Melaleuca, Inc. v. Foeller
155 Idaho 920
Idaho2014Background
- Rick and Natalie Foeller were independent marketing executives for Melaleuca under a 1999 Independent Marketing Executive Agreement (IMEA) that conditioned monthly commissions on remaining "in good standing."
- IMEA Policy 20 barred recruiting Melaleuca customers/marketing executives to competing ventures and provided that a violation "constitutes" voluntary resignation and forfeiture/refund of commissions for and after the calendar month of the violation.
- In 2008 the Foellers began recruiting for Max International while still receiving Melaleuca commissions; Melaleuca continued paying commissions until it later discovered the breach and terminated the relationship.
- Melaleuca sued seeking an injunction and recovery of commissions paid after the breach; after initial denial, the district court granted summary judgment to Melaleuca and ordered repayment of CA$23,856.71.
- On appeal the Idaho Supreme Court vacated and remanded, holding Melaleuca cannot recover commissions by asserting its performance was "excused" (it must prove damages), and that the record was insufficient to decide whether the forfeiture clause is an unenforceable penalty.
Issues
| Issue | Plaintiff's Argument (Melaleuca) | Defendant's Argument (Foeller) | Held |
|---|---|---|---|
| 1. Can Melaleuca recover commissions paid after breach by claiming its performance was excused? | Melaleuca: Foellers materially breached, excusing Melaleuca’s duty to pay, so commissions paid were not "due" and must be repaid. | Foellers: Payments were made while Melaleuca performed; Melaleuca must prove damages to recover. | Held: Reversed — excuse defense cannot be used as affirmative ground to recover; Melaleuca must prove actual damages. |
| 2. Are damages equal to the sum of commissions paid after breach? | Melaleuca: Yes — a one-to-one relationship; commissions paid equal damages suffered. | Foellers: Melaleuca received benefits from pre-breach activity; damages not shown. | Held: Genuine issue of material fact exists; Melaleuca failed to prove actual injury or the basis of damages. |
| 3. Is Policy 20’s forfeiture clause an unenforceable penalty (liquidated-damages problem)? | Melaleuca: Forfeiture is contractual and serves deterrence; not punitive if related to injury. | Foellers: Clause functions as punishment, may be arbitrary and unconscionable compared to Melaleuca’s actual damages. | Held: Record insufficient — district court must determine factual relationship between forfeiture amount and actual damages before enforcing or invalidating clause. |
| 4. Are appellants entitled to attorney fees on appeal under I.C. § 12-120(3)? | Foellers: Prevailing party in commercial transaction and entitled to fees. | Melaleuca: Opposes fees. | Held: No fees awarded on appeal because case vacated and remanded; no prevailing party. |
Key Cases Cited
- Mortensen v. Stewart Title Guar. Co., 149 Idaho 437 (2010) (summary-judgment standard and appellate review of motions for summary judgment)
- Idaho Power Co. v. Cogeneration, Inc., 134 Idaho 738 (2000) (interpretation and legal effect of unambiguous contracts are questions of law)
- J.P. Stravens Planning Assocs., Inc. v. City of Wallace, 129 Idaho 542 (1996) (material breach can excuse performance; distinction between defensive "shield" and affirmative recovery)
- Schroeder v. Rose, 108 Idaho 707 (1985) (defendant raising breach as a defense need not prove actual injury when using breach as a shield)
- Wing v. Hulet, 106 Idaho 912 (1984) (damages must be proven beyond speculation)
- Gen. Auto Parts Co., Inc. v. Genuine Parts Co., 132 Idaho 849 (1999) (damages must be proven with reasonable certainty)
- Clampitt v. A.M.R. Corp., 109 Idaho 145 (1985) (trial court determines reasonable relation of liquidated damages to actual loss)
- Graves v. Cupic, 75 Idaho 451 (1954) (forfeiture as penalty when arbitrary and unrelated to actual damages)
- Bott v. Idaho State Bldg. Auth., 122 Idaho 471 (1992) (no attorney fees when case is remanded and no prevailing party)