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Electrology Laboratory, Inc. v. Kunze

United States District Court, D. Colorado

March 14, 2016



RAYMOND P. MOORE United States District Judge

Defendant Larry Paul Kunze a/k/a Lorenzo Kunze[1] sold his “family” business (Plaintiff Electrology Laboratory, Inc. (“ELI”), d/b/a ROCKY MOUNTAIN LASER COLLEGE (“RMLC”)) but couldn’t give it up. So, as the evidence revealed, even while negotiating the sale of ELI to the purchasers (Third-Party Defendants Ray Fluken, Jody Riggs Fluken, and Jessica Riggs, collectively, the “Fluken-Riggs”), Mr. Kunze was trying to figure out how to continue the same business he was selling. The purchasers of the business took exception to Mr. Kunze’s actions, and rightly so. The Fluken-Riggs and ELI (collectively, “Plaintiffs’) brought this action seeking to recover damages caused by the actions of Mr. Kunze and his son, Defendant Larry Paul Kunze, Jr. (“Mr. Kunze, Jr.”) (Mr. Kunze and Mr. Kunze, Jr., collectively, “Defendants”). In response, Mr. Kunze filed counterclaims and third-party claims asserting it is Plaintiffs who are at fault. The Fluken-Riggs returned with third-party counterclaims against Mr. Kunze. After examining the evidence, considering the parties’ stipulations (including the stipulations dismissing certain claims), evaluating the credibility of the witnesses, and analyzing the law, and being otherwise fully advised, the Court finds relief is warranted - to both sides. The Court finds in favor of Plaintiffs, in whole or in part, on eight of their 11 claims for relief. The Court finds Mr. Kunze’s credibility sorely lacking and is unpersuaded by his testimony, but nonetheless finds he is entitled to relief on his counterclaim and third-party claim for breach of the Promissory Note given in partial payment for the purchase of ELI. The Court’s rationale is as follows.


To the extent that any conclusions of law are deemed to be findings of fact, they are incorporated herein by reference as findings of fact.

A. Background

1. ELI is a Colorado corporation with its principal place of business at 651 Garrison St., Suite 200, Lakewood, Colorado. ELI does business as “ROCKY MOUNTAIN LASER COLLEGE” and RMLC, and operates on a fiscal year which runs from February 1st to January 31st.

2. Mr. Kunze is a Colorado citizen who, during the relevant time period, resided at 16545 W. Bayaud Dr., Golden, Colorado, less than 10 miles from ELI. Mr. Kunze operated ELI in its current form since at least the 1990s. Mr. Kunze was the sole shareholder of ELI until he sold it to the Fluken-Riggs. ELI was, essentially, a family business.

3. In addition to owning and operating ELI, Mr. Kunze also did business under the name “American Laser College.” 4. Mr. Kunze, Jr. is Mr. Kunze’s son and, during the relevant time period, also a Colorado citizen and resident. Mr. Kunze, Jr. worked for ELI under his father’s ownership and briefly thereafter.

5. Ray Fluken and Jody Riggs Fluken are husband and wife, and Colorado citizens. Jessica Riggs, also a Colorado citizen, is Mrs. Fluken’s daughter and Mr. Fluken’s stepdaughter.

B. ELI - Prior to Mr. Kunze’s sale to the Fluken-Riggs

6. Under the ownership of Mr. Kunze, ELI earned income primarily from three sources - its occupational school, its clinic, and the sale of laser equipment.

(i) Through its occupational school known as “ROCKY MOUNTAIN LASER COLLEGE” and RMLC, ELI provided aesthetic laser use education and training to students not only onsite at its Lakewood facility[2] but also offsite in other states;
(ii) Through its clinic, ELI provided aesthetic laser services to clients; and
(iii) Through its former and current students, ELI earned income from the sale of laser equipment.

7. ELI’s laser education course consisted of 40 hours of training through a curriculum approved and regulated by the Colorado Department of Higher Education, Division of Private Occupational Schools (“DPOS”). ELI’s students received RMLC written materials and hands-on training on laser equipment in the course taught by Mr. Kunze.

