VariBlend Dual Dispensing Sys. LLC v. Crystal Int'l (Grp.) Inc.
| Decision Date | 30 September 2019 |
| Docket Number | 18 Civ. 10758 (ER) |
| Parties | VARIBLEND DUAL DISPENSING SYSTEMS LLC, Plaintiff, v. CRYSTAL INTERNATIONAL (GROUP) INC. and GERHARD BRUGGER, Defendants. GERHARD BRUGGER, Counterclaim-Plaintiff, v. VARIBLEND DUAL DISPENSING SYSTEMS LLC, J. BURKE CAPITAL PARTNERS LLC, and JBCP-24 LCC, Counterclaim-Defendants. |
| Court | U.S. District Court — Southern District of New York |
Ramos, D.J.:
VariBlend Dual Dispensing Systems ("VariBlend") brings three causes of action against defendants Crystal International Group, Inc. ("Crystal") and Gerhard Brugger ("Brugger"): breach of contract against Brugger, tortious interference with contract against Crystal, and unfair competition against Crystal. In response, Brugger alleges several counterclaims against VariBlend, J. Burke Capital Partners LLC ("J. Burke"), and JBCP-24 LLC (collectively "Counterclaim-Defendants"), including breach of contract, fraud, and unfair competition against all Counterclaim-Defendants; tortious interference with contract against J. Burke and JBCP-24 (the "JBCP parties"); and declaratory judgment.
There are two sets of motions before the Court. First, VariBlend brings a motion to remand this case to New York Supreme Court and to dismiss Brugger's declaratory judgment action for lack of subject matter jurisdiction. Second, Counterclaim-Defendants bring a motion to partially dismiss Brugger's counterclaims for breach of contract, fraud, tortious interference, and declaratory judgment.
The Court DENIES VariBlend's motion to remand the case and GRANTS the motion to dismiss Brugger's declaratory judgment action for lack of subject matter jurisdiction. The Court also GRANTS Counterclaim-Defendants' motion to dismiss Brugger's counterclaims for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) as to the JBCP parties, but it DENIES the motion as to VariBlend.
Brugger invents liquid pump dispensers and related products and technology used in the cosmetics industry. Counterclaim ¶ 9. His father, Anton Brugger, also invents the same products and technology and has assigned Brugger patent rights for his variable-flow disc technology, which allows liquids to be pumped out of multiple dispenser compartments in varying proportions and flows. Id. ¶ 10. Additionally, Brugger has developed liquid pump systems to be used with the variable-flow disc technology and holds patents to these pump systems. Id. ¶ 11.
VariBlend is a manufacturer of dual dispensing pumps. Compl. ¶ 1. In April 2010, Brugger entered into an agreement with VariBlend and another company, JBCP-24, for the purpose of commercializing his variable-flow disc technology (the "License Agreement"). Counterclaim ¶¶ 12-13. J. Burke was not a signatory to the agreement. Id. ¶ 13. At the time ofsigning, VariBlend shared office space and a top executive, Eric Lauerwald, with both JBCP parties, and Brugger alleges that VariBlend was at all times controlled by the JBCP parties. Id. ¶¶ 13-17.
The License Agreement granted VariBlend exclusive rights to Brugger's variable-flow disc technology, including a "'Dispenser (together with any Improvements),' as those terms were defined therein." Id. ¶¶ 18-23. As per the License Agreement, a Dispenser is "any dispenser or device which is constructed or manufactured incorporating claims of . . . patent number 6,464,107B1 [the "'107 Patent"] . . . and any and all patents or other intellectual property which is based upon or used with, such patent[]." Compl. ¶ 9. The term Improvements is defined as "any improvement of the Dispenser based upon or used with, the Patent[] and[/]or any Products, including but not limited to design construction or packaging." Id. ¶ 10. The term Products is defined as "all products in all categories and for all uses having the Dispenser as a component." Id. ¶ 11. In addition to giving VariBlend the exclusive rights to all Dispensers and Improvements, the License Agreement also gave VariBlend exclusive bargaining rights for thirty days should Brugger or his affiliate "develop[] any other dispenser having an adjustable mixing ratio." Id. ¶ 12.
In return, VariBlend agreed to minimum sales obligations and minimum royalty payments based on those sales. Id. ¶¶ 13-14; Counterclaim ¶¶ 24-28. Section 5.1 of the License Agreement sets out a schedule for royalty payments. Counterclaim ¶ 25. Section 5.3 provides that "the royalty obligation of Licensee is an absolute payment obligation whether same are earned or not and failure to make payment thereof is a material default." Id. ¶ 26. In order to ensure royalty payments, VariBlend was to "use its commercially reasonable efforts to commercialize the Dispenser," and "to use, apply, and direct its best efforts to promote the saleor other disposition of the Dispenser and the Products," as per §§ 2.4 and 7.1, respectively. Id. ¶¶ 27-28.
