Derma Pen v. 4EverYoung Limited et al

Filing 476

MEMORANDUM DECISION AND ORDER granting 241 Motion for Partial Summary Judgment on Specific Performance; granting in part 141 Motion for Preliminary Injunction; Trial date of 2/2/15 is vacated; Evidentiary Hearing to determine the value of the Trademark and Domain Name is set for 2/2-13/2015, beginning each day at 09:00 AM in Rm 3.100 before Judge David Nuffer. Signed by Judge David Nuffer on 1/12/15 (alt)

IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
DERMA PEN, LLC,
Plaintiff,
v.
4EVERYOUNG LTD.,
DERMAPENWORLD, BIOSOFT (AUST)
PTY LTD d/b/a DERMAPENWORLD,
EQUIPMED INTERNATIONAL PTY. LTD.
d/b/a DERMAPENWORLD, and STENE
MARSHALL d/b/a DERMAPENWORLD,

MEMORANDUM DECISION AND ORDER
GRANTING 4EVERYOUNG’S 241
MOTION FOR PARTIAL SUMMARY
JUDGMENT ON SPECIFIC
PERFORMANCE AND GRANTING IN
PART DEFENDANTS’ 141 MOTION FOR
PRELIMINARY INJUNCTION

Defendants.
4EVERYOUNG LTD. and EQUIPMED
INTERNATIONAL PTY. LTD.,
Counterclaim Plaintiffs,
v.

Case No.: 2:13-CV-00729-DN-EJF

DERMA PEN, LLC,

District Judge David Nuffer

Counterclaim Defendant.

Magistrate Judge Evelyn J. Furse

This matter came before the Court for a preliminary injunction hearing on
January 6, 2015. Plaintiff and Counterclaim Defendant Derma Pen, LLC (“Plaintiff” or
“Derma Pen”) was represented by Russell S. Walker and Reid W. Lambert of Woodbury
& Kesler, P.C. Defendants and Counterclaim Plaintiffs 4EverYoung Limited
(“4EverYoung”) and Equipmed International Pty. Limited (“Equipmed”) and Defendants
Biosoft (Aust) (“Biosoft”) and Stene Marshall (“Mr. Marshall”) (collectively,

“4EverYoung”) were represented by Christine T. Greenwood and Christopher M. Von
Maack of Magleby & Greenwood, P.C.
RELEVANT BACKGROUND
The following background is by no means exhaustive, but is relevant to the
matters ruled upon at the January 6, 2015 hearing.
Bifurcation and Stay
On May 2, 2014, 4EverYoung filed a motion for temporary restraining order and
preliminary injunction (“Defendants’ Injunction Motion”), 1 seeking, among other things,
an order requiring Derma Pen to specifically perform on its post-termination obligations
under the Sales Distribution Agreement, including its obligation to offer to 4EverYoung
for purchase the Dermapen trademark in the United States (the “Trademark”) and the
www.dermapen.com domain name (the “Domain Name”). 2
On May 15, 2014, the Court bifurcated certain threshold claims related to Derma
Pen’s claim for rescission of the Sales Distribution Agreement and 4EverYoung’s claim
for specific performance of that agreement, and stayed the remaining claims and issues
in the case. 3

1

Docket no. 141, filed May 2, 2014.

2

See id. at v.

3

Memorandum Decision and Order Re: Expedited Schedule on Rescission Claims and
Trademark Rights and Staying All Other Issues in the Case, docket no. 155, filed May
15, 2014; see also Memorandum Decision and Order Re: Jury Trial on Derma Pen,
LLC’s 22nd and 24th Causes of Action and Part of Defendants’ 1st Counterclaim Cause
of Action, docket no. 207, filed June 26, 2014.

