At a meeting with several distributors and prospective distributors, James and Kim Holten met with Defendants, LARRY and CONNIE HAGEN, (hereinafter referred to as "the Hagens"), to go over their marketing plan. A cornerstone of this carefully crafted marketing plan presumed the retention rate as touted by Defendants. This meeting was different, however. Since the marketing plan was such a broad concept, and participating in the Holten marketing plan would require significant amounts of time, some of the meeting participants asked many and various hard questions of the Hagens. At this meeting, the Hagens confessed, for the first time, that the 94.5 percent retention rate was not at all what had been represented. It was not 94.5 percent over time, it was not 94.5 percent per year, the Hagens said. Instead, it was more along the lines of 94.5 percent per month. In other words, as every month would pass, one could expect 5.5 percent of the then existing distributors to drop out of the program.

The shock at learning this news was extraordinary. The Holtens, as well as all of the Plaintiffs, had built a business on the basis of the notion that the products were so good and the business so enticing that 94.5 percent of all persons who had ever gotten involved were still active in the program. In truth, each year, according to the figures quoted by the Hagens, 66 percent, two-thirds of the people who started in Melaleuca were out. The Holtens knew they were the victim of a massive fraud, misrepresentation, bait and switch and unconscionable trade practice.

Learning this news had a devastating affect on Kim Holten. She immediately sank into a depression. She had gotten every friend she had into Melaleuca, and had focused so completely on building this business she ignored others. Her credibility with these friends, and importantly their view of her integrity, was immediately suspect now that it had come to light that she was herself guilty of repeating the lies she had been told herself. She felt foolish, and she felt as though she had deceived her friends and neighbors. Despite encouragement, despite loving support, despite all that a husband could be reasonably expected to do, Kim's depression continued and grew worse. Ultimately, the shame Kim carried inside as a consequence of being the unwitting purveyor of misinformation was too much for her. Kim took her life, destroying the family she had left behind of James and their son, Mathew.

Neal Ofeish was unceremoniously terminated from his Melaleuca distributorship. Though Ofeish had similar bad experiences as all of the other Plaintiffs, he had not yet made the inevitable decision to leave Melaleuca, though he recognizes that surely that decision would have come in a matter of months. However, he was not given the opportunity to make that decision on his own.

Years before, Ofeish was the victim of gossip wherein he was accused of saying negative things about the company relative to the religious persuasion of several of the executives of the company, including Defendant VanderSloot. VanderSloot and several of the executives are members of the Morman faith. Ofeish is not. Ofeish was called into a meeting wherein he was sternly warned that if he had a problem with Mormans, he should simply leave the company. Ofeish responded that he had no such problems, never had such problems, and representations to the contrary are flat out wrong. Nevertheless, Ofeish's reputation in the company was never the same. In particular, Defendant VanderSloot, on information and belief, developed a dislike for Ofeish and was anxious and happy to make Ofeish a scapegoat.

The purported reason for terminating Ofeish was because of a claim that he was recruiting people for another multi-level marketing company. This was not true. Ofeish had signed up to buy products from a company named FreeLife. He never recruited a single soul, and made that very clear. When some people in the Melaleuca organization received misinformation about Ofeish's FreeLife affiliation, he was confronted with it. Immediately, Ofeish transferred his enrollment in FreeLife to his son, Neal Ofeish, Jr. He spoke on more than one occasion with Vice President Charlotte Knox to discuss the entire situation. Ms. Knox, upon hearing his explanation, assured him that he had done all that would be necessary in order to preserve his business. However, he was terminated anyway. Ofeish responded immediately, and sent Melaleuca information that he had not violated any rules, had resigned from FreeLife, and had letters from muliple people who affirmed that he had done nothing to violate Melaleuca rules.

Ofeish had been told from the beginning that this business was one that once you worked hard and established, you could essentially let it run itself, that it would last in perpetuity, you could will it to your children. He learned, the hard way, that not only was this business not really his, since it was arbitrarily taken from him, but it was surely not one that would last any length of time. Indeed, rather than a huge retention rate, neither he nor any of the other Plaintiffs were able to keep up with the people leaving.

The Butwin, Failas and Berg have similar stories to tell. Some time in the past year, Melaleuca has changed its compensation plan. The change in the compensation plan have been quite significant, and are specifically targeted at dramatically decreasing the income and potential income from the highest producers. In particular, the changes in the compensation plan require persons in high levels within the organizational structure to sponsor a required number of new customers on a monthly basis in order to maintain the prior compensation scheme. The required number of new enrollees is very, very difficult to achieve, and is in fact way over the industry average of enrollees the highest producers can or should expect to enroll. This new, essentially out of the blue requirement, is impossible for many people to meet, especially those who are not and have not been active in the business and who have instead relied on their residual income from the company. It is Defendants' clear desire to reduce the compensation to such people so as to bring more money to the corporation or to Vandersloot directly.

When Plaintiffs first joined the company, and to this day, they were met with the representation that this is a business for life. Representations were made that once you build a business with Melaleuca, you could essentially retire and live off of the residual income that you had earned and developed. Part of this was so attractive because the claims about the retention level was so high. Essentially, the idea was conveyed that if you were to build the business in the early years, you could essentially walk away from it and it would continue to produce for you. The company still makes such representations today. This representation turned out to be false and misleading. It is possible to earn a residual income with Melaleuca, but these Plaintiffs have now seen their income dramatically reduced because of the new rules that were arbitrarily put into place by Melaleuca. These new rules make the prospect of residual income essentially impossible because of the new requirements which have been added. 

 

This page updated 2/18/2004