Cernelle v. Graminex

• Decision Date: 04 February 2020
• Docket Number: Case Number 03-10291
• Citation: 437 F.Supp.3d 574
• Parties: A.B. CERNELLE, Plaintiff, v. GRAMINEX, L.L.C. and Cynthia May, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

437 F.Supp.3d 574

A.B. CERNELLE, Plaintiff,

v.GRAMINEX, L.L.C. and Cynthia May, Defendants.

Case Number 03-10291

United States District Court, E.D. Michigan, Southern Division.

Signed February 4, 2020

Allyn D. Kantor, Miller, Canfield, Ann Arbor, MI, David W. Wicklund, Shumaker, Loop, Toledo, OH, Robert W. Hayes, Susan Ciallella, Calli Jo Padilla, Rachel Collins Clarke, Aaron Krauss, Cozen O'Connor, Philadelphia, PA, Brandon M. Pellegrino, Matthew G. Berard, Bowman and Brooke LLP, Bloomfield Hills, MI, Stephen T. Moffett, Moffett, Vitu, Birmingham, MI, Thomas L. Vitu, for Plaintiff.

John A. Decker, Braun, Kendrick, Saginaw, MI, Daniel D. Quick, Dickinson Wright, Troy, MI, David Lee Petitjean, W. Drescher & Associates, Co., L.P.A., Sylvania, OH, Jessica Vartanian Currie, United States Attorney's Office, Detroit, MI, Melissa A. Alcantara, Dickinson Wright PLLC, Washington, DC, for Defendant L.L.C. Graminex.

John A. Decker, Braun, Kendrick, Saginaw, MI, Daniel D. Quick, Dickinson Wright, Troy, MI, David Lee Petitjean, Groth & Associates, Toledo, OH, Jessica Vartanian Currie, United States Attorney's Office, Detroit, MI, Melissa A. Alcantara, Dickinson Wright PLLC, Washington, DC, for Defendant Cynthia May.

OPINION AND ORDER GRANTING PLAINTIFF'S MOTION TO ENFORCE SETTLEMENT AGREEMENT AND FOR CONTEMPT, IMPOSING REMEDIES, AND DENYING DEFENDANTS' MOTION TO MODIFY INJUNCTION

DAVID M. LAWSON, United States District Judge

This case began in 2003 when plaintiff A.B. Cernelle sued defendants Graminex, L.L.C. and its chief operator Cynthia May over the ownership and operation of, and right to the use of trademarks associated with, Cernelle. Cernelle is a company that maintains its principal place of business in Sweden and for over fifty years has produced dietary supplements called nutraceutical products, which are intended to promote prostate health. The Food and Drug Administration (FDA) had verified Cernelle's claims made in connection with its products — the main ingredient of which is flower pollen — and Cernelle obtained approval for its products in Europe. At the time, Cernelle maintained specialized laboratories to produce its products and generated annual global sales of approximately $6 million.

At one time, Graminex was a source of raw, threshed flower pollen for Cernelle and distributed Cernelle's products in the United States. Cernelle, however, eventually accused Graminex and May of attempting to appropriate its trademarks, including CERNITIN and CERNILTON, prompting the lawsuit. The Court held evidentiary hearings and issued a preliminary injunction that prohibited the defendants from alienating those trademarks, among others, and dealing in products using those marks. The parties eventually reached a settlement, the terms of which confirmed the plaintiff's ownership of the marks and prohibited the defendants from using them. The settlement order included a permanent injunction that, for the most part, tracked the preliminary injunction.

Plaintiff A.B. Cernelle now has filed a motion to enforce the settlement agreement and hold the defendants in contempt for violating certain terms of the permanent injunction. It contends that the defendants breached the settlement agreement and violated the injunction in three ways: (1) forging partnerships with foreign entities (which includes conspiring with Russians) that involve supplying the defendants' pollen product under the CERNILTON brand; (2) hosting a foreign entity's website that promotes flower pollen extract treatment for prostate cancer branded as "Cernilton"; and (3) citing clinical studies on the defendants' website, which report on the efficacy of the plaintiff's CERNILTON and CERNITIN products, in support of the defendants' own products.

The defendants insist that they have not violated the settlement agreement or injunction when they sold their products overseas using Cernelle's marks because they simply were complying with their customers' import requirements. But even if they did commit a violation, they contend, the Court has no jurisdiction to enforce the settlement agreement because jurisdiction was not retained and there is no independent basis for subject matter jurisdiction. And they argue that the Court should not invoke its inherent power to enforce its injunction because the plaintiff's delay in coming back to court subjects them to the defense of laches. The defendants also move to modify the injunction to limit its effect.

