Youngevity granted injunction, Wakaya granted dismissals
Earlier this year Youngevity filed a lawsuit against Wakaya Perfection.
The complaint accused Wakaya Perfection, co-founder Todd Smith and several named defendants of effectively gutting Youngevity from the inside.
In May Youngevity filed for an injunction against Todd Smith, Blake Graham and Total Nutrition Inc.
The injunction sought to stop Smith, Graham and Total Nutrition from continuing to use “Youngevity properties” to ‘market and profit off the sale of Youngevity products‘.
In a nutshell, Total Nutrition websites that ranked for Youngevity queries were being used to direct people towards Wakaya Perfection.
The injunction was denied in June owing to pleading deficiencies in Youngevity’s complaint.
In July Youngevity filed an amended complaint, again requesting a preliminary injunction be granted.
In their defense, Smith, Graham and Total Nutrition argued that they were permitted to continue to use Youngevity properties, because a two-year statute of limitations period had expired.
This was rejected by the court, on the basis that it meant if a plaintiff withdrew consent after two years, the claim would automatically be rejected.
The court also agreed that by not granting an injunction, Youngevity would suffer irreparable injury.
A competitor’s access to a company’s confidential customer information can clearly cause very serious damage to a company’s market share and business goodwill that is impossible to measure and compensate via money damages.
The court also found Smith, Graham and Total Nutrition had failed to provide ‘any persuasive reason as to why they should be allowed to continue misappropriating Plaintiffs’ likenesses‘.
On December 1st, Todd Smith, Blake Graham and Total Nutrition Inc. were ordered to cease using a phone number and two Youngevity related websites.
Smith, Graham and Total Nutrition filed a motion for clarification and reconsideration on December 7th.
On December 9th the court denied reconsideration but did clarify:
- the defendants had to cease operation of the phone number
- the phone number and websites can be sold, provided the seller is informed of the injunction and receive written notification that the assets will be operated lawfully
- Blake, Graham and Total Nutrition are still able to sell excess Youngevity stock they possess (not through the phone number or websites though)
- the injunction does not apply to Engevity
Engevity appears to be a Youngevity related company. Why it was brought up I’m not 100% clear on.
If I had to guess, perhaps Blake and Graham thought they could “sell” the assets to Engevity and continue to market Youngevity products through them.
The court stated this wasn’t a problem, provided Blake, Graham and/or Total Nutrition ‘do not use any control they may have over Engevity to operate the assets‘.
The original December 1st order granting Youngevity’s injunction motion also addressed Wakaya Perfection’s motion to dismiss.
Count 1 of Youngevity’s complaint related to false statements allegedly made by Todd Smith.
It was denied on the basis the complaint
fail(ed) to explain with any degree of particularity what false statements were allegedly made by Defendant Smith specifically.
Count 1A related to Wakaya Pefection making ‘false statements regarding how much money a Wakaya distributor could potentially earn‘.
Wakaya Perfection argued that the complaint failed ‘to identify any false statements allegedly made by Wakaya.‘
Evidence cited in Youngevity’s complaint included a YouTube video in which
Wakaya agents promised that ‘a year from now, many of us will be million dollar earners’.
Wakaya Perfection argued Youngevity ‘failed to establish that this video was in fact posted by a Wakaya agent.‘
The court ruled they didn’t have to establish a relationship at the pleading stage of the lawsuit. Wakaya Perfection’s motion to dismiss count 1A was thus denied.
In Count 1B, Youngevity alleged
Wakaya falsely stated it was a joint venture with billionaire David Gilmour, founder of the Fiji Water Company.
Another YouTube video was cited as evidence of this claim, which the court accepted as sufficient. Wakaya Perfection’s motion to dismiss Count 1B was thus denied.
In counts 1C and 1D, Youngevity alleged Wakaya Perfection
falsely advertised that (1) Youngevity was having financial problems and (2) Wakaya products originate from Fiji.
The court observed Youngevity failed to ‘allege any details regarding “where” and “when” Wakaya allegedly made these false statements’ and dismissed the counts.
Counts 1C and 1D were thus dismissed.
Count 1E saw Youngevity claim
Wakaya’s advertisements of the health benefits of its “pure Calcium Bentonite Clay” line of products is false or has a tendency to mislead because these products contains high dosages of lead.
Wakaya argued the advertisement in question wasn’t misleading because it did ‘not specifically disclaim lead related health hazards.‘
The court disagreed on the basis the ad suggested
the clay products are overall good for a person’s health.
If, as Youngevity allege(s), the products do in fact contain high levels of lead, this would be false.
Count 1E was subsequently upheld.
Count 1F was an allegation of false advertising, owing to Wakaya Perfection’s claim that ‘its distributors can earn large amounts of money and enjoy luxury lifestyles‘.
