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VDF Futureceuticals, Inc. v. Lewis

United States District Court, N.D. Illinois, Eastern Division

June 25, 2014



JOHN W. DARRAH, District Judge.

VDF FutureCeuticals, Inc. ("FC") filed an Amended Complaint against Joseph A. Lewis II ("Lewis"); J&J Technologies, LC ("J&J"); and Stiefel Laboratories, Inc. ("Stiefel") (collectively, "Defendants"), on December 14, 2012, in the Circuit Court of Cook County, Illinois. Plaintiff alleges eight claims against Defendants: (I) breach of contract and the duty of good faith and fair dealing against J&J; (II) alter ego liability against Lewis for breach of contract by J&J; (III) alter ego liability against Stiefel for breach of contract by J&J; (IV) unjust enrichment against Lewis; (V) conversion against Lewis; (VI) breach of fiduciary duty against Lewis; (VII) tortious interference with a contract against Stiefel; and (VIII) conspiracy to tortiously interfere with a contract against Lewis, J&J, and Stiefel.

Count I includes multiple alleged breaches. On February 6, 2014, Stiefel and J&J moved for partial summary judgment with respect to certain allegations of breach within Count I; on any tortious interference claim based on these allegations; and to establish a contractual limitation on FC's potential damages. On February 13, 2014, Lewis was granted leave to join Stiefel and J&J's Motion for Partial Summary Judgment. The Motion has been fully briefed.


FC is a cosmetic ingredient manufacturer that sells and holds trademark and patent rights to CoffeeBerry whole coffee fruit materials. (FC's SOF ¶ 1.)[2] J&J is a Virginia limited liability company, formed on July 26, 2004. (FC's SOF ¶ 5.) Lewis was the sole manager of J&J. ( Id. ¶ 6.) Two months after its formation, J&J entered into a License Agreement with FC. ( Id. ) The License Agreement granted to J&J the exclusive right to develop, make, and sell CoffeeBerry products within the Licensed Territory and Field of Use. (Defs.' SOF ¶ 5; License Agreement § 1.1.) Additionally, J&J was granted the right to sublicense its CoffeeBerry rights to others "in the exercise of [J&J's] sole discretion and judgment." (Defs.' SOF ¶ 6.)

The License Agreement required J&J to pay FC the greater of: (1) running royalties in the amount of 15 percent of J&J's own sales revenue from CoffeeBerry products and J&J's revenue from sublicensing CoffeeBerry products or, alternatively, (2) a minimum royalty payment as defined in the terms of the License Agreement. ( Id. ¶ 7.) On June 7, 2006, the License Agreement was amended for the second time, adding "Contract Payments, "[3] increasing J&J's royalty obligations from 15 percent to 33-1/3 percent, and modifying the schedule of alternative minimum royalties. ( Id. ¶¶ 15, 17; License Agreement Amend. 2 §§ 2.2, 2.3.) "Contract Payments" are defined as "all fees, Exclusivity Fees and payments of any kind that are not Royalties that are actually collected by the Licensee pursuant to the terms of the [L]icense...." (License Agreement Amend. 2 § 2.3.). J&J was prohibited from assigning or transferring the License Agreement itself, or J&J's rights under the License Agreement, without FC's written consent and approval. ( Id. ¶ 8; License Agreement § 12.1.) Originally, the License Agreement contained a three-year term[4] with automatic renewal. ( Id. ¶ 10; License Agreement § 2.1.) J&J had the right to unilaterally terminate the License Agreement upon providing 90-days written notice to FC. ( Id. ¶ 10; License Agreement § 2.9.)

Stiefel is a Delaware corporation headquartered in North Carolina. ( Id. ¶ 3.) On May 5, 2006, J&J sublicensed certain of its rights in the License Agreement to Stiefel ("Stiefel Sublicense"), granting Stiefel the right to sell CoffeeBerry products in specified markets for a five-year term. ( Id. ¶ 11.) The Stiefel Sublicense required Stiefel to pay J&J the greater of: (1) 5 percent of Sitefel's net sales of CoffeeBerry products or (2) an alternative minimum royalty. ( Id. ¶ 13.)

