256 F. Supp. 3d 696
E.D. Mich.2017Background
- Innovation Ventures (Plaintiff) contracted CNL to develop/produce 5-Hour ENERGY®. CNL and its president Alan Jones later settled a Texas suit with Plaintiff; the Settlement Agreement included a covenant barring CNL/Jones from producing energy shots containing Choline Family ingredients (§5(c)(i)).
- CNL sold assets to NSL; NSL agreed to assume certain obligations. Jones joined NSL. Plaintiff alleges NSL and Jones produced and sold energy shots containing Choline Family ingredients (e.g., Rock On, Slam, Kirkland Signature) in violation of the covenant.
- After extensive pretrial litigation and the first phase of a bifurcated trial, the parties filed cross-motions for summary judgment on issues for phase two (liability/damages/remedies). The Court resolves multiple legal questions before trial.
- Key contested defenses/issues: laches delay, equitable tolling of the covenant’s duration (specific performance vs. damages), duress defense, scope/duration of recoverable damages (start/end dates), availability of injunctive relief, and permissible damages measures (market-share lost profits, reasonable royalty, disgorgement).
- The Court reformed the covenant’s duration to three years and set the covenant start date as August 17, 2009 (Jones) and October 14, 2009 (NSL) for purposes of damages; many remedies and defenses were adjudicated at summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of §5(c)(i) (Count I) | NSL and Jones produced shots using betaine/Alpha-GPC and thus breached; summary judgment appropriate. | Even if breaches occurred, laches bars recovery for the alleged multi-year period because Plaintiff delayed suit and defendants were prejudiced. | Denied to Plaintiff: genuine factual disputes on laches exist; Count I goes to jury. |
| Laches applicability | Filed within statute of limitations; laches inapplicable. | Laches may bar relief despite limitations period; Plaintiff’s multi-year delay prejudiced Defendants. | Laches can apply despite limitations period; factual issues (when Plaintiff knew, prejudice) preclude summary judgment. |
| Equitable tolling / extension of covenant duration | Defendants’ breaches tolled the covenant; Plaintiff seeks to extend duration (and also damages). | Tolling would be specific performance; Plaintiff seeks damages (adequate remedy), so tolling/injunction inappropriate. | Denied: Plaintiff may not toll/extend duration or obtain injunction because damages are adequate; damages window fixed. |
| Damages period (start/end dates) | Plaintiff sought damages 2009–2014. | Defendants: damages end no later than Oct. 14, 2012. | Granted for Defendants on end date. Court fixes Jones damages Aug 17, 2009–Aug 17, 2012; NSL Oct 14, 2009–Aug 17, 2012. |
| Duress defense | Defendants contend duress (coercion/theft of trade secrets) may have induced the Settlement Agreement. | Plaintiff: duress not pleaded as to NSL; Jones signed knowingly with counsel; duress requires illegal compulsion. | Granted for Plaintiff: NSL and Jones cannot assert duress as matter of law (no evidence Jones was illegally coerced). |
| Injunctive relief / specific performance | Plaintiff seeks tolling/ injunction in addition to damages. | Defendants: injunction/tolling improper; damages adequate. | Denied for Plaintiff: injunctive relief and tolling unavailable because damages are adequate. |
| Lost profits via market-share / reasonable royalty | Plaintiff proposes market-share lost-profits and reasonable royalty remedies. | These remedies are patent-infringement measures and inappropriate in contract case. | Granted for Defendants: Plaintiff may not use market-share lost-profits calculation or recover a reasonable royalty. |
| Disgorgement of defendants’ proceeds | Plaintiff seeks disgorgement as equitable relief tied to contract. | Defendants: disgorgement not pleaded properly and was tied to unjust enrichment claims later dropped; §5(d) remedies don’t apply to §5(c)(i) breaches as pleaded. | Granted for Defendants: disgorgement not available (NSL not bound to §5(d); unjust enrichment claim abandoned). |
| Counts II–V, VII, VIII damages sufficiency | Plaintiff lacks damages evidence for those counts. | Defendants seek summary judgment. | Denied: Plaintiff can recover nominal damages; lack of actual damages does not warrant summary judgment. |
| Contract interpretation — Jones’s post‑settlement statements (Count II) | Statements crediting Jones with creation/ formulation breach §§2 and 5(e)(i). | Jones: §2 is a factual acknowledgment, not a restraint on future speech; §5(e)(i) restricts statements about a specific product being made on same plant/equipment. | Granted for Jones on Count II: no breach of §2 or §5(e)(i) as to the alleged statements. |
| Enforcement of cooperation clause (§13) | Plaintiff alleges Jones cooperated with NSL in defense, breaching §13. | Jones argues §13 is against public policy. | Denied for Jones: §13 enforceable; summary judgment denied on Count III. |
| NSL liability for tortious interference (Counts VII–VIII) | Plaintiff: NSL induced breaches via asset purchase/assistance. | NSL: purchase was legitimate; NSL is bound only to §5(c)(i) and cannot interfere with its own contract. | Granted for NSL: summary judgment for NSL on Counts VII and VIII; NSL cannot tortiously interfere with the contract it is bound to. |
Key Cases Cited
- Anderson v. Liberty Lobby, 477 U.S. 242 (evidence and reasonable inferences viewed in favor of nonmoving party at summary judgment)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (summary judgment standard; inferences must be reasonable)
- Celotex Corp. v. Catrett, 477 U.S. 317 (movant’s initial burden in summary judgment)
- Nartron Corp. v. STMicroelectronics, Inc., 305 F.3d 397 (definition and use of laches in Sixth Circuit context)
- Tenneco Inc. v. Amerisure Mut. Ins. Co., 281 Mich.App. 429 (Michigan law: laches may bar a claim even if statute of limitations has not expired)
- JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577 (specific performance not granted where damages are adequate)
- CSX Transp., Inc. v. Tenn. State Bd. of Equalization, 964 F.2d 548 (injunction generally should not issue where an adequate legal remedy exists)
- Farm Credit Servs. v. Weldon, 232 Mich.App. 662 (duress under Michigan law requires illegal compulsion)