Innovation Ventures, LLC v. Custom Nutrition Labs., LLC

• Decision Date: 20 May 2013
• Docket Number: Case No. 12–13850.
• Citation: 946 F.Supp.2d 714
• Parties: INNOVATION VENTURES, LLC, d/b/a Living Essentials, Plaintiff, v. CUSTOM NUTRITION LABORATORIES, LLC, Nutrition Science Laboratories, LLC, and Alan Jones, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

946 F.Supp.2d 714

INNOVATION VENTURES, LLC, d/b/a Living Essentials, Plaintiff,

v.CUSTOM NUTRITION LABORATORIES, LLC, Nutrition Science Laboratories, LLC, and Alan Jones, Defendants.

Case No. 12–13850.

United States District Court, E.D. Michigan.

May 20, 2013.

E. Powell Miller, Martha J. Olijnyk, The Miller Law Firm, Rochester, MI, for Plaintiff.

Mark C. Pierce, Pierce, Duke, Bloomfield Hills, MI, Baxter W. Banowsky, Banowsky & Levine, P.C., Dallas, TX, for Defendants.

OPINION AND ORDER DENYING DEFENDANT'S RENEWED MOTION TO DISMISS (DKT. 78)

TERRENCE G. BERG, District Judge.

This case involves a dispute over the use of certain ingredients contained in the formula for the liquid dietary supplement 5–Hour Energy. Innovation Ventures, LLC, d/b/a Living Essentials (“Plaintiff”) manufactures and distributes 5–Hour Energy throughout the United States. Plaintiff initially contracted with Defendant Custom Nutrition Laboratories, LLC (“CNL”) to produce and package 5–Hour Energy. At that time, Defendant Alan Jones was CNL's CEO. This is not the first lawsuit between Plaintiff and Defendants CNL and Jones; as described in greater detail below, those parties previously sued each other in the Eastern District of Texas.

Defendant Nutrition Science Laboratories, LLC, (“NSL”)—alleged to be a successor to the now-defunct CNL—currently manufactures and distributes competing energy shot products containing ingredients that Plaintiff claims are prohibited under the terms of a settlement agreement resolving its prior litigation with CNL and Jones. That allegation is the heart of the current controversy.

Now pending before the Court is a renewed motion to dismiss for lack of personal jurisdiction and improper venue, filed by Defendant NSL. For the reasons set forth below, NSL's motion is DENIED.

I. PROCEDURAL HISTORY

Defendants NSL and Alan Jones initially moved to dismiss the complaint for lack of personal jurisdiction and improper venue on September 12, 2012 (Dkt. 16) and October 18, 2012 (Dkt. 30). Those motions were denied by Judge Friedman on December 7, 2012 (Dkt. 44). Following a January 2, 2013 hearing on Plaintiff's motion for a temporary restraining order, Judge Friedman permitted limited jurisdictional discovery and granted Defendants leave to file any additional motions to dismiss based on that discovery by February 19, 2013 (Dkt. 48). Defendant NSL timely filed a renewed motion to dismiss, but Defendant Jones did not. On March 11, 2013, this case was reassigned to this Court (Dkt. 87). NSL's renewed motion to dismiss has been fully briefed and the Court heard oral argument on April 12, 2013.

II. FACTUAL BACKGROUND

Plaintiff is the manufacturer, marketer, and distributor of 5–Hour Energy. (Dkt. 49, Am. Compl., ¶ 10). In 2004, Living Essentials contracted with Defendant CNL to produce and package 5–Hour Energy. At that time, Defendant Jones was the CEO of CNL. ( Id. at ¶ 12). In 2007, the contract between the parties was terminated and litigation ensued in the Eastern District of Texas. ( Id. at ¶¶ 14–15). In 2009, Living Essentials, CNL, and Jones resolved their dispute and entered into a Settlement Agreement that contained certain restrictions, including that CNL and Jones would refrain from manufacturing or distributing any “Energy Liquid” product that contained any ingredient in the “Choline Family.” ( Id. at ¶¶ 16–19).

The Settlement Agreement between Living Essentials, CNL and Jones further provided, in section 16, that:

[T]his Agreement shall be binding upon ... the Parties, their respective successors ... and anyone claiming by or through any one or more of them, including, without limitation, any person or entity that acquires substantially all of their assets. The provisions hereof shall survive any merger, acquisition, restructuring and/or reorganization, and the surviving entity shall be fully bound hereby.

( Id. at ¶ 28) (emphasis added). Within months of the execution of the Settlement Agreement, CNL and Defendant NSL entered into an Asset Purchase Agreement (“APA”), under which NSL acquired all or substantially all of CNL's assets. ( Id. at ¶¶ 22, 29). Section 4.2 of the APA references the aforementioned Settlement Agreement, and, according to the terms of the APA, a copy of the Settlement Agreement was purportedly contained in Schedule 4.2(h) of the APA.¹ ( Id. at ¶¶ 25–26). Shortly after acquiring CNL's assets, NSL began manufacturing an energy shot that contains an ingredient alleged by Plaintiff to be a member of the Choline Family. Also around this time Defendant Jones, the former CEO of CNL, became the President of Lily of the Desert Nutrition, a company that shares common, close ownership with NSL and sells NSL's products. ( Id. at ¶ 37).