2

Between July 3 and 7, 2014, 4EverYoung filed motions for partial summary
judgment on those threshold claims. 4 Prior to the January 6, 2015 hearing,
4EverYoung’s motions for partial summary judgment, save 4EverYoung’s motion for
partial summary judgment on specific performance, were ruled upon. 5
On the business day before the two-week jury trial scheduled to begin August 11,
2014, Derma Pen filed chapter 11 bankruptcy in Delaware. 6 Following the dismissal of
Derma Pen’s bankruptcy, 7 the Court set the jury trial on the remaining threshold issues
for February 2–13, 2015. 8
4

See Defendants’ Motion for Partial Summary Judgment on Rescission and
Memorandum in Support, docket no. 238, filed July 3, 2014; 4EverYoung’s Motion for
Partial Summary Judgment on Plaintiff’s Defenses to Specific Performance and
Memorandum in Support, docket no. 240, filed July 3, 2014; Defendants’ Motion for
Partial Summary Judgment on Specific Performance and Memorandum in Support,
docket no. 241, dated July 3, 2014; Defendants’ Motion for Partial Summary Judgment
on Fraudulent Inducement and Memorandum in Support, docket no. 244, filed under
seal July 7, 2014.
5

Memorandum Decision and Order Granting 4EverYoung’s 238 Motion for Partial
Summary Judgment on Rescission, docket no. 397, filed August 4, 2014; Memorandum
Decision and Order Granting in Part and Denying in Part 4EverYoung’s 244 Motion for
Partial Summary Judgment on Fraudulent Inducement, docket no. 400, filed under seal
August 4, 2014; Memorandum Decision and Order Granting 4EverYoung’s 240 Motion
for Partial Summary Judgment Directed Against Derma Pen LLC’s Defenses to Specific
Performance (the “Specific Performance Defenses Order”), docket no. 465, filed
December 30, 2014.
6

See In Re DermaPen, LLC, Case No. 14-11894 (KJC) (U.S.B.C. Del.); see also Notice
of Filing of Bankruptcy and Automatic Stay Under 11 U.S.C. § 362, docket no. 422, filed
August 8, 2014.
7

See Notice of Dismissal of Bankruptcy Case and Request for Pretrial Conference,
docket no. 448, filed December 19, 2014.
8

Notice of Pretrial Status Conference and Trial, docket no. 452, filed December 23,
2014.

3

The Temporary Restraining Order
As previously stated by the Court,
[On December 23, 2014], in a telephone conference
to discuss the impact of the bankruptcy dismissal, Derma
Pen’s bankruptcy counsel stated that a Confession of
Judgment was filed in Utah State Court [on December 22,
2014], which was intended to result in surrender of the
trademark and domain name, subjects of this action, to
Michael Anderer (“Anderer”), a principal in and allegedly a
secured creditor of Derma Pen.
The Confession of
Judgment for nearly $800,000 recites that Anderer holds an
Amendment to Security Promissory Note and Security
Agreement dated August 7, 2014. In [the December 23,
2014] telephone conference, Derma Pen’s counsel in this
litigation stated that they were unaware of the Confession of
Judgment or intended surrender. The surrender of Derma
Pen’s trademark and domain name to Anderer would
interfere with the ability of this court to grant relief to
4EverYoung by alienating those assets. 9
On December 23, 2014, the Court entered the Temporary Restraining Order, 10
ordering that “Derma Pen, its officers, agents, servants, employees, and attorneys, and
those acting in concert, with them (collectively, the ‘Enjoined Parties’) shall not transfer
the trademark and domain name.”11 The Temporary Restraining Order includes
language similar to that under Rule 65(d)(2)(c) of the Federal Rules of Civil Procedure,

9

Memorandum Decision and Order Granting in Part Defendants’ Motion for Temporary
Restraining Order (the “Temporary Restraining Order”) at 2-3 (internal footnote omitted),
docket no. 451, dated December 23, 2014.
10

See generally id.

11

Id. at 6 ¶ 2.

4

reciting that the temporary restraining order binds “persons who are in active concert or
in participation with” Derma Pen, which includes Anderer. 12
The Court required 4EverYoung to post security of $10,000 related to the
issuance of the Temporary Restraining Order. 13 4EverYoung timely posted that
security. 14 The Temporary Restraining Order also set a preliminary injunction hearing
for January 6, 2015. 15
Withdrawal of Counsel for Derma Pen
On December 23, 2014, the pending motions to withdraw filed by Derma Pen’s
counsel were granted. 16 In granting those motions to withdraw, Derma Pen was
required to appear through counsel “[o]n or before January 5, 2015, at 3:00 p.m.” and
was warned that its failure “to file a Notice of Substitution of Counsel or Notice of

12

Fed. R. Civ. P. 65(d)(2). Derma Pen’s counsel objected to this reference to Anderer.
The reference was purposely retained.
13

See id. at 6 ¶ 4.

