BD Med. Supplies v. Bluestem Mgmt. Advisors

• Docket Number: 21-1226-DDC
• Decision Date: 02 August 2023
• Parties: BD MEDICAL SUPPLIES LLC, Plaintiff, v. BLUESTEM MANAGEMENT ADVISORS, LLC, and THOMAS D. JOHNSON, Defendants.
• Court: U.S. District Court — District of Kansas

1

BD MEDICAL SUPPLIES LLC, Plaintiff, v. BLUESTEM MANAGEMENT ADVISORS, LLC, and THOMAS D. JOHNSON, Defendants.

No. 21-1226-DDC

United States District Court, D. Kansas

August 2, 2023

MEMORANDUM AND ORDER

DANIEL D. CRABTREE, UNITED STATES DISTRICT JUDGE

In December 2020, plaintiff BD Medical Supplies LLC-looking to capitalize on the volatile personal protective equipment market during the COVID-19 pandemic-ordered nitrile gloves from defendant Bluestem Management Advisors, LLC. Plaintiff ordered 2.1 million boxes of gloves, but only received a small fraction of those boxes, months later than expected. Plaintiff sued Bluestem and Thomas D. Johnson, Bluestem's president, agent, and sole member. Plaintiff alleges that defendants breached the parties' contract and fraudulently induced plaintiff to order gloves by misrepresenting Bluestem's manufacturing connections and capabilities.

Defendants now move for summary judgment against both claims. Doc. 52. To defeat plaintiff's breach of contract claim defendants blame plaintiff's own failure to perform. Defendants also invoke the affirmative defenses of force majeure and impracticability, blaming COVID-19 related manufacturing delays and a manufacturer's misconduct for Bluestem's failure to deliver the gloves. To defeat plaintiff's fraud claim, defendants argue that they did not tell plaintiff anything demonstrably false-they merely used corporate puffery.

For reasons explained below, the court denies defendants' motion.

I. Facts^[1]

The parties spent many months negotiating a potential order of nitrile gloves. On June 12, 2020, Johnson told plaintiff in an email, “We have 26 facilities producing for us in SE Asia, strategically.” Doc. 54-4 at 3 (Pl.'s Ex. 4). In a June 16, 2020, email, Johnson mentioned “our 16 factory consortium of secured production[.]” Id. at 4 (Pl.'s Ex. 4). On July 30, 2020 Johnson told plaintiff, “We have 21 factories in our glove consortium with the balance of below market pricing[.]” Doc. 54-10 at 1 (Pl.'s Ex. 10).

On December 11, 2020, plaintiff signed a Sales & Purchase Agreement (SPA), dated December 9, 2020, with defendant Bluestem. Doc. 51 at 2 (Pretrial Order ¶ 2.a.4.). In the SPA, plaintiff agreed to purchase 2.1 million boxes of nitrile gloves from Bluestem. Id. The agreement broke the overall order into ten installments of 210,000 boxes over a 12-month period continuing through December 31 2021. Id. The SPA also included a delivery schedule that set the first shipment date on a to-be-determined date in January 2021. Id. (Pretrial Order ¶ 2.a.5.).

A. Relevant SPA Provisions

Because this is a breach of contract case, the court recites the relevant provisions of the contract. Section 2.3 of the SPA, titled Payment and Shipment Schedule, references the delivery schedule and states:

(b) Each shipment requires that the Seller provide an SGS or equivalent inspection and Bill of lading^[2] for the specific lot shipping to Buyer[.] Buyer and Seller will repeat the process detailed in Section 2.2(b) until total order is filled. ....

(c) This schedule is referring to the shipment day, the actual delivery date may be earlier and will inform the Buyer about the shipment changes. The balance of shipment payment, thirty-five percent (35%) of shipment total will be paid when Buyer is provided SGS or equivalent inspection report and, Bill of Lading within 21 days of deposit release from Escrow.

Id. at 2-3 (Pretrial Order ¶ 2.a.6.).

Section 8.1, titled Liability and Breach of Contract and Liquidated Damages, establishes the processes used in the event of cancellation or delay:

In the event that the seller cannot deliver the product and it is not the seller['s] fault, the seller will inform with a notice in writing to the buyer prior to the delivery schedule. In the event that the seller has problems in any manufacturing process which will lead to delay of delivery, the seller shall inform in writing the buyer with the approximated time period to deliver the product in a reasonable time. If no documentation has been provided to Buyer within twenty-one (21) days as defined in Section 2.3(c), then Buyer can request in writing a refund of deposited funds and full release from Escrow of all Buyer funds to be returned within three (3) business days with no penalty to either party.

Id. at 3 (Pretrial Order ¶ 2.a.7.).

And Section 7.2, titled Force Majeure, provides, “Neither party shall be in default of any obligation under this Agreement due to any delay or failure to perform such obligation if such delay or failure arises out of causes beyond such Party's control.” Id. (Pretrial Order ¶ 2.a.8.).

