Innovation Ventures, LLC v. Custom Nutrition Laboratories, LLC et al

Filing 337

ORDER GRANTING 317 Plaintiff's Motion to Dismiss Defendant NSL's and Defendant Jones's Counterclaims. Signed by District Judge Terrence G. Berg. (AChu)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
INNOVATION VENTURES, L.L.C. f/d/b/a/
LIVING ESSENTIALS,
Plaintiff/Counter-Defendant,
v.
CUSTOM
L.L.C.,

NUTRITION

LABORATORIES,

Case No. 12-13850
Hon. Terrence G. Berg

Defendant,
and
NUTRITION SCIENCE
LLC, and ALAN JONES,

LABORATORIES,

Defendants/Counter-Plaintiffs.
ORDER GRANTING PLAINTIFF’S MOTION (DKT. 317) TO DISMISS
DEFENDANT NSL’S AND DEFENDANT JONES’S COUNTERCLAIMS
(DKTS. 188 & 189)
I.

INTRODUCTION

This is breach of contract case that involves the liquid energy supplement 5-hour
ENERGY®. Plaintiff Innovation Ventures, the manufacturer of 5-hour ENERGY®,
alleges that, among other things, Defendants Custom Nutrition Laboratories
(“CNL”), Nutrition Science Laboratories (“NSL”), and Alan Jones breached an
agreement with Plaintiff not to produce energy shots containing ingredients from the
Choline Family. Defendants NSL and Jones have asserted counterclaims alleging
that Plaintiff has violated federal antitrust laws; that Plaintiff’s formula is not
confidential; that the restrictive covenant in the agreement Defendants allegedly

breached is an illegal restraint on trade; and that Plaintiff is wrongly attempting to
hold NSL liable for CNL’s obligations. Plaintiff has moved to dismiss NSL’s and
Jones’s counterclaims. NSL and Jones oppose the motion. For the reasons below,
Plaintiff’s motion is GRANTED and the counterclaims are DISMISSED.
II.

BACKGROUND

The parties have a long and acrimonious history that need not be recounted in
detail here. It is enough to note that Plaintiff makes 5 Hour Energy, Dkt. 219,
Pg. ID 9,179, and CNL is a Texas company that Plaintiff hired to produce its energy
shot. Dkt. 219, Pg. ID 9,180. Defendants NSL and Jones assert in their counterclaims
that Defendant CNL developed the first formula that Plaintiff used for the shot. They
make a number of other counter-allegations as well, including that Plaintiff allegedly:


Obtained the original formula by falsely claiming it needed the
formula for insurance purposes;



Claimed that it owned the formula;



Signed a contract with CNL for the long-term production of the shot;



Went behind CNL’s back and found another supplier;



Sent a representative to CNL’s production facility to learn CNL’s
production process;



Gave CNL’s formula to the other supplier;



Told the other supplier how CNL produced the shot;



Placed several large orders with CNL;



Caused CNL to create a large inventory;



Terminated its contract with CNL;



Refused to pay for the inventory CNL had produced (which meant
CNL was left with almost no money because it had spent most of it
producing the inventory);



Forced CNL to go to court in Texas to attempt to recover its money;
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

Ran up litigation costs to the point that CNL was near bankruptcy;
and



Forced CNL to settle the lawsuit in August of 2009 on terms
favorable to Plaintiff.