14

See Notice of Security Bond, docket no. 462, entered December 29, 2014; see also
Notice of Posting of Security for Temporary Restraining Order, docket no. 463, filed
December 29, 2014.
15

See Temporary Restraining Order at 6 ¶ 3.

16

Order on Motion for Withdrawal of Counsel (Nicholas L. Vescovo), docket no. 453,
filed December 23, 2014; Order on Motion for Withdrawal of Counsel (Maia T.
Woodhouse), docket no. 454, filed December 23, 2014; Order on Motion for Withdrawal
of Counsel (Samuel F. Miller), docket no. 455, filed December 23, 2014; Order Granting
Motion to Withdraw as Counsel (Peter Donaldson), docket no. 456, filed December 23,
2014; Order Granting Motion to Withdraw as Counsel (Ryan Pahnke), docket no. 457,
filed December 23, 2014; Order Granting Motion to Withdraw as Counsel (Mark Gibb),
docket no. 458, filed December 23, 2014 (collectively, the “Withdrawal Orders”).

5

Appearance as set forth above, may . . . subject [it] to sanction pursuant to Federal Rule
of Civil Procedure 16(f)(1), including but not limited to dismissal or default judgment.”17
On January 5, 2015, at 4:38 p.m. Russell S. Walker and Reid W. Lambert of
Woodbury & Kesler filed a Notice of Limited Appearance. 18 According to that notice,
“[t]he scope of Woodbury & Kesler’s appearance is limited to [the January 6, 2015]
hearing. Derma Pen, LLC remains responsible for all matters not specifically described
in this notice.”19
On January 7, 2015, an Order to Show Cause and Warning made it clear to
Derma Pen that “it has failed to comply with the Orders and with the local rules of this
Court. Derma Pen’s default and an order striking claims may be entered if this failure is
not immediately cured.” 20 As of the date of this order, Derma Pen is not represented by
counsel generally in this action.
January 6, 2014 Hearing
Following the parties’ argument and proffer of evidence during the January 6,
2015 hearing, the Court ruled from the bench,

17

See id.

18

Docket no. 467, filed January 5, 2015 (“Notice of Limited Appearance”).

19

See id. at 1-2.

20

Docket no. 470 at 3, filed January 7, 2015.

6

•

granting 4EverYoung’s remaining outstanding motion for partial summary
judgment on specific performance which established the likelihood of
success issue on the motion for preliminary injunction; 21

•

confirming findings in the Temporary Restraining Order and granting in
part 4EverYoung’s request for a preliminary injunction; 22

•

making the restraints set forth in the Temporary Restraining Order 23
permanent in aid of an eventual full performance of Derma Pen’s
obligations under Sections 12.2 and 14.6 of the Sales Distribution
Agreement;

•

establishing procedures for implementation of 4EverYoung’s specific
performance remedy;

•

inviting briefing on whether Anderer is subject to the specific performance
remedy;

•

vacating the trial set to begin February 2, 2015;

•

deferring trial of any remaining threshold issues until the balance of the
issues are tried;

•

setting an evidentiary hearing to determine the value of the Trademark
and Domain Name; and

•

lifting any remaining stays.
DISCUSSION
Summary Judgment on Specific Performance

Summary judgment is granted on 4EverYoung’s specific performance claim as
there remain no genuine issues as to any material fact regarding Derma Pen’s

21

Defendants’ Motion for Partial Summary Judgment on Specific Performance and
Memorandum in Support, docket no. 241, filed July 3, 2014.
22

Defendants’ Injunction Motion.

23

Docket no. 451, filed December 23, 2014.