Needless to say, the agreement broke down and both parties assert multiple grievances. VariBlend alleges that Brugger attempted to circumvent the License Agreement in duplicitous ways. For example, it alleges that Brugger and his cousin, Holzmann, developed certain dual dispensing pump technologies and then patented these technologies in Holzmann's name (the "Holzmann Patents"), purposefully omitting Brugger as an inventor. Compl. ¶¶ 16-17. VariBlend asserts that these patents are covered by the License Agreement, either as Dispensers, Improvements, or "adjustable mixing ratio" dispensers. Id. ¶ 18.
VariBlend further contends that Crystal, a competing dual pump manufacturer, supported Brugger's endeavors, "with the ultimate goal of having Crystal produce products containing the Licensed Technology, from which Brugger and Crystal would benefit." Id. ¶ 22. According to VariBlend, Crystal was successful in incorporating the technology into the Crystal Dispensers, which it sold throughout 2018. Id. ¶ 24. VariBlend contends that it also has exclusive rights to these Dispensers under the License Agreement. Id. ¶ 25.
Brugger denies these allegations and alleges in turn that VariBlend breached the License Agreement several times. Counterclaim ¶ 29. First, he alleges that VariBlend did not properly commercialize the Dispenser. For example, it failed to produce any Dispensers from 2010 to 2011. Id. ¶ 30. It also failed to address quality control problems with the Dispensers or to integrate new technologies. Id. ¶¶ 31-34. Second, it failed to meet its minimum sales and royalty obligations beginning in 2011, almost from the outset of the Agreement. Id. ¶ 35. Brugger further alleges that from 2014 to 2017, in order to hide the fact that it was not making its minimum sales, VariBlend and the JBCP parties engaged in a scheme to falsify commercialtransactions. Id. ¶¶ 36-42. The scheme involved generating false invoices for the Dispensers and falsifying transactions to make it appear as if third parties that were not known to be in the business of selling or making products that required Dispensers had bought Dispensers at grossly inflated prices. Id. One of these third parties had a business address that was also Eric Lauerwald's residential address. Id. ¶ 41.
Brugger also alleges that VariBlend tried to change the terms of the License Agreement at least three times, pressuring him to waive the minimum sales requirement. Id. ¶¶ 43. In March 2014, a third-party investor in VariBlend, Andreas Guldin of Emil Capital Partners, asked Brugger to waive this requirement, but Brugger declined. Id. ¶ 44. VariBlend's CEO (Robert Brands, Eric Lauerwald's predecessor) again tried to renegotiate these terms in 2015. Id. ¶ 45. In February 2018, VariBlend's CEO (now Eric Lauerwald) tried once more to renegotiate the terms. Id. ¶ 46.
After Lauerwald was unsuccessful, VariBlend, allegedly at the urging of the JBCP parties, breached the License Agreement. Id. On March 9, 2018, the CEO of J. Burke, Jim Burke, e-mailed Brugger to inform him that he would no longer fund the venture with VariBlend unless Brugger waived certain obligations. Id. ¶ 47. In his e-mail, Jim Burke wrote:
I trust you are now fully aware that VariBlend has reached a dire financial state and is out of capital. I have been in contact with Jamie [Burke, son of CEO Jim Burke] regarding your meeting in Munich, your feedback and your most recent proposal, which we received on March 5th. Put simply, I will not fund the business under that proposal.
Id. (alterations in original). VariBlend then informed Brugger on March 15, 2018 that it lacked the funds to make the royalty payments. Id. ¶¶ 48-49.
VariBlend and Brugger ended their relationship in March 2018, but their grievances did not end there. Id. ¶ 50; Compl. ¶ 28. According to its Complaint, VariBlend's fears that Bruggerhad conspired with Crystal were confirmed less than a week later, when Crystal sent VariBlend's customers a letter (the "Customer Letter"), stating that it was now working with Brugger and offering to replace VariBlend's product with "other patented technologies." Compl. ¶ 31. After procuring a sample of Crystal's product, VariBlend concluded that these "other patented technologies" were based on the Holzmann Patents. Id. ¶ 33. VariBlend surmises that, based on the short period of time elapsed between the end of the License Agreement and the Customer Letter, Brugger and Crystal had been working together for some time, in contravention of the License Agreement. Id. ¶ 35. On April 19, 2018, VariBlend sent Crystal and Brugger cease and desist letters for the dual dispensers based on Brugger's or his affiliate's patents. Id. ¶ 37. It requested that Crystal stop "manufacturing, distributing, developing, and marketing" these dispensers and that Brugger stop "cooperating with Crystal in the manufacturing, distributing, developing, and marketing" of these dispensers. Id. Neither party complied. Id. ¶ 38. Meanwhile, Brugger alleges that VariBlend continues to breach the agreement by failing to return Brugger's materials,...
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