Dkt. 188, Pg. IDs 6,834-6,862.
Part of the Settlement Agreement prohibited CNL from producing any energy
shots that contained ingredients falling within the agreement’s definition of the
“Choline Family.” Dkt. 219, Pg. ID 9,181.
After settling the litigation in Texas, CNL still found itself in financial trouble, so
in October of 2009 it entered into an Asset Purchase Agreement with NSL. Dkt. 219,
Pg. ID 9,187. The Asset Purchase Agreement incorporated by reference the
Settlement Agreement’s Choline Family restriction. Dkt. 219, Pg. ID 9,216.
NSL allegedly then began making energy shots containing ingredients Plaintiff
believed were in the Choline Family. Dkt. 187, Pg. IDs 6,705-6,706. So Plaintiff filed
this lawsuit alleging, among other things, that CNL, NSL and Jones1 breached the
Settlement Agreement. Dkt. 1.
The case has now been through Defendants’ motions to dismiss (Dkts. 16, 30, 74,
and 78), Defendants’ motion for summary judgment (Dkt. 199), and a bifurcated jury
trial (Dkts. 111, 301-308) on whether betaine and alpha GPC are members of the

Jones was CNL’s President and Chief Executive Officer at the time CNL settled the
Texas litigation with Plaintiff. Dkt. 304, Pg. ID 13,694. Jones went on to serve as
President of NSL, Dkt. 304, Pg. ID 13,699, and as President for Lily of the Desert (an
entity Plaintiff claims is the alter ego of NSL, but which is not a party to this lawsuit).
Dkt. 304, Pg. ID 13,697.
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Choline Family. The jury found in the affirmative on this question: betaine and alpha
GPC are members of the Choline Family. (Dkt. 296). Plaintiff has filed an amended
complaint (Dkt. 58) and a second amended complaint (Dkt. 187), and has asked to file
a third amended complaint (Dkt. 224) (the Court denied that motion because Plaintiff
waited too long after discovering new information to seek to amend its claims a third
time (Dkt. 233)). NSL and Jones have also filed counterclaims, which are now in their
third iteration. Dkts. 188, 189. Plaintiff moves to dismiss these counterclaims.
Dkt. 317. NSL and Jones oppose the motion. Dkt. 318. Having reviewed the briefs,
the Court finds that oral argument would not assist the Court in resolving Plaintiff’s
motion.
III.

STANDARD OF REVIEW

“To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555 (2007)). A claim is facially plausible when a plaintiff pleads factual
content that permits a court reasonably to infer that the defendant is liable for the
alleged misconduct. Id. (citing Twombly, 550 U.S. at 556). When assessing whether a
plaintiff has set forth a “plausible” claim, the district court must accept all of the
complaint’s factual allegations as true. See Ziegler v IBP Hog Mkt., Inc.,
249 F.3d 509, 512 (6th Cir. 2001). A plaintiff must provide “more than labels and
conclusions,” or “a formulaic recitation of the elements of a cause of action.” Twombly,

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550 U.S. at 556. Therefore, “[t]hreadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678.
IV.

ANALYSIS

NSL’s counterclaims are best divided into three categories: (1) an antitrust
counterclaim (Count I); (2) counterclaims seeking declarations relating to Plaintiff’s
formula (Counts II-V); and (3) counterclaims seeking other declarations (Counts VI
and VII). Jones’s counterclaims (Counts I-IV) are identical to NSL’s second category
of counterclaims (seeking declarations relating to Plaintiff’s formula). For the reasons
enumerated below, Defendants’ counterclaims are subject to dismissal.
A. NSL’s antitrust counterclaim is time barred
NSL’s first counterclaim is really three counterclaims in one claiming that
Plaintiff has violated federal antitrust laws. First, NSL alleges that Plaintiff’s
settlement agreement with CNL violates 15 U.S.C. § 1.2 Second, NSL alleges that
Plaintiff’s conduct and specific intent to monopolize the United States market for the

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Section 1 of Title 15 of the United States Code provides:
Every contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the several States,
or with foreign nations, is declared to be illegal. Every person who shall
make any contract or engage in any combination or conspiracy hereby
declared to be illegal shall be deemed guilty of a felony, and, on
conviction thereof, shall be punished by fine not exceeding $100,000,000
if a corporation, or, if any other person, $1,000,000, or by imprisonment
not exceeding 10 years, or by both said punishments, in the discretion of
the court.
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2-ounce energy shot violates 15 U.S.C. § 2.3 And third, NSL alleges that Plaintiff’s
method of selling its products to retailers violates 15 U.S.C. § 14.4
Plaintiff offers a variety of arguments for why the Court should dismiss this
counterclaim—five of them in total. Dkt. 317, Pg. IDs 14,867-14,883. Although many
of Plaintiff’s arguments have merit—the counterclaim borders on being purely
conclusory and contains few if any allegations that demonstrate antitrust injury—
the Court need only address the last: that the claim is time barred.

