Source: http://ky.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20181220_0000907.C06.htm/qx
Timestamp: 2020-04-04 19:20:46
Document Index: 688015125

Matched Legal Cases: ['§ 1291', '§ 1291', '§ 1291', '§ 1291', '§ 1291', '§ 1291', '§ 3914']

FindACase™ | Innovation Ventures, LLC v. Custom Nutrition Laboratories, LLC
Innovation Ventures, LLC, a Michigan limited liability company, Plaintiff-Appellant/Cross-Appellee,
Custom Nutrition Laboratories, LLC, Defendant, Nutrition Science Laboratories, LLC, a Texas limited liability company; Alan Jones, Defendants-Appellees/Cross-Appellants. Innovation Ventures, LLC, a Michigan limited liability company, Plaintiff-Appellant,
Nutrition Science Laboratories, LLC, a Texas limited liability company; Alan Jones; L.O.D.C. Group Limited; L.O.D.C. Incorporated, Defendants-Appellees.
Argued: August 3, 2018
Appeal from the United States District Court for the Eastern District of Michigan at Flint. No. 4:12-cv-13850; 4:16-cv-11179-Terrence George Berg, District Judge.
John J. Bursch, BURSCH LAW PLLC, Caledonia, Michigan, for Innovations Ventures.
Baxter W. Banowsky, BANOWSKY & LEVINE, P.C., Dallas, Texas, for Nutrition Science Laboratories, Alan Jones, and L.O.D.C.
John J. Bursch, BURSCH LAW PLLC, Caledonia, Michigan, Matthew T. Nelson, WARNER NORCROSS & JUDD LLP, Grand Rapids, Michigan, E. Powell Miller, Martha J. Olijnyk, THE MILLER LAW FIRM, P.C., Rochester, Michigan, for Innovations Ventures.
Some years ago, Plaintiff Innovation Ventures (Innovation), manufacturer of 5-Hour Energy, settled a lawsuit with the now-defunct Custom Nutrition Laboratories (Custom Nutrition) by entering into a noncompete agreement. When Nutrition Science Laboratories (NSL) subsequently purchased Custom Nutrition's assets, it did not abide by the restrictive covenants in that noncompete agreement. Innovation initially sued Custom Nutrition; NSL; and Alan Jones, an officer of both Custom Nutrition and NSL, and later added a suit against a related company, Lily of the Desert (collectively, Defendants). After protracted litigation, Innovation was awarded nominal damages for its core breach of contract claim. For the reasons explained below, we AFFIRM in part, REVERSE in part, and REMAND to the district court for further proceedings consistent with this opinion.
The story of the parties' business relationship and its subsequent deterioration is lengthy and complex, and many of its details are hotly disputed. The district court ably described the relevant events in some detail in one of its summary judgment orders. See Innovation Ventures, LLC v. Custom Nutrition Labs., LLC (Innovation Ventures II), No. 12-13850, 2015 WL 5679879, at *1-7 (E.D. Mich. Sept. 28, 2015). The following is a summary of the critical facts.
1. Breakdown of the Manufacturing Relationship
Plaintiff Innovation is the maker and distributor of 5-Hour Energy, a well-known "energy shot." In 2004, when Innovation was doing business as Living Essentials, it contracted with Custom Nutrition to manufacture and package 5-Hour Energy. Defendant Alan Jones was the President and CEO of Custom Nutrition at the time and had previously manufactured a two-ounce energy shot called "Shotz." When Living Essentials ended the business relationship some years later-abruptly and unfairly, according to Defendants-Custom Nutrition had a surplus of ingredients and packaging. Jones used the surplus to continue manufacturing 5-Hour Energy for an unspecified amount of time after the relationship ended. Jones averred that his use of the surplus was mitigation of damages protected by the Uniform Commercial Code.
The companies then sued one another, with each claiming that the other had breached the contract, stolen trade secrets or intellectual property, and committed assorted torts. The protracted litigation came to an end almost two years later when, according to Jones, Custom Nutrition was on the verge of bankruptcy. The companies then entered into the Settlement Agreement that is at the center of this litigation.
The Agreement contains an admission that Custom Nutrition and Jones "wrongfully manufactured" products bearing the 5-Hour Energy label, provides that Living Essentials owns the 5-Hour Energy formula, and forbids Custom Nutrition from manufacturing any new "Energy Liquid" that "contain[s] anything in the Choline Family." According to Innovation, ingesting choline and related substances improves focus, and including them in the 5-Hour Energy recipe was a critical innovation. In return for these restrictions and admissions, Living Essentials paid Custom Nutrition $1.85 million. Specific provisions of the Settlement Agreement are discussed in more detail below.
