Court: District Court, D. Utah; September 22, 2016; Federal District Court
The court issued an amended memorandum decision addressing three motions: LifeVantage’s Motion for Summary Judgment, Mr. Domingo’s Motion for Partial Summary Judgment regarding Judicial Proceedings Privilege, and Mr. Domingo’s Motion for Partial Summary Judgment concerning Misappropriation of Trade Secrets. The hearing took place on May 17, 2016, and the court took the motions under advisement afterward.
LifeVantage Corporation initiated this action against Jason Domingo and Ovation Marketing Group, Inc., alleging breach of contract and misappropriation of trade secrets. In response, Domingo and Ovation filed counterclaims for breach of contract, defamation, tortious interference, and civil conspiracy. LifeVantage claims that Domingo breached non-disparagement, confidentiality, and non-disclosure clauses of their contract and seeks summary judgment on all counterclaims, arguing that any defamatory statements were privileged and that Domingo failed to establish a basis for his tortious interference claim.
Conversely, Domingo seeks summary judgment against LifeVantage's defense of judicial proceedings immunity and on the misappropriation of trade secrets claim. The court noted significant factual disputes exist, rendering summary judgment inappropriate for most claims, and thus only essential facts are included in the decision.
LifeVantage operates as a publicly traded multilevel marketing company selling nutraceutical products through a network of distributors. Each distributor is incentivized to sell products and recruit new distributors, forming a "downline" that is crucial for their income potential, as they earn commissions both from personal sales and from sales made by their recruits.
Mr. Domingo, as the lead distributor for LifeVantage through his company Ovation, held the highest distributor position, resulting in a seven-figure annual income from his lucrative downline. He entered into an Independent Distributor Agreement with LifeVantage, which included adherence to the company's 'Policies and Procedures.' These policies feature a non-disparagement clause, prohibiting distributors from making negative remarks about LifeVantage, its products, or its personnel, while allowing for constructive feedback to be submitted in writing. The Agreement also includes a confidentiality provision, defining confidential information broadly to encompass any sensitive data related to LifeVantage and its affiliates, including clinical data, trade secrets, business strategies, and customer information. Additionally, a non-solicitation clause restricts Mr. Domingo from recruiting or enrolling LifeVantage distributors into other network marketing ventures for six months post-termination of the Agreement. LifeVantage alleges that Mr. Domingo breached these provisions through various communications, including a September 14, 2012 email to his downline discussing a prelaunch meeting for LifeVantage in Hong Kong.
On May 2, 2013, Mr. Domingo engaged in a text conversation with Jan Strode, a public relations consultant for LifeVantage, discussing connections with Prince Huessin of Jordan and expressing frustration with LifeVantage's management. He suggested that the company was suffering due to poor leadership and made a sarcastic remark about potential rewards for top MLM producers. On June 9, he texted investor Randolph Haag that LifeVantage had been "taken over by pirates" and criticized ongoing issues within the organization. Mr. Domingo communicated similar sentiments to Kirby Zenger and highlighted concerns about the company's management changes during a growth phase.
On October 27 and 30, he alerted Stu Brodie and Zenger about significant sales declines. By November 4, he sent an email to Haag condemning the management team's malfeasance and called for accountability from shareholders. Mr. Domingo’s email was eventually forwarded to CEO Mr. Robinson. He also publicly criticized LifeVantage's sponsorship of the Real Salt Lake soccer team and claimed to have insider knowledge about the company's issues. In conversations with other senior distributors, he expressed reluctance to start a new network marketing venture but indicated it might become necessary. Furthermore, Mr. Domingo testified that he shared concerns about LifeVantage’s long-term goals, though Haag was uncertain about the source of that information. Carrie Dickie, another distributor, recounted Mr. Domingo's negative remarks about Robinson, suggesting they bordered on accusations of criminal behavior.