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Section 2 of Title 15 of the United States Code provides:
Every person who shall monopolize, or attempt to monopolize, or
combine or conspire with any other person or persons, to monopolize any
part of the trade or commerce among the several States, or with foreign
nations, shall be deemed guilty of a felony, and, on conviction thereof,
shall be punished by fine not exceeding $100,000,000 if a corporation,
or, if any other person, $1,000,000, or by imprisonment not exceeding 10
years, or by both said punishments, in the discretion of the court.

4

Section 14 of Title 15 of the United States Code provides:
It shall be unlawful for any person engaged in commerce, in the course
of such commerce, to lease or make a sale or contract for sale of goods,
wares, merchandise, machinery, supplies, or other commodities,
whether patented or unpatented, for use, consumption, or resale within
the United States or any Territory thereof or the District of Columbia or
any insular possession or other place under the jurisdiction of the United
States, or fix a price charged therefor, or discount from, or rebate upon,
such price, on the condition, agreement, or understanding that the
lessee or purchaser thereof shall not use or deal in the goods, wares,
merchandise, machinery, supplies, or other commodities of a competitor
or competitors of the lessor or seller, where the effect of such lease, sale,
or contract for sale or such condition, agreement, or understanding may
be to substantially lessen competition or tend to create a monopoly in
any line of commerce.
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Plaintiff argues that Count I of NSL’s Counterclaims is time barred because there
is a four-year limitations period for antitrust claims and the Settlement Agreement
between Plaintiff and CNL that purportedly violated antitrust law was reached in
August of 2009, but NSL did not bring its antitrust counterclaim until October of
2014. Dkt. 317, Pg. IDs 14,882-14,883. NSL responds that Count I is “clearly not time
barred” because it “clearly relates back to Count II of NSL’s original counterclaim”
(that the Settlement Agreement was an illegal restraint on trade). Dkt. 318,
Pg. ID 15,135.
NSL offers no explanation for how a claim for specific federal antitrust violations
can relate back to an alleged “illegal restraint on trade” claim that is so vague that it
fails to identify whether it arises under state, federal, common, or statutory law.
Moreover, this same “illegal restraint of trade” claim appears in NSL’s amended
counterclaims as Count IV. Dkt. 188, Pg. IDs 6,868-6,869. So NSL is seeking to have
its federal antitrust claims “relate back” to a claim that is being brought at the same
time. NSL offers no legal justification for this position; it does not invoke the Rule of
Civil Procedure that governs relation back in this context, which states that “[a]n
amendment to a pleading relates back to the date of the original pleading when . . .
the amendment asserts a claim or defense that arose out of the conduct, transaction,
or occurrence set out—or attempted to be set out—in the original pleading.” Fed. R.
Civ. P. 15(c)(1)(B). NSL’s relation-back argument therefore fails as a threshold matter
because NSL offers no legal support for its position. And even if NSL had cited the

