Verde Envtl. Techs., Inc. v. C2R Glob. Mfg., Inc. (In re C2R Glob. Mfg., Inc.)
| Decision Date | 06 October 2020 |
| Docket Number | Case No. 18-30182-beh,Adversary No. 20-02028-beh |
| Parties | In re: C2R Global Manufacturing, Inc., Debtor. Verde Environmental Technologies, Inc. d/b/a Verde Technologies, Plaintiff, v. C2R Global Manufacturing, Inc., Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Wisconsin |
DECISION ON PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION
Plaintiff, Verde Environmental Technologies, Inc. ("Verde") seeks a preliminary injunction pursuant to Rule 65 of the Federal Rules of Civil Procedure, to enjoin the defendant-debtor, C2R Global Manufacturing, Inc. ("C2R"), its direct competitor in the drug disposal market, from engaging in allegedly false and misleading advertising in violation of the Lanham Act, 15 U.S.C. § 1125(a), and an order requiring corrective advertising. For the reasons that follow, the motion will be denied.
BACKGROUND
On October 29, 2018, C2R filed a petition for relief under Chapter 11 of the Bankruptcy Code. Previously, on March 16, 2018, Verde filed a lawsuit against C2R in the U.S. District Court for the Eastern District of Wisconsin, asserting claims for false advertising as well as claims for infringement of two of its patents. After the debtor filed its bankruptcy petition, the litigation in the district court was stayed. Verde timely filed a proof of claim for $6,821,918.00, claiming the damages asserted in its district court complaint. ECF Proof of Claim No. 6.1 C2R objected to the claim. ECF Doc. No. 57. After a Markman hearing and decision, the parties settled their patent claims. ECF Doc. No. 215.
On February 17, 2020, Verde filed the instant adversary proceeding, seeking permanent injunctive relief related to its remaining claims for false advertising under federal and state laws. On the same date, Verde filed a motion requesting a preliminary order enjoining C2R from false advertising and requiring corrective advertising. AP-ECF Doc. No. 7.2 On May 18, 2020, the Court granted C2R's motion to dismiss Verde's claim under Wisconsin Statute § 100.18 for failure to state a claim upon which relief can be granted. AP-ECF Doc. No. 75. The Court now considers preliminary relief as to only the claim made under 15 U.S.C. § 1125(a).
The Court has jurisdiction under 28 U.S.C. § 1334 and the Eastern District of Wisconsin's July 16, 1984 order of reference entered under 28 U.S.C. § 157(a). To the extent that issues may be deemed non-core but otherwise relate to the debtor's bankruptcy case under Title 11, the partieshave given their express consent to the entry of appropriate orders and judgment by the bankruptcy court. AP-ECF Doc. No. 1, at ¶ 7, Compl.; AP-ECF Doc. No. 35, at ¶ 7, Answer.
Due to the health risk concerns arising from the COVID-19 pandemic, much of the witness testimony on this motion was submitted by declarations under penalty of perjury. Two expert witnesses supplemented their declarations with live testimony, via videoconferencing through Zoom.gov. Having considered the testimony and evidence presented at the two-day video hearing as well as evidence submitted via declaration, and weighing the parties' legal arguments, including their post-hearing submissions, the Court concludes that plaintiff Verde has not shown irreparable harm in the interim prior to final resolution, in part due to the length of time it took Verde to bring the instant motion after it first concluded C2R's advertising was false. Consequently, a preliminary injunction is not warranted. This opinion constitutes the Court's findings of fact and conclusions of law under Federal Rule of Civil Procedure 52(a)(2).
STATEMENT OF FACTS
Verde is a Delaware corporation with its principal place of business in Minnetonka, Minnesota. Compl., at ¶ 1. Verde develops solutions to reduce drug abuse, misuse, and negative environmental impact. AP-ECF Doc. No. 9, at ¶ 2, Sundby Decl. Among its products is Verde's Deterra Drug Deactivation System ("Deterra"). Id. The Deterra pouches or containers come in various sizes and contain a proprietary activated carbon. Id. at ¶¶ 3, 5. After pharmaceuticals are placed into Deterra and water is added, they are adsorbed by the activated carbon, to render them inert and irretrievable. Id. at ¶ 7. As part of its product development contract with the National Institute of Drug Abuse, a division of the National Institute of Health, Verde submitted Deterra for independent testing by Mercer University's Department of Pharmaceutical Sciences. Id. at ¶¶ 8-9. The parties agree that at present, the U.S. Drug Enforcement Agency ("DEA") does not prescribe particular testing to determine deactivation capacity for products such as those made by Verde and by C2R. AP-ECF Doc. No. 27, at ¶ 34, Mazyck Decl.; AP-ECF Doc. No. 130, at 76:10-15, Worthen testimony.
