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Right Way Nutrition, LLC v. General Nutrition Corp.

United States District Court, W.D. Pennsylvania

November 15, 2019

RIGHT WAY NUTRITION, LLC Plaintiff,
v.
GENERAL NUTRITION CORP., Defendant.

          MEMORANDUM OPINION

          WILLIAM S. STICKMAN IV, UNITED STATES DISTRICT JUDGE.

         Health and wellness care is one the fastest growing markets in America. Deborah Weinswig, Wellness is the New Luxury; Is Health and Happy the Future of Retail, Forbes (June 30, 2017, 4:09 p.m.), https://www.forbes.com/sites/deborahweinswig/2017/06/30/wellness-is-the-new-luxury-is-healthy-and-happy-the-future-of-retail/#26d7147c8323. Plaintiff Right Way Nutrition, LLC ("RWN") and Defendant General Nutrition Corporation ("GNC") entered into a business arrangement to profit from this trend. But their deal unraveled. Litigation ensued. Currently pending before the Court are their cross motions for summary judgment. For the reasons set forth below, RWN's Motion for Partial Summary Judgment (ECF No. 60) will be granted in part and denied in part. GNC's Motion for Partial Summary Judgment (ECF No. 64) will be denied and its Amended Counterclaim (ECF No. 44) will be dismissed.

         FACTUAL BACKGROUND

         In 2010, Kevin Wright ("Wright") founded RWN. He currently serves as RWN's President and CEO. RWN specializes in the development of wellness products. GNC is a national retailer of health, wellness, and performance products. In or about late April/early May 2011, GNC entered a deal with RWN to sell two RWN wellness products at GNC stores nationwide and on GNC's website. RWN communicated with GNC daily and visited GNC stores every two weeks for inspection purposes. RWN had access to GNC buyers twenty-four hours a day, seven days a week. RWN National Sales Director Charlie Chiaverini ("Chiaverini"), former Vice President of GNC, was responsible for the GNC account. Appendix to Plaintiffs Motion for Partial Summary Judgment (ECF No. 62) ("Pl.'s App.") Ex. A at pp. 1-15; Pl.'s App. Ex. D at p. 2, ¶ 4; Appendix to Defendant's Motion for Partial Summary Judgment (ECF No, 64) ("Def.'s App, ") Ex. 1 at pp. 5-6, 119; Statement of Undisputed Material Facts in Support of General Nutrition Corporation's Motion for Partial Summary Judgment and Response to Plaintiffs Undisputed Material Facts (ECF No, 66) ("Def.'s Statement") at pp. 1-2, 12, ¶¶ 1-5, 76.

         I. The Terms of the Deal

         The deal initially consisted of the Purchase Agreement, the Vendor Book, [1] and the Purchase Order Form (collectively, the "founding documents"). Def.'s App. Ex. 1 at pp. 2, 115, 123; Def.'s Statement at pp. 3, 12, ¶¶ 11, 77; Pl.'s Resp. to Def.'s Statement at p. 2, ¶ 11.

         Paragraph 8 of the Purchase Agreement required RWN to maintain a $2, 000, 000.00 general products liability occurrence policy. Pl.'s App. Ex. A at pp. 3-4, ¶ 8. RWN procured such a policy from Citadel Insurance Services, LC. Def.'s App, Ex. 1 at p. 136. Paragraph 9 of the Purchase Agreement, the indemnity clause, required RWN to hold GNC harmless for any litigation arising from the sale of its products under the Purchase Agreement. Pl.'s App. Ex. A at p. 4, ¶ 9. Paragraph 11 of the Purchase Agreement established the following formula for calculating RWN product's margin percentage:[2]

         x = GNC Retail Price / RWN Product Price - GNC Retail Price

         Pl.'s App. Ex. A at pp. 4-5, ¶ 11. Exhibit Four to the Purchase Agreement contained the General Nutrition Returns Agreement ("GNRA"), [3] which detailed GNC's Reverse Logistics Program. That program allowed GNC to return RWN products to RWN for credit or cash payment. Pl.'s App. Ex. A at p. 10. The GNRA also guaranteed GNC the right to increase costs thirty days after providing written notice to RWN. Pl.'s App. Ex. A at pp. 10-12.