8. In order to market classes and sell laser equipment, ELI maintained a customer list, identifying students who took the RMLC laser education course. The list changed over time to reflect additional enrollments. The student information was exchanged only between students within class, not to other classes and their students. ELI did maintain some precautions in keeping its student information confidential, such as keeping the files under lock and key and keeping the lists password protected on the computer system.

9. Sometime in the 1990s, ELI began awarding its students “Certified Laser Specialist” or “CLS” certificates, showing they were trained at ROCKY MOUNTAIN LASER COLLEGE.

10. In connection with its business, ELI has long used the marks “ROCKY MOUNTAIN LASER COLLEGE, ” “RMLC, ” “Certified Laser Specialist, ” and “CLS.” ELI advertised ROCKY MOUNTAIN LASER COLLEGE and RMLC extensively through the internet and on its course materials.

11. For a significant period of time, ELI used to advertise its goods and services, e.g., its clinic and educational course. ELI used this site to promote ROCKY MOUNTAIN LASER COLLEGE and to drive business to ELI.

12. Although was the primary source of ELI’s advertisement, it also used,,,,,,, and (the eight sites, collectively, the “Websites”). ELI paid for the cost of servicing at least some, if not all, of the Websites and through December 31, 2008 or 2009, even though Mr. Kunze owned them and registered them in his name individually.

13. Through his many years in the industry and in teaching the RMLC laser education course, Mr. Kunze was well known in the aesthetic laser education industry, and touted his experience on the internet, including While Mr. Kunze was a “gifted” teacher, he was not as educated or experienced as he touted. While ELI’s business and Certified Laser Specialist were recognized by some in the industry, they were also not as Mr. Kunze represented. Instead, Mr. Kunze intentionally made numerous misrepresentations on the website, including misrepresentations concerning the extent of his education, experience, and certifications; the number of CLS certifications that ELI had awarded to RMLC students; and that Certified Laser Specialist was a registered trademark when it was not.

14. It was through that Ms. Riggs found ELI in October 2007 and took the RMLC course taught by Mr. Kunze. Ms. Riggs received course materials but was not restricted in any way as to its use. ELI placed no restrictions on the use of its curriculum by its students, during or after the course was completed.

15. In January 2008, Ms. Riggs began working for ELI.

16. In June 2008, Mr. Kunze submitted a trademark application for the mark “CLS (Certified Laser Specialist)” (Ex. 124), to be registered in the Principal Register, stating the mark was first used as of July 28, 1997. Mr. Kunze had a specimen prepared for a Certified Laser Specialist certificate, with the date July 24, 1997. (Ex. 57.) But, Mr. Kunze never completed the registration process. Nonetheless, Mr. Kunze continued to represent to the public that the mark was in fact registered.

C. The Fluken-Riggs’ purchase of ELI

17. Sometime in 2008, Mr. Kunze approached Ms. Riggs and others to see if they were interested in buying ELI. Over the course of 2008 and 2009, the Fluken-Riggs investigated purchasing ELI from Mr. Kunze for $1 Million. During this process, Mr. Kunze made a number of representations to the Fluken-Riggs that were untrue, including, as material to this case:

(i) That Body Laser Solutions (“BLS”) was owned by a couple of doctors when, in fact, Mr. Kunze owned BLS, and that a $23, 383.00 accounts receivable from BLS was collectible;
(ii) That six THERMO-Los (electrolysis machines) in ELI’s inventory had a fair market value and cost of $2, 500.00 each when, in fact, the actual cost was $875.00 each; and
(iii) That Certified Laser Specialist was a registered trademark, when it had never been registered.

18. Mr. Fluken was skeptical about paying $1 Million for ELI and believed Mr. Kunze overstated or exaggerated how much money the business made. Mr. Fluken received a schedule of fixed assets and inventory stated to be worth $455, 248.00 (Ex. 41), but he did not believe they were worth that much. So, Mr. Kunze asked ELI’s accountant for financial information and asked Ms. Riggs for backup documentation to check the accuracy of ELI’s financials.

19. Mr. Fluken also relied on Ms. Riggs to verify what equipment was on the premises and what was owned or on loan, including two working MediDerms on loan from the manufacturer.

