Zerona Body Laser Marketing Firm, Primcogent Solutions, Files Chapter 11

Written by: Robert DeMarco
Primcogent Solutions, LLC, [“Primcogent”] filed a petition for relief under chapter 11 of the Bankruptcy Code on Monday, May 20, 2013.  The bankruptcy case was filed in the Northern District of Texas, Fort Worth Division, Case No. 13-42368-dml11.  Primcogent is a Texas based company that held an exclusive license to market the Zerona BODY Laser machine in North America and Western Europe (through its European subsidiaries).  The Zerona BODY Laser machine employs a non-invasive body-contouring laser technology that is trademarked under the name Zerona®.  Presently, the Zerona BODY Laser is the only FDA-cleared, non-invasive body contouring procedure that effectively removes excess fat from the abdomen, hip, thigh and arm target areas without sugery.  The Zerona BODY Laser accomplishes this feat by utilizing “cold laser” technology to emulsify body fat and allow such fat to move to interstitial space.  The licensor of both the trademark and body-contouring technology is Erchonia Corporation, a Texas corporation operating from McKinney, Texas [“Erchonia”].
The million dollar question, however, is whether Primcogent retains any rights to continue marketing the Zerona BODY Laser.  As will be discussed, the entire success of this chapter 11 bankruptcy filing is premised upon the success of a declaratory relief action filed in the Bankruptcy Court by Primcogent on May 22, 1013.
The license and supply agreement by and between Primcogent and Erchonia [the “License Agreement”] requires Primcogent to make periodic payments in order to maintain the License Agreement.  On February 18, 2013, Erchonia notified Primcogent that is was in default under the License Agreement for failure to make certain payments then due and owing to Erchonia.  Primcogent’s cure period under the terms of License Agreement expired on March 20, 2013.  Erchonia, on March 22, 2013 and again on April 3, 2013, notified Primcogent that its rights under the License Agreement were terminated.
As alleged in the adversary proceeding filed by the Debtor shortly after the Petition Date, Erchonia’s failure to adhere to its obligations under the License Agreement coupled with allegations of fraud in the inducement, excused any alleged non-performance issues.  In support of these allegations, Primcogent avers that its decision to enter the License Agreement was predicated upon an acquisition agreement [“Acquisition Agreement”] between with Santa Barbara Medical Innovations, LLC [“SBMI”], an entity largely controlled by Erchonia.
Under the terms of the Acquisition Agreement, Primcogent was to acquire approximately 600 Zerona BODY Laser machines, many of which were leased out to customers.  According to Primcogent, representations made by both Erchonia and SBMI vis-à-vis the number of Zerona BODY Laser machines out on lease was significant because of the recurring cash flow they produced.  Primcogent later learned that approximately 200 of the machines were actually demos and generated no income.  As further alleged by Primcogent, the return rate on the leased Zerona BODY Laser machines was significantly greater than as was represented by Erchonia and SBMI.  Primcogent claims that as of the Petition date, only 114 of the Zerona BODY Laser machines were generating any significant rental revenue.
One can only imagine when this litigation will come to an end.  What is certain, however, is that Primcogent has placed all of its eggs are in one basket:  a litigation basket.  If the Bankruptcy Court refuses to grant Primcogent the extraordinary preliminary relief it seeks, this chapter 11 bankruptcy case will soon be one under chapter 7.
DATED:  May 28, 2013