7

obligation, pursuant to Sections 12.2 and 14.5 of the Sales Distribution Agreement, 24 to
offer the Trademark and Domain Name. As discussed in the Specific Performance
Defenses Order, 25 it is clear from the undisputed facts that Derma Pen terminated 26 the
Sales Distribution Agreement. The language of Sections 12.2 and 14.6 of that Sale
Distribution Agreement makes it clear that Derma Pen had the obligation to offer the
Trademark and Domain Name to 4EverYoung for purchase and each party was
required to appoint an independent auditor. 27 The record is clear that Derma Pen did
not make an offer and did not timely appoint an auditor to value the Trademark and
Domain Name. Sections 12.2 and 14.6 also contain the implied obligation that Derma
Pen cooperate with the auditor appointed by 4EverYoung. 28 That, on the undisputed
facts, was not done. In fact, Derma Pen repudiated the process by filing this suit and
including a claim for a declaration that it had no obligations under Sections 12.2 and
14.6. 29

24

See Sales Distribution Agreement, docket no. 25, filed October 10, 2013.

25

Docket no. 465, filed December 30, 2014.

26

See Trial Exhibit (“TE”) 16.

27

See id. § 12.2.

28

See id.

29

See Complaint at 59 ¶ 331, docket no. 2, filed August 1, 2013; see id. at 64 Prayer for
Relief ¶ Q.

8

Vacatur of February 2015 Trial
Because summary judgment has been granted on the specific performance
issues, the jury and bench trial set to begin February 2, 2015 is vacated. Adjudication
of the remaining aspects of (a) Derma Pen’s fraudulent inducement claim (i.e., liability
premised upon Mr. Marshall’s alleged representations regarding the scope of the patent
protection for the Dermapen device), and (b) 4EverYoung’s breach of contract claims,
which had been set for trial beginning February 2, 2015, and any damages flowing
therefrom (which had already been deferred to later trial with the many other claims of
the parties) will be deferred until the balance of the issues are tried.
Specific Performance Process
Specific performance of Sections 12.2 and 14.6 is not a single event, but a
process, due to the stages of activity outlined in each section. The Specific
Performance Defenses Order outlined, in construing the sections, the process to
follow. 30 The specific performance process in its various phases will be supervised by
this Court. First of all, it appears that at this point both of the parties have a valuation
which they claim will apply to the process. Those valuations should be exchanged
within a reasonable time. Because the Sales Distribution Agreement does not specify a
time, that reasonable time will be seven days from January 6, 2015, which is January
13, 2015.

30

Specific Performance Defenses Order at 5–12.

9

Second, there must be time for an agreement on the valuation. This time
extends 30 days from appointment of the auditors, and that time has long past. A
reasonable time for any agreement will extend to January 27, 2015, two weeks after the
exchange of reports.
If no agreement on price is reached, valuation must occur. The Sales Distribution
Agreement states “that the value will be determined by the courts of the land that is
governing this contract.” 31 Section 17.7 (Governing Law) of the Sales Distribution
Agreement contemplates the United Kingdom as the land governing that contract. 32
These provisions have been at issue many times in the case.
As trial on important issues approached in August 2014 an order declaring
choice of law for the proceeding stated that Utah law will govern the breach of contract
claims and fraudulent inducement claims. 33 Thus, Utah is “the land that is governing
[the Sales Distribution Agreement],” and this Court is the “court[] of the land that is
governing this contract.” 34 For that reason, valuation is proper here under Section 17.7.

31

Sales Distribution Agreement §§ 12.2, 14.6.

32

Id. § 17.7 (“This Agreement shall be construed in accordance with the laws of the
United Kingdom. This Venue Agreement shall be enforced in London, United
Kingdom.”).
33

Memorandum Decision and Order Re: Choice of Law for August 2014 Proceedings at
7, docket no. 213, filed June 26, 2014.

34

Sales Distribution Agreement §§ 12.2, 14.6.