         Section F of the Purchase Agreement's General Terms contained a merger clause that provided, in pertinent part, as follows,

This Agreement (including the Vendor Book, the Purchase Order, and all exhibits) contains the entire agreement of the Parties relating to the subject matter of this Agreement, and the Parties agree that this Agreement supersedes all prior written or oral agreements, representations, and warranties relating to the subject matter of this Agreement. In the event of any conflict between the terms of this Agreement and the Vendor Book, the terms of this Agreement shall control.

         Section F later states that the parties cannot modify the Purchase Agreement except by a signed writing. Pl.'s App. Ex. A at p. 5, ¶ F. The deal initially covered two RWN products: African Mango and Beta Bum. Pl.'s App. Ex. A at p. 9; Def.'s Statement at p. 13, ¶ 78. The parties subsequently executed addenda modifying the Purchase Agreement to allow GNC to sell new RWN products as they became available.

         Whenever GNC wanted to purchase a product from RWN, it had to issue a purchase order. Def.'s App. Ex. 1 at p. 6; Def.'s Statement at p. 3, ¶ 15; Pl.'s Resp. to Def.'s Statement at p. 2, ¶ 15. The Purchase Order Form, which is included in the Vendor Book, states in pertinent part that "The parties agree that the total price stated in the purchase order contains all the charges to be paid by GNC to [RWN]. The price described herein is not subject to escalation of any kind or for any reason." Def.'s App. Ex. 1 at p. 125, ¶ 6. The parties stipulated that Pennsylvania law governed interpretation of the founding documents. Pl.'s App. Ex. 1 at p. 7, ¶ H; Def.'s App. Ex. Latp. 91, ¶ H.

         II. The Disputes Over RWN Products

         There are three RWN products at the core of this case: Garcinia Cambogia Extract, Cerebral Success, and Green Coffee Beanቷꮃ. The Court will recount the controversies involving each product below.

         A. Garcinia Cambogia Extract

         In 2013, RWN launched Garcinia Cambogia Extract ("Garcinia") as a new product. RWN and GNC entered price negotiations by email in early January 2013. Def.'s Statement at pp. 6-7, ¶¶ 37-39; Pl.'s Resp. to Def.'s Statement at p. 4, ¶¶ 37-39. GNC contracted with RWN to sell Garcinia and another RWN product-Green Coffee Beanቷꮃ. GNC initially agreed to pay $14.00/unit for Garcinia. The corresponding retail price was $39.99/ unit. Def.'s App. Ex. 1 at pp. 139-148. The parties memorialized the sale in Addendum G to the Purchase Agreement on January 23, 2013. Pl.'s App. Ex. A at p. 22; Pl's App Ex. D at p. 2, ¶ 5; Def.'s Statement at p. 7, ¶ 40; Pl.'s Resp. to Def.'s Statement at p. 4, ¶ 40. On February 28, 2013, RWN shipped the first order of Garcinia to GNC. Def.'s App. Ex. 1 at p. 172.

         In March 2013, GNC asked RWN for a price reduction for Garcinia to facilitate that product's retail launch. RWN agreed to reduce the cost from $14.00/unit to $12.25/unit so that the retail price could drop from $39.99/unit to $34.99/unit. Def.'s App. Ex. 1 at p. 172. On April 12, 2013, GNC requested that RWN confirm the correct cost. Def.'s App. Ex. 1 at pp. 154-60; Def.'s Statement at p. 7, ¶ 41; Pl.'s Resp. to Def.'s Statement at p. 4, ¶ 41. Various GNC and RWN personnel exchanged emails to ensure that the Garcinia purchase order reflected the reduced price. Id. On April 13, 2013, however, Wright emailed GNC requesting that the Garcinia purchase orders be valued at $14.00/unit "moving forward." GNC agreed. The parties dispute the precise meaning of that email exchange, specifically-whether the phrase "moving forward" meant that the price reduction was terminated, and the original price was restored. Def.'s Statement at pp. at 8-9, ¶¶ 43-47; Pl.'s Resp. to Def.'s Statement at pp. 4-5, ¶¶ 43-47.