On July 1, 2010, Stiefel entered into a Membership Interest Purchase Agreement ("MIPA") to acquire J&J's outstanding membership interests ("Stiefel Transaction"). ( Id. ¶ 21.)[5] The MIPA listed Joseph DiNardo, and David Stern as "Sellers" of J&J Lewis. ( Id. ¶ 22.) Stiefel agreed to pay the Sellers $5, 666.666.67 and an additional $2, 833, 333.33 upon receipt of FC's written acknowledgement of the membership change. ( Id. ¶ 23.) At the time the MIPA was executed, J&J's only assets were the License Agreement, the Stiefel Sublicense, and a sublicense co-exclusive with the Stiefel Sublicense entered into with U.S. CosmeceuTechs ("USC"). (FC's SOF ¶ 18.) In advance of the Stiefel Transaction, Stiefel prepared a memorandum ("Acquisition Memorandum") outlining a number of reasons acquiring J&J would be beneficial. (FC's Supplemental SOF ¶1.) Among these reasons, Stiefel stated that "[t]he existing VDF agreement with JJT does not contain a change in control clause. The proposed transaction has been structured as a purchase of the membership interest rather than an asset purchase agreement as the existing VDF agreement does not require VDF's consent to a change of ownership of JJT." ( Id. ¶ 6.)

Following the Stiefel Transaction, J&J terminated all of its business operations, and all royalties paid to FC from that point were paid by Stiefel and GlaxoSmithKline ("GSK"), which wholly owns Stiefel. (FC's SOF ¶ 21.) On September 1, 2010, J&J amended the Stiefel Sublicense to reduce the alternative minimum royalty. (Defs.' SOF ¶ 26.) On September 26, 2012, Stiefel and J&J executed a letter documenting their mutual agreement to terminate the Stiefel Sublicense. ( Id. ¶ 27.) In a letter dated November 2, 2012, Director of Business Development and Licensing, David L. Saussy, Jr., [6] wrote that J&J would be terminating the License Agreement on January 1, 2013. ( Id. ¶ 29.)

Defendants have moved for partial summary judgment with respect to four of the breaches alleged against J&J: (1) failing to pay FC a portion of J&J's proceeds from the MIPA; (2) amending the Stiefel Sublicense to reduce the royalties owed to J&J; (3) failing to collect a termination fee from Stiefel or to pay a portion of that termination fee to FC; and (4) improperly assigning the License Agreement by executing the MIPA. Defendants argue these claims are based on erroneous interpretation of the License Agreement, representing a question of law appropriate for summary judgment.


Summary judgment is appropriate when there remains "no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); See Parent v. Home Depot U.S.A., Inc., 694 F.3d 919, 922 (7th Cir. 2012). The party seeking summary judgment must first identify those portions of the record that establish there is no genuine issue of material fact. U.S. v. King-Vassel, 728 F.3d 707, 711 (7th Cir. 2013) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). To survive such a showing, the nonmoving party must "present sufficient evidence to show the existence of each element of its case on which it will bear the burden at trial." Tri-Gen Inc. v. Int'l Union of Operating Eng'rs, Local 150, AFL-CIO, 433 F.3d 1024, 1030-31 (7th Cir. 2006) (citing Serfecz v. Jewel Food Stores, 67 F.3d 591, 596 (7th Cir. 1995)). Opposition to summary judgment requires more than a scintilla of evidence or some metaphysical doubt. Nat'l Inspection Repairs, Inc. v. George S. May Int'l Co., 600 F.3d 878, 882 (7th Cir. 2010) (citations omitted). The evidence must be such "that a reasonable jury could return a verdict for the nonmoving party." Wells v. Coker, 707 F.3d 756, 760 (7th Cir. 2013) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

When considering a motion for summary judgment, the court must construe the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in the nonmoving party's favor. Ogden v. Atterholt, 606 F.3d 355, 358 (7th Cir. 2010) (citations omitted). The court does not make credibility determinations or weigh conflicting evidence. George v. Kraft Foods Global, Inc., 641 F.3d 786, 799 (7th Cir. 2011) (citations omitted). Therefore, issues of contract interpretation are ...

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