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YTB Travel Network of Illinois, Inc. v. McLaughlin

June 9, 2009

YTB TRAVEL NETWORK OF ILLINOIS, INC. AND YTB MARKETING, INC., PLAINTIFFS,
v.
KENT MCLAUGHLIN, KIMBERLY MCLAUGHLIN, WILLIAM HOFFMANN, JACQUES JOHNSON AND LYNETTA JOHNSON, DEFENDANTS.



The opinion of the court was delivered by: J. Phil Gilbert District Judge

MEMORANDUM AND ORDER

This matter comes before the Court on Plaintiffs's Motion for Preliminary Injunction (Doc. 8), Plaintiffs's Motion to Remand (Doc. 7), Defendants's Motion to Dismiss (Doc. 14) and Defendants's Motion for Bond (Doc. 16). On June 3, 2009, the Court held a hearing on these matters. Being fully advised in the premises, the Court rules as follows.

BACKGROUND

I. Facts

The following facts are taken from Plaintiffs's Verified Complaint, the affidavits attached to it which were originally filed in the Third Judicial Circuit Court, Madison County, Illinois, and the evidence presented at the hearing. Plaintiffs YTB Travel Networking of Illinois, Inc. and YTB Marketing, Inc. (collectively YTB) are multi-level network marketing companies engaged in the travel business. YTB hosts online travel stores and recruits Referring Travel Agents (RTAs) to sell travel packages, airline tickets and other services through the virtual stores. YTB hires Independent Marketing Representatives (REPs) to recruit RTAs and other REPs. One REP may recruit a REP who recruits another REP. These later REPs are called the "downline" of the earlier REP. A highly successful REP, with many downline REPs and RTAs, may become a Director. Directors receive bonuses according to the number of active RTAs enrolled by the Director and the Director's downline. YTB provides Directors and REPs with confidential, propriety, and password protected Downline Activity Reports, which include the names, addresses, email addresses, telephone numbers, and other personal and contact information for REPs who are downline from the REP or the Director.

A. Applicable Agreements

Directors are fiduciaries of YTB, and enter into contracts, called Director's Agreements, with YTB that, among other things, contain various exclusivity and non-compete clauses. Defendants William Hoffman, Kent McLaughlin, and Jacques Johnson each entered into a Director's Agreement with YTB. Hoffman, Kent McLaughlin and Jacques Johnson agreed as follows:

I will devote my full network marketing business energy, effort, and talent exclusively to YTB. I am not working with or for, not promoting, and not representing any other network marketing business, regardless of its products or services. I further represent that no member of my immediate family, . . ., is working for or involved in any such endeavor.

Violation of this Exclusivity Agreement will result in forfeiture of all commissions received by me from this date forward, and I agree to reimburse YTB for all such commissions earned.

Defendants Kimberly McLaughlin and Lynetta Johnson signed this portion of the agreement as well. Defendants Hoffman, Kent McLaughlin and Jacques Johnson also agreed to comply with the REP and RTA Policies and Procedures and Terms and Conditions, one of which reads as follows:

The COMPANY REPs are free to participate in other multilevel or network marketing business ventures or marketing opportunities (collectively "network marketing"). However, during the term of this Agreement, REPs may not directly or indirectly attempt to enroll the COMPANY REPs, RTAs or Customers for any other network marketing business. Following the cancellation of a REP's Agreement, and for a period of six (6) calendar months thereafter, with the exception of a REP who was personally sponsored by the former REP, a former REP may not recruit any of the COMPANY's REPs, RTAs or customers for another network marketing business.

Due to the online nature of YTB's business, Defendants Hoffman, Kent McLaughlin and Jacques Johnson agreed that the six month non-solicitation provision applied to all markets in which YTB conducts business. They also agreed that any breach of the non-solicitation provision would give rise to liquidated damages of $10,000 per person, per occurrence.

Finally, Defendants Hoffman, Kent McLaughlin and Jacques Johnson agreed to the Confidentiality Provision of the REP's Agreement which provides:

Confidential Information includes, without limitation, REP customer lists and data, information relating to genealogical or downline reports, pricing, technical information, research, . . . .

Lists, data and information relating to REPs, RTAs and customers remain at all times the exclusive property of the Company and must be returned to the Company upon request.

Each REP agrees that he/she will not use such lists, data or information to compete with the COMPANY or for any other purpose other than to promote ...


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