The Court held an evidentiary hearing on the plaintiff's motion at which eight witnesses testified and 102 exhibits were received. The law and evidence confirm that the Court has subject matter jurisdiction to enforce the settlement agreement. And the evidence clearly establishes the defendants' willful violation of the settlement agreement and the injunction by selling products to foreign customers identified as the CERNILTON and CERNITON brands, and by maintaining a website with published studies extolling the benefits of CERNILTON and CERNITON embossed with Graminex's beaker logo. Cernelle's motion, therefore, will be granted. The defendants must remove the offending studies from Graminex's website and disgorge certain profits it received from the sale of the offending products. The Court will issue additional remedial injunctive relief. There is no basis to modify the injunction, which was entered as part of the settlement agreement, so that motion will be denied.

I. Hearing Evidence

The original litigation culminated in a settlement agreement, which the Court approved in an order entered on September 29, 2006 that also included a permanent injunction. The injunction states:

[I]t is ORDERED that the defendants Graminex, L.L.C. and Cynthia May, and each of them, their agents, servants, and employees, and all persons in active concert with them, are RESTRAINED AND ENJOINED from pledging or alienating the trademarks in dispute, including the following registered trademarks and trademark applications: CERNITIN®, No. 2,529,008 (registered January 15, 2002); CERNILTON®, No. 3,038,705 (registered January 10, 2006); CERNI-QUEEN®, No. 2,447,819 (registered May 1, 2001); POLLISPORT®, No. 2,519,274 (registered December 18, 2001); POLLEN STARK®, No. 2,519,275 (registered December 18, 2001); POLITABS SPORT®, No. 2,495,583 (registered October 9, 2001); and 75/857,801; and 76/012,676. This injunction is intended to prevent the negotiation and execution of contracts, agreements, options to purchase, deeds, memoranda of agreements, assignments, licenses, and plans that employ or relate in any manner to the registered trademarks and trademark applications, except as required by the parties' settlement of this litigation.

It is further ORDERED that the defendants Graminex, L.L.C. and Cynthia May, and each of them, their agents, servants, and employees, and all persons in active concert with them, are RESTRAINED AND ENJOINED from marketing product manufactured by A.B. Cernelle under labeling that suggests it is not manufactured by A.B. Cernelle or represents that Graminex plays any role in producing the product except furnishing raw materials and acting as a distributor.

It is further ORDERED that the defendants Graminex, L.L.C. and Cynthia May, and each of them, the defendants, their agents, servants, and employees, and all persons in active concert with them, are RESTRAINED AND ENJOINED from maintaining any website that is misleading as to its relationship with the plaintiff or that mentions the products CERNI-QUEEN®, CERNILTON®, POLLISPORT®, POLLEN STARK®, CERVITAL ™, NAPOLEN GOLD ™, CERNELLE®, and CERNITIN® in any way that suggests that Graminex is involved in the manufacture, development, or ownership of the products; and selling, promoting, or advertising products manufactured by A.B. Cernelle.

...

It is further ORDERED that this Court shall retain jurisdiction to enforce the terms of the injunctions set forth herein.

It is further ORDERED that either party may move to reopen these matters for the purpose of enforcing the settlement agreement on or before March 30, 2007.

ECF No. 85, PageID.2036-2037.

The plaintiff called witnesses at the hearing to describe Cernelle's worldwide activity since the settlement agreement was made and its discovery of the defendants' violations. The defendants also called witnesses.

A. Goran Hellstrom

Goran Hellstrom testified that he has been the chairman of the board of A.B. Cernelle since 2005. He is a paid board member, attending five to six board meetings per year. He explained that the former managing director of Cernelle, Ferdinand Van Duijvenbode, retired in 2015 and passed away a year later. The managing director is the equivalent of the Chief Executive Officer. Ken Tinebo assumed his duties in August 2015.

Cernelle is a small company. It has 30 full-time employees. The CEO monitors intellectual property (IP) for the plaintiff; protecting the company's property rights around the world is one of his duties. The company is located in Hngeloholn, Sweden, and has no other offices. Hellstrom had learned of this lawsuit when he came onboard. He said it was important for Cernelle's future because it encompassed all of its trademarks that were used throughout the world. In fact, he asserted that the trademark rights were the plaintiff's most important assets. Nonetheless, he acknowledged that the 2017 financial report for Cernelle (exhibit 249) does not contain any separate line item valuing the intellectual property (IP) as an asset of the company. Hellstrom trusted the CEO to work with an outside company, Zacco, to monitor IP use.

Hellstrom maintained that he did not know the full story of Cernelle's historic global activities. He said that he was not aware that at one time Cernelle products had been sold in Thailand or Russia. He was shown a distribution agreement (exhibit 144) dated August 1, 2002, but he said that it was not in effect with Thailand when he became the board chair.

Cernelle's financial troubles...