Mineral Resources International Loses Jury Trial, Hammered with $850,000 Verdict

Josh Long, Associate editorial director, Natural Products Insider

April 16, 2013

5 Min Read
Mineral Resources International Loses Jury Trial, Hammered with $850,000 Verdict

OGDEN, UtahMineral Resources International, Inc. (MRI), an ingredient supplier and manufacturer of nutritional supplements, sought to prove in state court that two former managers breached non-compete agreements, stole trade secrets and interfered with contractual relations.

But a weeks-long trial didn't end as MRI had hoped.

On April 5, a jury returned a verdict in favor of the defendants, awarding them $850,000 in damages based on findings that MRI had breached a supply agreement, committed defamation, engaged in unfair competition and intentionally interfered with contractual or economic relations, according to a special verdict form Natural Products Insider obtained. MRI also was found to have engaged in "willful and malicious or intentionally fraudulent conduct, or conduct that manifests a knowing and reckless indifference toward, and disregard of," the defendants' rights.

Lawsuit Targeted Former Managers  

In an amended 2011 complaint filed in the Second Judicial District of Weber County, Utah, MRI had sought damages in excess of $700,000 against the defendants, whom included Salt Lake Minerals, LLC, Minerals-4-Health, LLC and Schenk Family Limited Partnership among others.

Two of the defendants, David Schenk and the late Mitch Shaw, were former MRI managers who both signed non-compete agreements, the lawsuit stated. After parting ways with the company, the men entered a supply agreement with MRI in 2002 and established Minerals-4-Health in order to conduct business under the pact, according to a Dec. 28, 2011 memorandum filed by the defendants.

Shaw was an employee at MRI for two years, while Schenk, although never an employee, worked at the company for a brief time while considering purchasing a controlling interest in the business, according to the defendants' memorandum. Shaw died about a year ago in an accident at the Great Salt Lake, yet MRI moved forward with claims against his widow and personal representative, Heidi Shaw, according to Salt Lake Minerals Company.

In the lawsuit, MRI accused Schenk and Shaw of breaching their non-compete agreements, misappropriating trade secrets, interfering with the company's economic relationships by contacting its customers and making false misrepresentations in connection with the harvesting and manufacturing of mineral brine products. (A spokeswoman for MRI explained mineral brine relates to "minerals that are dissolved into a liquid solution", and the Great Salt Lake in northern Utah is "considered a brine lake").    

The complaint further alleged defendants "have obtained the majority of the concentrated mineral brine used in their products from sources that advertise mineral brine for sale only to agricultural or industrial users and that do not purposely take measures to keep such mineral brine free from contaminants or to avoid adulteration, so that such mineral brine could satisfy governmental requirements for use in food-grade products."

Jury Rejects MRI's Lawsuit

Salt Lake Minerals Company said the jury rejected MRI's claims that the harvesting operations of its sister company, NorthShore Limited Partnership, were "food-grade" while rivals' operations were "non-food-grade" or "industrial".

Richard Clark, a regulatory official in Utah, testified there is no "food-grade" source for mineral brine from the Great Salt Lake, according to Salt Lake Minerals Company.

"All such material must be processed in accordance with current Good Manufacturing Practices (cGMP) before they become 'food-grade.'" the company stated in a press release after the jury verdict was returned. "The evidence at trial showed that Defendants processed their mineral brine products in strict accordance with cGMP."

But according to MRI, the defendants admitted they have been only harvesting unrefined water from the Great Salt Lake and none of their low-sodium concentrated mineral brines derived from their own mineral extraction site.

"We contend that few, if any, consumers were aware of this fact," the company declared in a written statement.

The jury trial began on March 11 and ended on April 5. MRI failed to convince jurors it proved any of its legal claims by a "preponderance of the evidence".

Donald Dalton, a Salt Lake City, Utah-based attorney representing the defendants, said the jury verdict was unanimous. Ten jurors heard the case, but two alternates were dismissed before deliberations, he said. 

A final judgment has not been entered yet in the case. Defendants have proposed a judgment based on the jury findings that would award $850,000 in damages and roughly $241,000 in attorney's fees in favor of the defendants and against MRI. Dalton said counsel for MRI and NorthShore Limited Partnership have objected to the proposal.

MRI indicated it would file an appeal.

"We believe that the jury ruling, if allowed to stand, is a travesty of justice and a tragedy for the Anderson family and a loss for the natural products industry and consumers," the company said. "We cannot allow this ruling to stand uncontested."

MRI's complaint had alleged breach of contract, breach of the covenant of good faith and fair dealing, misappropriation of trade secrets/unjust enrichment, violation of the federal Lanham Act and Utah Unfair Competition Act/Unfair Practices Act, intentional inference with economic relations and breach of fiduciary duties. It also sought relief under Utah's Citizen Participation in Government Act.

Defendants Schenk and Shaw argued the breach of contract claim had no merit because, in part, the supply agreements expressly permitted them to violate the non-compete agreements.

"This cannot have been the intention of the parties. It is evident that the signing of the Supply Agreement had the effect of abrogating, or voiding, the Non-Competition Agreements," Dalton, the defendants' lawyer, wrote in the Dec. 28, 2011 memorandum.

The case (Case No. 070900119 CN) is Mineral Resources International, Inc. vs. Salt Lake Minerals, LLC, Minerals-4-Health, LLC, Schenk Family Limited Partnership, David Schenk, Mitch Shaw, Leroy Schenk, Farley Quist, Country Lane Sales, Inc.

About the Author(s)

Josh Long

Associate editorial director, Natural Products Insider, Informa Markets Health and Nutrition

Josh Long directs the online news, feature and op-ed coverage at Natural Products Insider, which targets the health and wellness industry. He has been reporting on developments in the dietary supplement industry for over a decade, with a focus on regulatory issues, including at the Food and Drug Administration.

He has moderated and/or presented at industry trade shows, including SupplySide East, SupplySide West, Natural Products Expo West, NBJ Summit and the annual Dietary Supplement Regulatory Summit.

Connect with Josh on LinkedIn and ping him with story ideas at [email protected]

Education and previous experience

Josh majored in journalism and graduated from Arizona State University the same year "Jake the Snake" Plummer led the Sun Devils to the Rose Bowl against the Ohio State Buckeyes. He also holds a J.D. from the University of Wyoming College of Law, was admitted in 2008 to practice law in the state of Colorado and spent a year clerking for a state district court judge.

Over more than a quarter century, he’s written on various topics for newspapers and business-to-business publications – from the Yavapai in Arizona and a controversial plan for a nuclear-waste incinerator in Idaho to nuanced issues, including FDA enforcement of the Dietary Supplement Health and Education Act of 1994 (DSHEA).

Since the late 1990s, his articles have been published in a variety of media, including but not limited to, the Cape Cod Times (in Massachusetts), Sedona Red Rock News (in Arizona), Denver Post (in Colorado), Casper Star-Tribune (in Wyoming), now-defunct Jackson Hole Guide (in Wyoming), Colorado Lawyer (published by the Colorado Bar Association) and Nutrition Business Journal.

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