B. Plaintiff's Order

Back on December 7, 2020, before the parties signed the SPA, plaintiff deposited the full purchase price of $1,785,000 into the parties' escrow account for 210,000 boxes of nitrile gloves. Id. at 4 (Pretrial Order ¶ 2.a.10.). The same day, the parties directed the escrow agent to release 65% of the funds ($1,160,250) from the account. Id. (Pretrial Order ¶ 2.a.11.). Then, on

December 16, 2020, defendant Bluestem provided plaintiff with information about the first expected shipment. Id. (Pretrial Order ¶ 2.a.12.). Defendant Bluestem stated that two separate manufacturers, SkyMed and BestSafe, would handle plaintiff's order and ship the first installment by the end of January 2021. Id.

On December 30, 2020, defendant Bluestem sent plaintiff an unsigned statement on the letterhead of Sufficiency Economy City Co. Ltd.,^[3] the manufacturer of SkyMed gloves, stating that manufacturing on plaintiff's order had begun. Id. (Pretrial Order ¶ 2.a.13.). On January 3, 2021, plaintiff emailed defendant Johnson. Id. (Pretrial Order ¶ 2.a.14.). Plaintiff noted that the SkyMed letter wasn't signed and told defendant Johnson that the following day plaintiff's representatives were “required to give a written, documented update to our investors as SGS and BOL were due . . . on December 29 per our agreement. They have the right to exercise the 21 day backstop in our agreement.” Id. On January 7, 2021, defendant Johnson sent plaintiff a signed copy of the December 30 SkyMed letter. Id. (Pretrial Order ¶ 2.a.15.).

C. Problems Arise

On January 19, 2021, defendant Johnson received a letter from Sufficiency Economy City informing him of production issues causing delays. Id. at 4-5 (Pretrial Order ¶ 2.a.16.). The letter stated,

We, Sufficiency Economy City Co., Ltd. Would like to show our true intention of delivering every single product to our valuable customers. Unfortunately, we have faced some unexpected situations with our OEM product. We realized that some of the OEM products did not reach the specifications required.

In addition, currently there is a lock down in some areas of Thailand due to the epidemic of COVID-19 which affects our production line. We have informed all of our customers that we are doing our best to have our own production line. The early stages of our SKYMED city will be completed by the end of March 2021. We therefore, would like to thank you for your trust and would like to assure you that we, SKYMED will solve this gloves shortage situation including the lack of medical supplies globally.

We will do our best to provide you the best products possible to fulfill your requirements.

Id. Then, on January 22, 2021, defendant Johnson emailed plaintiff stating that plaintiff had “received everything requested” in the SPA other than the bill of lading and that every deliverable under the contract had been provided to plaintiff. Id. at 5 (Pretrial Order ¶ 2.a.17.).

On February 1, 2021, plaintiff notified defendants that it was exercising what it claimed was a refund right under the SPA. Id. (Pretrial Order ¶ 2.a.18.). That same day, defendants forwarded plaintiff a letter on Sufficiency Economy City letterhead dated January 31, 2021. Id. (Pretrial Order ¶ 2.a.19.). The form letter stated,

We, Sufficiency Economy City Co., Ltd. would like to show our true intention of delivery every single product to our valuable customers. Unfortunately, we have faced some unexpected situations.

In addition, currently there is a lock down in some areas of Thailand due to the epidemic of COVID-19 which affects our production line. We therefore, would like to thank you for your trust and would like to assure you that we, SKYMED will solve this gloves shortage situation including the lack of medical supplies globally.

We will do our best to provide you the best possible products to fulfill your requirements.

Id. at 5-6 (Pretrial Order ¶ 2.a.19). On March 30, 2021, defendant Bluestem demanded a refund from SkyMed. Id. at 6 (Pretrial Order ¶ 2.a.20.). On April 22, 2021, defendant Bluestem released $291,000 from the escrow account to plaintiff. Id. (Pretrial Order ¶ 2.a.21.). On April 25, 2021, Bluestem also repeated its refund demand to SkyMed. Id. (Pretrial Order ¶ 2.a.22.).

In May 2021, plaintiff received the first shipment of gloves. Id. (Pretrial Order ¶ 2.a.23.). Plaintiff inspected, verified, and accepted the shipment of 30,000 boxes. Id. Then, in July 2021, defendant Bluestem notified plaintiff that Bluestem had “a container at the Port of Los Angeles that contain[ed] the following nitrile gloves: 9510 boxes of Small, 2280 boxes of Large and 19,710 boxes of XL.” Id. (Pretrial Order ¶ 2.a.24.). Defendant Bluestem attached a bill of lading, inspection report, and factory invoice showing that the products had shipped. Id. Plaintiff also accepted these boxes of gloves. Id.

On August 4, 2021, defendant Bluestem sent plaintiff an arrival notice for a container. Id. (Pretrial Order ¶ 2.a.25.). On August 16, 2021, plaintiff picked up the container and discovered that it contained 28,100 boxes of medium gloves and 3,900 boxes of large gloves. Id. ...