2. NSL Purchases Custom Nutrition's Assets
In the words of the district court, Custom Nutrition was "in a precarious financial condition," and the cash infusion was insufficient "to enable the company to regain its financial footing." Innovation Ventures II, 2015 WL 5679879, at *4. Jones therefore spoke with Don Lovelace, owner of Lily of the Desert, about the possibility of Lily acquiring Custom Nutrition. Lovelace instead agreed to purchase Custom Nutrition's assets and formed a new corporation, Defendant NSL, which entered into an Asset Purchase Agreement with Custom Nutrition.
The Asset Purchase Agreement provides that NSL acquires Custom Nutrition's listed assets but is not "responsible for any liabilities, liens, security interests, claims, obligations, or encumbrances" of Custom Nutrition except for those listed on an attached schedule-principally, debt Custom Nutrition owed to a bank. The Asset Purchase Agreement includes one reference to the Settlement Agreement: "[T]he formula for energy drinks manufactured by [Custom Nutrition] and certain related trademark and copyright matters are limited by the settlement agreement between [Custom Nutrition] and Living Essentials."
After the execution of the Asset Purchase Agreement, NSL went into the energy shot business. Jones became an employee of Lily and represented himself as President of NSL. NSL marketed itself as a continuation of Custom Nutrition and took on Custom Nutrition's old orders and customers. Over the next few years, NSL produced and distributed energy shots containing choline citrate, choline bitartrate, betaine, and alpha glycerolphosphorylcholine (alpha GPC). The first two substances are listed in the Choline Family definition in the Settlement Agreement; the latter two are, according to Innovation, chemical equivalents to choline covered by the definition's catch-all clause.
1. Lead Case (Nos. 17-1734/1771)
Innovation sued Custom Nutrition, [1] NSL, and Jones for breaching the Settlement Agreement and for tortious interference. Proceedings in the district court were protracted.
After rejecting two motions to dismiss raising objections to personal jurisdiction, the district court addressed whether NSL had violated the Choline Family restrictions. It granted partial summary judgment to Innovation based on Defendants' admitted production of energy shots containing choline bitartrate and choline citrate. See Innovation Ventures, LLC v. Custom Nutrition Labs., LLC (Innovation Ventures I), No. 12-13850, 2014 WL 4829582, at *3 (E.D. Mich. Sept. 29, 2014). The court concluded that whether betaine and alpha GPC (which Defendants also admitted to using) were included in the catch-all clause in the Choline Family definition was ambiguous as a matter of law. See id. at *2-3. A jury trial was convened to determine whether the two ingredients were included in the clause's scope; the jury concluded that both were.
The district court then turned to issues related to liability under the Settlement Agreement. The court concluded that: (1) NSL was bound by the Choline Family restrictions in the Settlement Agreement by virtue of their incorporation into the Asset Purchase Agreement, see Innovation Ventures II, 2015 WL 5679879, at *16-19; (2) Jones was bound by the Settlement Agreement because he signed it, see id. at *20-21; and (3) the twenty-year duration of the Settlement Agreement was unreasonable under Michigan law, necessitating reformation of the contract to last only three years, see id. at *24-25.
After another round of briefing, the district court turned to the remaining issues, concluding that: (1) Innovation was not entitled to summary judgment as to liability on its main breach of contract claim because NSL's affirmative defense of laches raised factual disputes, see Innovation Ventures, LLC v. Custom Nutrition Labs., LLC (Innovation Ventures III), 256 F.Supp.3d 696, 704 (E.D. Mich. 2017); and (2) Innovation's three proposed methodologies for calculating damages were impermissible, although Innovation could "still recover lost profits under a non-patent-infringement specific method of calculation," see id. at 710-12 & n.8.
That order was handed down about one month before the final jury trial was scheduled to begin. According to Innovation, the order left it "without any theory of actual damages to present to the jury, leaving only the theory of nominal damages" on which it could recover with regard to its primary claim. Count III, alleging that Jones breached the Settlement Agreement by cooperating with adverse parties, had yet to be resolved. See id. at 715. The parties therefore entered four stipulations "[f]or the purpose of expediting appeal of the previous orders and judgment":
1. The parties stipulate to the dismissal of Count III of Plaintiff's Second Amended Complaint with prejudice pursuant to Federal Rule of Civil Procedure 41(a)(1).
