Progressive EMU Inc v. Nutrition & Fitness Inc

Filing 161

MEMORANDUM OPINION and ORDER: as set out within 145 Defendant's Motion to Strike Pro Emu's response in opposition is DENIED; 149 Pro Emu's Motion to Accept late filing of Response and Brief in Opposition is GRANTED; 140 Pro Emu&# 039;s Motion for Summary Judgment is GRANTED with respect to the determination of contract termination; 146 Defendant's Motion for Summary Judgment is GRANTED as it relates to the issue of the royalties due for the entire duration of the Agree ment; In all other respects, the motions are DENIED; In light of this ruling the Motion for Oral Argument 158 is MOOT; This matter is SET for a Final Pretrial Conference on 8/29/2017 at 2:00 PM; Jury Trial set for 10/2/2017 at 9:00 AM; BOTH in courtroom 4A at in Hugo L Black US Courthouse, Birmingham, AL before Judge Abdul K Kallon. Signed by Judge Abdul K Kallon on 08/09/2017. (KBB)

FILED
2017 Aug-09 PM 02:33
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
PROGRESSIVE EMU INC.,
Plaintiff,

vs.
NUTRITION & FITNESS INC.,
Defendant.

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Civil Action Number
2:12-cv-1079-AKK

MEMORANDUM OPINION AND ORDER
This action originated with a breach of contract claim by Progressive Emu,
Inc. (“Pro Emu”) against Nutrition & Fitness, Inc. (“NFI”). See generally doc. 1-1.
Along with its answer, NFI asserted contract and intellectual property
counterclaims. See generally doc. 24. Both parties subsequently moved for
summary judgment. See docs. 71 & 73. After Judge William Acker disposed of all
claims in his ruling, doc. 120, the parties appealed, doc. 122. The Circuit reversed
in part and remanded the case for further proceedings. Doc. 136. Presently before
the court are cross motions for partial summary judgment—NFI has moved on Pro
Emu’s breach of contract claims, doc. 140, and Pro Emu has moved on the issue of

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the royalty payments, doc. 146.1 For the reasons stated below, the motions are due
to be granted in part.
I.

SUMMARY JUDGMENT STANDARD

Under Rule 56(a) of the Federal Rules of Civil Procedure, summary
judgment is proper “if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” “Rule 56[]
mandates the entry of summary judgment, after adequate time for discovery and
upon motion, against a party who fails to make a showing sufficient to establish the
existence of an element essential to that party’s case, and on which that party will
bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986) (alteration in original). The moving party bears the initial burden of proving
the absence of a genuine issue of material fact. Id. at 323. The burden then shifts to
the nonmoving party, who is required to “go beyond the pleadings” to establish
that there is a “genuine issue for trial.” Id. at 324 (citation and internal quotation
marks omitted). A dispute about a material fact is genuine “if the evidence is such
that a reasonable jury could return a verdict for the nonmoving party.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

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The court also has for consideration NFI’s motion to strike Pro Emu’s response in opposition,
doc. 145, which is DENIED, and Pro Emu’s Motion to Accept late filing of Pro Emu’s Response
and Brief in Opposition, doc. 149, which is GRANTED.
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The court must construe the evidence and all reasonable inferences arising
from it in the light most favorable to the non-moving party. Adickes v. S. H. Kress
& Co., 398 U.S. 144, 157 (1970); see also Anderson, 477 U.S. at 255 (all
justifiable inferences must be drawn in the non-moving party’s favor). Any factual
disputes will be resolved in the non-moving party’s favor when sufficient
competent evidence supports the non-moving party’s version of the disputed facts.
See Pace v. Capobianco, 283 F.3d 1275, 1276, 1278 (11th Cir. 2002) (a court is
not required to resolve disputes in the non-moving party’s favor when that party’s
version of events is supported by insufficient evidence). However, “mere
conclusions and unsupported factual allegations are legally insufficient to defeat a
summary judgment motion.” Ellis v. England, 432 F.3d 1321, 1326 (11th Cir.
2005) (per curiam) (citing Bald Mountain Park, Ltd. v. Oliver, 863 F.2d 1560,
1563 (11th Cir. 1989)). Moreover, “[a] mere ‘scintilla’ of evidence supporting the
opposing party’s position will not suffice; there must be enough of a showing that
the jury could reasonably find for that party.” Walker v. Darby, 911 F.2d 1573,
1577 (11th Cir. 1990) (citing Anderson, 477 U.S. at 252)).
II.