In late summer 2013, Mr. Tipps recounted a phone conversation with Mr. Domingo, who expressed a desire to remove LifeVantage management, referring to them in derogatory terms. Mr. Domingo criticized Mr. Robinson for hiring individuals lacking industry experience, which he believed harmed distributor interests. Mr. Mulder mentioned discussions with Mr. Domingo about potentially leaving LifeVantage with other top distributors to form a new company, though Mr. Domingo did not recall making such comments. On November 13, 2013, members of the Field Advisory Board, including Mr. Domingo, met to discuss the company’s situation, where he proposed hypothetical scenarios involving a new company with notable figures and lucrative compensation, although he claimed the meeting was initiated by Ms. Dickie and that other distributors were encouraging a new start.
Prior to this meeting, in July 2013, Mr. Daniels informed Mr. Robinson that Mr. Domingo was spreading negativity, prompting Mr. Robinson to suggest they would address the issue decisively. On November 1, Mr. Daniels proposed a buy-out of Mr. Domingo’s agreement and recommended a non-compete clause. Following discussions on November 2, Mr. Robinson invited Mr. Daniels to a Board meeting to discuss the negative impact of divisiveness among field leaders. Mr. Robinson also instructed Mr. Daniels to use a code name for Mr. Domingo to keep discussions discreet. A few days later, Mr. Haag forwarded Mr. Domingo's critical email about LifeVantage to Mr. Robinson. During the Board meeting on November 13, Mr. Daniels provided insights into field leadership divisions before being excused, after which the Board decided to terminate Mr. Domingo's contract and initiate legal action against him.
Mr. Robinson communicated with Mr. Daniels, urging him to keep a Board discussion confidential and to execute a "shock and awe campaign" against Mr. Domingo, warning that anything less would harm the company. They had a subsequent phone conversation on the same day, lasting 38 minutes, but both could not recall its content. LifeVantage filed a lawsuit on November 19, 2013, with Mr. Mauro, a Board member and attorney, involved in drafting the Complaint. He emphasized the necessity for clarity in the Complaint to ensure public understanding of Mr. Domingo’s alleged detrimental actions against the company and its distributors. The Complaint accuses the Defendants of undermining LifeVantage and harming its distributor network, suggesting that their actions could have resulted in tens of millions in additional earnings had they not distracted and discouraged others. Despite prior promises to support the company, the Defendants allegedly violated confidentiality agreements and publicly criticized management. On November 20, 2013, Mr. Robinson instructed Mr. Daniels to ensure attendance at a meeting while indicating that Mr. Domingo would be unavailable. Later that day, Mr. Domingo was informed by Mr. Mauro of his contract termination and served with the Complaint, after which a meeting with key members was held to announce the termination and lawsuit.
Mr. Mauro and Mr. Robinson responded to inquiries from the FAB and later participated in an 'Elite' call for 'Pro-7 and above' distributors, where they accused Mr. Domingo of causing 'tens of millions of dollars' in losses due to contract violations and lack of focus on his business. LifeVantage subsequently held a 'Special President’s Call' attended companywide, during which Mr. Robinson claimed a significant breach of contract by Mr. Domingo had harmed the company and jeopardized distributors' success. Mr. Daniels suggested reviewing a detailed 19-page press release for information on the situation. The press release announced LifeVantage's termination of its relationship with Mr. Domingo and his company, Ovation Marketing Group, due to breach of contract and misappropriation of trade secrets, alongside a federal lawsuit against them. LifeVantage's leadership emphasized their commitment to protecting the interests of all stakeholders. Legal standards for summary judgment were cited, indicating that a court will grant such judgment if there is no genuine dispute over material facts and if the movant is entitled to judgment as a matter of law. The excerpt concludes with definitions of material facts and the process for considering evidence favorably toward the non-moving party in summary judgment motions.