2. The parties stipulate that the meaning of "any successful order" as used in Section 20 of the Settlement Agreement does not encompass a judgment or order for nominal damages.[2]
3. The parties stipulate that, if awarded, nominal damages are $1.
4. The parties stipulate that nominal damages in the amount of $1 do not constitute sufficient prejudice to support the affirmative defense of laches under Michigan law.
The parties submitted a proposed judgment awarding nominal damages to Innovation. Counsel for both parties signed the proposed judgment, indicating that it was "Approved as to Form Only and Preserving All Rights of Appeal."
The district court had reservations about this resolution, explaining that it was "not certain that entering this proposed judgment will actually preserve" either party's right to appeal. It nonetheless entered judgment in Innovation's favor on Count I and awarded nominal damages. Innovation appealed, and NSL cross-appealed.
2. Secondary Case (No. 17-1911)
As the Lead Case was proceeding in the district court, Innovation brought a new suit against NSL, adding a new defendant: Lily of the Desert. According to the complaint, discovery in the Lead Case revealed that Lily was also liable under the Settlement Agreement because of its relationship with NSL. Innovation brought the Secondary Case to prevent NSL from "play[ing] shell games to avoid liability and any potential judgment." All claims in the Secondary Case relate to the same nucleus of fact as in the Lead Case, and Innovation concedes that the claims in the Secondary Case "rise or fall with the rulings in the lead case."
All parties agreed the judgment in the Lead Case rendered the claims in the Secondary Case "effectively moot," so the district court entered judgment in favor of Defendants. Innovation Ventures, LLC v. Nutrition Sci. Labs., LLC (Innovation Ventures IV), No. 16-11179, 2017 WL 4553429, at *1-2 (E.D. Mich. July 17, 2017). Innovation appealed. The two cases were consolidated on appeal.
Defendants raise two jurisdictional objections: lack of appellate jurisdiction and lack of personal jurisdiction over both Jones and NSL. We may review jurisdictional objections in any order. See Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 578 (1999) (explaining that "there is no unyielding jurisdictional hierarchy" as between subject-matter and personal jurisdiction).
Defendants argue that the judgment pursuant to stipulations in the Lead Case was not a final appealable decision for purposes of 28 U.S.C. § 1291.[3]
Defendants did not raise this argument before the district court. To the contrary, when the district court questioned Defendants' counsel-the same counsel representing them on appeal-about whether the stipulations could result in a "final resolution," counsel responded that "there is Sixth Circuit case law for the proposition that a plaintiff can dismiss with prejudice the remaining claims if they feel that the main thrust of their case has been already decided" and that "the Sixth Circuit does actually authorize a procedure just very much like this in order to finalize a case, resolve all the issues, and make it ripe for appeal." The inconsistency between the representations made to the district court and those included in the motion to dismiss is concerning but does not change our approach to the jurisdictional question at hand. We must satisfy ourselves that appellate jurisdiction exists even when neither party raises the issue. See Bd. of Trs. of Plumbers, Local Union No. 392 v. Humbert, 884 F.3d 624, 625 (6th Cir. 2018).
Appellate courts have jurisdiction to hear "appeals from all final decisions of the district courts." 28 U.S.C. § 1291. A decision is final for the purposes of § 1291 if it "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Catlin v. United States, 324 U.S. 229, 233 (1945). This "firm finality principle [is] designed to guard against piecemeal appeals." Microsoft Corp. v. Baker, 137 S.Ct. 1702, 1707 (2017). There is also a long-standing rule that a party may not appeal a judgment to which it consented. See United States v. Babbitt, 104 U.S. 767, 768 (1881); Scholl v. Felmont Oil Corp., 327 F.2d 697, 700 (6th Cir. 1964). Satisfaction of that rule is a requirement of § 1291. See Raceway Props., Inc. v. Emprise Corp., 613 F.2d 656, 657 (6th Cir. 1980) (per curiam). We therefore must determine whether this judgment entered pursuant to stipulations comports with § 1291's requirements.
a. The Raceway Standard
There is an important exception to the rule prohibiting appeals from judgments to which the appellant consented. As we explained in Raceway Properties, an appeal is permissible when "solicitation of the formal dismissal was designed only to expedite review of an order which had in effect dismissed appellants' complaint." Id. (citing United States v. Procter & Gamble Co., 356 U.S. 677 (1958)).
