Canada v.

• Decision Date: 05 September 2017
• Docket Number: Case No. CV 16-02967- BRO (RAOx)
• Parties: EXPORT DEVELOPMENT CANADA, Plaintiff, v. E.S.E. ELECTRONICS, ET AL. Defendants.
• Court: U.S. District Court — Central District of California

EXPORT DEVELOPMENT CANADA, Plaintiff, v. E.S.E. ELECTRONICS, ET AL. Defendants.

Case No. CV 16-02967- BRO (RAOx)

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

September 5, 2017

FINDINGS OF FACT AND CONCLUSIONS OF LAW AFTER COURT TRIAL

I.INTRODUCTION AND PROCEDURAL HISTORY

This case stems from the agreement between Export Development Co. ("Plaintiff" or EDC") and ESE Electronics ("E.S.E.") regarding the sale of Thrustmaster TX Ferrari 458 Italia Edition Racing Wheel (the "TX Wheel")¹, and E.S.E.'s alleged failure to pay for the TX Wheels it received. EDC filed its original Complaint in the Central District of California on April 29, 2016. (Dkt. No. 1.) On June 17, 2016, Plaintiff filed its First Amended Complaint. (Dkt. No. 18 ("FAC").) In its FAC, Plaintiff brought four causes of action against Defendants E.S.E. Electronics and E.S.E.'s chief executive officer, David Kazemi²: (1) Action for the price; (2) Restitution/Quasi Contract; (3) Constructive Trust; and, (4) Promissory Fraud (against Kazemi). (See FAC.) Defendants answered the FAC on September 1, 2016. (Dkt. No. 34). On December 12, 2016, Plaintiff sought partial summary judgment. (Dkt. No. 38 ("Summary Judgment Motion").) On February 6, 2017, the Court denied Plaintiff's Summary Judgment Motion. (Dkt. No. 57 ("Summary Judgment Order").)

On June 20, 2017, the Court having reconsidered its Summary Judgment Order, granted partial summary judgment in favor of Plaintiff with respect to 926 non-defective TX Wheels units because Defendant was liable for such units under both a contract for sale and a consignment contract theory. (See Dkt. No. 164 ("MSJ2 Order").) On July 14, 2017, the Court approved the parties' Final Pretrial Conference Order. (See Dkt. No. 186 ("PTCO").) On July 25, 2017, EDC filed its Trial Brief. (Dkt. No. 191 ("PBR").) On July 26, 2017, Defendant filed its Trial Brief. (Dkt. No. 192 ("DBR").)

On August 1 and 2, 2017, this Court presided over the bench trial in this matter. (See Dkt. Nos. 200, 201.)

II.JURISDICTION AND VENUE

This Court has subject matter jurisdiction over this case pursuant to 28 U.S.C. §§ 1332. Further, venue is proper under 28 U.S.C. § 1391.

III.FINDINGS OF FACT³

1. Plaintiff EDC is a Canadian Crown corporation headquartered in Ottawa, Canada. It is a non-profit government agency that insures Canadian exporters selling goods in the U.S. against non-payment.

2. Non-party Guillemot Inc. ("Guillemot") is a merchant that designs and manufactures electronic equipment, including gaming consoles.

3. Defendant E.S.E. is a merchant wholesaler and distributor of electronics and other items.

4. All claims asserted in this action have been assigned to EDC by Guillemot.⁴

5. On November 11, 2014, E.S.E. sent purchase order no. P201411049 to Guillemot for 2,800 units of TX Wheels.

6. On November 17, 2014, E.S.E. received 200 units of the TX Wheel.

7. E.S.E. subsequently received an additional 2,269 units of the TX Wheel from Guillemot. E.S.E. commingled the TX Wheels with additional merchandise in its warehouse.

8. E.S.E. did not pay for 1,119 units of the TX Wheel.

9. The agreed price for the goods was $202.49 per unit.

10. On November 20, 2014, defendant Kazemi emailed Jonathan Tanner,

Mark Crane, and Maher Chammas of Guillemot purporting to confirm the terms of the parties' agreement.

11. Defendant Kazemi's November 20, 2014 email stated:

Jonathan,

I just want to confirm the following as per our agreement:

1. my cost is $202.00 as per the email below

2. I will be refunded/credited the difference when you bill me for $235

3. Items are on consignment basis and I can return items that were not sold

Please confirm.

12. On November 28, 2014, E.S.E. started reselling the TX Wheels with its first sale of 18 units to non-party Wintec Industries, Inc. ("Wintec"). Those 18 units were sold to Wintec for $238 per unit.

13. On December 5, 2014, E.S.E. emailed Guillemot purchase order no. P201411049 for 2,200 units of the TX Wheel.

14. On December 8, 2014, E.S.E. sold 16 units of the TX Wheel to Wintec for $238 per unit.

15. On December 12, 2014, E.S.E. sold 15 units of the TX Wheel to Wintec for $238 per unit.

16. On December 16, 2014, E.S.E. sold 48 units of the TX Wheel to Wintec for $238 per unit.

17. On January 23, 2015, Guillemot emailed E.S.E. stating that payment of invoice no. 29459 was due the next day.

18. On January 26, 2015, E.S.E. made its first sale of 627 units of the TX Wheel to non-party Bright Light Business ("Bright Light").