A rational fact-finder cannot find for the nonmoving party if the overall record does not support such a conclusion. LifeVantage seeks summary judgment on its breach of contract claim against Mr. Domingo, asserting he violated three key provisions of their Agreement, which were material breaches that justify recovering compensation paid to him post-breach. Under Utah law, the elements for a breach of contract claim include the existence of a contract, performance by the claimant, a breach by the other party, and resultant damages. A material breach is significant enough to warrant nonperformance by the non-breaching party and is determined by assessing whether the breach undermines the contract's essence, not just the specific provision breached. Utah courts consider factors such as the extent of deprivation of expected benefits, potential compensation, forfeiture risks, likelihood of cure, and adherence to good faith. LifeVantage identifies three specific breaches: the non-disparagement, confidentiality, and non-solicitation clauses.
1) The non-disparagement clause, part of LifeVantage’s Policies and Procedures, prohibits negative remarks about the company and its affiliates. LifeVantage claims Mr. Domingo breached this clause first in May 2013 via text and again on November 4, 2013, through a disparaging email. The court recognizes the November 4 email as a material breach, although earlier breaches are disputed.
LifeVantage claims that Mr. Domingo's email dated November 4, 2013, constitutes a material breach of their Agreement. Mr. Domingo counters that the Agreement's language is ambiguous, necessitating a jury's interpretation, and argues that even if there was a breach, it was not material. He cites Utah law, specifically the cases of Ward v. Intermountain Farmers Ass’n and Daines v. Vincent, which detail a two-step process for assessing facial ambiguity, involving the consideration of extrinsic evidence and ensuring interpretations are supported by the contract's language.
However, the court notes that these cases may not accurately reflect current Utah law. Recent rulings indicate a shift away from the Ward test, emphasizing that contract interpretation should begin with the contract's text itself. The Utah Supreme Court has maintained that only ambiguous terms warrant the consideration of extrinsic evidence.
Mr. Domingo argues that the Agreement's non-disparagement provision is ambiguous due to the phrase "should not" and the term "disparage." He suggests that "should not" implies a discretionary rather than mandatory obligation. However, this interpretation contradicts established Utah law, which discourages readings that render provisions meaningless. Furthermore, LifeVantage's Policies and Procedures clarify that Independent Distributors are obligated to speak positively about the company, reinforcing that the non-disparagement clause is indeed mandatory.
Mr. Domingo argues that the term 'disparage' is ambiguous, suggesting that the distinction between permissible 'constructive criticism' and 'disparagement' is unclear. However, the Agreement explicitly requires that constructive criticism be submitted in writing to the Distributor Support Department. Mr. Domingo's email to Mr. Haag on November 4, 2013, which included strong negative remarks about LifeVantage’s management, was not submitted to the required department and thus does not qualify as permissible constructive criticism. He has not proposed a reasonable alternative interpretation of 'disparage' to support his claim of ambiguity. The court finds that Mr. Domingo's comments clearly disparaged LifeVantage’s directors and officers, leading to a material breach of the Agreement. His position as the lead distributor meant that such remarks were particularly damaging to the company, justifying LifeVantage's termination of the contract under Utah law.
Additionally, LifeVantage claims that other communications from Mr. Domingo also constituted material breaches of the non-disparagement clause. They assert that the first material breach occurred on May 2, 2013, during a text conversation with Ms. Strode, in which Mr. Domingo made disparaging comments about the company's management. While these comments may have breached the clause, the court notes that whether this breach was material is a question for a jury to determine, as the context and tone of the text messages may not indicate a significant breach.
A jury has the discretion to determine whether the text messages exchanged by Mr. Domingo do not represent a substantial breach that would justify LifeVantage's refusal to perform under the contract. Conversely, comments made by Mr. Domingo, such as calling LifeVantage's management "clowns," may be deemed disparaging enough to constitute a material breach. Consequently, the assessment of materiality regarding these breaches is appropriate for jury resolution, thereby precluding summary judgment on these matters.
