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Clarion Brands, LLC v. Llorens Pharmaceutical International Division, Inc.

United States District Court, E.D. Pennsylvania

June 5, 2018

CLARION BRANDS, LLC
v.
LLORENS PHARMACEUTICAL INTERNATIONAL DIVISION, INC .., et al.

          FINDINGS OF FACT AND CONCLUSIONS OF LAW

          KEARNEY, J.

         Trademark owners sue in federal court to ensure their trademarks are not used in deceptive or misleading ways under Congress's mandates in the Lanham Act. Our citizens properly rely upon us enforcing the Lanham Act through our judgment orders. We hold persons in civil contempt upon clear and convincing evidence of persons violating specific terms of our judgment orders including skirting our judgment order protecting trademarks.

         But we cannot find contempt without clear and convincing evidence of violating our order. Suspecting misconduct, even when fueled by the alleged wrongdoer's incomplete or ambiguous explanations, is not enough. And we cannot transform conduct which may state another claim into civil contempt. Following briefing, oral argument, and evaluating credibility of witnesses and the 86 exhibits admitted at our evidentiary hearing, we cannot find the requisite clear and convincing evidence Defendants and non-parties violated our July 30, 2015 Consent Judgment enforcing the Plaintiffs rights under the Lanham Act. The challenged conduct may state a claim under state law but not for violating the terms of our July 30, 2015 Consent Judgment. We deny Plaintiffs Motion to enforce or for contempt in the accompanying Order.

         I. Introduction

         Clarion Brands, LLC ("Clarion") distributes over-the-counter dietary products including "Lipo-Flavonoid Plus" designed to enhance ear health and functionality. In November 2014, Clarion sued Llorens Pharmaceutical International Division, Inc. and Llorens Pharmaceutical Corp. (collectively "Llorens") alleging they infringed on Lipo-Flavonoid Plus by distributing and selling "Lipoflavovit, " as a dietary supplement for ear health. Clarion sought to permanently enjoin Llorens from, inter alia, manufacturing, distributing, advertising, marketing, promoting, or selling its Lipoflavovit product. Clarion seeks relief under the Lanham Act; it is not complaining about theft of trade secrets or patent infringement.

         Clarion and Llorens signed a Settlement Agreement on July 15, 2015 which included agreeing to a Consent Judgment and Permanent Injunction entered on July 30, 2015 ("Permanent Injunction"). The Permanent Injunction enjoined Llorens, Jose Llorens and Thusnelda Ruiz from manufacturing, selling, distributing, marketing, advertising, or promoting any dietary supplement designed to enhance inner ear health for a period of five years.

         Nearly two years later, Clarion moved for leave to take discovery in aid of enforcing the Permanent Injunction. After discovery, Clarion moved to enforce the Permanent Injunction against Llorens, Mr. Llorens, and non-parties Alternative Pharmacal Corporation and Jose Hernandez under Federal Rules of Civil Procedure 70 and 71. Clarion contends Llorens, Mr. Llorens, Alternative Pharmacal, and Mr. Hernandez violated the Permanent Injunction in three specific ways: lying about remaining inventory of bottled and bulk Lipoflavovit product during the execution of the Permanent Injunction and receiving payments for at least a portion of the product after entry of the Permanent Injunction; "clandestinely" transferring Lipoflavovit inventory stored in Puerto Rico to Llorens Puerto Rico sales representatives for later commercial use; and, by selling "Altiflav" through Alternative Pharmacal.

         Arguing it has proven at least one of the three acts, Clarion asks we hold Llorens, Mr. Llorens, Alternative Pharmacal, and Mr. Hernandez in contempt of the Permanent Injunction and impose sanctions on them. Clarion cites specific facts to support its request for civil contempt including backdating of invoices to show disposition of Lipoflavovit before the date of the Settlement Agreement; sales of Altiflav by Mr. Hernandez while employed by Llorens Florida; Lipoflavovit and Altiflav are the same product; and, Llorens Florida, Llorens Puerto Rico, Alternative Pharmacal, and Advanced Generic Corporation, an entity owned by Mr. Hernandez and his wife Karen Llorens, all operate as one entity or are alter egos of each other. To further support its requests, Clarion asks we apply a spoliation inference for the alleged failure of Llorens, Alternative Pharmacal, and Mr. Hernandez to produce documents "explaining" the disposition of 5, 190 bottles of Lipoflavovit Clarion contends Defendants sold or used instead of destroying it.

         After considering the credibility of testimony and admitted exhibits, we find Clarion failed to present clear and convincing evidence of conduct violating the Permanent Injunction and deny Clarion's Motion in the accompanying Order.