FACTUAL BACKGROUND 2

Pro Emu raises emus and sells oil and other emu related products. Doc. 116-1 at
3. NFI, which specializes in marketing health products, entered into a contract with
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A more detailed description of the relevant facts is contained in Judge Acker’s memorandum
opinion, doc. 120, and the Eleventh Circuit’s opinion, doc. 136.
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Pro Emu in 2002 in which Pro Emu agreed to supply NFI with emu oil and NFI
also agreed to pay royalties to Pro Emu on the sale of NFI’s Blue Emu products.
See doc. 116-5 at 10. The next year, the parties entered into a Sales, Marketing,
and Operating Agreement (the “Agreement”), which superseded the initial 2002
agreement and outlined the terms and conditions of their joint venture. Doc. 107-4.
Relevant here, the Agreement describes the termination procedure in the event of a
default and the method for calculating the royalties NFI owed Pro Emu from the
sales of jointly created emu oil based products. Doc. 107-4 at 4–5. In 2008, the
parties executed a Fourth Amendment, which provided, in relevant part, that Pro
Emu needed permission from NFI to sell its oil to third parties and that NFI only
owed Pro Emu royalties from the sale of the Original Blue Emu product. Doc. 1075. Finally, the Fourth Amendment extended the Agreement to December 31, 2015.
Id.
The parties’ relationship began to deteriorate in 2011. That August, Pro Emu
informed NFI that NFI had purportedly breached the Agreement by ordering an
excessive amount of oil, failing to pay the full amount of royalties due, and
improperly reducing the price per gallon of oil. Doc. 141-2 at 2–3. After NFI
disputed this contention, see generally doc. 141-3, the parties continued with the
status quo until March 2012, when Pro Emu informed NFI that it would be unable
to fulfil NFI’s order, and authorized NFI to procure oil from another source, doc.
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107-13 at 2. Pro Emu also informed NFI that it had filed a lawsuit in the Circuit
Court of Jefferson County, Alabama against NFI. Id. at 3. NFI, in turn, informed
Pro Emu that it would not pay royalties on sales of Blue Emu products because of
Pro Emu’s purported breach of its obligations under the Agreement. Doc. 146-14
at 2. NFI also filed its own lawsuit in the Eastern District of North Carolina
alleging various breaches of contract and intellectual property claims. Doc. 146-12.
In light of the dueling lawsuits, the parties ceased all communications, and in July,
Pro Emu sold 19,000 gallons of oil to LB Processors without informing NFI. Doc.
144-1 at 9, 13. NFI removed Pro Emu’s lawsuit to this court, and this matter is
back on remand from the Eleventh Circuit.
III.

ANALYSIS

Based on the Eleventh Circuit’s ruling, Pro Emu’s only remaining breach of
contract claims are based on NFI’s purported failure to pay royalties on sales of
Blue Emu for the full duration of the contract, including royalties for alleged offthe-book sales. Doc. 136 at 29. NFI contends that it is entitled to summary
judgment on this claim because the Agreement terminated in September 2011,
when Pro Emu informed NFI that it considered NFI in default, or, alternatively, in
March 2012 when Pro Emu filed this lawsuit. See generally doc. 141 (Citing
Section 4.2 of the Agreement). Pro Emu, in turn, disputes these contentions, and
argues that, even with a default, the Agreement still required NFI to pay royalties