LifeVantage asserts that Mr. Domingo breached the confidentiality provision of the Agreement, which prohibits disclosing confidential information related to the company and its affiliates. This confidential information encompasses a wide range of business and technical data. LifeVantage claims that Mr. Domingo disclosed three specific types of confidential information: sales data, the company's long-term revenue plan, and the date of a soft-launch in China. Evidence indicates Mr. Domingo sent messages revealing sales information in October 2013, may have discussed long-term revenue goals with Mr. Haag, and shared the soft-launch date in an email to his distribution chain on September 15, 2012. The materiality of these alleged breaches is contested, with a jury potentially finding that they do not constitute material breaches.
Lastly, LifeVantage contends that Mr. Domingo violated the non-solicitation provision of the Agreement, which prohibits recruiting or encouraging LifeVantage distributors to join other network marketing ventures. This provision includes direct and indirect solicitation, encompassing any efforts to influence LifeVantage's distributors or customers to engage with competing opportunities.
Mr. Domingo is accused by LifeVantage of breaching an agreement based on three main points. First, in late 2013, he expressed reluctance to start a new network marketing company but acknowledged it might be necessary. Second, Mr. Mulder testified about discussions with Mr. Domingo regarding potentially leaving LifeVantage to start a new company, which Mr. Domingo denies remembering. Third, on November 13, 2013, Mr. Brodie recounted a meeting where Mr. Domingo posed hypothetical scenarios about a new company involving Dr. Joe McCord and David Brown, which Mr. Domingo attributed to other distributors' suggestions instead. Due to these factual disputes, summary judgment in favor of LifeVantage is deemed inappropriate.
In his counterclaims, Mr. Domingo argues that LifeVantage breached the agreement by terminating it prematurely and violated the covenant of good faith and fair dealing. LifeVantage defends its termination under Utah law, citing Mr. Domingo's material breach stemming from a disparaging email sent on November 4, 2013. It asserts that this breach justifies their termination of Mr. Domingo on November 20, 2013. Mr. Domingo references the case of Cook v. Zions First National Bank to support his good faith claim, which involves a situation with sole discretion in termination. However, the circumstances of his case differ, as LifeVantage did not terminate the agreement based on a provision granting it sole discretion.
Mr. Domingo was terminated for cause due to a material breach of his Agreement with LifeVantage, and he failed to provide legal authority to support his claim that the implied covenant of good faith and fair dealing should prevent such termination. Utah law permits termination in response to material breaches, and consequently, LifeVantage's termination was justified, leading to the dismissal of Mr. Domingo's breach of contract counterclaim and granting LifeVantage summary judgment.
Additionally, Mr. Domingo's counterclaim for defamation requires him to prove five elements under Utah law: publication of false statements, lack of privilege, requisite fault, and resulting damages. LifeVantage seeks summary judgment on this claim, arguing that its statements are protected by judicial proceedings immunity and various conditional privileges, and alternatively contending that Mr. Domingo's claim is barred by the economic loss rule. Mr. Domingo disputes these defenses, asserting his right to summary judgment on the judicial proceedings immunity and the existence of material fact disputes regarding conditional privileges, as well as arguing that the economic loss rule does not apply to defamation cases.
To establish judicial proceedings privilege, statements must be made during a judicial proceeding, reference the proceeding's subject matter, and be made by participants such as judges or witnesses. This privilege aims to protect the integrity of legal proceedings and promote free expression without the fear of defamation lawsuits. The scope of what constitutes a judicial proceeding is broad, encompassing statements made in the context of litigation; however, it does not extend to statements made to the press by parties involved in the proceedings, as clarified by Utah case law.
Mr. Domingo contends that the judicial proceedings privilege does not apply to two categories of statements: the November 20, 2013 conference calls and the Complaint along with related statements.
1) **November 20, 2013 Conference Calls**: Mr. Domingo asserts these calls were not conducted by individuals acting in judicial capacities and thus are not protected by the privilege. LifeVantage argues the calls were part of a judicial proceeding related to a lawsuit against Mr. Domingo. However, the court finds that the calls were made by LifeVantage executives to independent distributors with no legal interest in the lawsuit. These calls did not involve discussions of litigation strategy or legal advice and were publicly accessible, undermining the argument that they were attorney conferences. Since the executives were not acting in a judicial capacity, the statements made during these calls are not protected by the privilege, and Mr. Domingo is entitled to summary judgment on this issue.
