Kaeng Raeng Inc., which develops and sells dietary supplements, filed suit against the firm that manufactured its private-label products for allegedly stealing its confidential and proprietary information to create and distribute a competing product that’s “substantially similar.”
The suit accuses San Jose-based contract manufacturer Multivitamin Direct, Inc. and its employees — President Paul Huang, Vice President/Business Development Viola Lee and Vice President/Product Development Alisia Cheuk — of breaches of contract, confidentiality and loyalty, intentional and negligent interference with prospective economic advantage, fraud and deceit, and unfair competition.
The suit also says defendants actively misled Kaeng Raeng about their relationship with the brand Raw Green Organics, which allegedly was created by Multivitamin Direct to sell competing products based on Kaeng Raeng’s confidential and proprietary information.
“There’s a presumed level of trust between brands and contract manufacturers,” said Kaeng Raeng’s Founder, President and CEO Lindsay Reinsmith. “Without this trust, conflicts of interest arise and business relationships are undermined.”
The suit, filed late Friday in Santa Clara County Superior Court, seeks “disgorgement of all revenues, earnings, profits, compensation and benefits” received by Multivitamin Direct, Huang, Lee and Cheuk because of their “wrongful business practices.”
It also asks the court to grant an injunction against Multivitamin Direct, Huang, Lee and Cheuk, prohibiting them from disclosing and using Kaeng Raeng’s confidential information, saying that otherwise Kaeng Raeng “will suffer further immediate and irreparable injury, loss and damage.”
The suit says Multivitamin Direct was established in 1987 and is a leading USDA-certified organic contract manufacturer in Northern California. Kaeng Raeng was founded by Reinsmith in 2009 as a small business in Palo Alto. Later that year, Multivitamin Direct signed a non-disclosure agreement and was engaged to produce Kaeng Raeng’s private-label dietary supplements.
In May 2011, the suit says, Kaeng Raeng shared details with Multivitamin Direct, Huang and Lee about a new greens-based detox cleanse product, and Huang and Lee shared the information with Cheuk. Details included ingredients, formulas, packaging, branding, marketing, advertising, pricing, sales, distribution, retailers, customers, vendors, product suppliers and industry trends.
Soon thereafter, the suit says, Multivitamin Direct’s production of Kaeng Raeng’s products “started to run consistently behind schedule” and Kaeng Raeng “became strained financially” waiting for inventory. Its final delivery, scheduled for September 2012, wasn’t delivered until February 2013, it says.
The suit says Raw Green Organics began gearing up to offer a “substantially similar” product in June 2011 — only one month after Kaeng Raeng revealed details of its new detox cleanse to Multivitamin Direct, adding that Raw Green Organics also adopted similar packaging, advertising, marketing and other matters.
When Reinsmith asked the defendants about the Raw Green Organics, they repeatedly told her it was simply a “client” they were “helping get started” and that none of Kaeng Raeng’s confidential information had been disclosed, the suit says.
At the same time, it says, Multivitamin Direct told Kaeng Raeng to find another manufacturer, forcing Kaeng Raeng to incur “lengthy and costly search efforts” and resulting “in the unnecessary disposal of valuable raw materials.”
Not until March 2014, did Kaeng Raeng discover evidence that Raw Green Organics is owned by Multivitamin Direct and managed by Huang, Lee and Cheuk, the suit says.
About Kaeng Raeng
Kaeng Raeng Inc, based in Sunnyvale, CA, develops and sells natural dietary supplements. Kaeng Raeng was founded in July 2009 by President and CEO Lindsay Reinsmith and still is a privately-owned, small corporation.
Contact Details: Roger Gillott