United States District Court, D. Colorado
MIONIX, LLC, a Nevada limited liability company; and MIONIX CORPORATION, a Delaware corporation, Plaintiffs,
ACS TECHNOLOGY aka Mionix CO.; SAFE-pHix, LLC, a Wyoming limited liability company; and WALTER LARRY L'HOTTA, an individual, Defendants.
FINDINGS, CONCLUSIONS, ORDER OF JUDGMENT
Brooke Jackson United States District Judge.
case was tried to the Court June 4-6, 2018. The parties
subsequently submitted post-trial briefs, which the Court has
considered. For the reasons set forth in this order, the
Court generally resolves the issues in favor of the
plaintiffs and awards disgorgement of profits in the amount
of $31, 678.65 plus reasonable
attorney's fees, costs, and injunctive relief.
Mionix, LLC is a Nevada limited liability company formed in
2015 when it acquired the assets of Mionix Corporation, a
Delaware corporation. Mionix LLC has two members: Mionix
Corporation and Frank Powell, a California resident. I will
refer to Mionix Corporation and Mionix LLC collectively as
“Mionix” unless the context requires otherwise.
Mionix is a biotechnology company that, among other things,
sells a product line called acidic calcium sulfate, often
referred to as “ACS.” This product is used to
manage bacterial contamination in feed and food products.
Mionix invested a great deal of time, effort and money in the
research and development of its ACS products, including
commissioning studies, applying for and receiving patent and
trademark rights, and obtaining regulatory approvals.
the Spring of 2005 Mionix hired Larry L'Hotta as its
National Sales Manager for its ACS products, and about one
year later he was promoted to Director of Sales and
Marketing. Mr. L'Hotta, a resident of Colorado Springs,
Colorado, had served in the Special Forces, then completed a
college degree in forensic science while working as a police
officer, and then worked for several years in sales
positions. He earned a master's degree in Strategic
Marketing in 2009.
L'Hotta's assignment was to help Mionix move out of
the research and development stage and into the sales and
marketing stage. The parties agree that Mr. L'Hotta
excelled in his positions at Mionix, and that he helped the
company generate good will in its ACS products and in the
Despite Mr. L'Hotta's efforts and successes, however,
Mionix did not thrive financially. In about December 2006
Mionix informed its employees that it planned to close down
operations in four to six months. Employees began to leave
when they found other opportunities, but Mr. L'Hotta
stayed on, hoping that the inroads he had made with potential
new customers might cause the company to change its mind. He
was finally laid off in August 2007.
However, still convinced that the products he had been trying
to sell were good products, and that he could sell them, Mr.
L'Hotta proposed that he be allowed to continue to market
the product as a licensee and pay Mionix a royalty on
whatever he could sell. Mionix agreed.
effectuate this agreement, Mr. L'Hotta formed a company
called ACS Technology. For a couple of months Mr. L'Hotta
worked without a written contract, but on October 4, 2007 ACS
Technology and Mionix entered into a written agreement
entitled “Mionix and ACS License Agreement”
(“License Agreement”) that would govern their new
business relationship. Plaintiffs' Ex. 8.
License Agreement granted ACS Technology (a) a
“non-exclusive” license (b) “to manufacture
and have manufactured, market and have marketed, and sell and
have sold” (c) “Licensed Products” (d) in a
designated “Territory” (e) for a period of two
years. Id. at ¶¶2.1, 8.1.
“Licensed Products” were ACS 100, ACS 50, RTE-01,
RTE-03, FreshFlo 100, and pHixr 100. Id. ¶1.2
and Schedule 1.
Territory was the United States, its territories and Mexico,
excluding “any customers that have purchased products
from Mionix in 2007 or that are currently evaluating or have
evaluated in 2007 the use of Mionix products as of the date
of this agreement.” Id. at ¶1.4.
Technology agreed to use commercially reasonable efforts to
manufacture (or have manufactured), market and sell the
Licensed Products, and to pay Mionix a royalty of 10% of Net
Sales until Mionix had earned and received $75, 000, at which
point the royalty was reduced to 6% of Net Sales.
Id. at ¶¶3.1, 4.2. The first royalty
payment was due within six months of the date of the
agreement. Id. at ¶4.3.
part of his marketing efforts, and consistent with the
License Agreement, Mr. L'Hotta put the research studies
that Mionix had commissioned, Mionix's patents, and
Material Safety Data Sheets created for Mionix's products
on ACS Technology's website. A Material Safety Data Sheet
or “MSDS” provides safety information concerning
the product's ingredients and what to do in case of a
spill or other emergency.
