Cogent Solutions Group, LLC v. Hyalogic, LLC et al - Document 51
MEMORANDUM OPINION & ORDER: IT IS ORDERED that CSG's 30 Motion to enforce settlement agreement is DENIED; IT IS FURTHER ORDERED that all other pending motions 39 Sealed Motion, 40 MOTION for leave to Seal a Document filed by Hyalogi c, LLC, 42 MOTION for leave to Seal a Document, 43 , 45 are GRANTED and all accompanying briefs and affidavits are admitted as part of the record; This case shall continue to remain CLOSED AND STRICKEN from Court's docket. Signed by Judge Jennifer B Coffman on 3/30/2012.(GLD)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CIVIL ACTION NO. 11-124-JBC
COGENT SOLUTIONS GROUP, LLC
MEMORANDUM OPINION & ORDER
HYALOGIC, LLC, ET AL.
Cogent Solutions Group, LLC (“CSG”) and Hyalogic, LLC are competitors in
the joint supplement market, with hyaluronic acid (“HA”) being a key component in
their respective products. In April 2011, CSG commenced suit against Hyalogic
and Hoppy & Company, Inc. requesting the defendants to cease the dissemination
of misleading information about CSG’s product Baxyl, primarily focusing on the
defendants’ use of a “Competitive Analysis Chart” comparing the two competing
products. On April 21, 2011, the parties entered into a Stipulated Agreement (R.
19, attach. 1) informing the court of their intent to mediate in good faith, and the
defendants agreed to “remove all copies of ‘the Chart’ from circulation, and all
copies, whether paper or electronic, shall be retained by counsel.”
The parties conducted a settlement conference on April 29, 2011, before
Magistrate Judge Wier and resolved all claims. R. 23. According to the written
Settlement Agreement, Release, and Covenant Not to Sue tendered to the Court
(R. 47 Sealed Settlement Agreement), the parties agreed to specific prohibitions,
such as an agreement to refrain from making “false or misleading statements about
the other [p]arty’s products,” an agreement to refrain from utilizing a “Competitive
Analysis Chart” in future marketing or sales, and an agreement that Hyalogic would
not state that Baxyl contains preservatives that break down hyaluronan. R.47 at 45. Thereafter, the parties tendered an agreed order of dismissal which was signed
and entered on June 13, 2011.
Currently pending is a motion by CSG to enforce the Settlement Agreement
(R.30), arguing that Hyalogic has violated this agreement, to the detriment of CSG
and its product “Baxyl1,” through the marketing of Hyalogic’s own product,
“Synthovial 72,” and the dissemination of false and misleading information.
Although federal courts generally do not retain jurisdiction to enforce settlement
agreements, see Kokkonen v. Guardian Life Ins. Co. of Amer., 511 U.S. 375, 38182 (1994), here an “independent basis” for jurisdiction exists based on diversity of
citizenship and a stipulated amount in controversy exceeding $75,000. See R. 49.
For the following reasons, the court will deny CSG’s motion to enforce the
In reaching that conclusion, the court has found it
necessary to utilize all responses, replies, and surreplies filed by the parties, and
will thus grant all motions to file such pleadings (R. 39, 40, 42, 43, 44, and 45).
CSG’s pending claims of breach of the Settlement Agreement stem from
statements on a June 2011 YouTube video entitled “Pure Hyaluronic Acid – Anti
Aging.3gp,” a speech given by Dr. Karen Brown on July 30, 2011, at the Natural
Baxyl is an “oral, liquid HA supplement that is sold into the human natural products market.” See
R. 30, Exhibit 2 at 3.
“Synthovial 7” is a “patented, human orally-digestible liquid hyaluronic acid (“HA”) supplement,”
introduced in 2001 to address joint pain. See R.36 at 3.
Products Association Midwest Trade Show, and an allegation that Hyalogic did not
timely remove the Competitive Analysis Chart from circulation, despite having
agreed to do so in April 2011. Two provisions of the Settlement Agreement apply
to CSG’s claims of breach: section 3.0 “Representations” and section 8.0
“Liquidated Damages.” CSG has failed to prove breach under either section.
