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Natural Product Solutions, LLC v. Vitaquest International, LLC

United States District Court, D. Maryland

November 13, 2014

NATURAL PRODUCT SOLUTIONS, LLC
v.
VITAQUEST INTERNATIONAL, LLC, et al.

MEMORANDUM

CATHERINE C. BLAKE, District Judge.

Plaintiff Natural Product Solutions, LLC ("NPS") filed this action against defendant Vitaquest International, LLC ("Vitaquest")[1] alleging breach of contract and negligence[2] arising out of an error Vitaquest made while fulfilling one of NPS's purchase orders. Vitaquest has moved for summary judgment, and NPS has cross-moved for summary judgment. The court held a hearing on November 3, 2014. For the reasons stated below, both motions will be granted in part and denied in part.

BACKGROUND

The present dispute arises out of a purchase order gone wrong. NPS develops, markets, and distributes natural vitamins and dietary supplements. One of its core products is VirMax, a natural supplement that enhances people's sexual experiences. Although NPS develops its supplements, it does not itself manufacture them; instead, NPS contracts with other companies to make its supplements. (Def.'s Mot. Summ. J. Ex. 2, Gallant Dep. 16, ECF No. 30-3.) Vitaquest is one such manufacturer. In 2009, Vitaquest began accepting purchase orders from NPS to produce and deliver various versions of VirMax.[3] (Gallant Dep. 53-54.) NPS placed its first such purchase order on October 21, 2009. (Pl.'s Opp'n Ex. 1, Purchase Orders, at 2, ECF No. 31-2.) NPS continued to place purchase orders for VirMax with Vitaquest approximately every two months. ( Id. at 2-8.)

Important to this dispute is the appearance of Pharma Guri, Ltd. ("Pharma Guri"), an Israel-based importer and distributor of vitamins and dietary supplements. On May 24, 2010, NPS and Pharma Guri entered into a distribution agreement, under which Pharma Guri became the exclusive distributor within Israel of VirMax.[4] (Def.'s Mot. Summ. J. Ex. 3, Distribution and Sales Agreement, ECF No. 30-4.) NPS began placing purchase orders with Vitaquest on Pharma Guri's behalf in October 2010. (Purchase Orders, at 9.) At this point, the three entities' business success was partially intertwined: Pharma Guri looked to NPS to provide VirMax, NPS looked to Vitaquest to make VirMax, and Vitaquest looked to NPS for orders.

The procedure by which these three businesses worked was straightforward. Pharma Guri would send to NPS a purchase order specifying the amount of VirMax it needed. NPS would then send to Vitaquest its own purchase order form with relevant price, quantity, and delivery terms. (Gallant Dep. 50.) After receiving NPS's purchase order, Vitaquest would return a purchase order acknowledgment form, which included Vitaquest's standard contract terms and occasionally modified the price term. ( Id. at 51, 60.) Barring any objection by NPS, the terms set out in Vitaquest's acknowledgment form constituted the contractual arrangement between NPS and Vitaquest. ( Id. at 55.) There was no production contract. ( Id. at 33.) Vitaquest would proceed to fulfill the purchase order-by manufacturing the supplement in the amount specified and then delivering the product, often directly to Pharma Guri-and, upon fulfillment, NPS would pay Vitaquest. ( Id. at 55-56.)

At some point in 2011, Pharma Guri developed the idea of selling a kosher version of VirMax. ( Id. at 106.) Because such a version did not exist at the time, NPS asked Vitaquest for help. (Def.'s Mot. Summ. J. Ex 1, Mooney Aff. ¶ 9, ECF No. 30-2.) Vitaquest then located suppliers that could provide kosher-certified ingredients for VirMax. (Gallant Dep. 121.) Once Vitaquest was ready to produce kosher VirMax, NPS placed, in October 2011, its first purchase order of this new version for shipment to Pharma Guri. ( Id. at 133-34.)

For a while, the relationship worked. Though NPS and Vitaquest did have some disagreements regarding Vitaquest's earlier performance, [5] NPS does not bring this lawsuit to dispute Vitaquest's conduct under each and every purchase order NPS placed with Vitaquest. Instead, NPS is concerned solely with Vitaquest's performance under purchase order 688, which was NPS's third purchase order for kosher VirMax.[6]

The terms of purchase order 688, which NPS placed on May 10, 2012, were like any other: NPS sought 14, 000 units of kosher VirMax for production and delivery to Pharma Guri in Israel. But Vitaquest made a significant mistake during its course of performance: on September 9, 2012, instead of shipping 137 cartons of kosher VirMax to Pharma Guri, Vitaquest accidentally shipped 101 cartons of kosher VirMax and 36 cartons of an unrelated product called Pernol. ( Id. at 178-80; Pl.'s Opp'n Ex. 2, Brosh Decl. ¶ 3.l, ECF No. 31-3.)