Mionix had been using Hydrite Chemical Company as a
“toll manufacturer” of its ACS products, meaning
that Hydrite manufactured the products according to the
formulations provided by Mionix.
Michael Cunha was, at the time, the Chairman of the Board and
President of Mionix Corporation (Mionix, LLC did not yet
exist). He sent a letter to Hydrite dated October 16, 2007
informing Hydrite of the License Agreement and authorizing
Hydrite to manufacturer and ship Mionix products to ACS
Technology and its customers on approved orders by either
Mionix or ACS Technology. Plaintiffs' Ex. 22 at 2.
There is a dispute about whether Mr. L'Hotta paid
royalties during the first few months of the License
Agreement. He says he paid a small amount in the range of
$500 or so. Mr. Cunha testified that Mr. L'Hotta asked
whether he could accumulate royalty obligations rather than
pay in small dribs and drabs, and that he approved this, but
Mionix never received any royalties. Regardless, it does not
appear that any significant sales were made during the early
During those same early months of the two-year term of the
License Agreement the problems that ultimately resulted in
the lawsuit began to surface. The first red flag was hoisted
when Mr. L'Hotta discovered that Mionix had developed or
was trying to develop an arrangement with a company called
Ivesco to purchase or distribute Mionix's ACS products.
Cunha believes he told Mr. L'Hotta that Mionix planned to
reorganize and minimize the company in order best to deal
with the financial constraints the company was facing. Mionix
also had a potential opportunity in China that Mr. Cunha
hoped would generate cash that could be used to bolster
Mionix's U.S. operations. Mr. Cunha might have said these
things. However, he did not clearly disclose to Mr.
L'Hotta when they were negotiating the License Agreement
that Mionix might stay in the business and compete with him.
Nevertheless, the terms of the License Agreement should have
been a clue that Mionix was having second thoughts about
dropping out of the ACS business. As I have noted, the
License Agreement made his license “non-exclusive,
” and it carved out from ACS Technology's territory
any customers or prospects Mionix had in 2007. It appears
that Mr. L'Hotta signed the License Agreement as drafted
by Mionix without thinking too much about what some of the
terms might mean for him.
When Mr. L'Hotta learned about Mionix's plans he
decided that Mionix no longer supported the License
Agreement. He learned that Mionix had purchased all or at
least a substantial part of Hydrite's remaining inventory
of ACS products, probably FreshFlo 100, and he thought that
this was done so that ACS Technology wouldn't have a
supplier. He also believed that Mionix had informed Hydrite
that Hydrite was no longer allowed to sell ACS products to
him. In Mr. L'Hotta's words, Mionix “cut me off
from product, from my supplier, ” leaving him with
“no product to sell.”
According to Mr. Cunha, however, what actually happened is
that in late 2007 or early 2008 Hydrite informed Mionix that
it was not willing to continue to manufacture products
for Mionix because Mionix was not purchasing enough
product and was behind in paying its bills. At that time
Hydrite had 48 totes of product in inventory. Mionix
purchased some of them in order to have product to supply its
own customers until it could find a new manufacturer. Later,
when Hydrite was down to nine remaining totes, it demanded
that Mionix purchase those “as part of our settlement,
” which Mionix did. It is not clear how many of the 48
totes Mionix purchased, and if not all of them, what happened
to the remainder.
Cunha denies that that Mionix wanted to terminate the License
Agreement. According to him, Mionix wanted Mr. L'Hotta to
make sales and pay royalties. There is no written evidence
that Mionix tried to terminate the License Agreement or that
either side ever declared that the License Agreement was
terminated. However, Mionix's conduct during most of the
remainder of the term of the License Agreement indicates that
its desire to support ACS Technology and Mr. L'Hotta was
lukewarm, at best. Mionix was again attempting to sell its
ACS products, and as discussed below, Mionix seemingly paid
no attention to the fact that it was not receiving
communications or royalties from Mr. L'Hotta.
Nevertheless, Mr. L'Hotta feared that his relationship
with Mionix was probably over. He sent a letter to Mr. Cunha
on March 21, 2008 in which he expressed unhappiness about
Mionix's competing with him for business. Defendants'
Ex. G2. He stated that he would not have entered into the
License Agreement if he had thought that Mionix would be
reentering the food industry market. After indicating that he
hoped that their relationship could get back on track, he
offered in the alternative to negotiate a termination of the
License Agreement for “an acceptable
compensation.” Id. Mionix did not respond to
L'Hotta also decided that he could no longer sell
products manufactured to Mionix's proprietary
formulations. I find no evidence in the record that supports
that perception. Mr. Cunha denies that Mionix informed
Hydrite that it no longer wanted Hydrite to provide Mionix
products to Mr. L'Hotta or his company. Mionix never
retracted the October 16, 2007 letter authorizing Hydrite to
supply product to ACS Technology during the term of the
License Agreement. Notably, Hydrite did not perceive that
Mionix wanted it to stop selling Mionix products to Mr.
