Natural Alternatives, LLC et al v. JM Farms et al
Filing
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OPINION & ORDER: (1) DENYING plas' 62 Motion for Summary Judgment; (2) GRANTING dfts' 65 Motion for Summary Judgment; (3) any breach of contract claim by Todd Bloomer is DISMISSED. Signed by Judge Karen K. Caldwell on 9/30/16. (KJR)cc: COR Modified text on 9/30/2016 (KJR).
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
AT LEXINGTON
NATURAL ALTERNATIVES, LLC, and
TODD A. BLOOMER,
CIVIL ACTION NO. 12-333-KKC
Plaintiffs,
V.
OPINION & ORDER
JM FARMS, et al.,
Defendants.
JM FARMS and MAX SMITH,
Counterclaim Plaintiffs,
V.
NATURAL ALTERNATIVES, LLC, and
TODD A. BLOOMER,
Counterclaim Defendants.
This matter is before the court on Plaintiffs’ motion for summary judgment (DE 62-1) and
Defendants’ motion for partial summary judgment (DE 65-1). For the following reasons,
Plaintiffs’ motion is DENIED and Defendants’ motion is GRANTED.
I. BACKGROUND
Plaintiffs filed this lawsuit in November 2012, asserting a breach of contract claim
against Defendants for their refusal to make monthly royalty payments under the parties’
license agreement. (DE 1). The parties entered into their agreement in October 2008, by
which Natural Alternatives granted JM Farms and SNI Solutions exclusive license to use
certain patents and trademarks held by Natural Alternatives related to the use of de-sugared
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sugar beet molasses as a deicing agent. (DE 62-1; DE 69). Plaintiffs initially sued SNI
Solutions and JM Farms, but dismissed its claims against SNI Solutions. (DE 21). JM Farms
and Max Smith, a general partner of JM Farms, remain as Defendants in this matter.
As part of the license agreement, JM Farms and SNI Solutions were to pay Natural
Alternatives a non-refundable payment of $250,000 and an ongoing monthly royalty payment
of $50,000. (DE 38-1). This monthly payment was to be made on the first business day of the
month. (DE 38-1). The parties later amended their agreement and modified the monthly
payment amount to $25,000. (DE 38-6).
In January 2009, a third-party competitor of Natural Alternatives filed for reexamination
with the United States Patent and Trademark Office of two of the patents involved in the
license agreement. (DE 65-1). By June 2012, the USPTO had canceled and/or finally rejected
all of the claims regarding those patents that it was reexamining. (DE 65-1).
As of June 8, 2012, JM Farms had not paid its half of the monthly payment, so Natural
Alternatives notified JM Farms of its failure to pay when due and demanded immediate
payment. (DE 65-1). At the end of that month, Max Smith sent Natural Alternatives a letter,
asserting Defendants’ right to terminate the agreement under § III(1)(B) of the license
agreement. (DE 38-12).
Under § III of the agreement, which was unaffected by the parties’ amendment as to the
amount of the monthly payment, “[t]he term of this Agreement and of the Patent License and
the Trademark License . . . shall end on the earlier of the following:”
(A) the date on which all the patents have expired;
(B) immediately upon written notice from JM Farms, SNI Solutions, or Natural
Alternatives in the event that an injunction or other legal process materially
inhibits or prohibits the exercise of the license rights granted in the agreement;
or
(C) the expiration of one of the notice periods set forth later in the agreement,
if the breach described by that notice is not cured within the notice period.
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Relevant here, § III(2) provides a grace period of three business days for Defendants to cure
after receiving written notice of their failure to mail payment on or before the first business
day of the month. (DE 38-1).
After sending their letter in late June 2012, Defendants continued to miss their payments
for July, August, and September of 2012. (DE 65-1). Due to this non-payment, Natural
Alternatives sent JM Farms and SNI Solutions a letter formally notifying them of the failure
to make the required payments for those months. (DE 65-1; DE 69). This letter specifically
mentioned the three-day notice and cure provision found in § III(2) of the license agreement.
