julie Waldie was added to the list of defendants. Curiously there are no specific allegations against Waldie made.
On January 26th an agreed temporary injunction was ordered.
The injunction prohibits recruitment of Nerium affiliates by the named defendants until January 31st, 2018.
Exceptions include immediate family members, members of the defendant’s households. After March 27th, 2017, recruitment of personally recruited Nerium affiliates and any Nerium affiliates “who initiate contact” is also permitted.
A trial for a permanent injunction has been scheduled for August 20th, 2018.
As of February 1st, Nerium’s lawsuit has been expanded to include Lisa Corcoran, Jessica Mathis, Padraic McCracken, Cultur LLC, Michelle Langhi, Dena Peacock, Shenna Brooks, Sue Clemens, Justin Serra and David Goodman.
Where things get particularly interesting is in Doug Burdick’s filed February 1st answer and counterclaim.
Four months ago, Nerium’s Chief Executive Officer, Jeff Olson, directed his thenconsultant, Doug Burdick, to play the role of “corporate spy” in order to “set up” a competitor, Modere, Inc., for an anti-competitive lawsuit by Nerium.
What what whaaaaat?
With Nerium’s business dwindling and its sales representatives (i.e., “Brand Partners”) fleeing the sinking ship, Olson apparently viewed a competitor with a superior product as a significant threat to his company.
Accordingly, Olson asked Burdick to lay the groundwork for Nerium to commence litigation that would stifle Modere’s entry into the U.S. market.
To that end, Olson directed Burdick to feign interest in joining Modere and convince the company to hire him as a consultant.
But Burdick and others were already looking to exit Nerium due to the company’s unethical and unlawful business practices and a business model that sets people up to fail – leading Olson’s scheme to backfire when Burdick and numerous Brand Partners jumped at the opportunity to join Modere.
So uh, send out the minions, minions see the grass is greener, minions leave and then… sue the minions?
I did think it strange that Nerium only claim to have found out about the defendants plans to leave the company around mid-December, and then, despite it being a holiday period, they’ve managed to pull a massive lawsuit together.
Burdick, who has extensive experience in the multi-level marketing (“MLM”) industry, initially joined Nerium as an independent distributor, or “Brand Partner,” in 2011.
Shortly after Burdick resigned from that position in early 2012, he was approached by Nerium CEO Jeff Olson about working for Nerium as a consultant.
To that end, Nerium engaged Burdick and Paradise Life to work as a “Consultant” pursuant to an agreement dated as of May 25, 2012.
In exchange for providing those services to Nerium, Burdick and Paradise Life were entitled to receive significant compensation, including substantial guaranteed sums that would begin vesting after two years.
Unbeknownst to Burdick, those compensation terms apparently violated a contract between Nerium and one of its partners.
Thus, to avoid detection, Nerium hastily terminated that agreement without cause by letter dated April 17, 2014, shortly before the two-year anniversary of Burdick’s engagement.
Notwithstanding its termination of Burdick’s consulting agreement in April 2014, Nerium continued to involve Burdick in certain strategic decisions and rely upon him as a consultant.
Olson indicated that Nerium would continue to compensate Burdick according to their prior agreement until they put a new agreement into place.
In the interim, Olson consulted Burdick on a variety of matters throughout 2014 and 2015.
During that time period, Nerium’s business began to struggle – due, in large part, to Nerium’s utilization of questionable business plans and promotions in early 2015 that not only harmed the businesses of the company’s leading Brand Partners, but also inappropriately encouraged Brand Partners to focus on recruiting additional sales representatives rather than marketing and selling products to actual retail customers.
Moreover, rumors began to surface that Nerium was showing favoritism to certain Brand Partners by covertly “slotting” them in ranks they had not earned and paying them in excess of what they were entitled to under Nerium’s compensation plan – practices which Burdick understood to be unfair, unethical, and illegal.
Jeff Olson, however, represented to Burdick (as well as others) that those deceptive practices were not occurring at Nerium. Olson also assured Burdick that Nerium was focused on operating in an appropriate and ethical manner and that he wanted Burdick’s help in ensuring that Nerium’s practices were all above-board.
