United States District Court, E.D. Kentucky, Central Division, Lexington
MEMORANDUM OPINION AND ORDER
M. Hood Senior U.S. District Judge
Herdguard, LLC, was the creator of “Bodyguard 360,
” a dry powder scent suppression product
developed to mask the scent of deer hunters. Representatives
of Defendant NXT Generation Pet approached Herdguard
representatives about acquiring Herdguard and Bodyguard 360.
During negotiations, the parties, including manufacturer
Vermont Soap, executed non-disclosure (“NDA”) and
confidentiality agreements. Herdguard and NXT failed to reach
an agreement pertaining to the acquisition of Bodyguard 360.
Still, Herdguard alleges that Defendants NXT and Vermont soap
violated the agreements in two primary ways. First, Herdguard
alleges that NXT and Vermont Soap reverse engineered the
confidential formula for Bodyguard 360 and sold the reverse
engineered product as a product called “Ultimate
Outdoor Protection.” Second, Herdguard claims that NXT
engaged in a business relationship with Vermont Soap, in
violation of the non-circumvention clause in the Mutual NDA.
Vermont Soap moved for summary judgment. [DE 64, Motion for
Summary Judgment by NXT and Jason Riccardi and DE 67, Motion
for Summary Judgment by Vermont Soap]. Additionally,
Herdguard moved for partial summary judgment. [DE 68,
Herdguard Motion for Summary Judgment]. The parties have
responded in opposition to the applicable motions for summary
judgment. [DE 65. Response by Herdguard to DE 64; DE 74
Response by Herdguard to DE 67; DE 71 Response by Vermont
Soap to DE 68; and DE 73 Response by NXT to DE 68].
Additionally, the parties have either replied in support of
their motions or the time to reply has expired. [DE 69 Reply
of NXT and Riccardi and DE 75 Reply of Vermont Soap]. As a
result, this matter is ripe for review and consideration of
all pending motions for summary judgment will be consolidated
in this memorandum opinion and order.
reasons that follow, NXT and Riccardi's motion for
summary judgment [DE 64] is GRANTED IN PART
and DENIED IN PART, Vermont Soap's
motion for summary judgment [DE 67] is
GRANTED, and Herdguard's motion for
partial summary judgment [DE 68] is DENIED.
Procedural and Factual Background
was the creator of Bodyguard 360, a dry powder scent
suppression product originally marketed to mask the scent of
deer hunters. [DE 67 at 1, 4, Pg ID 566, 569]. To produce
Bodyguard 360, Herdguard used a base soap product sold by
Vermont Soap that was filtered through a substance known as
diatomaceous earth. [Id. at 1-2, 4-5, Pg ID 566-67,
569-70]. The base soap product from Vermont Soap was then
infused with other proprietary ingredients to produce
Bodyguard 360. [Id. at 4-5, Pg ID 569].
around May 2015, NXT's president, Jason Riccardi,
approached Herdguard owner Kenneth Stewart about NXT
acquiring Herdguard. [DE 64 at 4, Pg ID 316; DE 68 at 2, Pg
ID 748; DE 67 at 5, Pg ID 570]. During the negotiations, NXT
and Herdguard entered into two non-disclosure agreements
(“NDAs”). The “Herdguard NDA” was
signed by the parties on May 20, 2015, and is governed by
Kentucky law. [DE 64-4, Herdguard NDA]. The “Mutual
NDA, ” also dated May 20, 2015, is governed by New
Jersey law. [DE 64-5, Mutual NDA]. The parties do not
remember which agreement was signed first.
on June 15, 2015, Herdguard and Vermont Soap entered into a
confidentiality agreement at Herdguard's request. [DE
67-5, Confidentiality Agreement; DE 67 at 6, Pg ID 571]. The
confidentiality agreement between Herdguard and Vermont Soap
is governed by Vermont law. [DE 67-5 at 2, Pg ID 681].
