Innovation Ventures, LLC, a Michigan limited liability company, Plaintiff-Appellant/Cross-Appellee,
Custom Nutrition Laboratories, LLC, Defendant, Nutrition Science Laboratories, LLC, a Texas limited liability company; Alan Jones, Defendants-Appellees/Cross-Appellants. Innovation Ventures, LLC, a Michigan limited liability company, Plaintiff-Appellant,
Nutrition Science Laboratories, LLC, a Texas limited liability company; Alan Jones; L.O.D.C. Group Limited; L.O.D.C. Incorporated, Defendants-Appellees.
Argued: August 3, 2018
from the United States District Court for the Eastern
District of Michigan at Flint. No. 4:12-cv-13850;
4:16-cv-11179-Terrence George Berg, District Judge.
J. Bursch, BURSCH LAW PLLC, Caledonia, Michigan, for
W. Banowsky, BANOWSKY & LEVINE, P.C., Dallas, Texas, for
Nutrition Science Laboratories, Alan Jones, and L.O.D.C.
J. Bursch, BURSCH LAW PLLC, Caledonia, Michigan, Matthew T.
Nelson, WARNER NORCROSS & JUDD LLP, Grand Rapids,
Michigan, E. Powell Miller, Martha J. Olijnyk, THE MILLER LAW
FIRM, P.C., Rochester, Michigan, for Innovations Ventures.
W. Banowsky, BANOWSKY & LEVINE, P.C., Dallas, Texas, for
Nutrition Science Laboratories, Alan Jones, and L.O.D.C.
Before: SILER, GRIFFIN, and STRANCH, Circuit Judges.
B. STRANCH, CIRCUIT JUDGE.
years ago, Plaintiff Innovation Ventures (Innovation),
manufacturer of 5-Hour Energy, settled a lawsuit with the
now-defunct Custom Nutrition Laboratories (Custom Nutrition)
by entering into a noncompete agreement. When Nutrition
Science Laboratories (NSL) subsequently purchased Custom
Nutrition's assets, it did not abide by the restrictive
covenants in that noncompete agreement. Innovation initially
sued Custom Nutrition; NSL; and Alan Jones, an officer of
both Custom Nutrition and NSL, and later added a suit against
a related company, Lily of the Desert (collectively,
Defendants). After protracted litigation, Innovation was
awarded nominal damages for its core breach of contract
claim. For the reasons explained below, we
AFFIRM in part, REVERSE in
part, and REMAND to the district court for
further proceedings consistent with this opinion.
story of the parties' business relationship and its
subsequent deterioration is lengthy and complex, and many of
its details are hotly disputed. The district court ably
described the relevant events in some detail in one of its
summary judgment orders. See Innovation Ventures, LLC v.
Custom Nutrition Labs., LLC (Innovation Ventures
II), No. 12-13850, 2015 WL 5679879, at *1-7 (E.D. Mich.
Sept. 28, 2015). The following is a summary of the critical
Breakdown of the Manufacturing Relationship
Innovation is the maker and distributor of 5-Hour Energy, a
well-known "energy shot." In 2004, when Innovation
was doing business as Living Essentials, it contracted with
Custom Nutrition to manufacture and package 5-Hour Energy.
Defendant Alan Jones was the President and CEO of Custom
Nutrition at the time and had previously manufactured a
two-ounce energy shot called "Shotz." When Living
Essentials ended the business relationship some years
later-abruptly and unfairly, according to Defendants-Custom
Nutrition had a surplus of ingredients and packaging. Jones
used the surplus to continue manufacturing 5-Hour Energy for
an unspecified amount of time after the relationship ended.
Jones averred that his use of the surplus was mitigation of
damages protected by the Uniform Commercial Code.
companies then sued one another, with each claiming that the
other had breached the contract, stolen trade secrets or
intellectual property, and committed assorted torts. The
protracted litigation came to an end almost two years later
when, according to Jones, Custom Nutrition was on the verge
of bankruptcy. The companies then entered into the Settlement
Agreement that is at the center of this litigation.
Agreement contains an admission that Custom Nutrition and
Jones "wrongfully manufactured" products bearing
the 5-Hour Energy label, provides that Living Essentials owns
the 5-Hour Energy formula, and forbids Custom Nutrition from
manufacturing any new "Energy Liquid" that
"contain[s] anything in the Choline Family."
According to Innovation, ingesting choline and related
substances improves focus, and including them in the 5-Hour
Energy recipe was a critical innovation. In return for these
restrictions and admissions, Living Essentials paid Custom
Nutrition $1.85 million. Specific provisions of the
Settlement Agreement are discussed in more detail below.
