ATD-Am. Co. v. Krueger Int'l, Inc., CIVIL ACTION NO. 12-00032

• Decision Date: 08 October 2013
• Docket Number: CIVIL ACTION NO. 12-00032
• Parties: ATD-AMERICAN CO., Plaintiff, v. KRUEGER INTERNATIONAL, INC. Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

ATD-AMERICAN CO., Plaintiff, v. KRUEGER INTERNATIONAL, INC. Defendant.

CIVIL ACTION NO. 12-00032

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

October 8, 2013

MEMORANDUM

BUCKWALTER, S.J.

Currently pending before the Court are the Cross-Motions for Summary Judgment by Plaintiff ATD-American Co. ("ATD") and by Defendant Krueger International, Inc. ("KI"). For the following reasons, both Motions are denied.

I. FACTUAL HISTORY¹

A. The Parties

Plaintiff ATD is a retail seller of commercial furniture and institutional supplies, with its headquarters and principal place of business in Wyncote, Pennsylvania. (Pl.'s Mot. Summ. J., Ex. M, Amended & Consolidated Complaint ("Am. Compl.") ¶¶ 1, 7.) ATD purchases productsfrom suppliers such as KI and sells them to institutional customers and businesses, including schools, religious institutions, government agencies and businesses. (Id. ¶ 7; Pl.'s Mot. Summ. J., Ex. ZZ, Dep. of William McDonough ("McDonough Dep."), 65:24-67:15, Nov. 27, 2012.)

Defendant KI is a commercial furniture manufacturer with its headquarters and principal place of business in Green Bay, Wisconsin. (Am. Compl. ¶¶ 2, 8; Pl.'s Mot. Summ. J., Ex. QQ, Def.'s Answer to Amended & Consolidated Complaint ("Answer") ¶¶ 2, 8.) KI sells furniture to ATD, who, in turn, sells the furniture to "end-user" consumers. (Am. Compl. ¶ 11; Answer ¶ 11; Pl.'s Mot. Summ. J., Ex. AAA, Dep. of Eric Wischnia ("E. Wischnia Dep. Day 2"), 63:1-9, March 1, 2013.) ATD has purchased and sold products from KI for many years. (Am. Compl. ¶ 9; Answer ¶ 9.)

Olympic Industries, Inc. ("Olympic") is a subsidiary of KI. (Pl.'s Mot. Summ. J., Ex. E, Dep. of Robert Charles ("Charles Dep."), 13:1-2, July 17, 2012; Pl.'s Mot. Summ. J., Ex. A, Asset Purchase Agreement ("APA") at 1, Recitals ¶ (b).) Prior to January 31, 2008, Olympic owned all of the outstanding capital stock and assets of the Adirondack Chair Co., Inc. ("Adirondack"). (APA at 1, Recitals ¶ (b).) Olympic's only known function was to serve as an intermediary between KI and Adirondack. (Charles Dep. 13:22-14:3.) Although the stock of Adirondack was held by Olympic because KI "preferred not to have it known in the general public that [KI] owned [Adirondack]," (Pl.'s Mot. Summ. J., Ex. C, Dep. of Mark Olsen ("Olsen Dep."), 11:4-15, July 18, 2012), Adirondack was an "indirect subsidiary" of KI. (Am. Compl. ¶ 14; Answer ¶ 14.)

Prior to January 31, 2008, Adirondack contained two divisions: the catalog division andthe rental division.² (Pl.'s Mot. Summ. J., Ex. G.) During that time period, the catalog division was, like ATD, a retail seller of commercial furniture and institutional supplies. (Pl.'s Mot. Summ. J., Ex. G.) According to the Adirondack Strategic Summary, the business of the catalog division was "sales of new furniture." (Id.) The rental division, on the other hand, focused on the rental of furniture and sales of used rental stock. (Id.)

B. The Background Behind the Asset Purchase Agreement

ATD and KI entered into an Asset Purchase Agreement ("APA" or "Agreement") on January 31, 2008. (APA at 1.) Via this Agreement, ATD bought certain assets used in Adirondack's "catalog division" from KI and Olympic Industries. (Id.) Specific assets were expressly excluded from the sale including the corporate stock, cash, and cash equivalents on hand, the trade name "Adirondack Rents," tax returns of Adirondack, assets unrelated to "the Business," of the catalog division of Adirondack, and any assets owned or held by Olympic or KI. (Id. at 3 ¶ A.8.) The genesis of this Agreement was set forth in a Letter of Intent ("Letter") signed by both parties and dated December 21, 2007, which stated as follows:

[t]his non-binding letter of intent is to confirm the interest of Adirondack Chair Co., Inc. ("ADCO") in selling certain of its assets utilized in ADCO's catalog division to ATD-AMERICAN Co. ("ATD").

(Pl.'s Mot. Summ. J., Ex. B.) The Letter goes on to define "certain assets" of Adirondack as"substantially all of the assets utilized by ADCO in its catalog business operations." (Id.) This Letter constituted the final version of multiple prior draft letters, and no further letters of intent or other writings concerning the intent of the parties were exchanged by ATD and KI between December 21, 2007 and the closing of the APA on January 31, 2008. (Pl.'s Mot. Summ. J., Ex. H; Olsen Dep. 34:2-3.)