10

The case was initially stayed to allow proceedings in the United Kingdom. 35 At
that time, 4EverYoung argued that venue in the United Kingdom was proper. 36 Derma
Pen resisted these arguments: “The District of Utah is the proper venue for Derma
Pen's claims.” 37 “The choice of law clause in the agreement does not apply here.”38
After 4EverYoung's efforts to litigate in the United Kingdom revealed how
challenging and expensive that would be, 39 4EverYoung sought relief from the stay,
abdicating its prior insistence on litigation in London. “Defendants hereby waive,
knowingly and voluntarily, their rights under the forum selection and choice of law
provisions of the Agreement. . . .”40 But Derma Pen then changed its position to contend
that the United Kingdom was the proper forum. 41

35

Memorandum Decision and Order Partially Staying Case, docket no. 89, filed
November 20, 2013.
36

[4EverYoung's] Opposition to Plaintiff's Motion for Temporary Restraining Order and
Preliminary Injunction at 5, docket no. 48, filed October 19, 2013.
37

Plaintiff Derma Pen, LLC's Reply in Support of Motion for Temporary Restraining
Order and Preliminary Injunction at 18, docket no. 57, filed October 23, 2013.
38

Id. at 20.

39

Defendants' Motion to Lift Stay, Memorandum in Support, and Request for
Scheduling Conference at 2, docket no. 103, filed March 13, 2014.
40

Id. at 4.

41

Plaintiff's Response to Defendants' Motion to Lift Stay at 12-13, docket no. 104, filed
March 31, 2014.

11

The prior attempt to initiate proceedings in the United Kingdom was frustrated,
and both parties waived venue for the contract issues so that this case could proceed. 42
Derma Pen limited its waiver to exclude the valuation provisions. But the frustration
4EverYoung confronted makes the United Kingdom valuation requirement seem
impossible to perform. No good reason has been presented to require United Kingdom
valuation, other than strict compliance with the letter of a contract which has already
been modified as to all other venue requirements.
There are other reasons that the valuation should occur in this court. Derma Pen
filed bankruptcy to stop this case. The bankruptcy court dismissed Derma Pen’s filings
with a declaration that Derma Pen was not acting in good faith:
The bankruptcy filing is an improper attempt by the Debtor to re-start the
contract and trademark battle with the Movants in a new court. Rather
than filing to assuage operational difficulties and financial stress caused
by the trademark dispute, Derma Pen's petition is an attempt to disrupt the
litigation process. The Debtor has failed to meet its burden that its chapter
11 petition was filed in good faith. 43
Derma Pen’s change of heart on venue—from filing in this court, to repudiating
this court—and bankruptcy filing, followed by transfer of the assets at issue
evidences Derma Pen’s determination to frustrate 4EverYoung’s rights of
purchase. Requiring valuation to occur in the United Kingdom, which has been
shown to be so difficult and expensive that the parties decided to return to this
42

Transcript of Proceedings April 17, 2014 at 24:4-25:3, docket no. 111, filed April 24,
2014.
43

Memorandum, In re Derma Pen, LLC, at 18, Case No 14-11894 (KJC), (U.S.B.C. Del.
December 19, 2014.)

12

venue, would aid Derma Pen’s strategy. Derma Pen raised a textbook litany of
defenses to the specific performance claim as well as unreasonable construction
of the provisions of Sections 12.2 and 14.6. These were all rejected by the
Specific Performance Defenses Order. Derma Pen’s insistence on valuation in
the United Kingdom, when it has repudiated the entire offer process and taken no
steps toward that valuation, is merely obstructive.
Notwithstanding vacatur of the jury trial, the February 2–13, 2015 setting will be
preserved as an evidentiary hearing as part of the further specific performance
proceedings. At that hearing, valuation of the Trademark and Domain Name will be
determined, and the court will consider the time in which 4EverYoung must declare its
intention to proceed with the purchase, and make payment.
After the Court determines the valuation, if 4EverYoung exercises its rights to
purchase the Trademark and Domain Name, 4EverYoung will pay the determined sum
into court because there are many other issues to be resolved between the parties, and
it would be improvident to disburse so significant of a sum when substantial monetary
claims remain between the parties. Derma Pen claims to be insolvent and without
assets.
If Derma Pen makes a filing, on or before January 20, 2014, continuing its
objection to valuation occurring in this court, the Court will consider placing the valuation
amount, if paid, under the control of the court, to be released to Derma Pen only after
termination of the other claims in this case, and after completion of a United Kingdom