Section 8.0 (Liquidated Damages)
This portion of the Settlement Agreement states that the parties agree:
“if it is ever proven, by clear and convincing evidence, that Hyalogic and/or
the Hoppy Entities, including their respective employees and agents, knowingly
used any of the following statements:
a. that Baxyl is not bio-available;
b. that Baxyl is not capable of sublingual absorption;
c. that Baxyl may have a pro-inflammatory effect in the human body;
d. that the human body can only absorb 3 mg of HA or that the joints only
need 3 mg of HA per day.
in print for sales and/or marketing purposes after May 17, 2011, then the offending
party shall be liable to CSG in the amount of $5,000 per use, as liquidated
A settlement agreement is a contract and controlled by Kentucky contract
law and rules of contract interpretation.
See Frear v. P.T.A. Indus., Inc., 103
S.W.3d 99, 105 (Ky. 2003); 3D Enter. Contracting Corp v. Louisville and Jefferson
County Metro Sewer Dist., 174 S.W.3d 440, 448 (Ky. 2005). “The primary object
in construing a contract or compromise settlement agreement is to effectuate the
intentions of the parties.” Cantrell Supply Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d
381, 384 (Ky. App. 2002).
“The interpretation of a contract, including the
determination of whether a contract is ambiguous, is a question of law for the
Here, the terms of the Settlement Agreement are clear and unambiguous.
The parties specifically agreed that in order to trigger this liquidated damages
clause, six requirements must be proven: (1) by clear and convincing evidence, (2)
that Hyalogic, (3) knowingly used the statement, (4) in print, (5) for sales or
marketing purposes, (6) after May 17, 2011. CSG’s allegations of breach do not
meet these strict requirements.
CSG claims that Hyalogic is in breach due to the statement on the YouTube
video that “you only need . . .3 milligrams of high molecular weight . . .” (R. 30 at
Although this statement reads very closely to the prohibition listed in
subsection d of the 8.0 liquidated damages clause that reads “the human body can
only absorb 3 mg of HA or that the joints only need 3 mg of HA per day,” CSG
fails to prove breach because it cannot meet all of the six requirements in order to
trigger this damages clause of the Settlement Agreement.
CSG cannot meet the high threshold of clear and convincing evidence to
show that Hyalogic was responsible for posting the YouTube video.
contends that the video was posted by an unrelated Malaysian company that was
“acting independently” and uploaded the YouTube video to the Internet “without
permission.” (R. 36 at 8). CSG argues that Hyalogic’s website provides contact
information for many international retail partners, including partners located in
Malaysia. See R.38 at 5, FN 9 (citation omitted). This listing of “retail partners”
referencing companies in Malaysia on Hyalogic’s website merely supports a weak
inference; it does not prove by clear and convincing evidence that Hyalogic caused
the YouTube video to be uploaded to the Internet when the affidavit of Landis
directly refutes this assertion. Landis states, “Hyalogic did not cause that video to
be posted on YouTube – it was posted, without permission, by [a] user with the
screen name “purewhiteclean,” operated by a Malaysian company which sells
Hyalogic’s products (the company is otherwise unrelated to Hyalogic).” (R.35-1 at
3, ¶5) CSG offers no evidence, other than its own speculation, to show that this
company is related to Hyalogic.
In addition, CSG has not demonstrated that this verbal statement on the
YouTube video satisfies the requirement that an offending statement must be “in
In construing the contract as a whole, noticeably absent from the plain
language of this clause is the term “Internet.”
Section 3.3 of the Settlement
Agreement states that Hyalogic agrees to remove the “competitor line” from the
graph on any future use “in print or on the Internet.” It is a “fundamental and
supreme rule of construction of contracts [that], the intention of the parties
Parrish v. Newbury, 279 S.W.2d 229, 233 (Ky. 1955).
specifically included the term “Internet” following the term “in print” in one section
of the contract, 3.3, but omitted it in another, 8.0.
Therefore, this intentional
omission in section 8.0 specifically excludes statements on the Internet, or in this
case the verbal statement by Dr. Brown on the YouTube video, as offered by CSG
to trigger this damages section.
Finally, CSG has not shown that this verbal statement referencing 3
milligrams was used for “sales or marketing purposes after May 17, 2011.” Darren
Landis, a founding member of Hyalogic, by sworn affidavit testifies that “[t]he two
videos described in Cogent’s Motion to Enforce Settlement Agreement were
originally loaded onto Hyalogic’s website in June 2010. Hyalogic did not make any
changes or additions to the content of the videos after the settlement.” (R. 37 at
CSG does not address Landis’s sworn statement or offer any evidence to
refute the existence of the YouTube video in the public domain prior to May 17,
Because CSG cannot demonstrate by clear and convincing evidence, as
required to trigger section 8.0 of the Settlement Agreement, that the statement by
Dr. Brown on the YouTube video was made by Hyalogic and was used “in print”
for sales or marketing purposes after May 17, 2011, this claim for breach must fail.