20. Meanwhile, in about November 2009, Mr. Kunze met with Arthur Barbera, an owner of a pre-owned laser equipment company, to discuss laser related business opportunities, including selling lasers to former and current students of ELI. Mr. Barbera was introduced to Mr. Kunze by Mike Sparks of Cynosure, a manufacturer of esthetic and medical equipment. Mr. Sparks sold laser equipment to ELI’s students.

21. By December 2009, Mr. Kunze and the Fluken-Riggs agreed to a stock purchase of ELI. The purchase price was $1 Million, to be paid with an initial deposit of $10, 000.00, a loan from American Bank of Commerce (“ABC Bank”) for $650, 000.00, a $250, 000.00 Promissory Note to Mr. Kunze, and $90, 000.00 from the Fluken-Riggs.

22. Although the parties discussed transferring the Websites to ELI, no agreement was ever reached. Instead, Mr. Kunze and the Fluken-Riggs agreed to a transfer of ELI’s stock, as memorialized in that certain Purchase and Sale Agreement (“PSA”) dated December 22, 2009. (Ex. 2.) As relevant to the issues, the PSA provides as follows:

(i) The purchase price was $1 Million, [3] with $250, 000.00 to be paid via a 5-year Promissory Note to be made by the Fluken-Riggs and ELI;
(ii) Closing was to occur by December 23, 2009, unless otherwise mutually extended;
(iii) All records shared by ELI with the Fluken-Riggs in anticipation of the stock purchase were “deemed confidential trade secrets and proprietary information of [ELI], ” were to be returned to ELI and Mr. Kunze if the stock purchase was not completed, and ELI and Mr. Kunze could sue for injunctive and other relief in the event of the breach of such terms;
(iv) ELI and Mr. Kunze would enter into an Independent Contractor Agreement;
(v) The PSA contained the entire understanding and agreement between the parties;
(vi) That documents and information received were for informational purposes only, and that Mr. Kunze did not represent, warrant, or guarantee the contents, conclusions, or opinions “contained therein”;
(vii) If the Fluken-Riggs failed to make any payment or perform as required by the PSA within the time required, Mr. Kunze’s “sole remedy” was to terminate the PSA - and all other remedies were waived and released;
(viii) If Mr. Kunze defaulted, refused, or was unable to perform as required by the PSA within the time required, the Fluken-Riggs “may” terminate the PSA and have all monies paid returned - and all other remedies were expressly waived and released; and
(ix) With exceptions not relevant here, Mr. Kunze was precluded from disclosing or issuing any statement regarding the PSA or the sale of ELI.

23. On December 23, 2009, Mr. Kunze and ELI entered into an Independent Contractor Agreement (“ICA”) which provides, in relevant part:

(i) The term of the ICA would be for five years, starting on December 23, 2009, unless ELI terminated the agreement for cause or agreed to release Mr. Kunze, or by mutual agreement;
(ii) During the term of the ICA, Mr. Kunze was required to use his best efforts to provide laser removal education or training and aesthetic laser services to students or customers of ELI;
(iii) Mr. Kunze would be “employed” as the College Director, with certain duties, including conducting four (4) classroom sessions outside of ELI’s facility each year, and acting as ELI’s liaison and consultant with laser manufacturers;
(iv) ELI would pay Mr. Kunze 10% commission on gross sales generated by college enrollment;
(v) Mr. Kunze, in acting as ELI’s independent contractor, would conduct his business with the “highest ethical standards, ” “avoid deceptive, misleading, unethical practices, ” “make no false representations, ” and conduct business in a manner which reflected favorably on the business and the good name, goodwill and reputation of ELI;
(vi) Mr. Kunze agreed not to compete during the term of the ICA and for two years after its termination, within twenty-five miles of ELI’s offices. Mr. Kunze agreed that he would not “solicit, offer or provide laser hair removal education or training or aesthetic laser services” (emphasis added) to any client or prospective client of ELI within that geographic location;
(vii) Even where permitted to teach for his own account, there was no provision authorizing Mr. Kunze to use ELI’s curriculum or marks to do so; and
(viii) If a business opportunity came to Mr. Kunze’s attention that conflicted with ELI’s operations, ELI would not unreasonably withhold approval to allow Mr. Kunze to pursue this opportunity.