13

valuation action. Transfer of the Trademark and Domain Name will likely not be
delayed, since 4EverYoung will have made full performance.
Derma Pen’s Purported Transfer of the Subject Matter of this Action
Additional facts related to the Confession of Judgment 44 and Assignment 45 were
established at the January 6, 2015 hearing. Previously, the Court had what it would
characterize as fairly anecdotal evidence that transfer steps had occurred. It had the
Confession of Judgment and an unauthenticated copy of the Assignment. Derma Pan
has now acknowledged that those transfer steps have actually occurred, and, in fact,
the Assignment has been filed at the U.S. Patent and Trademark Office.
While the Court has no doubt about its ability to order Derma Pen to comply with
its orders and directives, the parties shall submit briefs on or before January 20, 2015,
regarding the Court’s ability to order specific performance that would require Anderer to
surrender or make conveyance of the Trademark and Domain Name. The Court
strongly advises 4EverYoung to bring Anderer into this case because of the concerns it
has about granting comprehensive complete relief.
The transfer to Anderer also brings into doubt Derma Pen’s entitlement to relief
under its motion for temporary restraining order and preliminary injunction. 46 For that

44

Docket no. 460-1, lodged December 24, 2014.

45

Docket no. 460-2, lodged December 24, 2014.

46

Plaintiff Derma Pen, LLC’s Motion for Temporary Restraining Order and Preliminary
Injunction and Incorporated memorandum of Law, docket no. 11, filed October 9, 2013.

14

reason, an Order to Show Cause was issued January 7, 2015. 47 The issues raised in
that order may mean that Derma Pen brings Anderer into this case.
Lifting of Stays
Any stays that are operative in this case are lifted. At the end of the hearing
commencing on February 2, 2015, a status conference will be held to determine what
further scheduling should be set, including trial on the remaining claims.
Default of Withdrawal Orders
By reason of their limited appearances, 48 which is authorized by the rules of this
Court, Woodbury & Kesler ceased to be counsel for Derma Pen at the conclusion of
review of the draft order from the January 6, 2015 hearing. Derma Pen is presently
without counsel and is in default of the Court’s orders requiring Derma Pen to appear
through counsel by January 5, 2015, at 3:00 p.m. 49

47

Order to Show Cause and Warning, docket no. 470, filed January 7, 2015.

48

Notice of Limited Appearance.

49

Withdrawal Orders.

15

ORDER
Based upon Defendants’ Injunction Motion, 50 the January 6, 2015 hearing, the
pleadings and papers on file with the Court, and for good cause shown, IT IS HEREBY
ORDERED:
1.

4EverYoung’s Motion for Partial Summary Judgment on Specific

Performance is GRANTED. 51
2.

Defendants’ Injunction Motion 52 is GRANTED IN PART. A preliminary

injunction is entered as follows:
a. Derma Pen, its officers, agents, servants, employees, and attorneys, and
those acting in concert, with them (collectively, the “Enjoined Parties”) shall
not transfer the trademark and domain name to anyone other than
4EverYoung;
b. This preliminary injunction will remain in effect until otherwise ordered by the
Court; and
c. 4EverYoung is not required to post additional security for the issuance of this
preliminary injunction.
3.

Derma Pen and 4EverYoung shall exchange their valuations of the

Trademark and Domain Name on or before January 13, 2015.
4.

50

The jury and bench trial set to begin February 2, 2015 is VACATED.

Docket no. 141.

51

Defendants’ Motion for Partial Summary Judgment on Specific Performance and
Memorandum in Support, docket no. 241, dated July 3, 2014.
52

Id.

16

5.

The Court will hold an evidentiary hearing to determine the value of the

Trademark and Domain Name, which hearing is set for February 2-13, 2015, beginning
each day at 9:00 a.m.
6.

On or before January 20, 2015, the parties shall submit briefs regarding

the Court’s ability to order specific performance that would require Anderer to surrender
or make conveyance of the Trademark and Domain Name.
7.

4EverYoung is granted leave to file an amended pleading to, among other

things, make Anderer a party to this action.
8.

All existing stays of claims or issues in this case are lifted.

Dated January 12, 2015.

BY THE COURT:
____________________________
David Nuffer
United States District Judge

17