The Franchise Memorandum

A federal district court in Washington has preliminarily enjoined a terminated distributor from violating the terms of his distribution agreement by competing with Organo, his former supplier of mushroom-based drinks and products. Organo Gold Int’l, Inc. v. Ventura, 2016 WL 1756636 (W.D. Wash. May 3, 2016). The parties’ agreement included a noncompete provision that prohibited Ventura’s participation in any opportunity involving the sale of mushroom-based products for twelve months following termination. The agreement further prohibited Ventura from soliciting or recruiting other distributors in Organo’s network during that same time period. After Ventura’s agreement was terminated, Organo filed suit and moved for a preliminary injunction, alleging that Ventura had approached other distributors in its network and attempted to recruit them to join a new business that offered mushroom-based products for sale.

The court first determined that the noncompete provisions in the distribution agreement were reasonable and necessary to protect Organo’s business model, which relied heavily on its network of distributors and marketers. Next, the court held that Organo had shown a likelihood of succeeding on its breach of contract claims by presenting substantial evidence that Ventura solicited other distributors in its system to directly compete against it. Organo also established that it was likely to suffer irreparable harm given its continued loss of distributors. Finally, the court concluded that the balance of equities tipped in Organo’s favor because Ventura could still work in the industry and that the injunction served the public’s interest in the enforcement of reasonable and necessary noncompete agreements.