To that end, Olson asked Burdick and Paradise Life to enter into a new consulting agreement with Nerium.
Before formally re-engaging with Nerium, it was critical to Burdick and Paradise Life that they have confidence in the propriety of Nerium’s business practices and the company’s commitment to running a “clean ship.”
Accordingly, Olson’s disavowal of illegal activities and expressed intent to institute appropriate and ethical business practices were material to Burdick and Paradise Life.
Based on those material representations and assurances by Olson, Burdick and Paradise Life entered into a new consulting agreement with Nerium in or around September 2015.
Unlike Burdick’s prior agreement – and directly contrary to Nerium’s allegations and testimony in this action – the Consulting Services Agreement dated as of September 1, 2015 limited the scope of Burdick’s consulting services to:
(a) providing competitive intelligence on certain direct-selling companies (i.e., other MLM businesses);
and (b) providing strategic input on company promotions, plans, and products, as requested by Nerium from timeto-time.
Indeed, the Agreement generally prohibited Burdick from training or communicating with Brand Partners with whom did not have a pre-existing relationship.
Burdick goes on to claim he was duped, and that Nerium is operating as an “illegal pyramid scheme”.
Unfortunately, as Burdick later discovered, he and Paradise Life had been duped.
Not only had Olson deliberately lied about Nerium’s illicit and unethical compensation practices, but Nerium had no genuine interest in running a “clean” operation.
Indeed, beneath the surface, Nerium bears all the hallmarks of an illegal pyramid scheme – and what’s worse, Nerium apparently had no desire to change its ways.
Burdick claims Nerium encourages inventory loading. His attempts to introduce practices to address the issue were rejected.
Burdick sought to implement practices at Nerium that would discourage and prevent “inventory loading” (also known as “garage qualifying” or “bonus buying”).
To Burdick’s chagrin, Nerium was unwilling to implement his recommendations to address that issue.
Burdick later learned why: Nerium was largely reliant on, and financially incentivized, “bonus buying” by its Brand Partners.
Indeed, a large proportion of Nerium’s total sales come from the sale of “blitz packs” (i.e., large volumes of inventory purchased at a “discount”) to Brand Partners.
These sales often occur at the end of a month – or in the first days of a month, in which case they are routinely back-dated to the prior month – when such purchases will allow a Brand Partner to maintain or increase his or her “rank.”
Moreover, Brand Partners were routinely creating fictional customer accounts to purchase additional inventory with their own credit cards in order to qualify for bonuses.
Over time, it became clear to Burdick that Nerium was not truly interested in fixing that very serious problem, contrary to the representations that its CEO, Olson, made to induce Burdick and Paradise Life to enter into the Agreement.
Rather, Nerium was knowingly enabling, encouraging, and turning a blind eye to the inventory loading through several inappropriate practices (e.g., backdating orders to increase Brand Partners’ monthly volumes, allowing purported “customer” purchases made using a Brand Partner’s credit card, etc.).
As compliance-breaking as all that is alone, Burdick claims it’s just “the tip of the iceberg”.
As Nerium’s business experienced a sharp decline in 2015-2016 and many leaders began to leave the company, word began to spread about a number of inappropriate activities by Nerium, the most damning of which concerned Nerium’s compensation practices.
As referenced above, Olson repeatedly denied that Nerium “slotted” in Brand Partners at ranks they had not earned and paid them in excess of the commissions and bonuses to which they were rightly entitled.
Such a practice is obviously unfair, but more importantly, it is extremely deceptive when such Brand Partners are touted to others as genuine success stories in order to motivate other Brand Partners.
But contrary to Olson’s representations, that was exactly what Nerium was doing.
When confronted about Nerium’s unequal treatment of the many Brand Partners who were “struggling and barely holding on,” Mark Smith (Chief Field Officer and top distributor) explained that having a Brand Partner fall from a “5 star” rank to lower than the “3 star” level was “a path to losing” the Brand Partner – thus supposedly justifying Nerium’s deliberate decision to “exempt” that person from the qualifications of her rank while still publicly recognizing her as a top earner.
