The District Court held that triable issues of fact exist on Ford's allegations that Herbalife was a pyramid scheme, but that the company's distribution agreement contained a non-solicitation clause that could not be enforced because it exceeded the scope allowable under California law. Ford represented a group of Herbalife distributors who left the company and attempted to recruit members of their downlines to join them at an Herbalife competitor. Herbalife sued, claiming that the distributors were using confidential company information, Herbalife's sales reports, to recruit the others away from the company. The distributors courterclaimed alleging that Herbalife was an unlawful pyramid scheme under California law. The Court held that summary judgment was not appropriate on the pyramid claim because there were trialble issues that could show that Herbalife was an illegal pyramid scheme. Part of the definition of an illegal pyramid scheme is the right to receive payment for recruiting others that is not related to the sale of products to endusers. Herbalife's program paid bonuses to a distributor's upline when the distributor ordered products, not when those products were sold to ultimate users. Because bonuses were not paid on the ultimate sale of the product to end users, it was possible that Herbalife was an unlawful pyramid scheme, and the question should remain for the jury to decide. The Court also held that Herbalife could not maintain its claims for violation of the company's non-solicitation agreement because the agreement was too broadly worded. California greatly disfavors restraints on commerce, unless the restraint falls under a general statutory exemption. Because Herbalife's non-solicitation agreement did not conform to an exemption, it could not be enforced.
Case and case summary are also available at: http://www.mlmlegal.com/legal-cases/Herbalife_v_Ford.php
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