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through its duration. See generally doc. 146-1. As such, Pro Emu has moved for
summary judgment on the royalties issue. The court addresses these contentions
below, beginning with the termination of the Agreement.
A. Whether the Contract was Terminated in Accordance with Section 4.2 of the
Agreement
Section 4.2 provides that either party may terminate the Agreement by
providing a “termination notice” in the event of a default, a failure to make
payments, or the passage of a regulation that makes it impossible for a party to do
business. 3 Doc. 141-1 at 5. The Agreement does not require any specific language
to evince the intent to terminate; rather, it only requires that the defaulting party
receive notice of the default and an opportunity to cure. Id. The offending party has
ninety (90) days to cure a default or thirty (30) days to make the payments. 4 Id. If
the defaulting party fails to cure the defect, “th[e] Agreement shall terminate at the
end of such period immediately without further notice.” Id. (emphasis added); see
also id. at 6 (Section 5.2 of the Agreement which provides that “[i]f the Party in
default has not cured such default within the time period specified in Section 4.3,
the notifying party shall be entitled, in addition to any other rights it may have
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Under Georgia law, which governs the parties’ dispute, see doc. 146-3 at 8, “the cardinal rule of
contract construction is to ascertain the intent of the parties . . . [and] [i]f the terms are
unambiguous, the contractual terms alone determine the parties’ intent,” Garrett v. Southern
Health Corp. of Ellijay, Inc., 739 S.E. 2d 661, 667 (Ga. Ct. App 2013).
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In the case of a regulation or legal obstacle making it impossible for the parties to continue their
business, upon delivery of the written notice, the Agreement is immediately terminated with no
right to cure the defect. Doc. 141-1 at 5.
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under this Agreement to terminate this Agreement as provided in said Section
4.3.”). In other words, based on a plain reading of the Agreement, after notice of a
default, in the absence of an attempt to cure, the Agreement automatically
terminates at the end of the relevant time period. Id. at 5.
1. Alleged August 2011 Termination
NFI alleges that the Agreement terminated when Pro Emu informed NFI in
August 2011 that NFI had purportedly breached the Agreement by ordering an
excessive amount of oil, failing to pay the full amount of royalties owed, and
improperly reducing the price per gallon. Doc. 141-2 at 2–3. Indeed, this letter
operated as notice of default under Section 4.2 due to NFI’s alleged delinquency in
making royalty payments. See generally id. As a result, under the terms of the
Agreement, NFI had 30 days to make the payments or 90 days to cure the default.
NFI failed to do so and instead denied any wrongdoing. See doc.107-12. However,
despite the failure to cure, the Agreement did not terminate because the parties’
course of dealing thereafter, i.e., the status quo, indicated that they intended to
ignore the automatic termination clause as it related to their then dispute.5 See doc.