NXT and Herdguard engaged in discussions about NXT purchasing
Herdguard. [See DE 68-3, Various Emails]. On June
17, 2015, Crystal Geis,  a Herdguard employee, sent NXT the
formula for Bodyguard 360. [DE 67-4 at 1, Pg ID 675]. Then,
on June 26, 2015, Herdguard sent the formula for Bodyguard
360 to Vermont Soap through email. [DE 67-7 at 1, Pg ID 687].
point during the negotiations, NXT expressed interest in
visiting Vermont Soap's facilities. Herdguard employees
coordinated with officials at NXT and Vermont Soap to arrange
for NXT representatives to visit Vermont Soap's
manufacturing facility. [DE 68-1 at 9, Pg ID 770]. Riccardi
and Beth Sommers, an NXT employee/representative, visited
Vermont Soap on July 8, 2015. [DE 67-8 at 3, PG ID 691].
though the parties exchanged drafts of an asset purchase
agreement, they never executed an asset purchase agreement
and the negotiations fell apart. [DE 64-2, Sommers Deposition
at 6, Pg ID 376; DE 64-3, Riccardi Deposition at 3-5, 7-8, Pg
ID 380-82, 384-85].
Vermont Soap did perform experiments and develop some
products for NXT after NXT officials visited the Vermont Soap
facility. In fact, Riccardi testified that the purpose of his
initial visit to Vermont Soap's facility in July 2015 was
both to conduct due diligence as part of the Herdguard
acquisition negotiations and to seek a manufacturer for NXT
products. [DE 68-6, Riccardi Deposition at 4-5, Pg ID
809-10]. Vermont Soap asserts that it conducted an experiment
in an attempt to develop a foaming hand soap for NXT. [DE
67-8, Plesent Deposition at 8-9, Pg ID 696-97]. But this
product was rejected because it did not work. [Id.].
in October 2015, Vermont Soap was testing a deodorizing spray
product for NXT that used diatomaceous earth. [Id.
at 10-11, Pg ID 698-99]. But Larry Plesent, corporate
designee of Vermont Soap, testified that experimentation on
this product was ultimately discontinued because the product
was too similar to the Herdguard formula for Bodyguard 360.
[Id. at 10-13, Pg ID 698-701; see also DE
Vermont Soap sold NXT an insect repellant product containing
citronella marketed by NXT as “Ultimate Outdoor
Protection.” [DE 67-8 at 5, Pg ID 693]. According to
Vermont Soap, this product was initially developed as
“insect armor” or “camping spray”
before Vermont Soap began doing business with Herdguard and
was purchased off-shelf by NXT. [Id.]. Additionally,
Plesent testified that before doing business with Herdguard,
Vermont Soap did not have any product on the market that used
diatomaceous earth as an ingredient. [Id. at 5-6, Pg
in April 2016 Herdguard executed a dissolution agreement and
the company dissolved, distributing all assets and assigns to
Stewart. [DE 67-12]. In November 2016, Stewart filed this
lawsuit in Garrard Circuit Court, which was removed to this
Court in December 2016. [DE 1; DE 1-1].
in December 2016, Stewart executed an asset purchase
agreement and sold Herdguard's assets to DCS Enterprises,
LLC. [DE 67-13]. The purchase agreement excepted
Stewart's rights to pursue this lawsuit. [Id. at
3-4, Pg ID 724-45]. But the principal of DCS Enterprises died
soon after the asset purchase agreement was signed and
Stewart elected not to enforce the asset purchase agreement,
opting to release DCS from the purchase agreement and having
DCS convey the rights and assets back to Stewart. [DE 67-2 at
17-22, 347-49, Pg ID 614-19, 658-60]. In deposition
testimony, Stewart indicated that he planned on selling
Bodyguard 360 again. [Id. at 64, Pg ID 661].
NXT and Vermont Soap stopped doing business with one another
in 2017, after this lawsuit was filed. [DE 67-11 at 3, Pg ID
717; DE 67-8 at 13-14, Pg ID 701-02]. This lawsuit generally
alleges that the agreements were violated the NDAs in two
ways: (1) by reverse engineering the formula for Bodyguard
360 to make a similar product called “Ultimate Outdoor
Protection, ” and (2) by doing business with each other
to circumvent Herdguard's business relationships in
violation of the agreements.
judgment is appropriate only when no genuine dispute exists
as to any material fact and the movant is entitled to
judgment as a matter of law. Fed.R.Civ.P. 56(a). A material
fact is one “that might affect the outcome of the suit
under governing law.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986). The moving party has the
burden to show that “there is an absence of evidence to
support the nonmoving party's case.” Celotex
Corp. v. Catrett, 477 U.S. 317, 325 (1986). “A
dispute about a material fact is genuine if the evidence is
such that a reasonable jury could return a verdict for the
nonmoving party.” Smith v. Perkins Bd. of
Educ., 708 F.3d 821, 825 (6th Cir. 2013) (internal
quotations omitted). The Court construes the facts in the
light most favorable to the nonmoving party and draws all
reasonable inferences in the non-moving party's favor.
