Abro Indus., Inc. v. 1 New Trade, Inc.
| Decision Date | 30 October 2017 |
| Docket Number | CAUSE NO.: 3:14-CV-1984-TLS |
| Parties | ABRO INDUSTRIES, INC., Plaintiff, v. 1 NEW TRADE, INC., et al., Defendants. |
| Court | U.S. District Court — Northern District of Indiana |
These matters come before the Court on Plaintiff ABRO Industries' ("ABRO") Motion for Summary Judgment [ECF No. 166], filed on April 19, 2017; Defendants 1NEW Trade, Igor Zorin, Vadim Fishkin, and Boris Babenchik's (collectively "the Defendants") Motion for Summary Judgment [ECF No. 175], filed on May 1, 2017; and Third Party Defendant Peter Baranay's Motion for Summary Judgment [ECF No. 168] filed on April 19, 2017. The Defendants have also filed a Motion to Strike ABRO Industries' Copyright Office Registration Certificates [ECF No. 204] and a Motion to Strike ABRO Industries' Expert Report on Damages [ECF No. 205]. ABRO filed a Motion to Strike Portions of the Joint Declaration Submitted by Defendants [ECF No. 195] and a Motion for Leave to File a Motion to Strike Declarations Filed by the 1NEW Defendants [ECF No. 212]. These matters are fully briefed and ripe for review.
PROCEDURAL HISTORY
On November 4, 2014, ABRO filed its Amended Complaint [ECF No.7], claiming that the Defendants and Quest Specialty Coatings, LLC ("Quest") infringed on ABRO's copyrights relating to carburetor and choke cleaner packaging. On December 31, 2014, the Defendants filed their Answer to ABRO's Amended Complaint [ECF No. 23], asserting a series of counterclaims against ABRO, including breach of fiduciary duty, breach of contract, and tortious interference with prospective and/or existing business relationships, requesting both monetary and injunctive relief. Also on December 31, 2014, Zorin and Babenchik filed a Third Party Complaint [ECF No. 24] against Peter Baranay, president of ABRO, asserting tortious interference with business relationships. On February 21, 2017, ABRO filed a Consent Motion to Dismiss all claims as to Quest [ECF No. 27], which the Court granted on March 1, 2017 [ECF No. 159].
FACTUAL BACKGROUND
ABRO manufactures automotive parts and supplies and consumer hardware goods for sale internationally, including a carburetor and choke cleaner product called "Carb & Choke Cleaner." At all relevant times, Peter Baranay has been the president of ABRO. As president, Baranay has ultimate authority over all aspects of the business, including forming and terminating business relationships, growing sales, and developing strategies for the management of distribution channels. Michael Molnar is ABRO's purchasing and sales manager for Western Europe, Eastern Europe, and Eurasia.
ABRO and Igor Zorin began their business relationship in 1994, which started out as a buyer-seller relationship: Zorin pre-paid for ABRO goods, and ABRO shipped the goods to Zorin or his companies. Neither party disputes that, at this time, there was no sharing of profits.
In October 1995, ABRO and Zorin entered into various agreements to promote the sale of ABRO products in Russia. To this end, and with Baranay's approval, Zorin created a company called ABRO Rus, specifically for the sale of ABRO products. The parties dispute the compensation arrangement, with ABRO arguing that it did not share in ABRO Rus's profits andZorin arguing that ABRO was the revenue collecting and profit distributing partner and, thus, the only one in a position to account for and distribute profits. There is no written record of these agreements.
Boris Babenchik's relationship with ABRO began in 1996 when Babenchik began to sell and distribute ABRO goods. Babenchik's primary responsibility in that relationship was to locate distributors, for which he was to be compensated based on the purchases of those distributors. ABRO argues that this was a commission arrangement, pointing to Babenchik's deposition testimony that referred to it as such. However, other pieces of Babenchik's testimony from this deposition call ABRO's conclusion into doubt. For example, Babenchik testified that he was unsure of the meaning of commission, as he was testifying through a translator and could understand only about a tenth of what was being said in English, and he was unsure that "commission" was an accurate characterization of the arrangement.