NSL Purchases Custom Nutrition's Assets
words of the district court, Custom Nutrition was "in a
precarious financial condition," and the cash infusion
was insufficient "to enable the company to regain its
financial footing." Innovation Ventures II,
2015 WL 5679879, at *4. Jones therefore spoke with Don
Lovelace, owner of Lily of the Desert, about the possibility
of Lily acquiring Custom Nutrition. Lovelace instead agreed
to purchase Custom Nutrition's assets and formed a new
corporation, Defendant NSL, which entered into an Asset
Purchase Agreement with Custom Nutrition.
Asset Purchase Agreement provides that NSL acquires Custom
Nutrition's listed assets but is not "responsible
for any liabilities, liens, security interests, claims,
obligations, or encumbrances" of Custom Nutrition except
for those listed on an attached schedule-principally, debt
Custom Nutrition owed to a bank. The Asset Purchase Agreement
includes one reference to the Settlement Agreement:
"[T]he formula for energy drinks manufactured by [Custom
Nutrition] and certain related trademark and copyright
matters are limited by the settlement agreement between
[Custom Nutrition] and Living Essentials."
the execution of the Asset Purchase Agreement, NSL went into
the energy shot business. Jones became an employee of Lily
and represented himself as President of NSL. NSL marketed
itself as a continuation of Custom Nutrition and took on
Custom Nutrition's old orders and customers. Over the
next few years, NSL produced and distributed energy shots
containing choline citrate, choline bitartrate, betaine, and
alpha glycerolphosphorylcholine (alpha GPC). The first two
substances are listed in the Choline Family definition in the
Settlement Agreement; the latter two are, according to
Innovation, chemical equivalents to choline covered by the
definition's catch-all clause.
Lead Case (Nos. 17-1734/1771)
sued Custom Nutrition,  NSL, and Jones for breaching the
Settlement Agreement and for tortious interference.
Proceedings in the district court were protracted.
rejecting two motions to dismiss raising objections to
personal jurisdiction, the district court addressed whether
NSL had violated the Choline Family restrictions. It granted
partial summary judgment to Innovation based on
Defendants' admitted production of energy shots
containing choline bitartrate and choline citrate. See
Innovation Ventures, LLC v. Custom Nutrition Labs., LLC
(Innovation Ventures I), No. 12-13850, 2014 WL
4829582, at *3 (E.D. Mich. Sept. 29, 2014). The court
concluded that whether betaine and alpha GPC (which
Defendants also admitted to using) were included in the
catch-all clause in the Choline Family definition was
ambiguous as a matter of law. See id. at *2-3. A
jury trial was convened to determine whether the two
ingredients were included in the clause's scope; the jury
concluded that both were.
district court then turned to issues related to liability
under the Settlement Agreement. The court concluded that: (1)
NSL was bound by the Choline Family restrictions in the
Settlement Agreement by virtue of their incorporation into
the Asset Purchase Agreement, see Innovation Ventures
II, 2015 WL 5679879, at *16-19; (2) Jones was bound by
the Settlement Agreement because he signed it, see
id. at *20-21; and (3) the twenty-year duration of the
Settlement Agreement was unreasonable under Michigan law,
necessitating reformation of the contract to last only three
years, see id. at *24-25.
another round of briefing, the district court turned to the
remaining issues, concluding that: (1) Innovation was not
entitled to summary judgment as to liability on its main
breach of contract claim because NSL's affirmative
defense of laches raised factual disputes, see Innovation
Ventures, LLC v. Custom Nutrition Labs., LLC
(Innovation Ventures III), 256 F.Supp.3d 696, 704
(E.D. Mich. 2017); and (2) Innovation's three proposed
methodologies for calculating damages were impermissible,
although Innovation could "still recover lost profits
under a non-patent-infringement specific method of
calculation," see id. at 710-12 & n.8.
order was handed down about one month before the final jury
trial was scheduled to begin. According to Innovation, the
order left it "without any theory of actual damages to
present to the jury, leaving only the theory of nominal
damages" on which it could recover with regard to its
primary claim. Count III, alleging that Jones breached the
Settlement Agreement by cooperating with adverse parties, had
yet to be resolved. See id. at 715. The parties
therefore entered four stipulations "[f]or the purpose
of expediting appeal of the previous orders and
1. The parties stipulate to the dismissal of Count III of
Plaintiff's Second Amended Complaint with prejudice
pursuant to Federal Rule of Civil Procedure 41(a)(1).
2. The parties stipulate that the meaning of "any
successful order" as used in Section 20 of the
Settlement Agreement does not encompass a judgment or order
for nominal damages.