Youngevity allege such advertising is false because Wakaya is actually an open distribution pyramid scheme and participants in such schemes are extremely unlikely to receive any meaningful income from their distribution efforts.
The court didn’t get into whether Wakaya Perfection affiliates can indeed earn a “meaningful income”.
Rather it was observed Youngevity failed to
identif(y) with particularity any Wakaya advertisement claiming Wakaya distributors are likely to earn a meaningful income.
Count 1F was thus dismissed.
Counts 2 and 3 both related to false advertising. Specifically the allegation that
Actual or potential Youngevity distributors relied upon Defendants’ alleged misrepresentations and therefore decided to become Wakaya distributors instead of Youngevity distributors.
The court pointed out that Youngevity itself had not relied upon the alleged misrepresentations.
No California courts have explicitly considered whether third party reliance is sufficient to sustain a false advertising claim between competitors.
However, some federal courts have.
Though a few have found third party reliance sufficient, most have found that a plaintiff must allege that they personally relied upon the misstatement
This Court adopts the majority approach.
Counts 2 and 3C were dismissed on this basis. Counts 3A and 3B were left standing as they were grounded in unlawfulness as opposed to “misrepresentation theory”.
Counts 4B and 6A related to Wakaya Perfection’s interference with Youngevity’s economic advantage and contract(s).
Wakaya Perfection argued that the counts were ‘based on invalid nonsolicitation agreements‘, as per the California Business and Professions Code § 16600.
California Business and Professions Code § 16600 provides that
“[e]xcept as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
Section E12 of Youngevity’s Policies and Procedures forbids current Youngevity distributors from engaging in cross recruiting.
Wakaya Perfection contend this provision is invalid under § 16600 because Wakaya Perfection interpret § 16600 as categorically voiding any condition that can have the effect of limiting one’s opportunity to engage in a lawful business.
The court rejected this interpretation because
the California Court of Appeal has stated that § 16600 does not apply to restrictions on a person’s ability to engage in a lawful business while that person is employed by the company to which he or she promised loyalty.
Rather, § 16600 targets restrictions on post-employment activity.
To cross-recruit, an individual would still have to be a Youngevity affiliate.
Wakaya Perfection attempted to argue that E12 was invalid ‘because Youngevity distributors are independent contractors rather than employees.‘
While this does appear in Youngevity’s Policies and Procedures, the court noted
Youngevity does not cite to any authority that supports this proposition. Nor does the Court believe it is proper to make such a distinction.
Unlike a restraint that operates for a fixed period of time after a business relationship expires, an employee or independent contractor can escape a covenant that would limit their ability to earn a living by simply ceasing the business relationship with the party to whom such a covenant runs.
The motion to dismiss Counts 4B and 6A was subsequently denied.
The Court referred to Count 5C as “problematic” because it pertained to the allegation that
Dave Pitcock (“Pitcock”) breached the Consulting Agreement executed between Youngevity and Livinity by making disparaging comments about Youngevity.
This allegation is problematic however in that Pitcock clearly and unambiguously signed the Consulting Agreement as an agent of Livinity rather than in his individual capacity.
Youngevity argued that
the parties clearly intended the Consulting Agreement to bind Pitcock individually because its non-disparagement provision is meaningless if it does not.
Next … Pitcock can nevertheless be held liable under an alter ego theory.
The court ruled that the contract itself was “fully integrated” between Youngevity and Livinity.
With regard to an alter ego theory, Youngevity failed to plead under such a theory and so Count 5C was dismissed.
Counts 5D pertained to Patti Gardner and Brytt Cloward allegedly breaching ‘a contract executed between Youngevity and Heritage Makers‘.
Gardner argues she could not have breached the HM Agreement because she did not sign it in her individual capacity and therefore is not bound by it.
As with the Pitcock count, the court ruled any breach of contract would be a liability for Heritage Makers, not Gardner as an individual.
Count 5D with respect to Gardner was thus dismissed.
Cloward, by contrast, signed the HM Agreement not as an agent of Heritage Makers but as a “Representing Party.”
As a Representing Party, Cloward argues he’s only bound by his employment agreement with Heritage Makers.
The court observed that Youngevity did not allege ‘Cloward violated any such
Count 5D, with respect to Cloward’s alleged breach of the Non-Competition Clause was thus dismissed.
Count 5D, with respect to Cloward violating the Confidentiality Clause of the agreement however, was upheld.
Count 6B sought to hold Bill Andreoli accountable for ‘inducing Cloward and Gardner to violate the Non-Competition Clause‘.
Given the court ruled neither Gardner or Cloward were bound to the Non-Competition Clause, Count 6B was dismissed. Count 8 was dismissed for the same reason.
In light of the dismissals, Youngevity has been given leave to file an amended complaint.