Innovation Ventures v. Liquid Mfg.
| Citation | 885 N.W.2d 861,499 Mich. 491 |
| Decision Date | 14 July 2016 |
| Docket Number | Docket No. 150591.,Calendar No. 1. |
| Parties | INNOVATION VENTURES v. LIQUID MANUFACTURING. |
| Court | Supreme Court of Michigan |
Warner Norcross & Judd, LLP, Grand Rapids (by John J. Bursch and Matthew T. Nelson ), and The Miller Law Firm, PC (by E. Powell Miller, Kevin F. O'Shea, and Emily H. Hughes), for plaintiff Innovation Ventures.
Bodman PLC, Detroit (by Thomas P. Bruetsch ) for defendants Liquid Manufacturing, LLC, K & L Development of Michigan, LLC, LXR Biotech, LLC, Eternal Energy, LLC, and Andrew Krause.
Peter Paisley, in propria persona.
Foster, Swift, Collins & Smith, PC, Lansing (by Richard C. Kraus and David R. Russell ), for the Michigan Chamber of Commerce.
, J.
In this case, we consider whether agreements between sophisticated businesses are void for failure of consideration and whether the noncompete provisions in these agreements are reasonable. Plaintiff Innovation Ventures, LLC, has alleged a variety of tort and breach of contract claims against defendants Liquid Manufacturing, LLC, K & L Development of Michigan, LLC, Eternal Energy, LLC, LXR Biotech, LLC, Peter Paisley, and Andrew Krause based on the defendants' production of Eternal Energy and other energy drinks.
Contrary to the determination of the Court of Appeals, we conclude that the parties' Equipment Manufacturing and Installation Agreement (EMI) and Nondisclosure Agreement were not void for failure of consideration. We nevertheless affirm the trial court's grant of summary disposition to defendants for the claims against Krause, because there is no genuine issue of material fact on the question whether Krause breached the EMI or the Nondisclosure Agreement. Likewise, there is no genuine issue of material fact on the question whether K & L Development breached the EMI. Because questions of fact remain regarding whether K & L Development breached the Nondisclosure Agreement, however, we vacate the trial court's grant of summary disposition regarding that claim and remand that claim to the trial court for further proceedings consistent with this opinion.
We also hold that a commercial noncompete provision must be evaluated for reasonableness under the rule of reason. We conclude that the Court of Appeals erred when it failed to evaluate under this standard the noncompete provision in the parties' Termination Agreement. We leave undisturbed, however, the Court of Appeals' determination that Liquid Manufacturing did not breach the Termination Agreement by producing Eternal Energy.
Accordingly, we reverse the Court of Appeals in part, affirm in part, and remand to the trial court for consideration of whether the noncompete provisions in the parties' Nondisclosure Agreement and Termination Agreement are reasonable under the rule of reason, whether K & L Development breached the Nondisclosure Agreement, and whether Liquid Manufacturing breached the Termination Agreement with respect to its production of products other than Eternal Energy.
In 2007, the plaintiff engaged defendants Andrew Krause and K & L Development of Michigan (K & L Development) to design, manufacture, and install manufacturing and packaging equipment for the production of 5–Hour ENERGY at Liquid Manufacturing's bottling plant.1 The parties operated under an oral agreement until April 27, 2009, when they memorialized their oral agreement in the written EMI. The EMI recitals referred to the defendants' completed work on the production line installed in Liquid Manufacturing's facility and the plaintiff's desire to engage the defendants in designing, manufacturing, and installing additional manufacturing equipment.2 The parties' oral agreement did not include a confidentiality agreement or a noncompete provision; the parties added a confidentiality agreement and a noncompete provision when they memorialized their agreement in writing.3
As provided in the EMI, the parties were permitted to terminate the agreement at any time without cause with 14 days' written notice.
On the same day the EMI was memorialized, the plaintiff and defendant K & L Development entered into an agreement titled Nondisclosure and Confidentiality Agreement (Nondisclosure Agreement).4 Pursuantto the Nondisclosure Agreement, K & L Development agreed not to use or disclose information obtained previously, currently, or prospectively through its business relationship with the plaintiff. K & L Development also agreed to obtain a confidentiality agreement from each of its employees.
Shortly after entering the EMI and the Nondisclosure Agreement, the plaintiff terminated the EMI, which was permitted by the EMI's explicit terms with 14 days' notice.5 K & L Development subsequently stopped engaging in business in 2010.