Living Essentials has now sued, claiming that Defendants have violated the Settlement Agreement by producing an Energy Liquid product containing an ingredient from the Choline Family.

III. ANALYSIS

A. Legal Standards

1) Personal Jurisdiction

On a motion to dismiss for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2), the plaintiff has the burden of proving the court's jurisdiction over the defendant. Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 887 (6th Cir.2002); see also Children's Legal Services, PLLC v. Shor Levin and Derita, PC, 850 F.Supp.2d 673, 679 (E.D.Mich.2012). “[I]n the face of a properly supported motion for dismissal, the plaintiff may not stand on his pleadings but must, by affidavit or otherwise, set forth specific facts showing that the court has jurisdiction.” Children's Legal Servs., 850 F.Supp.2d at 679 (citing Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir.1991)). An evidentiary hearing may be conducted “if the district court concludes that the written submissions have raised issues of credibility or disputed issues of fact which require resolution,” in which case the Plaintiff would be required to “show by a preponderance of the evidence that jurisdiction exists.” American Greetings Corp. v. Cohn, 839 F.2d 1164, 1169 (6th Cir.1988). However, where the district court finds no need for an evidentiary hearing, as in the present case, “the burden of the plaintiff is relatively slight, and the plaintiff must make only a prima facie showing that personal jurisdiction exists in order to defeat dismissal.” Children's Legal Servs., 850 F.Supp.2d at 679 (quoting Air Prods. & Controls, Inc. v. Safetech Int'l, Inc., 503 F.3d 544, 549 (6th Cir.2007) (internal quotations and citations omitted)); see also Nationwide Mutual Insurance Co. v. Tryg Int'l Insurance Co., 91 F.3d 790, 792–93 (6th Cir.1996) (quoting with approval Conti v. Pneumatic Prods. Corp., 977 F.2d 978, 987 (6th Cir.1992) (Boggs, J., dissenting) (“[A] showing by a preponderance of the evidence is not necessary unless the trial court conducts an evidentiary hearing.”)); Neogen Corp., 282 F.3d at 887.

Likewise, where a “district court rules on a jurisdictional motion to dismiss made pursuant to Federal Rule of Civil Procedure 12(b)(2) without conducting an evidentiary hearing, the court must consider the pleadings and affidavits in a light most favorable to the plaintiff,” and in order to “ ‘to prevent non-resident defendants from regularly avoiding personal jurisdiction simply by filing an affidavit denying all jurisdictional facts,’ ” the court “ ‘does not weigh the controverting assertions of the party seeking dismissal.’ ” CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1262–63 (6th Cir.1996) (emphasis in original) (quoting Theunissen, 935 F.2d at 1459). “Dismissal in this procedural posture is proper only if all the specific facts which [Plaintiff] alleges collectively fail to state a prima facie case for jurisdiction.” Id.

2) Venue

On a motion to dismiss under Federal Rule of Civil Procedure 12(b)(3), a defendant bears the burden of establishing that venue is improper. Amphion Inc. v. Buckeye Elec. Co., 285 F.Supp.2d 943, 945 (E.D.Mich.2003) (citing 17 James Wm. Moore et al., Moore's Federal Practice ¶ 110.01 (3d ed. 1997)). In a diversity action, venue must be proper under 28 U.S.C. § 1391, which states:

A civil action may be brought in—(1) a judicial district in which any defendant resides, if all defendants are residents of the State in which the district is located; (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred; or a substantial part of property that is the subject of the action is situated, or (3) if there is no district in which an action may otherwise be brought as provided in this section, any judicial district in which any defendant is subject to the court's personal jurisdiction with respect to such action.

28 U.S.C. § 1391(b). Likewise, the Sixth Circuit has taken the position that “whether a forum-selection clause should be enforced is a matter of contract, not an issue of proper venue [under § 1391].” Kerobo v. Sw. Clean Fuels, Corp., 285 F.3d 531, 535 (6th Cir.2002); see also Stewart Org. v. Ricoh Corp., 487 U.S. 22, 28 n. 8, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988) (suggesting venue is “improper” only where the statutory venue requirements have not been met). “Notwithstanding a forum selection clause, if the venue is ‘proper’ under § 1391, a motion to dismiss for improper venue ‘will not lie.’ ” Price v. PBG Hourly Pension Plan, 921 F.Supp.2d 764, 770 (E.D.Mich.2013) (citing Kerobo, 285 F.3d at 536). Therefore, even assuming for the sake of argument that the forum selection provision of the Settlement Agreement is invalid, to prevail on its motion, Defendant would need to “demonstrate that ... no substantial part of the events giving rise to [Plaintiff's] claim[s] occurred in the Eastern District of Michigan.” Cobasys, L.L.C. v. FMP Resistance Welding Supply, Inc., No. 07–13736, 2008 WL 162588, at *2 (E.D.Mich. Jan. 17, 2008). Moreover, the Sixth Circuit has previously interpreted the meaning of “substantial part” to “include[ ] any forum with a...