See Anderson, 477 U.S. at 248; Hamilton Cty.
Educ. Ass'n v. Hamilton Cty. Bd. of Educ., 822 F.3d
831, 835 (6th Cir. 2016).
diversity action like this one, the Court must apply the
substantive law of the forum state and federal procedural
law. Gasperini v. Ctr. for Humanities, Inc., 518
U.S. 415, 427-28 (1996); Hanna v. Plumer, 380 U.S.
460, 465-66 (1965); Erie R.R. Co. v. Tompkins, 304
U.S. 64, 78-80 (1938); Hoven v. Walgreen Co., 751
F.3d 778, 783 (6th Cir. 2014). Thus, “where a federal
court is exercising jurisdiction solely because of the
diversity of citizenship of the parties, the outcome of the
litigation in the federal court should be substantially the
same . . . as it would be if tried in a State court.”
Guaranty Trust Co. v. York, 326 U.S. 99, 109 (1945).
Ultimately, to determine whether summary judgment should be
granted here, the Court must look to state law and court
decisions, as well as other relevant materials. Meridian
Mut. Ins. Co. v. Kellman, 197 F.3d 1178, 1181 (6th Cir.
Voluntary Dismissal of Certain Counts
initial matter, Herdguard states that it wishes to dismiss
certain counts against the defendants in this action.
Specifically, “Herdguard voluntarily dismisses Counts
IV, V, and VII against NXT and Riccardi. By dismissing Counts
V and VII against Riccardi individually, Herdguard dismisses
Riccardi as a defendant in this litigation.” [DE 65,
Herdguard Response at 2, Pg ID 437]. Additionally, as to
Vermont Soap, “Herdguard does not object to the
dismissal of Counts V and VII, in that they are subsumed in
the claims for breach of contract.” [DE 74, Herdguard
Response at 1, Pg ID 1027].
Rule of Civil Procedure 21 provides the proper procedural
mechanism through which individual counts or claim may be
dismissed against certain parties without disposing of the
entire action. See United States ex rel. Doe v. Preferred
Care, Inc., 326 F.R.D. 462, 464 (E.D. Ky. 2018) (citing
Philip Carey Manufacturing Company v.
Taylor, 286 F.2d 782, 785 (6th Cir. 1961)).
motion or on its own, the court may at any time, on just
terms, add or drop a party. The court may also sever any
claim against a party.” Fed.R.Civ.P. 21. The rule
applies where “no relief is demanded from one or more
of the parties joined as defendants.” Letherer v.
Alger Grp., LLC, 328 F.3d 262, 267 (6th Cir. 2003).
Normally, under the rule, Courts must consider prejudice to
the nonmoving party. See Wilkerson v. Brakebill, No.
3:15-CV-435-TAV-CCS, 2017 WL 401212, at *2 (E.D. Tenn. Jan.
30, 2017); Arnold v. Heyns, No. 13-14137, 2015 WL
1131767, at *4 (E.D. Mich. Mar. 11, 2015). The inquiry
overlaps with Rule 41 standards “as guidance in
evaluating potential prejudice to the non-movant.”
Wilkerson, 2017 WL 401212, at *2. Courts determine
whether the nonmoving party would suffer “plain legal
prejudice” and consider: (1) defendant's effort and
expense of preparation for trial; (2) excessive delay and
lack of diligence on plaintiff's part in prosecuting the
case; (3) insufficient explanation for the need for
dismissal; and (4) whether a motion for summary judgment is
pending.” Grover v. Eli Lily & Co., 33
F.3d 716, 718 (6th Cir. 1994).
here, the nonmoving parties support the dismissal of these
claims. [DE 69, NXT's and Riccardi's Reply at 1, Pg
ID 863; DE 75, Vermont Soap's Reply at 10, Pg ID 1055].
As a result, dismissal of these counts is appropriate since
all parties agree to the dismissal. Thus, Counts IV, V, and
VII of Herdguard's complaint against NXT and Riccardi are
dismissed without prejudice. Additionally, Counts V and VII
of Herdguard's complaint against Vermont Soap are
dismissed without prejudice.
Breach of ...