L'Hotta. Indeed, there is no evidence that Mr.
L'Hotta even asked Hydrite to continue manufacturing the
Mionix formulation for ACS Technology.
Mr. L'Hotta decided that he needed a new product to sell.
After searching a little bit for another manufacturer, Mr.
L'Hotta went to Hydrite and asked whether it could
develop another formulation. From this point forward I will
focus primarily on one product, FreshFlo 100, which is used
to improve the quality of drinking water in the poultry
industry. It is just one of the six Licensed Products, but it
is at the center of the parties' present dispute.
Hydrite did develop a new formulation. Christopher Lorang,
Hydrite's Product Quality Manager, was deposed in this
case as Hydrite's Rule 30(b)(6) representative. The
deposition is marked as Plaintiffs' Ex. 114 with the
parts presented to the Court by video highlighted. He
testified that the two formulations differ in terms of raw
materials, reaction chemistry and the manufacturing process.
Id. at 25. One significant difference is that the
original formulation contains calcium hydroxide, but the
formulation Hydrite developed for Mr. L'Hotta does not.
Id. at 27.
Once the new formulation was available, it was the only
formulation that Mr. L'Hotta marketed or sold. Mr.
L'Hotta called the new formulation FreshFlo, the name of
the Mionix product. He claims that it was his right to use
that name under the License Agreement, but he otherwise acted
as if the License Agreement was no longer in effect. He did
not notify Mionix that he was no longer attempting to market
Mionix's formulation of FreshFlo (or other Mionix
products), or that he was marketing a different formulation
under the name FreshFlo. He did not pay royalties.
Mr. L'Hotta moved ahead with his new product he
represented on his website that his product had USDA and FDA
approval, that it was a patented product, and that it was
based on studies and tests. None of these representations was
true. Essentially, he piggybacked on Mionix's studies,
tests, intellectual property, and regulatory approvals as if
they all applied to the product he was selling.
L'Hotta says that he learned that customers were
complaining and returning shipments of the old formulation of
FreshFlo because the chemicals separated from the water while
the product sat on shelves in bottles. Mr. L'Hotta claims
that the new formulation did not have that problem, so
sometime during 2009, still within the term of the License
Agreement, he renamed his formulation LpH 100.
Thus, during the majority of the License Period ACS
Technology was actively marketing and selling his new
formulation, first under the name FreshFlo 100, later as LpH
100. He was not paying royalties or communicating with
Mionix. Meanwhile, Mionix, which of course was not receiving
royalties, was not communicating with Mr. L'Hotta. Both
sides now claim that the License Agreement remained in
effect, but neither party acted like it at the time.
Mionix claims that ACS Technology sold some product to
Mionix's customers, including De-Chem. If sales were made
to buyers who were customers or prospects being evaluated by
Mionix in the year 2007, then any such sales would be in
violation of the License Agreement. If such sales were made
to customers not falling into that category, then either it
would be a violation of the requirement in the License
Agreement that ACS use commercially reasonable efforts to
market Mionix's products or ACS Technology would have
owed royalties to Mionix. However, neither Mionix nor ACS
Technology seemed to pay much attention to the requirements
of the License Agreement at the time. Mionix has not claimed
entitlement to any additional royalties under the License
After the License Agreement expired in October 2009 ACS
Technology continued to market and sell LpH 100. It also sold
occasional small amounts of RTE-01, ACS 100 and FreshFlo 100
which were Mionix products that were included as Licensed
Products during the term of the License Agreement but which
Mr. L'Hotta and ACS Technology no longer had a license to
sell. Nevertheless, approximately three and a half more years
went by without a word from Mionix.
Things changed in the spring of 2013. On March 28, 2013 an
attorney for Mionix, Sudee Mirsafian Wright of Husch
Blackwell's Denver office, sent a letter to Mr.
L'Hotta accusing him of unlawfully using the FreshFlo
trademark “in connection with the manufacture, sale and
distribution of a competing and substantially identical
product.” Plaintiffs' Ex. 19. She demanded that he
cease using the FreshFlo trademark or any derivative of it,
and that he similarly stop using any label or MSDS
“that includes test results or other data generated for
Mionix's Product.” Id. Ms. Wright informed
Mr. L'Hotta that Mionix would consider legal action