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relevant legal authority—under the Federal Rules of Civil Procedure and Sixth
Circuit case law—NSL’s argument would fail on the merits.
Whether NSL’s antitrust claim relates back to its claim for a declaratory judgment
stating that the settlement agreement was an illegal restraint on trade depends on
whether Plaintiff “had been placed on notice that [it] could be called to answer for the
allegations in the amended pleading.” United States ex rel. Bledsoe v. Cmty. Health
Sys., 501 F.3d 493, 516 (6th Cir. 2007). In other words, the Court must ask whether
Count III in NSL’s initial counterclaims put Plaintiff on notice that NSL might later
allege federal antitrust violations. The answer is “no”; Count III does not state what
law renders the agreement illegal, but the content of NSL’s allegations makes it clear.
A broad and unqualified reference to the term “illegal restraint on trade” could be
understood to raise claims under the federal Sherman and Clayton Antitrust Acts,
Mich. Comp. Laws § 445.772, or Mich. Comp. Laws § 445.774(a)(1).5 In Count III of
NSL’s original counterclaims, NSL alleged that there was a substantial controversy
between it and Plaintiff that warranted “the issuance of a declaratory judgment
regarding the legality and/or enforceability of the restrictive covenants in the
settlement agreement.” Dkt. 45, Pg. ID 743. Only one of the above-mentioned laws
concerns restrictive covenants: Mich. Comp. Laws § 445.774(a)(1). So given the
language of Count III, this claim would have reasonably put Plaintiff on notice of a
claim under Mich. Comp. Laws § 445.774(a)(1), but not of federal antitrust claims.

The Court mentions Michigan law because the settlement agreement’s choice of law
provision selected Michigan Law to govern the agreement. See Dkt. 219, Pg. ID 9,197.
5

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NSL’s response fails, and the Court finds that Count I is untimely. NSL’s antitrust
counterclaim is therefore DISMISSED.
B. NSL and Jones lack standing to bring their counterclaims for
declaratory judgments concerning the confidentiality of Plaintiff’s
formula
NSL’s second, third, fourth, and fifth counterclaims and Jones’s counterclaims are
identical. They ask for four declarations: (1) that the formulas disclosed in the
applications for U.S. Patent No. 8,187,647 and U.S. Patent No. 8,632,834 are in the
public domain; (2) that the formula Plaintiff actually uses (which Defendants believe
is disclosed in Plaintiff’s patent applications) is in the public domain; (3) that the
formulas