2) **Excessive Publication of the Complaint**: Mr. Domingo claims that the statements in the Complaint were defamatory and lost their privileged status due to excessive publication. Under Utah law, excessive publication occurs if statements are shared with more individuals than necessary to resolve the dispute or if shared with those lacking a legitimate interest in the litigation. The court assesses the overall circumstances of the publication to determine if the purpose of promoting candid communication is furthered. If the publication is deemed excessive, it may lead to a loss of the judicial proceeding privilege.
Mr. Domingo asserts that LifeVantage forfeited the judicial proceedings privilege related to the Complaint by posting it on its website and encouraging others to use it as “talking points,” thereby attracting attention from individuals without legal interest in the case. In response, LifeVantage argues that the Complaint, being a public record, cannot be deemed excessively published and that the facts do not support Mr. Domingo’s claims regarding the extent of its publication. LifeVantage insists that publishing a document meant for public access does not constitute excessive publication. However, Utah law indicates that excessive publication can negate judicial immunity, focusing on whether the complaint was shared with more individuals than necessary for the litigation. The court must assess whether the Complaint's publication was excessive.
Mr. Domingo relies on deposition testimony from Mr. Mauro, who expressed a belief in the importance of making the lawsuit accessible to the public and mentioned an increase in website traffic, suggesting that he encouraged readers to visit the site. LifeVantage counters that this testimony does not confirm that the Complaint was posted on its website, as Mr. Mauro did not specify which website he meant, and the increase in hits may not directly relate to the Complaint itself. Conversely, a reasonable jury could interpret Mr. Mauro's comments as evidence that the Complaint was indeed posted online, potentially undermining LifeVantage's claim to judicial proceedings privilege. This disagreement regarding the factual circumstances surrounding the Complaint's publication hinders the possibility of summary judgment concerning LifeVantage’s defense of judicial proceedings immunity against the allegedly defamatory statements within the Complaint.
LifeVantage seeks summary judgment on Mr. Domingo’s defamation claim, arguing that the statements in question are protected by conditional privileges. Under Utah law, defamatory statements are not actionable if they are privileged unless made with "actual malice," defined as spite, ill will, or hatred. The plaintiff bears the burden of proving malice. LifeVantage claims Mr. Domingo has not shown evidence of malice; however, Mr. Domingo presents evidence of a hostile relationship with Mr. Robinson and LifeVantage, including allegations of a coordinated effort to damage his reputation. This evidence could allow a jury to reasonably conclude that the statements were made with malice, thus precluding summary judgment for LifeVantage on the conditional privilege defense.
Additionally, LifeVantage argues that Mr. Domingo's defamation claim is barred by the economic loss rule, which delineates between tort and contract claims. This rule states that parties cannot assert tort claims regarding matters covered by a contract unless there is an independent duty outside of the contractual obligations. The court finds that LifeVantage had an independent tort duty not to defame Mr. Domingo, as tort law provides societal duties against harm, thus allowing Mr. Domingo’s defamation claim to proceed.
Individuals have a duty not to defame others, and LifeVantage holds this tort duty towards Mr. Domingo, independent of any contractual obligations. Consequently, the economic loss rule does not preclude Mr. Domingo’s defamation claim, allowing him to pursue summary judgment on this defense. Mr. Domingo asserts two types of damages: general damages from the alleged defamation and special damages from lost revenue following the termination of the Agreement. While his defamation claim can proceed, he cannot recover lost revenue related to the Agreement's termination since that event occurred before the alleged defamatory statements were made; thus, he is limited to claiming general damages.
