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

• Decision Date: 12 June 2017
• Docket Number: Case No. 12-13850.
• Citation: 256 F.Supp.3d 696
• Parties: INNOVATION VENTURES, LLC., Plaintiff, v. CUSTOM NUTRITION LABORATORIES, LLC., Nutrition Science Laboratories, LLC., and Alan Jones, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

256 F.Supp.3d 696

INNOVATION VENTURES, LLC., 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, Southern Division.

Signed June 12, 2017

Ann L. Miller, E. Powell Miller, Kevin F. O'Shea, Marc L. Newman, Martha J. Olijnyk, The Miller Law Firm, Rochester, MI, Darin J. LeBeau, Jessica G. Kingston, Kevin J. Watts, Oakland Law Group, PLLC, Farmington Hills, MI, Matthew T. Nelson, Warner Norcross & Judd, Grand Rapids, MI, for Plaintiff.

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

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT (DKT. 332) AND GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR SUMMARY JUDGMENT (DKT. 328)

TERRENCE G. BERG, UNITED STATES DISTRICT JUDGE

I. Introduction

This is a breach of contract case that involves the liquid energy supplement 5–hour ENERGY®. Plaintiff Innovation Ventures, the manufacturer of 5–hour ENERGY®, alleges that, among other things, Defendants Custom Nutrition Laboratories ("CNL"), Nutrition Science Laboratories ("NSL"), and Alan Jones breached an agreement with Plaintiff not to produce energy shots containing ingredients from the Choline Family.

After several motions to dismiss by Defendants (Dkts. 16, 30, 74, and 78), a previous motion for summary judgment by Defendants (Dkt. 199), the first phase of a bifurcated jury trial (Dkts. 111, 301–308), and a motion to dismiss Defendants' counterclaims brought by Plaintiff (Dkt. 317), the case is now approaching the second phase of the bifurcated jury trial, and both Plaintiff and Defendants have filed motions for summary judgment. Dkts. 332 (Plaintiff's motion) and 328 (Defendants' motion). For the reasons below, both motions are GRANTED IN PART and DENIED IN PART.

II. Background

Plaintiff and Defendants have engaged in aggressive litigation for nearly five years in this Court, after having settled a previous, also ferociously litigated case in the state of Texas. The Court described this unfortunate story of business mistrust and mistreatment in its last summary judgment order, Dkt. 219, and none of the key facts have changed since then, so a summary of those facts will suffice.

In short, Plaintiff hired CNL to develop a formula for what became 5–hour ENERGY® and to produce bottles of the energy shot that Plaintiff sold in the market. Plaintiff then switched to another supplier. CNL sued Plaintiff in Texas, the parties eventually settled the case, and, as part of the Settlement Agreement, CNL and Alan Jones (CNL's President) agreed not to make energy shots containing ingredients in "the Choline Family."

CNL then sold its assets to NSL, and, as part of the purchase, NSL agreed to be bound to the Choline Family restriction in the Settlement Agreement between CNL, Jones, and Plaintiff. Alan Jones joined the NSL team, and together NSL and Jones allegedly went ahead and produced energy shots that violated the Choline Family restriction, and sold those energy shots to major retailers around the country.

Plaintiff sued CNL, as well as NSL and Jones, for breach of contract and a number of other things, and after five years of motion practice and the completion of the first phase of a bifurcated trial, we have arrived at the current stage of this case: cross-motions for summary judgment on issues relating to the second phase of trial.¹ Plaintiff's and Defendants' cross-motions for summary judgment are now before the Court, motions in limine are due tomorrow, and the second phase of the bifurcated trial is a month away.

III. Standard of Review

"Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, show that there is no genuine issue as to any material fact such that the movant is entitled to a judgment as a matter of law." Villegas v. Metro. Gov't of Nashville , 709 F.3d 563, 568 (6th Cir. 2013) ; see also Fed. R. Civ. P. 56(a). A fact is material only if it might affect the outcome of the case under the governing law. See Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). On a motion for summary judgment, the Court must view the evidence, and any reasonable inferences drawn from the evidence, in the light most favorable to the non-moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citations omitted); Redding v. St. Eward , 241 F.3d 530, 531 (6th Cir. 2001).

"As the moving parties, the defendants have the initial burden to show that there is an absence of evidence to support [plaintiff's] case." Sel by v. Caruso , 734 F.3d 554 (6th Cir. 2013) ; see also Celotex Corp. v. Catrett , 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party has met its burden, the non-moving party "may not rest upon its mere allegations or denials of the adverse party's pleadings, but rather must set forth specific facts showing that there is a genuine issue for trial." Ellington v. City of E. Cleveland , 689 F.3d 549, 552 (6th Cir. 2012).