24. Mr. Kunze, ELI, and the Fluken-Riggs entered into a Promissory Note for $250, 000.00 dated December 22, 2009, which provides, in relevant part:

(i) Generally, the Promissory Note is “subordinate” to the “first Note of Borrower [ELI and the Fluken-Riggs], [4] payable to ABC Bank, ” as long as there is an outstanding balance owed to ABC Bank;
(ii) Seven percent (7%) interest on the unpaid balance starts to accrue on December 23, 2009;[5]
(iii) The first payment of principal and interest (“P & I”) in the amount of $35, 000.00 is due and payable January 1, 2012. The amount of $7, 719.00 P & I is due per month thereafter on the 10th of each month, starting February 10, 2012, until January 1, 2015, when “notwithstanding any other language contained in the [Promissory] note, ” the entire balance due under the note is due in full;
(iv) Its terms and conditions are subject to the conditions of the “Employment Agreement, ” i.e., the ICA;
(v) For every year in which Mr. Kunze did not complete his obligations under the ICA, and by his willful termination and breach of the ICA, $50, 000.00 is deducted from the Promissory Note for each year of termination, up to $200, 000.00; and
(vi) Plaintiffs will owe a late charge of 10% of any payment not received within five (5) days after the payment is due.

25. The Promissory Note also provides for an increase in the interest rate to 14% from the date the note is accelerated. No notice of acceleration was ever given.

D. Mr. Kunze and the Fluken-Riggs’ Relationship Crumbled Not Long After the Sale of ELI

26. ELI’s business is run with the assistance of only a few people, essentially consisting of employees/officers the Fluken-Riggs, employee Mr. Kunze, Jr., an administrator, and independent contractor Mr. Kunze. After their purchase of ELI, the Fluken-Riggs made a number of changes or additions to ELI.

27. They developed a new website for ELI which was up and running by early 2011. Until then, ELI continued to use the website to direct traffic to its business, which ELI made no payment to maintain.

28. They revised ELI’s course materials over time, and ELI now requires students to sign an agreement acknowledging they cannot use the ROCKY MOUNTAIN LASER COLLEGE materials outside of the class.

29. They took a number of measures to protect the business and its data, including changing the passwords, acquiring a password protected third-party accounting system, and putting in a third-party scheduler.

30. They maintain the confidentiality of ELI’s customer list/information, which is updated with new clients and new students. ELI does not share the information with outsiders and has password protection on the computer system which contains the list.

31. For about the first nine months of 2010 ELI was making money and increasing its student count under the Fluken-Riggs’ ownership. Mr. Kunze was conducting classroom sessions at the Lakewood facility. Nonetheless, when ELI asked Mr. Kunze to conduct offsite classes, he refused. Thus, he did not conduct four classroom sessions each year on behalf of ELI outside of its Lakewood facility.

32. Instead, in or about October 2010, Mr. Kunze began demanding that he be released from the ICA. ELI refused to do so. Unbeknownst to Plaintiffs, Mr. Kunze was starting to or already actively improperly competing with ELI. It was also about this time period (November 2010) that Messrs. Barbera and Sparks formed Quanta, a seller of new laser equipment.

33. Thus, in December 2010, Mr. Kunze asked an ELI employee (who also worked for ELI under Mr. Kunze’s ownership) to provide him with an updated student information list so that he could sell lasers to ELI’s former and current students.

34. Also about this time period, ELI increased its advertised prices for its laser education course from $4, 000.00 to $6, 000.00. Notwithstanding this advertised price increase, ELI provided discounts to students for a variety of reasons.

35. In January 2011, Mr. Kunze taught four students (employees of former ELI student Martha Livermore) in Houston, Texas. Ms. Livermore contacted ELI at its Lakewood facility, looking for Mr. Kunze to teach a class and issue ROCKY MOUNTAIN LASER COLLEGE certificates to her employees. Mr. Kunze offered to teach the class, at Ms. Livermore’s location in Texas. For Ms. Livermore, what was important was receiving a certificate from ROCKY MOUNTAIN LASER COLLEGE and being taught by Mr. Kunze. Ms. Livermore thought the Certified Laser Specialist certification was important because it was represented as such by Mr. Kunze.