Several witnesses testified as to the intent behind the Asset Purchase Agreement. Robert Charles, Esq., the attorney who negotiated the APA on behalf of KI and signed on behalf of Olympic Industries, stated:

Q. Am I correct that in the asset purchase it was the catalog division that was sold to ATD?

. . .

A. There were the assets—

Q. Yes. The assets of the catalog division were sold to ATD; is that correct?

A. Roughly stated, yes.

. . .

Q. And am I correct that the assets of the catalog division are what is in paragraph A of the recitals of the first page of the asset agreement?

. . .

A. No. It would be more accurate to say the assets of the catalog division are the assets that are defined as the assets sold.

Q. On page 2 of the asset purchase agreement?

A. Correct?

Q. So the assets of the catalog division were sold. Those assets are identified on page 2 under Section 4, assets of the asset purchase agreement; is that correct?

A. I believe that's correct.

Q. And to move back, those asset that were sold that were of the catalog division are also referenced in paragraph c of the recitals where it initially states that the assets used in or usable to the business were being transferred?

A. A general reference to it, yes.

Q. And the assets used or usable in the business, and it would include the catalog division assets that you just identified in Section 4 on page 2, which were also identified in Section C of page 1 of the asset purchase agreement, and these are the assets of quote the business in paragraph A of the recitals; is that right?

A. I think we're getting to the same end, yes. Some are just more generic references, whereas the definition of assets is meant to be more specific.

Q. And to put it more generally, was it contemplated at the time that the catalog division was being sold?

. . .

A. In layman's terms that phrase could have been used, yes.

Q. And was it contemplated that the catalog division would continue to function simply owned by ATD going forward?

A. Again, what ATD did with the assets—it was assumed largely because we had a supply agreement, we were hoping they would continue operations because they needed to buy product from KI. So whether they used this computer or burned that table or did whatever, we don't know, but it was assumed that they would be operating a catalog—as a catalog company going forward probably using the assets that they paid KI money for or ADCO for.

(Charles Dep. 89:13-91:19.) Mr. Charles, however, clarified that it was not a "catalog company" that was sold, but rather the assets of the "catalog company" with no company stock equity. (Id. at 42:18-43:13.) He explained that ATD did not buy the entire catalog and furniture business, but rather only the assets that were "used or useful in the business." (Id. at 61:8-11.) It was not contemplated that the entire catalog and furniture business would get transferred to ATD. (Id. at 74:12-21.) Further, Mark Olsen, the Chief Financial Officer of KI at the time of the sale and the representative who signed the APA on behalf of KI testified that it was his understanding that the assets that were sold were the assets of the catalog division and that the catalog division was a business that was engaged in the direct marketing and sales through catalogs and the Internet of furniture and office and other institutional supplies. (Olsen Dep. 36:24-37:8.) Finally, Randolph Mittasch, the Treasurer of the Adirondack Chair Co., Inc., who signed the APA on behalf of Adirondack, testified that the assets that were sold were the assets of the catalog division. (Pl.'s Mot. Summ. J., Ex. F., Dep. of Ralph Mittasch ("Mittasch Dep."), 134:14-19, Sept. 24, 2012.) Mr. Mittasch admitted to emailing an employee of KI that "[a]s you are aware KI will be sellingthe Catalog Division probably January 31 (or the latest February 28)." (Pl.'s Mot. Summ. J., Ex. I.) Mittasch, however, clarified that there were some assets of the catalog division that were maintained by Adirondack. (Mittasch Dep. 133:23-134:12.)

C. The Catalog Division of Adirondack Prior to the Asset Purchase Agreement³

As a holding of KI, Adirondack's purported catalog division was involved in the business of "sales of new furniture." As described by Joseph Torre, Adirondack's Director of Operations at the time of the asset purchase:

Q. So A Partymaker and Adirondack Rents didn't sell any furniture, right?

A. Uh — No.

Q. So all of your furniture sales came under the other division, right?

A. Right.

Q. Which was called what?

A. Which was called the catalog. KI classified it under catalog and rents.

Q. Okay. It was called the catalog division, right?

A. Correct.

Q. It wasn't called the furniture sales division, right?

A. No, KI always classified it as catalog. And we had all of the marketing functions under that and the sales functions, but they classified it as catalog and —

Q. Each and every—each and every marketing function that you had for purposes of marketing sales as opposed to rental, each and every marketing function was classified under the catalog division, right?

A. Yes.

Q. And each and every sales function you had was classified under the catalog division, right?

A. Correct.

(Pl.'s Mot. Summ. J., Ex. K, Dep. of Joseph Torre ("Torre Dep.") 54:2-55:4, June 28, 2012.) In2007, the catalog division sold products throughout the United States, as well as in Canada and Mexico. (Pl.'s Mot. Summ. J., Ex. L; see also Mittasch Dep. 163:13-164:18 (discussing sales by Adirondack in general).) Just four months prior to selling the assets, Adirondack indicated that the catalog division sold furniture ...