         II. Findings of Fact

         1. Clarion distributes over-the-counter dietary products including a dietary supplement called "Lipo-Flavonoid® Plus" designed to enhance ear health and functionality.[1]

         2. Clarion does not own patent rights or ownership interest in the chemical formulary for "Lipo-Flavonoid Plus."

         3. Clarion is the assignee of the entire interest and goodwill in the Lipo-Flavonoid trademark. Clarion alleged its interest is continuing in the dual packaging and design through Sale Packaging and Use Packaging. Clarion's Lipo-Flavonoid product references "Ringing in the Ears?" with a semi-abstract drawing of a left-facing human ear with multiple curved line to the right of the ear to mimic sound waves.[2] The packaging also represented it is "The only product clinically proven to improve circulation in the inner ear" . . . under a "Unique Ear Health Formula."[3]

         4. Clarion swears its Lipo-Flavonoid trademark is "well recognized by medical professionals, especially ear, nose and throat ('ENT') specialists and other participants in the ear health dietary supplement industry, including manufacturers, distributors and consumers."[4]

         A. Relationship among the Defendants and non-parties.

         5. Llorens Pharmaceutical International Division, Inc. ("Llorens Florida") is a Florida corporation with its principal place of business in Miami, Florida.[5]

         6. Llorens Pharmaceutical Corp. ("Llorens Puerto Rico") has a principal place of business in San Juan, Puerto Rico.[6]

         7. Jose Llorens is the owner, President, and Chief Executive Officer of Llorens Florida and Llorens Puerto Rico.[7] Mr. Llorens testified at our evidentiary hearing. We find his testimony to be confusing at best but we cannot find he lacks credibility as to the disposition of Clarion's product in July 2015.

         8. Thusnelda Ruiz, the wife of Mr. Llorens, is a co-owner of Llorens Florida and Llorens Puerto Rico.[8]

         9. The 2017 annual report for Llorens Puerto Rico lists Mr. Llorens as President and Ms. Ruiz as Vice President.[9]

         10. Annual reports filed for Llorens Florida identifies only Mr. Llorens and Ms. Ruiz as officers or directors.[10]

         11. Llorens Puerto Rico began selling its "Lipoflavovit" product, marketed as a dietary supplement for inner ear health, in 2002 and Llorens Florida began selling Lipoflavovit in 2013.[11]

         12. Llorens hired Nutri-Force Nutrition to manufacture the Lipoflavovit product.[12]

         13. Non-party Jose Hernandez, the son-in-law of Jose Llorens, is currently the Vice President of Sales and Marketing for Llorens Florida.[13] Mr. Llorens became the Vice President of Sales and Vice President of Operations for Llorens Florida in 2015.[14]

         14. As Llorens Florida's Vice President of Sales, Mr. Hernandez has authority to enter into sales contracts on its behalf[15] In 2015, Mr. Hernandez's duties for Llorens Florida included managing Llorens Florida sales operations and online sales of Lipoflavovit in the United States. His responsibility for online sales included maintaining Llorens Florida's website and developing relationships between United States distributors.[16]

         15. In a February 4, 2013 email, Mr. Hernandez asked Nutri-Force Nutrition if the language "Supports Ear Health" could be put on the front panel of the Lipoflavovit label.[17]

         16. Mr. Hernandez has no ownership interest in Llorens Florida and does not participate in board meetings of either Llorens entity.[18]

         17. Following an August - September 2010 Food and Drug Administration inspection of Llorens Florida, the FDA characterized Mr. Hernandez as "Director of Sales and Operations."[19]

         18. In responses to discovery in this matter, Llorens Florida identified Mr. Hernandez as managing sales operations.[20]

         19. Mr. Hernandez is the sole owner, President, Treasurer, Secretary, and Registered Agent of non-party Alternative Pharmacal Corp. which maintains its principal place of business at the same facility as Llorens Florida's principal place of business.[21]

         20. Mr. Hernandez is the President of Advanced Generic Corp. which he co-owns with his wife, Karen Llorens, the daughter of Jose Llorens.[22] Advanced Generic is a private label distributor of generic over-the-counter drugs and dietary supplements.[23]

         21. Alternative Pharmacal, among other activities, markets, sells, and distributes the dietary supplement "Altiflav."[24]

         22. Llorens Florida maintains its principal place of business at a facility located in Miami, Florida (the "Facility"). Advanced Generic leases warehouse space from Llorens Florida, and both Advanced Generic and Alternative Pharmacal use warehouse space and employees of Llorens Florida at the Facility.[25]

         23. Advanced Generic pays Llorens Florida $1, 000 month in rent for use of the Facility, despite a lease agreeing to $2, 000 a month in rent.[26]

         24. Neither Alternative Pharmacal nor Advanced Generic share bank accounts with Mr. Llorens, Llorens Puerto Rico, or Llorens Florida.[27]

         25. Mr. Llorens has no ownership interest in Alternative Pharmacal or Advanced Generic.[28]

         B. Clarion sues and resolves the November 2014 infringement litigation and we enter a July 30, 2015 Consent Judgment and Permanent Injunction.