36. Ms. Livermore’s employees thought they were taking a ROCKY MOUNTAIN LASER COLLEGE course, but they were not. Instead, Mr. Kunze taught a shorter class for his own business, American Laser College. Nonetheless, he used ELI’s ROCKY MOUNTAIN LASER COLLEGE marks and curriculum as if they were his own. He handed out ROCKY MOUNTAIN LASER COLLEGE business cards, and used ROCKY MOUNTAIN LASER COLLEGE interchangeably with American Laser College such that the students thought the entities were the same. He awarded those students CERTIFIED LASER SPECIALIST certificates, and issued the certificates under ROCKY MOUNTAIN LASER COLLEGE’s name. Mr. Kunze backdated the certificates as if they were issued in 2010, when they were not; he put a stamp on those certificates implying the certificate or course was sanctioned by the Texas Department of Education when it was not.

37. Mr. Kunze received $4, 000.00 for teaching the class but did not notify ELI or offer to share any of those earnings with ELI, despite the fact that his offer to provide the course was made within 25 miles of ELI’s office. And, despite the fact that he used ELI’s curriculum and marks and represented he was teaching on behalf of ROCKY MOUNTAIN LASER COLLEGE.

38. In competition with ELI, using ELI’s information, Mr. Kunze sold lasers for Quanta to customers of ELI. By February 2011, Mr. Kunze sold his first laser for Quanta, earning about $5, 000.00 in commissions. Thereafter, during the 1st quarter of 2011, Mr. Kunze sold lasers earning additional commissions of $15, 000.00.

39. Without Plaintiffs’ knowledge, in March 2011, Mr. Kunze sought to register “Certified Laser Specialist” as his trademark.

40. In addition, Mr. Kunze disclosed the fact he sold ELI to a number of third-parties and made disparaging remarks about ELI and Mr. Fluken and their running of the business. Due to Mr. Kunze’s negative remarks about ELI and Mr. Fluken, Ms. Livermore took her business elsewhere, hiring another instructor to train her students in Houston. Ms. Livermore had four students trained by the new instructor and, at the time of her deposition, one more scheduled, for a total of five students. These students use CLS and CLT designations as part of their credentials.

41. Also during this time period, Mr. Kunze continued seeking to terminate his relationship with ELI, including “threatening” to resign. Mr. Kunze wanted to work with Messrs. Sparks and Barbera in selling lasers to ELI’s customers and conducting competing laser education classes.

42. With Mr. Kunze unwilling to continue with the parties’ current working relationship, on Monday, April 4, 2011, ELI and Mr. Kunze entered into an amendment[6] of the ICA (the “Amendment”). As relevant to this lawsuit, the Amendment provides the following would govern the parties’ relationship in the future:

(i) Mr. Kunze would be allowed to use ROCKY MOUNTAIN LASER COLLEGE’s name on the website, but Mr. Kunze would remove pricing and scheduling information and would provide a link to ELI’s website;
(ii) Mr. Kunze would be allowed to provide independent training off-site and use the ROCKY MOUNTAIN LASER COLLEGE approved curriculum and issue a certificate of completion, but would not be allowed to issue a Certified Laser Specialist certificate. In order to obtain a Certified Laser Specialist certificate, the students would have to receive further training at ELI’s facility. ELI would receive a 10% commission of the tuition for such off-site classes;
(iii) Mr. Kunze would be allowed to work with aesthetic laser manufacturers and resellers with no restrictions; and
(iv) If Mr. Kunze taught classes for ELI throughout its fiscal 2011 class schedule (February 1, 2011 to January 31, 2012), he would be entitled to the second year of $50, 000.00 earned buyout in accordance with the Promissory Note.

43. In effect, by its terms, the Amendment also amended the Promissory Note.[7]

44. Mr. Kunze, however, did not comply with the Amendment.

45. First, Mr. Kunze did not teach classes for ELI throughout the 2011 fiscal year.[8]Instead, unbeknownst to Plaintiffs, Mr. Kunze was improperly competing with ELI.

46. Mr. Kunze taught laser education courses through ANMM d/b/a The Laser Center for Education, a company formed by Messrs. Barbera, Sparks, and others. Mr. Kunze, however, used ELI’s curriculum, marks, pictures, and/or information to do so.