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As it relates to termination clauses, Georgia discourages compliance constructions that can lead
to forfeiture and recognizes instead that a party may have a right to cure in those circumstances.
Johnson v. Kahrs, 34 S.E. 2d 503, 504 (Ga. 1945) (“Where a forfeiture is dependent upon the
giving of a certain written notice, if it be such as can be enforced, it must appear that the notice
was given in compliance with the contract, both as to time and contents, and that the default
occurred.”) (internal citations omitted). Also, a party to a contract may also “waive contractual
provisions for his benefit,” Greenberg Farrow Architecture, Inc. v. JMLS 1422, LLC, 791 S.E.
2d 635, 640 (Ga. Ct. App. 2016), and “a waiver may be shown through a party’s conduct,” id.
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116-1 at 5 (Andrew Martin Affidavit stating: “Pro Emu continued to sell oil to NFI
and NFI continued to pay royalties after letters were exchanged between our
lawyers and NFI’s lawyers regarding the rights of the parties.”). As such, the
record demonstrates that the parties did not intend to terminate their relationship in
the fall of 2011.
2. Alleged Second Default and Termination
Alternatively, NFI alleges that the Agreement terminated when Pro Emu filed
this lawsuit. Indeed, in March 2012, Pro Emu again provided NFI written notice of
a default by sending NFI a letter informing NFI that it had filed a lawsuit. See
docs. 1-1 at 10–12; 107-13. The lawsuit alleged that NFI had engaged in a material
breach: “NFI’s breaches of contract are material breaches and excuse Pro Emu
further performance under the contract.” Doc. 1-1 at 13 (emphasis added). NFI
responded by accusing Pro Emu of default, suspending royalty payments to Pro
Emu, and filing its own lawsuit against Pro Emu. See, e.g., docs. 116-1 at 5; 116-4
at 16; 146-11. See also doc. 155-6 at 3 (Andrew Martin: “NFI told us they were
suspending all royalty payments due, so we figured the agreement was breached.”).
To support its contention that the filing of this lawsuit did not terminate the
Agreement, Pro Emu cites NFI’s motion in April 2012 for a preliminary injunction
(citing Vratsinas Constr. Co. v. Triad Drywall, LLC, 739 S.E. 2d 493 (Ga. Ct. App. 2013). See
also Crawford v. First Nat. Bank of Rome, 223 S.E. 2d 488, 490 (Ga. Ct. App. 1976) (parties
may mutually depart from the terms of a contract) and U.C.GA § 11-2-202(a) (the UCC allows
course of performance to supplement terms of any writing stating the agreement of the parties so
that the true understanding can be reached).
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seeking to enforce the Agreement, doc. 143-1, as proof that NFI evidenced a desire
to maintain the status quo. The court is not persuaded, in part, because Georgia
requires substantial compliance, rather than strict compliance, with a contract’s
terms, including termination clauses. See O.C.G.A. § 13-4-20; DI Uniform Svcs. v.
United Water Unlimited Atlanta, 562 S.E. 2d 260, 265 (Ga. Ct. App. 2002) (citing
Lager’s, LLC v. Palace Laundry, Inc., 543 S.E. 2d 773 (Ga. Ct. App. 2000)).
Relevant here, termination is triggered by a notice by either party, doc. 141-1 at 5,
and in this case, Pro Emu provided it through its letters and lawsuit. Indeed, NFI’s
president testified that he viewed Pro Emu’s lawsuit as notice of its intent to
terminate the contract under Section 4.2. See docs. 154-7 at 131–133; 110-7 at 3–6.
Moreover, Pro Emu’s lawsuit and NFI’s response substantially comply with
Section 4.2’s notice provisions and are sufficient to trigger the termination clause.
Significantly, the notices of intent by NFI and Pro Emu are consistent with the
parties’ actions thereafter to cease all communication, and undertaking acts that
were precluded by the Agreement—for example, Pro Emu selling its oil to third
parties without first obtaining NFI’s permission. See docs. 110-2 at 7; 144-1; 141-1
at 4–5 (Section 3 of the Agreement: “Except as specifically set forth in Section 3.2,
[Pro Emu] shall not market, sell or distribute emu oil to any third party.”). These
actions further demonstrate that the parties believed they had terminated the
Agreement. See C. Brown Trucking Co. Inc. v. Henderson, 700 S.E. 2d 882, 884
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(Ga. Ct. App. 2010). In other words, unlike their course of conduct in the fall of
2011, the lawsuits each filed in 2012, coupled with their conduct thereafter, show
that the parties intended to rely on the termination provisions in the Agreement and
had resorted to litigation to seek to enforce their respective rights under the
Agreement. See O.C.GA § 11-1-303. Therefore, the court finds that the Agreement
terminated in July 2012, 90 days after NFI filed its lawsuit. See doc. 141-1 at 5
(Section 4.2, which provides a 90 day cure period for non-monetary breaches).
This determination is also consistent with Pro Emu’s July 2012 sale of emu oil to a
third party. Therefore, Pro Emu cannot recover for any breach of contract claims
after July 2012 and NFI’s motion is due to be granted on this issue.
B. The issue of royalties for Pro Emu after March 2012
The court turns next to the royalties due to Pro Emu for sales of Blue Emu. 6 Pro
Emu contends that it is due royalties until the end of the Agreement and has moved
for summary judgment on this issue. Basically, Pro Emu argues that because it
used its “best efforts” to supply NFI’s March 2012 order, NFI breached the
Agreement when it failed to pay royalties due. Doc. 146-1 at 14. To compensate it
for damages, Pro Emu wants royalties through December 2015. Id. at 29.
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Pro Emu has made the argument that a finding of contract termination would result in a forfeiture of royalties due
through December 2015, the date stated in the Agreement. See doc. 143 at 22–23. This is unavailing because
nothing in the Agreement provides for continued royalty payments in the event of early termination. Instead, the
express terms of the Agreement provide for royalty payments “during the term of [the] Agreement.” Doc. 146-3 at 4.
Moreover, the case upon which Pro Emu relies for this contention, Legacy Academy v. JLK, Inc., 765 S.E. 2d 472
(Ga. Ct. App. 2014), misses the mark as it involved lost royalty payments due to a franchisor from its franchisee
after termination of the contract. Accordingly, the court does not find that the determination of early termination
would result in an unenforceable forfeiture. See, e.g., Fernandes v. Manugistics Atlanta, Inc., 582 S.E. 2d 499, 434
(Ga. Ct. App. 2003).