         26. In November 2014, Clarion sued Llorens Florida and Llorens Puerto Rico alleging trademark infringement under Section 32 of the Lanham Act, 15 U.S.C. §1114; trade dress infringement under Section 32 of the Lanham Act, 15 U.S.C. § 1125(A); false designation of origin and unfair competition under Section 43(A) of the Lanham Act, 15 U.S.C. § 1125(A); and unfair competition under Pennsylvania law.[29] Clarion later added a claim for false advertising under Section 43(A) of the Lanham Act, 15 U.S.C. 1125(A).[30]

         27. Clarion alleged the Lipoflavovit product sold by Llorens infringed on Clarion's Lipo-Flavonoid Plus trademark and sought to permanently enjoin Llorens from, inter alia, manufacturing, distributing, advertising, marketing, promoting, or selling Lipoflavovit "using the challenged mark or trade dress or any other mark or trade dress that is confusingly similar to" Lipo-Flavonoid's mark and trade dress.[31]

         28. Clarion alleged, among other things, the packaging for the Llorens entities' Lipoflavovit included a "semi-abstract drawing of a left-facing human ear... with multiple curved lines to the right of the ear (to mimic sound waves)."[32]

         29. Clarion and the Llorens entities agreed to settle their dispute, entering into a Settlement Agreement effective July 15, 2015 and filing a joint motion for entry of stipulated judgment.[33]

         30. We entered the parties' stipulated Consent Judgment and Permanent Injunction on July 30, 2015.[34]

         31. Paragraph 3 of the Consent Judgment enjoins the Llorens entities, Jose Llorens, and Thusnelda Ruiz for a five-year period from "participating, in any manner, by themselves or in conjunction with any other person or entity, directly or indirectly, within the United States or elsewhere, in the manufacture, wholesale, distribution, marketing, advertisement, or promotion of any dietary supplement product designed to enhance or marketed as enhancing inner ear health, or from making any plans to do the foregoing."[35]

         32. We now decide whether the Defendants and non-parties with familial relationships violated the July 30, 2015 Consent Judgment.

         C. Llorens' disposition of its Lipoflavovit inventory as of July 30, 2015.

         33. On April 29, 2015, Llorens Florida placed an order with Nutri-Force Nutrition to manufacture Lipoflavovit.[36]

         34. On July 2, 2015, Nutri-Force Nutrition issued Llorens Florida a sales invoice for 5, 190 bottles and 50, 956 bulk tablets of Lipoflavovit.[37]

         35. On July 7, 2015, Mr. Llorens paid the July 2, 2015 Nutri-Force sales invoice with a check drawn on Llorens Puerto Rico's account.[38]

         36. At some undefined point in July 2015, Mr. Llorens told Mr. Hernandez of a settlement reached in Clarion's action against Llorens.[39] Mr. Hernandez testified he knew of the settlement but did not know the terms of the Permanent Injunction until after Clarion moved to enforce it against him and Alternative Pharmacal in 2017.[40]

         37. Mr. Llorens told Mr. Hernandez Llorens will no longer sell Lipoflavovit.[41] Mr. Llorens instructed Mr. Hernandez to put a notice on Llorens Florida's website announcing Lipoflavovit would no longer be sold.[42]

         38. At the time of Messrs. Llorens's and Hernandez's general conversation, 5, 190 bottles of Lipoflavovit and 50, 956 bulk Lipoflavovit tablets were "quarantined, " also referred to by Mr. Llorens and Mr. Hernandez as "decommissioned, " in the warehouse of Llorens Florida at Mr. Llorens's direction.[43]

         39. Mr. Hernandez's businesses, Advanced Generic and Alternative Pharmacal, share warehouse space in Llorens's Florida's Miami Facility.[44]

         Mr. Hernandez testified he took the bottled and bulk Lipoflavovit for re-packaging and re-sale as Altiflav.