This allegation of breach relating to 3 milligrams on the YouTube video is the
only one of CSG’s allegations that could be construed to trigger this liquidated
damages clause of section 8.0 of the Settlement Agreement. The general claims
attributed to Dr. Brown at the keynote address referencing “citric acid and
potassium sorbate as preservatives that breakdown HA” are not among the
prohibitions listed in (a)-(d) which are intended to trigger 8.0.
removal of the Competitive Analysis Chart from circulation does not trigger this
section, nor do the parties allege that it does.
Section 3.0 (Representations)
CSG’s remaining allegations of breach relating to other statements on the
YouTube video, Dr. Brown’s keynote address, and the timeliness of removal of the
Competitive Analysis Chart can all be analyzed under Section 3.0 of the Settlement
Agreement, which provides:
“3.2 The Parties expressly warrant, represent, and agree that they will not
make false or misleading statements about the other Party’s products.
3.3 Hyalogic and Hoppy shall not utilize the “Competitive Analysis” Chart
(the “Chart”) or the characterization about Baxyl contained in the Chart in any
future marketing and/or sales materials or information. Hyalogic will use its best
efforts to retrieve and destroy all existing copies of the Chart. Hyalogic further
agrees to remove the “competitor line” from the graph on any future use in print or
on the Internet with regard to any preservative-related graphs.
3.4. Hyalogic agrees that it will not state, nor cause others to state, that
Baxyl contains preservatives that break-down hyaluronan (“HA”).
CSG argues that two other statements on the YouTube video are in breach
of the Settlement Agreement.
The statement on the YouTube video that
Hyalogic’s product, Synthovial 7, is “more than 6 times that of the competition,”
while the “screen depicts that Hyalogic’s products have ‘6X Higher Weight’” (R.30
at 5) does not rise to the level of breach.
Contrary to CSG’s assertion, this
statement is not in violation of Section 3.2 prohibiting “false or misleading
statements” about the other’s product. Landis, in his sworn statement, states that
“[t]o my knowledge, there are at least 13 other liquid HA supplements on the
market that compete directly with Synthovial 7 and Baxyl. Including other product
lines, there are more than 30 competing HA products in the marketplace.” (R.30-1
at 2, ¶9)
The plain language of Section 3.2 requires a reference to the “other
“[I]n the absence of ambiguity a written instrument will be
enforced strictly according to its terms.” Frear, 103 S.W.3d at 106 (citing O’Bryan
v. Massey-Ferguson, Inc., 413 S.W.2d 891, 893 (Ky. 1966)).
reference to “the competition” on the YouTube video is not an explicit reference to
CSG’s product Baxyl. Enforcing the agreement strictly, then, these statements do
not constitute breach.
In addition, CSG cites another statement on the YouTube video where
Hyalogic claims that “[w]hile others use preservatives and fillers that break down
HA in their product, Hyalogic does not use any preservatives or fillers in order to
retain the integrity and effectiveness . . .” (R. 30 at 5).
Section 3.4 prohibits
Hyalogic from stating or causing others to state that “Baxyl contains preservatives
that break-down hyaluronan (“HA”).”
CSG again asks the court to make the
assumption that the statement on the video referencing “others” must be a
reference to CSG’s product Baxyl. The court will not do so when the contract,
enforced strictly, requires an express representation about Baxyl. See Frear, 103
S.W.3d at 106.
CSG raises another breach allegation regarding Hyalogic’s “characterization
about Baxyl contained in the Chart in marketing and/or sales.”
(R. 38 at 4).
Hyalogic agreed to refrain from using the “Competitive Analysis Chart” or the
characterization about Baxyl contained in the Chart in future marketing or sales as
memorialized by Section 3.3 of the Settlement Agreement. However, this section
also states that “Hyalogic will use its best efforts to retrieve and destroy all
existing copies of the Chart.”
CSG appears to complain that Hyalogic did not
remove the Competitive Analysis Chart quickly enough from circulation from the
time of the negotiation of the settlement in late April 2011 to the date the
Settlement Agreement was actually signed in May 2011. (R.38 at 4-5).
The Settlement Agreement does not address the timing of the removal of the
Competitive Analysis Chart from circulation.
will use its “best efforts.”