Vitaquest's shipping error, which NPS President and CEO Martin Gallant described as a "mistake of epic proportions, " (Gallant Dep. 181), caused problems upon arrival in Israel. Because the shipment's contents differed from what was provided in the shipping documents, Israeli customs detained the shipment. (Gallant Dep. 178.) Although Vitaquest, at NPS's request, instructed its general counsel, Scott Yagoda, to send a letter to Israeli customs officials explaining the mistake, that gesture did not resolve the customs detention. (Def.'s Mot. Summ. J. Ex. 8, Yagoda Email, at 2, ECF No. 30-9; Gallant Dep. 181.) As a result, Pharma Guri, as the intended recipient, was forced to deal with the customs dispute. Though the shipment was eventually released, the parties sharply disagree about the impact of Vitaquest's mistake.

NPS argues Vitaquest's mistake caused serious problems. Pharma Guri was accused of smuggling products into Israel, had to defend a lawsuit alleging the same, and had to begin a new registration process. (Gallant Dep. 104.) NPS, in turn, was obligated to reimburse Pharma Guri for the incidental customs, legal, and freight costs associated with the hold-up. ( Id. at 182.) More significantly, NPS claims it lost several future orders-and accompanying profits-that Pharma Guri would have placed but for Vitaquest's error. According to NPS, Pharma Guri viewed Vitaquest's mistake as the last straw; Pharma Guri informed NPS that it would no longer accept delivery of kosher VirMax from Vitaquest and that NPS should find a new manufacturer. (Brosh Decl. ¶ 3s.) So NPS began the process of replacing Vitaquest. But, because Israel's regulatory regime required NPS to register any new manufacturer, NPS was temporarily unable to deliver kosher VirMax to Pharma Guri. Thus, NPS lost profits of $182, 520 from two orders Pharma Guri allegedly would have placed with NPS in October 2012 and January 2013.[7] (Def.'s Mot. Summ. J. Ex. 7, Pl.'s Second Answers to Interrogs. #2, ECF No. 30-8.)

Vitaquest, on the other hand, recognizes its "honest mistake, " (Yagoda Email, at 2), but asserts NPS has done its own manufacturing-of inflated damages. Vitaquest presents evidence suggesting NPS persuaded Pharma Guri to write a letter indicating that it would not accept any more shipments from Vitaquest.[8] (Def.'s Mot. Summ J. Ex. 4, Gallant-Ofer Emails, at 2, ECF No. 30-5.) Later, NPS apparently convinced Pharma Guri to repeat a statement that, had Vitaquest not erred, Pharma Guri would have placed future orders in 2011 and 2012.[9] (Def.'s Mot. Summ. J. Ex. 12, Gallant-Brosh Emails, at 2, ECF No. 30-13.) In short, Vitaquest believes NPS took affirmative steps to justify, after the fact, a claim to vastly more damages.[10] As further proof of NPS's artfulness, Vitaquest presents evidence suggesting NPS had already begun registering Arnet Pharmaceuticals ("Arnet") as its manufacturer before Vitaquest's error occurred. (Def.'s Mot. Summ. J. Ex. 5, Arnet Letter to Ministry of Health, at 2, ECF No. 30-6.)

Vitaquest also paints NPS as an uncooperative nonbreaching party. After Vitaquest bungled purchase order 688, it offered to ship the 36 misplaced cases of kosher VirMax to Pharma Guri at no cost, but NPS refused to accept this offer. (Mooney Aff. ¶ 14.) Vitaquest also wrote a credit memo clearing NPS's account of $19, 950.31, (Vitaquest Credit Memo/Emails, at 2, 4, ECF No. 30-11), which NPS does not appear to have completely acknowledged receiving, ( see Pl.'s Second Answers to Interrogs. #2 (noting $4, 426.56 as "Amount Credited by Vitaquest")).

NPS filed this action on February 8, 2013. Vitaquest moved to dismiss and for a more definite statement. The court denied those motions on July 24, 2013. After completion of discovery, Vitaquest moved for summary judgment on March 14, 2014. NPS cross-moved for summary judgment on March 31, 2014. The court held a hearing on November 3, 2014.

ANALYSIS

Federal Rule of Civil Procedure 56(a) provides that summary judgment should be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a) (emphasis added). Whether a fact is material depends upon the substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). Accordingly, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment." Id. "A party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials of [his] pleadings, ' but rather must set forth specific facts showing that there is a genuine issue for trial.'" Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003) (alteration in original) (quoting Fed.R.Civ.P. 56(e)). The court must view the evidence in the light most favorable to the nonmovant and draw all justifiable inferences in his favor. Scott v. Harris, 550 U.S. 372, 378 (2007) (citation omitted); see also Greater Baltimore Ctr. for Pregnancy Concerns, Inc. v. ...


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