47. Mr. Kunze, through the American Laser College website (, advertised his services by using ROCKY MOUNTAIN LASER COLLEGE’s name interchangeably with American Laser College, as if they were affiliated. He directed customers to contact him for laser education, but used ELI’s refund and other policies along with pictures of ELI’s facilities and students to do so. Mr. Kunze also represented Certified Laser Specialist was a trademark owned by him. The website had no working link to ELI’s website. At that time, ELI was also relying on the website to drive student traffic to its business.

48. On, using “American Laser College” and the mark ROCKY MOUNTAIN LASER COLLEGE, along with pictures from ELI’s facility, Mr. Kunze advertised that he was providing laser training on April 28-30, 2011, in Bellevue, Washington.

49. On April 18, 2011, Mr. Kunze taught two students for $2, 000.00, using ELI’s curriculum and marks, but later awarded them certificates through ELI’s competitor, Rock Creek Laser and Aesthetics Institute (“Rock Creek”). Mr. Kunze, however, did not use Rock Creek’s laser education curriculum and, at that time, had no business relationship with Rock Creek.

50. In about late April 2011, after saving the information for his own account, Mr. Kunze deleted about 60 gigabytes of data from ELI’s server, which included a list of ELI’s customers - its students and clients. Mr. Kunze did so in order to solicit business from ELI’s students and clients.

51. Also in about April 2011, ELI discovered that Mr. Kunze had not filed ELI’s tax return for the year-ended January 31, 2009. The tax return had been timely prepared, but Mr. Kunze never filed it or paid the taxes owed resulting in the Internal Revenue Service assessing interest and penalties on top of the taxes that were owed. ELI paid the amount owed to the I.R.S. for the 2009 taxes.

52. On April 28-30, 2011, Mr. Kunze taught the Washington class as advertised on the website, again for his own account. Mr. Kunze taught five students and gave them receipts from American Laser College. However, Mr. Kunze used ELI’s ROCKY MOUNTAIN LASER COLLEGE/RMLC marks and course materials. Mr. Kunze used ROCKY MOUNTAIN LASER COLLEGE and American Laser College interchangeably during the course such that students thought they were the same or affiliated. Mr. Kunze represented to the students they would receive Certified Laser Specialists certificates, but they did not. The students were surprised or confused when they received Certified Laser Technician (“CLT”) certificates from an entity they had never heard of - Rock Creek. Regardless, those students sought certification for using a laser and it really did not matter much, if at all, whether it was a CLT or a CLS. Unbeknownst to the students, at the time the course was given, Mr. Kunze had no business relationship with Rock Creek and did not use its approved curriculum.

53. How these five students came about to be taught by Mr. Kunze apparently differed. Diane Oakley took the class after she heard from Debbie Caddell, a former ELI student, that Mr. Kunze was coming to teach in Washington. Bradley Jellerichs, another student, was a new employee of Ms. Caddell, an employer who wanted all her employees to take the course from Mr. Kunze.

54. The relative sophistication of these students apparently varied. Mr. Jellerich checked whether the certification he would be receiving from Mr. Kunze’s course was in fact required, and concluded it was not. Others, however, apparently blindly believed that it was required.

55. “Rock Creek” is Rock Creek Laser and Esthetics Institute and Rock Creek Medi Spa, a company with a spa and a small laser school which offered a Certified Laser Technician (CLT) certificate upon completion. Rock Creek’s educational curriculum is approved by the DPOS. The Washington students received Rock Creek certificates because ELI would not issue ROCKY MOUNTAIN LASER COLLEGE certificates for the course taught.

56. ELI would not issue ROCKY MOUNTAIN LASER COLLEGE certificates because Mr. Kunze’s offsite students were only to receive certificates of completion. In addition, by the time Mr. Kunze requested ELI to issue the certificates, the parties’ relationship had terminated.

57. Specifically, on May 2, 2011, ELI terminated the Amendment for cause after discovering Mr. Kunze was not linking the website to ELI’s website and had downloaded student and client information from ELI’s server. In addition, on the website, Mr. ...

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