Rather, the contract says Hyalogic
Hyalogic states that all copies of the Competitive
Analysis Chart were removed from circulation in April 2011. (See R.39-1 at 8).
Under Kentucky law, to satisfy the elements of a breach of contract claim the
complainant must establish (1) the existence of a valid contract; (2) breach by the
defendant; and (3) damage resulting from the breach.
Sudamax Industria e
Comercia de Cigarres, Ltda. v. Buttes, 516 F.Supp.2d 841, 845 (W.D. Ky. 2007);
Metro Louisville/Jefferson County Gov. v. Abma, 326 S.W.3d 1, 8 (Ky. App.
2009). Even if Hyalogic did not use its “best efforts,” CSG has not identified a
single instance where Hyalogic used the Competitive Analysis Chart postsettlement. Therefore CSG cannot show breach or damages resulting from breach
regarding Hyalogic’s “best efforts” to remove the Competitive Analysis Chart from
Finally, CSG argues that statements made by Dr. Brown are in violation of
The statement that “you only need . . .3 milligrams,” discussed
earlier in reference to Section 8.0, can also be analyzed under Section 3.0. Even
assuming this statement is “false or misleading,” so as to to trigger Section 3.2, it
is not an explicit reference to the “other party’s product” as required by this
section, and thus does not amount to breach. Again, the reference can hardly be
explicit when there are potentially thirteen other products in this market.
Landis Affidavit (R.30-1 at 2, ¶9).
CSG does not allege which sections of the Settlement Agreement Dr. Brown
breached in giving her keynote address, but rather makes general allegations that
her speech was “false and misleading.” (R. 30 at 7). CSG appears to complain
about statements she made while describing “competitors” that “use citric acid
and/or potassium sorbate as preservatives.”
Section 3.4 prohibits Hyalogic
from stating that “Baxyl contains preservatives that break-down hyaluronan
Again, Brown’s reference to “competitors” will not be construed as a
direct reference to Baxyl, under strict construction of the Agreement. See Frear,
supra. The plain language of the contract requires an express reference to Baxyl in
order to breach this Section.
CSG argues that “it is clear that Hyalogic is referring to CSG” because “only
3 products contain trace amount of citric acid and potassium sorbate as
preservatives, and two of these three products are products marketed and sold by
CSG.” However, Landis in his sworn statement directly refutes this claim. Landis
states, “Hyalogic understands Dr. Brown’s statement that citric acid and potassium
sorbate break down HA is a true statement based upon her research. Not including
Baxyl, Hyalogic is aware of at least nine human liquid HA supplements that list
citric acid and potassium sorbate among their ingredients.”
R. 35-1 at 5, ¶28.
Even if the statements by Landis are not true, it is not clear that Dr. Brown is
referring to CSG or Baxyl because she never does so. Because the contract and
plain language require a specific reference to Baxyl, this statement does not
constitute breach of the Settlement Agreement.
Remaining Pending Issues
Hyalogic states that CSG has “directly and aggressively attacked Hyalogic
and Hyalogic’s products in public advertising and in direct marketing to Hyalogic’s
customers” and is considering bringing claims against CSG for these actions. R.36
at 2-3. However, because these allegations are not presented as cross-claims or a
motion, there is nothing for the court to address.
Although CSG does not support the request, it also requests “an order
restraining and enjoining Hyalogic from disseminating the Hyalogic Falsities” at the
end of its brief. R. 30 at 8. If this were a motion for a preliminary injunction, the
court would consider and balance the following factors: (1) the likelihood of
success on the merits; (2) whether the plaintiff may suffer irreparable harm absent
the injunction; (3) whether granting the injunction will cause substantial harm to
others; and (4) the impact of an injunction on the public interest.
Déjà vu of
Nashville, Inc. v. Metro Gov’t of Nashville & Davidson County, 274 F.3d 377, 400
(6th Cir. 2001). As discussed, the court finds that CSG is not entitled to recovery
on its breach of contract claims. Because CSG has not shown the likelihood of
success on the merits or any irreparable harm or imbalance of equities, it is not
entitled to a preliminary injunction.
IT IS ORDERED that CSG’s motion to enforce settlement agreement (R. 30)
IT IS FURTHER ORDERED that all other pending motions (R. 39, 40, 42, 43,
44, 45) are GRANTED and all accompanying briefs and affidavits are admitted as
part of the record.
This case shall continue to remain CLOSED and STRICKEN from the court’s
Signed on March 30, 2012