         40. On July 10, 2015, Mr. Hernandez asked Llorens Florida employee Jose Perez about the status of the Lipoflavovit in the Llorens Florida warehouse.[45] Mr. Perez told Mr. Hernandez Lipoflavovit would be decommissioned or destroyed because Llorens Florida could no longer sell it.[46]

         41. After learning the Lipoflavovit would be either decommissioned or destroyed, Mr. Hernandez took possession of the Lipoflavovit then in the Llorens Florida warehouse on July 10, 2015 and sent it to Lex Pharmaceutical for repackaging.[47]

         42. Neither Mr. Hernandez nor Alternative Pharmacal paid Llorens for the decommissioned Lipoflavovit.[48]

         43. On July 13, 2015, Mr. Hernandez sent an email to 21st Century Labels & Packaging requesting new labels for the decommissioned Lipoflavovit sent to Lex for repackaging. Mr. Hernandez originally intended the product to be sold by Advanced Generic as "Bioflavit."[49]

         44. On July 27, 2015, three days before Clarion sought the entry of a Permanent Injunction, Mr. Hernandez decided to change the name of the product from "Bioflavit" to "Altiflav" and change the company marketing the product from Advanced Generic to Alternative Pharmacal.[50]

         45. Sometime in August and September 2015, Lex Pharmaceutical repackaged the Lipoflavovit into bottles labelled "Altiflav" for sale by Alternative Pharmacal.[51]

         46. Altiflav is a bioflavonoid, a type of fruit extract, with uses such as circulatory health, vertigo, cardiovascular activity, and varicose veins.[52] Bioflavonoids may also support ear health.[53] Both Lipoflavovit and Altiflav contain lemon bioflavonoid.[54]

         47. Other bioflavonoid products were on the market from July 30, 2015 until Altiflav came onto the market in October 2015.[55]

         48. The formulation of Lipoflavovit is identical to the formula of three other products sold by Llorens, including Trombonex and Trombonex D.[56]

         49. Actiflovit, marketed by another entity, and Altiflav tablets are both red in color with no identifying mark.[57]

         50. The parties generally agree the chemical formula for these products regardless of the seller is largely identical.[58]

         51. Mr. Hernandez initially intended the Altiflav label to include "Compare to: Lipoflavovit Tabs."[59]

         52. Mr. Hernandez then changed the label to omit "Compare to: Lipoflavovit Tabs" language and any reference to ear health.[60]

         53. Nothing in the Altiflav label references ear health. The Altiflav label does not include a semi-abstract drawing of an ear of lines mimicking sound waves.

         54. Mr. Hernandez ordered 3, 000 additional bottles of Altiflav from Nutri-Force Nutrition in October 2016 using the identical formula as in Lipoflavovit.[61] Mr. Hernandez received the 3, 000 bottles in July 2017 but has not sold any pending resolution of this action.[62]

         Mr. Llorens's testimony regarding Lipoflavovit inventory at the time of the Settlement Agreement.

         55. Mr. Llorens testified he ordered Lipoflavovit bottles in the warehouses of Llorens Puerto Rico and Llorens Florida to be decommissioned or destroyed.[63] The Lipoflavovit inventory was never decommissioned despite Mr. Llorens's order to do so.[64]

         56. Although he testified he ordered destruction of warehoused Lipoflavovit sometime in mid-July 2015, Mr. Llorens also testified the bottled Lipoflavovit in his warehouses were (a) given as samples to nine Llorens Puerto Rico sales representatives; (b) sold in part (1, 050 bottles) to Drogueria Betances pharmacy in Puerto Rico; and (c) sold the remaining inventory to other pharmacies in Puerto Rico around July 15, 2015.[65]

         57. As to the Lipoflavovit given to the nine Llorens Puerto Rico sales representatives, Mr. Llorens initially testified he did not know how many bottles were given to the sales representatives, but later in the hearing testified 300 sample packs of four pills to a pack were given to the nine Llorens sales representatives.[66]

         58. Invoices show Llorens Puerto Rico sales representatives' receipt of the samples reflecting a quantity of 338 Lipoflavovit "xlOO."[67] Mr. Llorens later testified the nine Llorens Puerto Rico sales representatives each received 338 bottles of 100 pills.[68]

         59. The documentary evidence shows nine Llorens Puerto Rico sales representatives each received 338 bottles of Lipoflavovit containing 100 pills at no charge on July 15, 2015, totaling 3, 042 bottles.[69]

         60. Declarations of eight of the nine Llorens Puerto Rico sales representatives all swear they received 338 bottles of Lipoflavovit on July 15, 2015, and did not receive any Lipoflavovit on or after July 30, 2015.[70]

         61. As to the Lipoflavovit product in 5, 190 bottles and 50, 956 bulk tablets from Nutri-Force Nutrition and acquired by Mr. Hernandez, Mr. Llorens testified the bottled Lipoflavovit went to Llorens Puerto Rico but the bulk Lipoflavovit remained in Florida.[71]

         62. Mr. Llorens testified the Lipoflavovit acquired by Mr. Hernandez came in bottles without labels and in bulk and is separate from the product sent to Puerto Rico to be given to Llorens ...


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