Healthbanc Int'l, LLC v. Synergy Worldwide, Inc.
| Decision Date | 01 August 2019 |
| Docket Number | Case No. 2:16-cv-00135-JNP-PMW |
| Parties | HEALTHBANC INTERNATIONAL, LLC and BERNARD FELDMAN, Plaintiffs and Counterclaim Defendants, v. SYNERGY WORLDWIDE, INC. and NATURE'S SUNSHINE PRODUCTS, INCORPORATED, Defendants and Counterclaim Plaintiffs. |
| Court | U.S. District Court — District of Utah |
Plaintiff HealthBanc International, LLC sued Synergy Worldwide, Inc. for breach of a royalty agreement. Bernard Feldman, the sole member of HealthBanc, also sued Nature's Sunshine, Inc. and Synergy for breach of a separate confidentiality agreement. Synergy countersued, alleging that HealthBanc had breached the royalty agreement and that HealthBanc and Feldman were liable for fraudulent inducement. Before the court is a motion for summary judgment brought by Synergy and Nature's Sunshine [Docket 125], motions for summary judgment brought by HealthBanc and Feldman [Docket 129, 150], and motions brought by both sides to exclude expert witness testimony [Docket 121, 122].
The court GRANTS IN PART and DENIES IN PART Synergy and Nature's Sunshine's motion for summary judgment. [Docket 125]. The court also GRANTS IN PART and DENIES IN PART HealthBanc and Feldman's motions for summary judgment. [Docket 129, 150]. The court GRANTS HealthBanc's motion to exclude expert testimony [Docket 121] and DENIES AS MOOT Synergy's motion to exclude expert testimony [Docket 122].
HealthBanc created a recipe for a powder comprised of various grasses and other natural ingredients called the Greens Formula. The Greens Formula can be combined with water to create a nutritional supplement.
The owner of HealthBanc, Feldman, alleges that he entered into a confidentiality agreement with Nature's Sunshine, which also bound its subsidiary, a multi-level marketing company called Synergy.1 The confidentiality agreement required Nature's Sunshine and Synergy to maintain the confidentiality of the Greens Formula.
HealthBanc also entered into a royalty agreement with Synergy. Under the terms of the agreement, HealthBanc assigned to Synergy its "entire rights, title, and interest in and to the Greens Formula, including, without limitation, all patent rights and other intellectual property rights of any kind." In exchange, Synergy agreed to "pay HealthBanc a royalty on net unit sales by Synergy for Greens Formula equal to One Dollar and Seventy Five Cents ($1.75) per 150 gram bottle of the Greens Formula which is sold by Synergy."
The recipe for the Greens Formula is described in Exhibit A and Exhibit B attached to the royalty agreement. Exhibit A lists the original formula, while Exhibit B describes a variation of the Greens Formula that purports to comply with California's Proposition 65. The Exhibit A and Exhibit B versions of the of Greens Formula have the same 22 ingredients. But in the Exhibit B formula, five of the ingredients are in different proportions than the ingredients for the Exhibit A formula. The other 17 ingredients are in the same proportions in both the Exhibit A and Exhibit B versions of the formula.
Using the Exhibit B iteration of the Greens Formula, Synergy began to sell a product called Core Greens in 2006. Core Greens was initially sold in 150-gram bottles. Synergy later used the Core Greens formula to create capsules that were sold in 150-gram increments alongside the bottled product.
Over the years, Synergy made several changes to the recipe of the Core Greens product. In 2008, Synergy eliminated an ingredient that accounted for 23.77% of the original formula because Synergy could "no longer source the material." Synergy compensated for this loss by increasing the amounts of four other existing ingredients. In 2009, Synergy excluded another ingredient that comprised .22% of the Core Greens formula because it had "become difficult to source." Synergy increased the proportion of three other ingredients. In 2013, Synergy removed an ingredient that accounted for .06% of the Core Greens formula because it had become "extremely difficult to source" and increased the amount of one of the other existing ingredients. Finally, in 2014, Synergy eliminated an ingredient that comprised 5.3% of the Core Greens formula because it had been discontinued by the supplier and it was difficult to find a new supplier. This ingredient was replaced by a new ingredient not found in the original Greens Formula. During the course of these changes to the Core Greens formula, Synergy continued to pay a $1.75 royalty for net unit sales for the Core Greens bottles and capsules.