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The court highlights the Eleventh Circuit’s conclusion that “[t]he plain
language of the Agreement requires that [NFI] pay royalties to [Pro Emu] on a
monthly basis for the duration of the Agreement, irrespective of whether [Pro
Emu] is providing oil. . . . [T]his is subject to [Pro Emu’s] ‘best efforts’ obligation,
and whether [Pro Emu] used its best efforts to supply oil is a question of fact to be
answered by a jury.” Doc. 136-1 at 13. Based on this ruling, NFI was not entitled
to cease royalty payments due to Pro Emu’s failure to provide it with emu oil,
unless it shows Pro Emu failed to use its best efforts to supply emu oil. However,
the Circuit’s ruling does not address the royalty issue in the event of a termination
of the Agreement, and instead asked this court to address it on remand. Id. at n.15.
In that respect, there is no provision in the Agreement that lends support to Pro
Emu’s contention that NFI is still liable for royalties through the stated end of the
Agreement in December 2015 even where, as here, the parties terminated the
Agreement early. See generally doc. 146-3. In fact, the Agreement is clear that
termination ceases all obligations. Doc. 146-3 at 9 (Section 9.8 indicating that the
only provisions surviving termination of the Agreement are those relating to
confidentiality, intellectual property rights, warranties, and a miscellaneous “catch
all” section).
Therefore, because the court has determined that the parties’ relationship
terminated in July 2012, after which point Pro Emu processed and sold emu oil to
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third parties without NFI’s consent, there is no need for a jury to address whether
Pro Emu used its “best efforts” thereafter to provide oil because it is clear that the
plain language of the Agreement obligated NFI to pay royalties only during the
duration of the Agreement. Docs. 136-1; 141-1 at 3–5. Accordingly, because the
parties terminated the Agreement in July 2012, Pro Emu’s motion for summary
judgment is due to be granted, in part, on the limited issue of royalty payments
from March 2012 until July 2012. The motion is denied as to royalty payments
from August 2012 through December 2015.

IV.

CONCLUSION AND ORDER

Pro Emu’s motion for summary judgment, doc. 140, is GRANTED with
respect to the determination of contract termination. NFI’s motion for summary
judgment, doc. 146, is GRANTED as it relates to the issue of the royalties due for
the entire duration of the Agreement. In all other respects, the motions are
DENIED. In light of this ruling, the motion for oral argument, doc. 158, is
MOOT.
Consistent with this opinion, other than the amount of royalties owed from
March to July 2012, the only remaining issues are Pro Emu’s claims for royalties
on off-the-book sales of the 6 oz. Blue Emu products and the amount potentially
due NFI as an adjustment for the price per barrel of emu oil dispute. See doc. 136-1
at 29–30. As to these issues, this matter is SET for a Pretrial Conference at 2:00
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p.m. on August 29, 2017 and trial on October 2, 2017 at 9:00 a.m., both in
courtroom 4A at the Hugo L. Black Courthouse in Birmingham, Alabama.
DONE the 9th day of August, 2017.

_________________________________
ABDUL K. KALLON
UNITED STATES DISTRICT JUDGE

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