Procter & Gamble, the Supreme Court decision upon which Raceway relied, was an antitrust case in which the Government had refused to produce a grand jury transcript. 356 U.S. at 678-79. On the Government's suggestion, the district court entered an order providing that, if the Government did not produce the transcript by a particular date, the case would be dismissed. Id. at 679. The case was subsequently dismissed and appealed to the Supreme Court, where Procter & Gamble argued that the appeal should be dismissed because "a plaintiff who has voluntarily dismissed his complaint may not sue out a writ of error." Id. at 680. The Court explained that rule "ha[d] no application here" because "[w]hen the Government proposed dismissal for failure to obey, it had lost on the merits and was only seeking an expeditious review." Id. at 680-81. The Supreme Court distinguished between consenting to the substance of a judgment and consenting to its form: "The plaintiffs did not consent to a judgment against them, but only that, if there was to be such a judgment, it should be final in form instead of interlocutory, so that they might come to this court without further delay." Id. at 681 (quoting Thomsen v. Cayser, 243 U.S. 66, 83 (1917)).
In Raceway, we held that expeditious review could be sought in this manner in contexts other than discovery disputes. Raceway, also an antitrust suit, involved a partial summary judgment decision that had defined the market at issue:
613 F.2d at 657. We permitted the appeal on the grounds quoted above: "[S]olicitation of the formal dismissal was designed only to expedite review of an order which had in effect dismissed appellants' complaint." Id.
The Raceway rule subsequently found purchase. Thus, for example, we heard an appeal pursuant to Raceway when a plaintiff sought voluntary dismissal of her suit after the district court "had dismissed finally the only viable claim which she had advanced" even though the court "offered to hear her suit to the degree that it sounded in negligence." Bogorad v. Eli Lilly & Co., 768 F.2d 93, 94 (6th Cir. 1985); see also Sandul v. Larion, No. 94-1233, 52 F.3d 326 (Table), 1995 WL 216919 (6th Cir. Apr. 11, 1995). By contrast, Raceway's requirements were not satisfied when a plaintiff consented to dismissal with prejudice after denial of his motion to remand to state court; we explained that the statute of limitations and failure to exhaust defenses that the plaintiff argued would have doomed his federal claim had not been fully aired and might have been decided in his favor. Laczay v. Ross Adhesives, Div. of Conros Corp., 855 F.2d 351, 355 (6th Cir. 1988). As recently as four years ago, we considered an appeal of final stipulations entered pursuant to Raceway without even pausing to consider whether § 1291 was satisfied. See Ram Int'l, Inc. v. ADT Sec. Servs., 555 Fed.Appx. 493, 496-97 (6th Cir. 2014).
Other circuits cite Raceway with approval. See, e.g., Helm Fin. Corp. v. MNVA R.R., Inc., 212 F.3d 1076, 1080 (8th Cir. 2000); Trevino-Barton v. Pittsburgh Nat'l Bank, 919 F.2d 874, 878 (3d Cir. 1990); Empire Volkswagen, Inc. v. World-Wide Volkswagen Corp., 814 F.2d 90, 94 (2d Cir. 1987). Wright & Miller cites Empire Volkswagen (a Second Circuit case which in turn relied on Raceway) as an example of a good approach to the problem of voluntary or invited dismissals. See 15A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure: Jurisdiction and Related Matters § 3914.8 (2d ed. Supp. 2018) ("There is much to be said for a rule that routinely permits a plaintiff to manufacture finality by abandoning all remaining parts of a case but that forbids any attempt at recapture.").
We have, however, staked out two important limits on the application of Raceway. First, parties may not appeal claims that were dismissed without prejudice. Libbey-Owens-Ford Co. v. Blue Cross & Blue Shield Mut. of Ohio, 982 F.2d 1031, 1034 (6th Cir. 1993). Second, if a party seeks to come within the Raceway exception, she should make "her intention known to the court and opposing parties." Laczay, 855 F.2d at 354. "While it is possible for a party to consent to a judgment and still preserve his right to appeal, he must reserve that right unequivocally, as it will not be presumed." Id. (quoting Coughlin v. Regan, 768 F.2d 468, 470 (1st Cir. 1985)).
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b. The Status of Raceway in ...