3. The parties stipulate that, if awarded, nominal damages
4. The parties stipulate that nominal damages in the amount
of $1 do not constitute sufficient prejudice to support the
affirmative defense of laches under Michigan law.
parties submitted a proposed judgment awarding nominal
damages to Innovation. Counsel for both parties signed the
proposed judgment, indicating that it was "Approved as
to Form Only and Preserving All Rights of Appeal."
district court had reservations about this resolution,
explaining that it was "not certain that entering this
proposed judgment will actually preserve" either
party's right to appeal. It nonetheless entered judgment
in Innovation's favor on Count I and awarded nominal
damages. Innovation appealed, and NSL cross-appealed.
Secondary Case (No. 17-1911)
Lead Case was proceeding in the district court, Innovation
brought a new suit against NSL, adding a new defendant: Lily
of the Desert. According to the complaint, discovery in the
Lead Case revealed that Lily was also liable under the
Settlement Agreement because of its relationship with NSL.
Innovation brought the Secondary Case to prevent NSL from
"play[ing] shell games to avoid liability and any
potential judgment." All claims in the Secondary Case
relate to the same nucleus of fact as in the Lead Case, and
Innovation concedes that the claims in the Secondary Case
"rise or fall with the rulings in the lead case."
parties agreed the judgment in the Lead Case rendered the
claims in the Secondary Case "effectively moot," so
the district court entered judgment in favor of Defendants.
Innovation Ventures, LLC v. Nutrition Sci. Labs.,
LLC (Innovation Ventures IV), No. 16-11179,
2017 WL 4553429, at *1-2 (E.D. Mich. July 17, 2017).
Innovation appealed. The two cases were consolidated on
raise two jurisdictional objections: lack of appellate
jurisdiction and lack of personal jurisdiction over both
Jones and NSL. We may review jurisdictional objections in any
order. See Ruhrgas AG v. Marathon Oil Co., 526 U.S.
574, 578 (1999) (explaining that "there is no unyielding
jurisdictional hierarchy" as between subject-matter and
argue that the judgment pursuant to stipulations in the Lead
Case was not a final appealable decision for purposes of 28
U.S.C. § 1291.
did not raise this argument before the district court. To the
contrary, when the district court questioned Defendants'
counsel-the same counsel representing them on appeal-about
whether the stipulations could result in a "final
resolution," counsel responded that "there is Sixth
Circuit case law for the proposition that a plaintiff can
dismiss with prejudice the remaining claims if they feel that
the main thrust of their case has been already decided"
and that "the Sixth Circuit does actually authorize a
procedure just very much like this in order to finalize a
case, resolve all the issues, and make it ripe for
appeal." The inconsistency between the representations
made to the district court and those included in the motion
to dismiss is concerning but does not change our approach to
the jurisdictional question at hand. We must satisfy
ourselves that appellate jurisdiction exists even when
neither party raises the issue. See Bd. of Trs. of
Plumbers, Local Union No. 392 v. Humbert, 884 F.3d 624,
625 (6th Cir. 2018).
courts have jurisdiction to hear "appeals from all final
decisions of the district courts." 28 U.S.C. §
1291. A decision is final for the purposes of § 1291 if
it "ends the litigation on the merits and leaves nothing
for the court to do but execute the judgment."
Catlin v. United States, 324 U.S. 229, 233 (1945).
This "firm finality principle [is] designed to guard
against piecemeal appeals." Microsoft Corp. v.
Baker, 137 S.Ct. 1702, 1707 (2017). There is also a
long-standing rule that a party may not appeal a judgment to
which it consented. See United States v. Babbitt,
104 U.S. 767, 768 (1881); Scholl v. Felmont Oil
Corp., 327 F.2d 697, 700 (6th Cir. 1964). Satisfaction
of that rule is a requirement of § 1291. See Raceway
Props., Inc. v. Emprise Corp., 613 F.2d 656, 657 (6th
Cir. 1980) (per curiam). We therefore must determine whether
this judgment entered pursuant to stipulations comports with
§ 1291's requirements.
The Raceway Standard
is an important exception to the rule prohibiting appeals
from judgments to which the appellant consented. As we
explained in Raceway Properties, an appeal is
permissible when "solicitation of the formal dismissal
was designed only to expedite review of an order which had in
effect dismissed appellants' complaint."
Id. (citing United States v. Procter &
Gamble Co., 356 U.S. 677 (1958)).
& Gamble, the Supreme Court decision upon which
Raceway relied, was an antitrust case in which the
Government had refused to produce a grand jury transcript.