In March 2007, the plaintiff contracted with defendant Liquid Manufacturing, LLC (Liquid Manufacturing), to produce and package 5–hour ENERGY. The parties subsequently amended this agreement, executing an Amended Manufacturing Agreement, which required Liquid Manufacturing to acquire several pieces of production equipment necessary to bottle 5–hour ENERGY. Liquid Manufacturing owned some of the equipment, and the plaintiff owned the remainder of the equipment. The Amended Manufacturing Agreement also provided the plaintiff with an option to purchase the production equipment acquired and owned by Liquid Manufacturing.
In April 2010, the plaintiff terminated the Amended Manufacturing Agreement with Liquid Manufacturing. The plaintiff, as provided by the Agreement, then exercised its option to purchase the production equipment that Liquid Manufacturing had acquired to manufacture 5–hour ENERGY. The parties memorialized the termination of their business relationship and the plaintiff's purchase of Liquid Manufacturing's production equipment in a new agreement titled Agreement to Terminate and Exercise Purchase Option (Termination Agreement).6 The Termination Agreement contained several nondisclosure and noncompete provisions, and also explicitly granted Liquid Manufacturing permission to manufacture 36 Permitted Products using the equipment. As part of the Termination Agreement, Liquid Manufacturing was required to obtain from each company associated with a Permitted Product a nondisclosure agreement stating that the company would not disclose that its product was bottled using the same equipment that had been used to bottle the plaintiff's products. The 36 Permitted Products were identified in the Approved Manufacturer'sList, which was appended to the Termination Agreement. The plaintiff's permission to manufacture these products, however, could be revoked if Liquid Manufacturing violated any provision of the Termination Agreement and failed to cure the violation within 30 days.
In September 2010, the defendants, Andrew Krause, former managing member of K & L Development, and Peter Paisley, CEO and President of Liquid Manufacturing, formed Eternal Energy, LLC, to produce the energy shot, Eternal Energy. On September 20, 2010, Liquid Manufacturing sought the plaintiff's permission to add Eternal Energy to the Approved Manufacturer's List. On the following day, the plaintiff provided its permission to add Eternal Energy to the Approved Manufacturer's List. Andrew Krause and Peter Paisley then formed LXR Biotech, LLC, to market and distribute Eternal Energy.
From September 2010 until March 2011, Liquid Manufacturing used the plaintiff's equipment to bottle Eternal Energy.7 Liquid Manufacturing purchased the equipment back from the plaintiff in March 2011 and continued production of Eternal Energy. On January 27, 2012, the plaintiff informed Liquid Manufacturing that it had breached the Termination Agreement by producing Eternal Energy and by failing to provide the plaintiff with the necessary nondisclosure agreement from Eternal Energy, LLC, in which it agreed not to disclose that its product was bottled on the same equipment used to bottle 5–hour ENERGY. The plaintiff demanded that Liquid Manufacturing cease disclosing the plaintiff's confidential information and that it provide the plaintiff with the necessary nondisclosure agreement from Eternal Energy, LLC. Liquid Manufacturing provided the nondisclosure agreement from Eternal Energy, LLC, within the Termination Agreement's prescribed 30–day window to cure any breach.
On January 27, 2012, the same day that the plaintiff informed Liquid Manufacturing that it had breached the Termination Agreement, the plaintiff instituted the instant action, alleging several tort and breach of contract claims against the defendants. The plaintiff alleged that defendants Liquid Manufacturing, Peter Paisley, K & L Development, and Andrew Krause wrongfully shared and used confidential information and violated their noncompete agreements by manufacturing, marketing, and distributing Eternal Energy and other energy drinks. The plaintiff sought a temporary restraining order to stop Liquid Manufacturing's production of Eternal Energy and sought emergency discovery. The trial court granted the temporary restraining order and the request for emergency discovery, and the court also ordered Liquid Manufacturing to allow the plaintiff to inspect its facility to determine whether it was manufacturing energy shots not approved by the plaintiff or included in the Approved Manufacturer's List. On January 30, 2012, and February 6, 2012, the plaintiff inspected Liquid Manufacturing's facility and discovered evidence that Liquid Manufacturing had produced Eternal Energy as well as a number of unapproved products.8 The trial court lifted the temporary restraining order after determining that there was no potential for irreparable harm. The plaintiff subsequently filed an amended...
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