In addition, Mr. Domingo alleges that LifeVantage tortiously interfered with his business relationships with distributors in his downline. LifeVantage seeks summary judgment, arguing that Mr. Domingo cannot demonstrate any existing or potential economic relationships that were interfered with. Mr. Domingo acknowledges that he had no contracts with LifeVantage distributors, who were solely bound to LifeVantage. Under Utah law, one cannot be liable for interfering with their own contract. LifeVantage contends that Mr. Domingo could only expect economic benefit through his contract with them. While Mr. Domingo claims to have valuable relationships with his distributors, his Agreement includes a six-month non-solicitation clause that began upon its termination.
Mr. Domingo's contractual prohibition from establishing economic relations with his downline distributors precludes him from demonstrating any prospective economic relationships that LifeVantage allegedly interfered with. As a result, LifeVantage is entitled to summary judgment on this claim, further supported by Mr. Domingo's inability to provide evidence of damages. His expert's calculations of damages were based solely on the loss of his distributorship, which was justifiably terminated by LifeVantage due to Mr. Domingo's material breach. Consequently, he cannot recover damages from this termination, and without evidence of other damages, LifeVantage is also granted summary judgment concerning Mr. Domingo's tortious interference counterclaims.
Regarding Mr. Domingo's civil conspiracy claim, he must prove the existence of a combination of two or more persons, a shared objective, mutual agreement, unlawful overt acts, and resultant damages. LifeVantage contends that Mr. Domingo's conspiracy claim fails due to the failure of his underlying claims for defamation and tortious interference. However, since the court did not grant summary judgment on the defamation claim, LifeVantage has not established entitlement to summary judgment on the civil conspiracy claim.
In relation to LifeVantage’s misappropriation of trade secrets claim, Mr. Domingo argues for summary judgment on three grounds: lack of evidence of damages from the alleged misappropriation, that the information does not qualify as a protectable trade secret, and absence of evidence of misappropriation itself. The court concludes that LifeVantage's claim fails due to insufficient evidence of damages, rendering it unnecessary to consider Mr. Domingo's additional arguments. Under the Utah Uniform Trade Secrets Act, plaintiffs must provide evidence that supports a reasonable estimate of damages, and LifeVantage's assertion of an actual loss from continued payments to Mr. Domingo post-breach is insufficient.
LifeVantage failed to establish that the damages it claims resulted from the misappropriation of trade secrets, as required by Utah law (Utah Code 13-24-4(1)). The court notes that, under the "but-for" causation standard, LifeVantage must demonstrate that the damages would not have occurred if the wrongful act had not been committed. In this instance, the commissions paid to Mr. Domingo were not directly linked to the alleged misappropriation, as he would have received payments regardless. LifeVantage did not provide evidence to support its claim of damages, and its damages expert admitted to not calculating damages related to the misappropriation of trade secrets.
Furthermore, LifeVantage's attempt to pursue a theory of unjust enrichment, allowed under the Utah Uniform Trade Secrets Act, was rejected because it had not previously disclosed this theory. Even if considered, LifeVantage failed to provide evidence or estimates regarding Mr. Domingo’s unjust enrichment. Consequently, Mr. Domingo was granted summary judgment on this claim.
The court concluded that while Mr. Domingo materially breached his Agreement with LifeVantage, there were still disputed facts regarding other alleged breaches. LifeVantage's motion for summary judgment was partially granted and partially denied. The court also ruled on the judicial proceedings privilege, granting Mr. Domingo’s motion in part, but noting disputed facts regarding other defamatory statements.
Mr. Domingo has not contested the validity of the damages theory in the summary judgment, and the court refrains from commenting on its recognition under Utah law. The Utah Supreme Court has primarily utilized a Ward-like test for identifying latent ambiguities, as seen in Watkins v. Ford. Additionally, a 2008 Utah statute permits actions for defective design or construction to include damages to other property or personal injury resulting from such defects, as outlined in Utah Code § 78B-4-513(2). In a post-enactment case, the Supreme Court employed both the statutory nature-of-the-harm test and the common law independent-duty test. This dual approach was similarly applied in cases involving claims related to product defects, such as the sale of mold-infested homes. However, in the current case, which does not involve construction, design defects, or product liability, the tests regarding "damage to other property or physical personal injury" are not relevant.