With their motion, Plaintiffs ask for summary judgment, primarily on the issue of
whether Defendants could terminate the agreement with their letter in late June 2012. And,
Defendants, with their motion, ask for partial summary judgment, primarily on the issue of
when the license agreement terminated.
II. ANALYSIS
a. Termination of the license agreement
Defendants’ main argument for partial summary judgment is that the parties’ license
agreement terminated as a matter of law with the expiration of the notice period triggered
by Plaintiffs’ letter to the licensees on September 25, 2012. Defendants argue that
termination of the agreement makes them responsible only for the three monthly payments
they missed while the agreement was still in effect.
Plaintiffs argue that the license agreement did not terminate either at the expiration of
the three-day notice period as a matter of law in September 25, 2012, or at the time of
Defendants’ letter at the end of June 2012. Based on their view that the agreement has not
been rightfully terminated, Plaintiffs assert $1,675,000 in damages, which is the amount
Plaintiffs claim would put them in the position as if the contract had been performed by
Defendants until the last patent involved in the agreement expired in November 2023.
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The parties agreed to have the license agreement governed by and construed in
accordance with Kentucky law. (DE 38-1). A primary goal for contract interpretation is to
effectuate the intentions of the parties. 3D Enters. Contracting Corp. v. Louisville & Jefferson
Cty. Metro. Sewer Dist., 174 S.W.3d 440, 448 (Ky. 2005). When a contract is unambiguous, a
court looks “only as far as the four corners of the document to determine the parties’
intentions.” Id. Further, contract interpretation, including determining whether a contract
is ambiguous, is a question of law for the courts. Id. (quoting Cantrell Supply, Inc. v. Liberty
Mut. Ins. Co., 94 S.W.3d 381, 385 (Ky. Ct. App. 2002)).
Sections III(1)(C) and III(2) of the license agreement are not contested, as the language
clearly states that the agreement terminates upon the expiration of the three-day grace
period. Plaintiffs acknowledged as much in their complaint: “Pursuant to Section III.(1)(c)
and Section III.(2) of the License Agreement, a missed Monthly Payment and failure to cure
same upon written notice by Bloomer/NA terminates the agreement upon expiration of the
notice period.” (DE 1, Pls.’ Complaint at 4).
Plaintiffs do not argue that these provisions are ambiguous, instead they argue that they
did not elect to terminate the parties’ agreement by their September 25, 2012, letter, and
thus, the agreement did not terminate. However, this argument is unpersuasive. The terms
of the contract are unambiguous and state that the agreement “shall end” upon the expiration
of the three-day notice period. Plaintiffs’ letter to Defendants asserting a right to elect
remedies including termination cannot change the contract as written, which called for
automatic termination after continued noncompliance at the end of the three days.
Further, the record is undisputed that Defendants did not timely cure upon receiving
written notice of their non-payment. As such, the parties’ license agreement terminated
according to its terms when the three-day grace period for Defendants expired.
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b. Request for Bloomer to be dismissed from the breach of contract claim
Defendants’ other argument for partial summary judgment relates to Bloomer’s status as
a plaintiff in the breach of contract claim. Defendants argue that since Bloomer was not a
party to the license agreement, he should be dismissed from the breach of contract claim as
he is not a proper party to this lawsuit.
Plaintiffs respond that Bloomer was included as a party to this action because he was the
individual holder of some of the intellectual property at issue even after the license
agreement was first executed and that “[o]ther than this technical issue, the presence of
Bloomer as an individual plaintiff is likely irrelevant.” (DE 69, Pls.’ Response at 8). Plaintiffs
defer to the discretion of the Court as to this issue.
As the parties agree that Bloomer is not a party to the contract at issue, any breach of
contract claim by him will be dismissed.
III. CONCLUSION
For the foregoing reasons, the Court hereby orders as follows:
(1) Plaintiffs’ motion for summary judgment (DE 62-1) is DENIED;
(2) Defendants’ motion for partial summary judgment (DE 65-1) is GRANTED; and
(3) Any breach of contract claim by Todd Bloomer is DISMISSED.
Dated September 30, 2016.
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