356 U.S. at 678-79. On the Government's suggestion, the
district court entered an order providing that, if the
Government did not produce the transcript by a particular
date, the case would be dismissed. Id. at 679. The
case was subsequently dismissed and appealed to the Supreme
Court, where Procter & Gamble argued that the appeal
should be dismissed because "a plaintiff who has
voluntarily dismissed his complaint may not sue out a writ of
error." Id. at 680. The Court explained that
rule "ha[d] no application here" because
"[w]hen the Government proposed dismissal for failure to
obey, it had lost on the merits and was only seeking an
expeditious review." Id. at 680-81. The Supreme
Court distinguished between consenting to the substance of a
judgment and consenting to its form: "The plaintiffs did
not consent to a judgment against them, but only that, if
there was to be such a judgment, it should be final in form
instead of interlocutory, so that they might come to this
court without further delay." Id. at 681
(quoting Thomsen v. Cayser, 243 U.S. 66, 83 (1917)).
Raceway, we held that expeditious review could be
sought in this manner in contexts other than discovery
disputes. Raceway, also an antitrust suit, involved
a partial summary judgment decision that had defined the
market at issue:
Appellants took issue with the district court's
determination of the relevant market. Appellants informed the
court they believed the court's order effectively
terminated the lawsuit since they were not prepared to and
could not proceed with evidence regarding the relevant market
outlined by the court. The appellants requested a formal
order of dismissal so that they could proceed with an appeal
challenging the district court's ruling on the scope of
the relevant market. Such an order was entered and this
613 F.2d at 657. We permitted the appeal on the
grounds quoted above: "[S]olicitation of the formal
dismissal was designed only to expedite review of an order
which had in effect dismissed appellants'
Raceway rule subsequently found purchase. Thus, for
example, we heard an appeal pursuant to Raceway when
a plaintiff sought voluntary dismissal of her suit after the
district court "had dismissed finally the only viable
claim which she had advanced" even though the court
"offered to hear her suit to the degree that it sounded
in negligence." Bogorad v. Eli Lilly & Co.,
768 F.2d 93, 94 (6th Cir. 1985); see also Sandul v.
Larion, No. 94-1233, 52 F.3d 326 (Table), 1995 WL 216919
(6th Cir. Apr. 11, 1995). By contrast, Raceway's
requirements were not satisfied when a plaintiff consented to
dismissal with prejudice after denial of his motion to remand
to state court; we explained that the statute of limitations
and failure to exhaust defenses that the plaintiff argued
would have doomed his federal claim had not been fully aired
and might have been decided in his favor. Laczay v. Ross
Adhesives, Div. of Conros Corp., 855 F.2d 351, 355 (6th
Cir. 1988). As recently as four years ago, we considered an
appeal of final stipulations entered pursuant to
Raceway without even pausing to consider whether
§ 1291 was satisfied. See Ram Int'l, Inc. v. ADT
Sec. Servs., 555 Fed.Appx. 493, 496-97 (6th Cir. 2014).
circuits cite Raceway with approval. See,
e.g., Helm Fin. Corp. v. MNVA R.R., Inc., 212
F.3d 1076, 1080 (8th Cir. 2000); Trevino-Barton v.
Pittsburgh Nat'l Bank, 919 F.2d 874, 878 (3d Cir.
1990); Empire Volkswagen, Inc. v. World-Wide Volkswagen
Corp., 814 F.2d 90, 94 (2d Cir. 1987). Wright &
Miller cites Empire Volkswagen (a Second
Circuit case which in turn relied on Raceway) as an
example of a good approach to the problem of voluntary or
invited dismissals. See 15A Charles Alan Wright
& Arthur R. Miller, Federal Practice and Procedure:
Jurisdiction and Related Matters § 3914.8 (2d ed.
Supp. 2018) ("There is much to be said for a rule that
routinely permits a plaintiff to manufacture finality by
abandoning all remaining parts of a case but that forbids any
attempt at recapture.").
have, however, staked out two important limits on the
application of Raceway. First, parties may not
appeal claims that were dismissed without prejudice.
Libbey-Owens-Ford Co. v. Blue Cross & Blue Shield
Mut. of Ohio, 982 F.2d 1031, 1034 (6th Cir. 1993).
Second, if a party seeks to come within the Raceway
exception, she should make "her intention known to the
court and opposing parties." Laczay, 855 F.2d
at 354. "While it is possible for a party to consent to
a judgment and still preserve his right to appeal, he must
reserve that right unequivocally, as it will not be
presumed." Id. (quoting Coughlin v.
Regan, 768 F.2d 468, 470 (1st Cir. 1985)).
The Status of Raceway in ...