Yet, to accomplish that deception, Nerium was, in effect, taking “money out [of another Brand Partner’s] pocket.”
And Nerium’s origins story? Apparently also bogus.
In marketing Nerium, Olson has repeatedly characterized the company as the outgrowth of an “accidental discovery” by researchers of the age-defying properties of an extract from the Nerium oleander plant.
According to Olson, he was first approached by the developers of the biotechnology about commercializing the discovery more than a year prior to Nerium’s launch.
As Olson tells it, he walked away from that initial meeting so impressed by the efficacy of the oleander extract-based biotechnology, as supposedly demonstrated by clinical studies conducted by ST&T Research and a Harvard educated plastic surgeon, Dr. Larry Fan, that he spent the next two years working extensively on the creation and development of the “Nerium” sales platform.
Not surprisingly, that story is a critical piece of Nerium’s marketing “pitch” and has been a significant factor in many Brand Partners’ decisions to join Nerium. It is also false.
As revealed in recent litigation between Olson and his partners in the Nerium venture, Nerium has been marketing and selling a knock-off version of its core product (i.e., a formulation that does not include the supposedly critical ingredient, the oleander extract) outside the U.S.
Moreover, Olson’s own testimony in that lawsuit further demonstrates that his prior representations about the clinical studies were false.
For instance, the ST&T clinical studies with Dr. Fan touted by Olson were actually conducted in mid-2011, shortly before the launch of the Nerium brand – not years earlier, as Olson has represented.
That lie is apparently designed to conceal the truth about Nerium’s origin: Olson did not spend two years working feverishly to develop the Nerium model because he believed in the product; instead, he and those in charge of Nerium were focused on running another MLM, the “Poker Training Network,” during that time period.
Burdick represents he was pretty deeply attached to Nerium when all of this was uncovered. Nonetheless “he needed to find a way out”.
In or around late September 2016, Olson asked Burdick to find out information about Modere, a company about which Burdick had previously conducted basic research (at Nerium’s direction).
As requested, Burdick conducted research and updated his prior “write up” on Modere and sent it to Olson.
During a follow-up telephone conversation in early October 2016, Olson informed Burdick that he had heard that some Nerium Brand Partners were looking at joining Modere.
Olson asked Burdick if he knew anyone at Modere who he could contact to try to learn more and requested that Burdick reach out to that person to see what he could find out.
Pursuant to Olson’s direction, Burdick contacted a Modere representative and discussed, among other things, rumors that many of Nerium’s leaders were looking at joining other companies.
Following that conversation, Burdick updated Olson and advised him that Modere appeared to be the “real deal” and might be very attractive to those looking for a new MLM opportunity.
Olson’s reaction to that news was, in a word, shocking: he instructed Burdick to try to get Modere to attempt to hire Burdick away from Nerium as part of an effort to “set up” Modere for a legal action by Nerium.
As explained by Olson, Nerium wanted to use Burdick to infiltrate Modere and lay the groundwork for a lawsuit designed to prevent Modere’s future solicitation of Nerium representatives.
In particular, Olson hoped that Burdick could convince Modere to hire him as a consultant, thereby giving Nerium a purported basis to sue Modere.
To that end, Olson asked Burdick to seek and obtain a written offer from Modere, as well as any information and documentation (e.g., email communications, photos of “white boards,” etc.) that Nerium could use to suggest that Modere was improperly targeting Nerium’s Brand Partners.
In other words, Burdick was to be the “bait” for an anti-competitive lawsuit, as well as the “mole” that would provide Nerium with evidence against Modere.
In furtherance of that scheme, Olson instructed Burdick to again call his contact at Modere and see if he could arrange a meeting to discuss Burdick potentially joining the company as a consultant.
As Olson made clear, Burdick was to do his best to convince Modere that he was a valuable asset that Modere should hire away from Nerium.
Burdick was signed as a consultant to Nerium, so getting Modere to sign him appears to be a ploy to add weight to a lawsuit against Modere.
That’s apparently not the half of it though.
Naturally, Burdick was shocked and offended. He had never been asked to intentionally deceive and entrap a competing MLM business, nor was he comfortable doing so.