In 1996, the parties collectively set various sales goals. Baranay was responsible for developing new products; Zorin and Babenchik were responsible for developing new products, advertising, and seeking new distributors in Russia. ABRO never added any new distributors to its network in Russia without Zorin's approval. Babenchik was also to help distributors develop and advertise in their respective territories. Although Babenchik's company, Krepost, could sell ABRO products throughout Russia, it was not permitted to sell ABRO products in the cities in which these distributors were located. Zorin and Babenchik agreed to act as guarantors of payments for the distributors each recruited. None of these distributors ever defaulted, and, therefore, neither Zorin nor Babenchik were ever called upon to satisfy that guarantee.
The parties disagree as to the compensation terms of this arrangement. ABRO characterizes the arrangement as commission-based, wherein Zorin would receive a commissionon sales generally, and Babenchik would receive a commission on the sales of distributors he brought to ABRO. The Defendants argue that ABRO's established practice was to refer to profit-sharing as "commissions" and that there were regular payments, offsets, and credits, which were all part of a profit sharing relationship.
Compensation based on sales by one of these distributors—Orient Invest—were paid into a Krepost account, instead of directly to Babenchik. According to Babenchik, ABRO directed the funds to the Krepost account at Babenchik's instruction. As the owner of Krepost, Babenchik testified that he never saw any difference between Krepost and himself individually, testifying that the agreement was between he—not Krepost—and ABRO. At one point during their business relationship, Babenchik suggested that ABRO forgo compensating him based on a Kazakhstan distributor's sales in order to develop the business.
The parties revised their Russian strategy in either 2007 or 2008 (the parties dispute at what point the strategy was proposed), which included a "percentage system" for Russian distributors, which Zorin characterizes as a system to stop price wars between Russian distributors and incentivize focus on growing business instead of poaching customers. The parties also divided responsibility concerning policing counterfeit products and product promotion. Zorin and Babenchik were responsible for the development of advertising campaigns for their respective companies, including participation in trade shows, although the Defendants argue that ABRO was also involved in these campaigns.
In October 2007, Zorin informed ABRO of his intent to retire in 2017. Zorin claims that at this time, the parties agreed that, until Zorin's retirement, ABRO would pay him 3% of the profits on Russian sales when the sales exceeded $25 million dollars so long as ABRO continued to do business with the distributors that Zorin recruited. If the goods were manufactured outsideof the United States, Zorin would receive 1.5% of the profits instead of 3%. The amount of money that resulted from the 40% profit Zorin earned based on his distribution efforts exceeded the percentage he was to receive out of the profits under this arrangement.
In 2012, tension developed between Zorin and Molnar. Zorin believed that Molnar's involvement with arranging new products with distributors and creating product design without Zorin's knowledge violated Zorin's agreement with ABRO and placed ABRO and the ABRO-Zorin relationship at risk. Zorin would not provide to Molnar all of the information Molnar requested, but Zorin disputes Molnar's authority to request such information. This tension culminated in an altercation between Zorin and Baranay during a 2012 meeting in Frankfort, for which Zorin later apologized to ABRO. Zorin now argues that the apology was insincere and that he was forced to lie in order to avoid losing ABRO's business.
In February 2013, ABRO ceased the direct shipment of goods, other than spray paint, to both Zorin and Babenchik. Zorin's relationship with ABRO was officially terminated in December 2013. In 2014, Babenchik decided to transfer his ownership in Krepost in order to discontinue his relationship with ABRO, but he retained ownership until the divestiture was completed. After ABRO's formal termination in 2017 of the ABRO-Krepost sales agreement, Babenchik rescinded that decision and returned to an active role in the company.
The Defendants allege that the reason for the termination of their relationships with ABRO was due to their refusal to participate in a criminal, tax-evasion enterprise. Specifically, ABRO kept two sets of transportation documents and invoices with altered prices, shippers, sellers, and buyers. The Defendants allege that this was a regular practice and that this practice was expressly sanctioned and directed by Baranay. ABRO does not deny the existence of altereddocuments, but rather argues that such documents were produced only at customer request and that ABRO never knew—and never asked—about the purpose for which they were requested.
In December 2012, the Defendants allege that ABRO decided that Zorin and Babenchik must participate in its scheme so that the declared pricing on imported ABRO goods would be consistent to avoid unwelcome attention from customs officials. The Defendants state that they asked ABRO to begin shipping goods directly to them so they did not have to participate in this "grey scheme." However, ABRO refused to ship any product directly to the Defendants except for spray paint—the only product, so the Defendants allege, for which there were no price discrepancies. When Zorin refused to participate in ABRO's activities, Zorin alleges that ABRO...
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