IV. Analysis

Many of the arguments raised in these cross-motions for summary judgment are interrelated, so the Court will address both motions, starting with Plaintiff's motion, and will discuss related issues together.

a. Plaintiff's Motion for Partial Summary Judgment

Plaintiff raises four arguments in its motion: (1) Defendants' patent counterclaims fail as a matter of law; (2) Plaintiff is entitled to summary judgment on Count I (breach of the Choline Family restriction); (3) Defendants' breaches of the Choline Family restriction tolled the restriction's duration; and (4) Defendants' duress counterclaims fail as a matter of law.

i. Plaintiff's argument concerning Defendants' patent-disclosure counter-claims is moot

As a preliminary matter, Plaintiff's argument that it is entitled to summary judgment on Defendants' patent-disclosure counter-claims, Dkt. 332 Pg. ID 17,886, is moot; the Court granted Plaintiff's motion to dismiss the counterclaims on April 7, 2017. Dkt. 337. The patent-disclosure counterclaims are no longer pending, so summary judgment on those claims is inappropriate and Plaintiff's motion with respect to this argument is DENIED.

ii. Plaintiff is not entitled to summary judgment on Count I (breach of Settlement Agreement § 5(c)(i))

Plaintiff argues that it is entitled to summary judgment on Count I because both NSL and Jones breached § 5(c)(i) of the Settlement Agreement in multiple ways. Dkt. 332, Pg. ID 17,878. Plaintiff has established that NSL made energy shots containing betaine and Alpha–GPC. Dkt. 332, Pg. ID 17,878. Jones sold those energy shots on NSL's behalf. Dkt. 332, Pg. ID 17,878. And NSL and Jones repeated the process at least nine times, with Jones securing agreements by other companies to pay NSL to make the following energy shots, all of which used Choline Family ingredients in violation of § 5(c)(i):

• Rock On (Walgreens);

• NXT (Walgreens);

• Slam (AdvoCare);

• Triple f/x (RBC Life Sciences);

• Champion Energy (Kiosk Kings);

• Winchester Pump Up (Max Professional);

• The Energy Shot (GNC);

• Up&Up (Weider Global Nutrition);

• Members' Mark /Simply Right (Weider Global Nutrition);

• Weider High Energy (Weider Global Nutrition);

• Kirkland Signature (Costco); and

• Shotz (Velocity).

Dkt. 332, Pg. ID 17,879.

Plaintiff also argues that Jones breached § 5(c)(i) by helping NSL make the shots. Specifically, Plaintiff submits that Jones: signed contracts as President of NSL; called himself President of NSL; discussed formulations for NSL's energy shots with David Henzler (NSL's chief formula creator); and dealt with other production-related issues such as production readiness, taste-testing, product testing methods, facility inspections, and health department citations. Dkt. 332, Pg. IDs 17,879–17,880. And Plaintiff argues that Jones continued to offer to sell energy shots that contained betaine after he left NSL and started working for Universal Nutrition. Dkt. 332, Pg. ID 17,880.

Defendants don't deny these allegations. Dkt. 333, Pg. ID 18,325. Instead, they argue that—although they might have breached § 5(c)(i)—Plaintiff may not secure summary judgment on Count I because Defendants' laches defense could shield them from being held liable for their breaches.² Dkt. 333, Pg. ID 18,324. The laches defense applies, Defendants argue, because Plaintiff delayed filing this lawsuit for three years during which Defendants openly used ingredients that Plaintiff believed were prohibited under the Choline Family restriction's ambiguous "catch-all" language, and Plaintiff now seeks to recover damages it claims accrued in that three-year period. Dkt. 333, Pg. IDs 18,33018,331.

To support their argument, Defendants submit that:

• NSL made Rock On using choline bitartrate (which is prohibited by name) from October 2009 until November 2011, and afterwards continued to make Rock On using betaine (which is not prohibited by name, but which Plaintiff believed was covered under the "catch-all" language of the prohibition);

• NSL made Slam using betaine from October 2009 until NSL stopped all energy shot production in March 2014.

• Plaintiff knew that both Rock On and Slam were CNL products (Exhibit D to the Settlement Agreement lists both products), and knew or should have known that they contained choline bitartrate or betaine ;

• Plaintiff nevertheless waited three years to file this lawsuit; and• The three-year delay prejudiced Defendants because Plaintiff now seeks tens of millions of dollars in damages for products that Defendants developed and sold during the period of delay—products that Defendants could have developed using other chemicals if Plaintiff had filed its lawsuit earlier.

Dkt. 333, Pg. IDs 18,327–18,331.

Plaintiff replies that...