To the contrary, Olson’s request only exacerbated Burdick’s existing concerns about the legality and ethics of Nerium’s business practices.
And as it turns out, Olson’s scheme was not limited to setting up Modere for this lawsuit – he was also trying to set up Burdick.
Unbeknownst to Burdick, as early as August 2016, Olson and others at Nerium were discussing their plan to terminate Burdick.
However, if Nerium terminated the Agreement without cause, it was obligated to make substantial payments to Burdick and Paradise Life (namely, $500,000 annually for two years).
Apparently, Olson hoped to manufacture “cause” for termination by having Burdick seek to join Modere, thereby relieving Nerium of its obligation to make any further payments under the Agreement.
In other words, once Burdick had served his purpose for Nerium’s contemplated lawsuit against Modere, Nerium could leave Burdick twisting in the wind by terminating the Agreement “for cause.”
Burdick paints himself as someone between a rock and a hard place.
Burdick was in a no-win situation.
If he went along with Olson’s unethical scheme to defraud and set up Modere, it would completely ruin Burdick’s reputation and career in the MLM industry.
On the other hand, telling Olson “no” would likely lead Nerium to wrongfully seek to block Burdick from working in the industry and earning any compensation for the foreseeable future, which would seriously jeopardize Burdick’s ability to earn a living and provide for his family.
Burdick’s “out”, as it were, was to set up a meeting with Modere representatives in mid-October 2016, as Olson had requested to ‘play the role of saboteur‘.
Contrary to what Olson intended, Burdick’s expression of interest in joining Modere was genuine, not feigned.
After all, given his recent discoveries about Nerium’s unethical and illegal practices, he welcomed the chance to explore an exit from Nerium.
Thus, Burdick availed himself of the opportunity to meet with Modere and discuss joining the company (as Olson asked him to do), but not in furtherance of Olson’s dishonest scheme.
Accordingly, over the next two months, Burdick continued, with Olson’s knowledge, to engage Modere in discussions about coming on board – albeit not under false pretenses, as desired by Olson.
Eventually, Olson realized that his plan had backfired and that he had actually driven Burdick into the arms of a competitor.
Undeterred, however, Nerium pressed forward with its plan.
To that end, on December 30, 2016, Nerium filed this action against Modere, Burdick, and a number of former Nerium Brand Partners.
That same day, Nerium terminated its Agreement with Burdick and Paradise Life, purportedly “for cause.”
Thus, Nerium seeks not only to deprive Burdick of the ability to work in the MLM industry, but also to deny him the compensation he was promised – based on patently overbroad restrictive covenants that Nerium itself directed Burdick to “violate.”
In his counter-claim, Burdick is seeking is $500,000 annual compensation and argues Nerium had no cause to terminate his consultancy.
That appears to be where the case is at as of February 1st, 2016.
On one hand I think Nerium has a case, as clearly there was some raiding going on. To that end you have the injunction, which if it’s still relevant in 2018 I think they’re likely to get.
Counter-balancing that is whatever Jeff Olson thinks responsible corporate management is. Alright, you’ve got a guy you use for intel on competitors – a bit 007 but not unheard of.
Personally I’d focus on kicking ass in your own business over worrying about what your competitors are doing, but each to their own.
To send out, goon style, an informant to set up a rival company for an anti-competitive lawsuit though? And purportedly also want to screw over said informant in the process?
Based on their respective compensation plans, I think it’s pretty clear that neither Modere or Nerium are focused on genuine retail sales.
Affiliates from one recruitment opportunity are jumping to another, with their downlines caught in the cross fire. Management from both companies appear to be complacent in the shenanigans that have taken place, with neither side really having the upper hand here.
I will say however that the allegations laid out against Nerium are, as far as the wider MLM industry goes, of far greater concern than another case of raiding.
Unfortunately Nerium’s lawsuit has been punted back to the Texas District Court it was originally filed in. As such updates going forward may be scarce (no public access unless you rock up to the court house).
Still, there should be plenty for you to chew on here in the meantime.
Pending an outcome to Nerium’s lawsuit or Burdick’s counter-claim – stay tuned…