         In May 2013, GNC adjusted the retail price back up to $39.99/unit but continued to pay RWN$12.25/unit. Def.'s App. Ex. 1 at p. 172. RWN ultimately became aware of, and dissatisfied with, the pricing discrepancy.[4] On May 14, 2014, Chiaverini emailed GNC Director of Merchandising John Telencho ("Telencho"), advising him of the discrepancy. Pl.'s App. Ex. C at p. 2; Pl.'s App Ex. D at p. 3, ¶ 7; Def.'s App. Ex. 1 at p. 164; Def.'s Statement at p. 9, ¶ 57; Pl.'s Resp. to Def.'s Statement at p. 6, ¶ 57. That message initiated roughly six months of discussion between the parties. Pl.'s App. Ex. D at p. 3, ¶ 8; Def.'s App. Ex. 1 at pp. 24, 33, 172, 175. All the while, GNC continued to purchase Garcinia from RWN. Def.'s Statement at p. 14, ¶ 86.

         On October 20, 2014, Wright sent a letter to GNC outlining RWN's position on the dispute. Pl.'s App. Ex. D at p. 3, ¶ 10; Pi's App. Ex. E at pp. 2-4; Def.'s Statement at p. 14, ¶ 87. Wright sent another letter on December 23, 2014, stating that although RWN accepted the reduced Garcinia price at first, adjustments to the unit price should be commensurate with that of the retail price. Thus, RWN's position was that GNC should adjust the unit price to $14.00/unit to match the retail price adjustment from $34.99/unit to $39.99/unit. Def.'s Statement at p. 9, ¶ 60; Pl.'s Resp. to Def.'s Statement at p. 7, ¶ 60.

         B. Cerebral Success

         GNC continued to do business with RWN notwithstanding the Garcinia pricing dispute. In late July/early August 2014, for example, the parties executed Addendum M to the Purchase Agreement. Addendum M memorialized the parties' agreement for GNC to sell Cerebral Success for $24.50 per unit. Pl.'s App. Ex. A at pp. 28-30; Pl.'s App. Ex. D at p. 4, ¶ 21; Def.'s Statement at p. 21, ¶ 109. Cerebral Success is a cognitive performance product that purportedly increases focus, memory, and overall health. Def.'s Statement at p. 20, ¶ 107. Addendum M originally contained an exclusivity provision: "GNC will only carry this product within this category and no other product of its likeness for 1 year." On April 29, 2015, the parties modified Addendum M by deleting the exclusivity provision. Pl.'s App. Ex. A at p. 28.[5] GNC began selling Cerebral Success in October 2014. Def.'s Statement at p. 21, ¶ 111.

         C. Green Coffee Beanቷꮃ

         RWN sold Green Coffee Beanቷꮃ to GNC in 2013. In 2015, six class action lawsuits were filed against GNC relating to that product. The plaintiffs in those suits alleged, among other things, that Green Coffee Beanቷꮃ was a false and misleading product because it used two non-dietary ingredients that are allegedly dangerous substances: acacia rigidula and Betamethylphenethylamine ("BMPEA"). Responsive Appendix to Plaintiffs Brief in Opposition to Defendant's Motion for Partial Summary Judgment/Reply Brief in Support of Motion for Partial Summary Judgment (ECF No. 69) ("Pl.'s App. to Br. in Opp.") Ex. C at pp. 2, 16-26, 30-31, ¶¶ 3, 53-78, 88; Pl.'s App. to Br. in Opp. Ex. D at pp. 10, 12, 19-20, ¶¶ 36-38, 43, 72-78. GNC notified RWN of these lawsuits and requested indemnification under Paragraph 9 of the Purchase Agreement. Def.'s Statement at p. at 6, ¶ 32; Pl.'s Resp. to Def.'s Statement at p. 3, ¶ 32. RWN never paid.

         III. ...


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