In 2013, a dispute arose between Synergy and HealthBanc. In September of that year, Synergy inadvertently sent a document to HealthBanc detailing sales numbers for a Core Greens product in South Korea. HealthBanc had previously been unaware of these sales and argued to Synergy that it was entitled to royalties for sales in South Korea and other foreign countries. Synergy, however, asserted that it did not have to pay royalties for the foreign sales. Over the next two years, the parties attempted to resolve this business dispute. The principals of Synergy and HealthBanc met in November 2015 to discuss the disagreement but did not come to any resolution. Synergy stopped making royalty payments after it made a payment for sales for the month of November 2015.
In February 2016, HealthBanc sued Synergy for breach of contract and for breach of the covenant of good faith and fair dealing. HealthBanc alleged that Synergy broke its promise to pay royalties that were owed from sales in a number of foreign countries and by underpaying for sales made in the United States. HealthBanc requested monetary damages for unpaid royalties and an injunction prohibiting "Synergy from replacing the Greens Formula with a separate formula." Feldman also sued Nature's Sunshine and Synergy, asserting that they had breached the confidentiality agreement by publishing information about the Greens Formula on the packaging of products sold in South Korea.
Synergy countersued HealthBanc, alleging that HealthBanc had breached the royalty agreement and engaged in fraudulent inducement by falsely implying that it held intellectual property rights for the Greens Formula. Synergy also claimed that HealthBanc breached the royalty agreement by failing to provide contractually required consultation services.
In 2016, Synergy began selling the Core Greens formula in single-serve foil packages referred to as a "stick packs." The stick packs are sold in 150-gram increments. Synergy added an anti-caking agent that is useful for this new form of packaging and rebranded the product as Essential Greens. Synergy asserts in this litigation that it has no obligation to pay royalties for the Essential Greens stick packs or the Core Greens capsules.
Synergy and Nature's Sunshine move for summary judgment, asserting three main arguments. First, Synergy contends that it is entitled to partial summary judgment on HealthBanc's claim for damages for breach of the royalty agreement and breach of the covenant of good faith and fair dealing. Second, Synergy argues for summary judgment on HealthBanc's injunctive relief claim. And third, Nature's Sunshine and Synergy assert that they are entitled to summary judgment on Feldman's claim for breach of the confidentiality agreement.
Synergy argues that, as a matter of law, HealthBanc is not entitled to royalties for two categories of sales. First, it asserts that it has no obligation to pay royalties for sales of the Essential Greens product because the formula for this product is different from the Greens Formula referenced in the royalty agreement. Second, Synergy contends that it has no obligation to pay royalties on products sold in stick packs or in capsules because the royalty agreement only requires it to pay a fee for products sold in bottles.
The royalty agreement requires Synergy to pay fees for the sale of products made using the Greens Formula. Two versions of the Greens Formula were attached to the agreement as Exhibit A and Exhibit B. In 2006, Synergy began selling a product called Core Greens using the Exhibit B version of the Greens Formula.
Over the years, though, Synergy made changes to the formula for its Core Greens product. It eliminated three of the 22 ingredients found in the original Greens Formula because of difficulties in purchasing these ingredients. Synergy increased the proportions of other existing ingredients to make up the difference. Synergy also eliminated a fourth ingredient due to sourcing problems and replaced it with a new ingredient. Finally, Synergy changed the name of its product from Core Greens to Essential Greens and changed the way that it was packaged. Synergy added a small amount of an anti-caking agent to facilitate the new packaging configuration.
Synergy argues that it has no contractual obligation to pay royalties on sales of the Essential Greens product because it is not made from the Greens Formula. It contends that the changes that it made to the Greens Formula over the years have transformed Essential Greens into a new product that is not subject to the royalty agreement.
HealthBanc makes two arguments in response. First it argues that the exact definition of the term "Greens Formula" in the royalty agreement is ambiguous, requiring consideration of extrinsic evidence to determine its meaning. HealthBanc contends that because extrinsic evidence must be evaluated by a jury, summary judgment is not appropriate. Second, HealthBanc argues that Synergy's decision to modify the Greens Formula and stop paying a royalty on the resulting product violates both an explicit good faith provision found in the royalty agreement...
To continue reading
Request your trial