disclosed

in

the

applications

for

U.S. Patent No. 8,187,647

and

U.S. Patent No. 8,632,834 are not confidential; and (4) that the formula Plaintiff
actually uses (which Defendants believe is disclosed in Plaintiff’s patent applications)
is not confidential. Dkt. 188, Pg. IDs 6,864-6,867; Dkt. 189.
As with NSL’s antitrust claim, Plaintiff presents a bundle of arguments—this
time eight arguments in total—in support of dismissing this set of counterclaims. But
the Court need only address Plaintiff’s argument that NSL and Jones lack standing
to bring these claims.
Plaintiff argues that there is no controversy over its formula’s confidentiality,
meaning Defendants lack standing under 28 U.S.C. § 2201(a) to seek declaratory
judgments relating to the formula’s confidentiality. Dkt. 317, Pg. IDs 14,884-14,886.
Defendants respond that “[w]hether the manufacture of energy shots with betaine,
alpha GPC or any other ingredient in the ‘Choline Family’ constitutes a
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misappropriation of [Plaintiff’s] confidential information constituting unfair
competition is a matter of continued dispute between the parties.” Dkt. 318,
Pg. ID 15,135. Plaintiff replies that it dismissed its claims for unfair competition and
unjust enrichment long ago, so the question of the formula’s confidentiality is no
longer an issue. Dkt. 324, Pg. IDs 15,163-15,165.
Defendants lack standing to bring these claims because there is no actual
controversy (as required by 28 U.S.C. § 2201(a)) over the confidentiality of Plaintiff’s
formula. To be sure, the confidentiality of Plaintiff’s formula was initially at issue in
this litigation; Plaintiff’s original complaint included causes of action for unfair
competition (Count IV) and unjust enrichment (Count V) based on Defendants’
alleged use of Plaintiff’s confidential information. Dkt. 1, Pg. IDs 8-9. But in its First
Amended Complaint, Plaintiff dropped those claims. Dkt. 58. Plaintiff did not revive
those claims in its Second Amended Complaint. Dkt. 187. And even Plaintiff’s
proposed Third Amended Complaint (which the Court denied Plaintiff leave to file)
excluded those claims. Dkt. 224-2. Consequently, these counterclaims are
DISMISSED.
C. The Court’s summary judgment order (Dkt. 219) resolved NSL’s
counterclaims for declaratory judgments concerning illegal restraint
on trade and NSL’s liability for CNL’s obligations (Counts VI and VII)
NSL’s final two counterclaims ask the Court to declare that the Settlement
Agreement is an illegal restraint on trade (Count VI) and that NSL is not liable for
CNL’s obligations (Count VII). Dkt. 188, Pg. IDs 6,868-6,871. Plaintiff argues that
the Court’s summary judgment order (Dkt. 219) already resolved those claims.
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Dkt. 317, Pg. ID 14,833. NSL responds that Plaintiff seeks dismissal of Count VI to
avoid scrutiny of Plaintiff’s “long history of anti-competitive activity,” Dkt. 318,
Pg. ID 15,117, and acknowledges that the Court “already determined that the
restrictions in the Settlement Agreement are unreasonable as a matter of law,”
Dkt. 318, Pg. IDs 15,132, but offers no response specific to Plaintiff’s argument.
Plaintiff is correct; the Court resolved these claims. See Dkt. 219.
In Count VI, NSL asks for “a judicial declaration that the provisions of the
settlement agreement precluding the ‘CNL Parties’ from manufacturing ‘Energy
Liquids’ containing ingredients from the ‘Choline Family’ are unreasonable and
unenforceable.” Dkt. 188, Pg. ID 6,869-6,870. The Court has already held that the
Choline family restriction’s duration was too long and therefore was unenforceable
pursuant to Mich. Comp. Laws § 445.774(a)(1). Dkt. 219, Pg. IDs 9,234-9,326.
The Court even reformed the restriction’s duration so that it complies with Michigan
law. Dkt. 219, Pg. IDs 9,236-9,327. Thus the Court has resolved this claim.
In Count VII, NSL asks for “a judicial declaration that the asset purchase
agreement is governed by Texas law, and that as a result of entering into the asset
purchase agreement NSL did not become bound to any provisions of the settlement
agreement between Living Essentials and CNL.” The Court has already held that
Texas law governs the Asset Purchase Agreement; that NSL is not a successor to
CNL; but that NSL is bound to the Choline family restriction because the Asset
Purchase Agreement incorporates the restriction by reference. Dkt. 219,
Pg. IDs 9,198-9,203; 9,203-9,206; 9,216-9,223. Thus the Court has resolved this claim.
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D. Defendants counterclaims are dismissed with prejudice
Defendants have asked for leave to amend their counterclaims. Dkt. 318,
Pg. ID 15,144. The Court will deny this request for two reasons. First, such a request,
when made within a responsive brief, is not sufficient to properly place the issue of
amendment before the Court. Begala v. PNC Bank, Ohio, Nat'l Ass'n, 214 F.3d
776, 784 (6th Cir. 2000). And second, any amendment would be futile; nothing NSL
could allege would change the untimeliness of its antitrust counterclaim or the fact
that the Court has already resolved Counts VI and VII, and nothing either NSL or
Jones could allege would create a controversy over the confidentiality of Plaintiff’s
formulas.
V.

CONCLUSION

In summary, NSL’s and Jones’s counterclaims were brought too late, concern
issues over which there is no ongoing controversy, or already have been resolved.
Defendants’ amended counterclaims (Dkts. 188 and 189) are therefore DISMISSED
WITH PREJUDICE.
SO ORDERED.
Dated: April 6, 2017

s/Terrence G. Berg
TERRENCE G. BERG
UNITED STATES DISTRICT JUDGE
Certificate of Service

I hereby certify that this Order was electronically submitted on April 6, 2017,
using the CM/ECF system, which will send notification to all parties.
s/A. Chubb
Case Manager
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