C2R is a Wisconsin corporation with its principal place of business in Burlington, Wisconsin. Answer, at ¶ 2. C2R manufactures products for chemical drug destruction, principally the Rx Destroyer line of products, which use a combination of liquid dissolving agent and activated carbon whereby pharmaceuticals begin dissolving on contact and active ingredients are adsorbed or neutralized by the carbon. Id., at ¶ 14.
Milton Dallas is a founder and co-principal of C2R, and he testified that prior to initiating its Rx Destroyer line in early 2014, C2R had been manufacturing and selling the Drug Buster product for third-party Earth Ecocentric, LLC, since sometime in late 2011. Dallas Depo., at 25:6-26:10 and 64:1-3.3 Drug Buster was C2R's first effort in the drug deactivation business, and its first experience with pharmaceutical products or activated carbon. Dallas Depo., at 25:16-21. Sherry Day, a registered nurse and principal of Earth Ecocentric, had obtained a patent purportedly covering the Drug Buster device. Answer, ¶ 24; AP-ECF Doc. No. 26-12, Wilbert Exhibit 12, Patent No. US 7,918,776 B2. Day was the one to determine the adsorption capacities for the Drug Buster products, and she then relayed them to C2R. Answer, at ¶ 25. Dallas was not aware of any specific testing relating to the capacity of the Drug Buster product, suggesting that C2R relied on Day's representations. Dallas Depo., at 66:21-68:3. But another of C2R's officers, Russ Robers, testified that C2R performed its own testing on Drug Buster's capacity in 2011, to test various quantities of aspirin pills as to whether they would "dissolve" in the different-sized bottles. AP-ECF Doc. No. 24-7, Wilbert Exhibit 13, Robers Depo.4
When designing its Rx Destroyer product line, C2R designed around the Day patent by removing the surfactant that was included in the Drug Busterproduct. Answer, at ¶ 27; Dallas Depo., at 199:11-16. Because the Rx Destroyer product differed from Drug Buster only as to the surfactant, but not the activated carbon, C2R concluded that Rx Destroyer would have the same approximate capacity as Drug Buster. Dallas Depo., at 66:21-68:18; AP-ECF Doc. No. 24-18, Wilbert Exhibit 26, Feb. 11, 2014 e-mail.5
C2R has a website dedicated to the Rx Destroyer line of products, www.rxdestroyer.com, and represents that Rx Destroyer all-purpose products can be used with all non-hazardous medications, including pills, capsules, tablets, liquids, lozenges, transdermal patches, fentanyl lollipops, and suppositories. AP-ECF Doc. No. 8, Lorentz Exhibit 2, How to Use; AP-ECF Doc. No. 26-9, Wilbert Exhibit 9, How to Use (collectively hereinafter, How to Use). The website provides the following instructions on product use:
https://www.rxdestroyer.com/how-to-use/ (last visited October 6, 2020); see also How to Use. The same website page includes the following "quick fact": "Each [Rx Destroyer] container contains a carefully formulated balance of ingredients that will destroy to medication capacity." Id.
At least until March 18, 2020, the website also described the deactivation capacity of C2R's Rx Destroyer all-purpose products as follows:
CAPACITY BY PRODUCT
https://www.rxdestroyer.com/how-to-use/ (last visited March 18, 2020)
Answer, at ¶ 20; see also How to Use. In addition, at least as of March 18, 2020, the Frequently Asked Questions page of the Rx Destroyer website included the following:
https://www.rxdestroyer.com/faq-page/ (last visited March 18, 2020)
Answer, at ¶ 20; AP-ECF Doc. No. 8, Lorentz Exhibit 2, Q & A Page; AP-ECF Doc. No. 26-10, Wilbert...
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