19. On February 3, 2015, Guillemot emailed E.S.E. stating "[a]ccount is past due. Expecting full payment this week."

20. On February 3, 2015, E.S.E. received a revised invoice no. 29459 from Guillemot stating the price for the TX Wheels was $202.49 per unit.

21. On February 10, 2015, E.S.E. sold 48 units of the TX Wheel to Wintec for $238 per unit.

22. On February 12, 2015, E.S.E. made its first payment for the TX Wheels to Guillemot in the amount of $40,498.00.

23. On February 20, 2015, E.S.E. made its second payment to Guillemot for the TX Wheels in the amount of $20,249.00.

24. On February 25, 2015, E.S.E. made its third payment to Guillemot for the TX Wheels in the amount of $40,498.00.

25. On March 4, 2015, E.S.E. sold 48 units of the TX Wheel to Wintec.

26. On April 13, 2015, E.S.E. made its fourth payment to Guillemot for the TX Wheels in the amount of $40,498.00.

27. On April 24, 2015, Guillemot called E.S.E. and told David Kazemi it needed the TX Wheels back from Wintec or, alternatively, E.S.E. was required to pay the full amount due.

28. Also on April 24, 2015, Guillemot emailed E.S.E. stating it "must collect the total balance of the account without any further delay."

29. On May 11, 2015 EDC wrote to E.S.E. demanding payment for the TX Wheels.

30. The same day, E.S.E. made its second sale of 600 units of the TX Wheel to Bright Light for $600 per unit.

31. On May 14, 2015, Guillemot emailed E.S.E.'s counsel of record to inquire if E.S.E. wished to resolve the dispute.

32. The same day, E.S.E. made its fifth payment to Guillemot for the TX Wheels in the amount of $10,124.50.

33. On May 22, 2015, Guillemot emailed E.S.E.'s counsel of record to inquire as to the status of E.S.E.'s account.

34. On May 27, 2015, Guillemot emailed E.S.E.'s counsel of record stating "Any luck for collaboration with ESE?"

35. The same day, E.S.E.'s counsel of record replied stating it was his "understanding is that the merchandise was shipped to ESE on consignment."

36. Guillemot responded the same day stating "[n]o, we did not approve consignment." Guillemot also requested information as to where the TX Wheels were, how many had been sold, and whether E.S.E. would return the unsold units.

37. On May 29, 2015, Guillemot offered to have E.S.E. sell 1,000 units of the TX Wheel to Amazon. E.S.E. never responded to that offer.

38. On June 3, 2015, Guillemot again emailed E.S.E.'s counsel of record stating "$308k of past due, inventory not sold to Walmart as was promised, no response to provide reports on inventory and sell-through, no response to our suggestion to sell to Amazon and all you can say is asking: "what is it you expect to happen?" E.S.E. declined to make any proposal to resolve its account.

39. On June 4, 2015, E.S.E.'s counsel of record emailed Guillemot stating that the "deal was on consignment and E.S.E. continues to make payments as it sells merchandise."

40. On June 8, 2015, Guillemot again emailed E.S.E.'s counsel of record noting that E.S.E. had not responded to Guillemot's request for information concerning E.S.E.'s inventory of the TX Wheels or Guillemot's offer to transfer 1,000 units of the TX Wheels to Amazon. E.S.E. did not respond to that email.

41. The same day, E.S.E. sold 300 units of the TX Wheel to Wintec for $230 per unit.

42. On June 10, 2015, E.S.E. sold another 282 units of the TX Wheel to Bright Light for $230 per unit.

43. On June 16, 2015, E.S.E. made its sixth and seventh payments to Guillemot for the TX Wheels, each in the amount of $40,498.00 (for a total of $80,996). Since then, E.S.E. has not made any further payments for the TX Wheels.

44. On July 9, 2015, E.S.E. made its first request to Guillemot for a return merchandise authorization ("RMA") for 45 units of the TX Wheel.

45. On July 13, 2015, Guillemot responded by stating "[w]ould you like an RMA for all good and defective inventory?"

46. On around July 28, 2015, E.S.E. did an inventory report of its stock.

47. On July 28, 2015, E.S.E. emailed Wintec stating it had 144 units of the TX Wheel and offered to sell them to Wintec.

48. On July 30, 2015, Guillemot emailed E.S.E. stating:

We would like to give ESE an RMA for all remaining inventory. Is that something that ESE will agree to? I know that you're waiting on an RMA for 45 units. We will provide the RMA for those defective units, but we would also like the return of all remaining stock as well.

49. On September 3, 2015, E.S.E. sold another 61 units of the TX Wheel to Bright Light for $235 per unit.

50. On September 21, E.S.E. requested an RMA for 200 units of the TX Wheel from Guillemot.

51. The same day, Guillemot emailed E.S.E. stating "[w]e would like to give E.S.E. RMA [sic.] for all remaining inventory (defective and unsold). Is that something that E.S.E. will agree to?" E.S.E. did not respond to this offer.

52. Guillemot repeated its offer to take back all defective and unsold inventory from E.S.E. on September 25, September 29, and October 22, 2015. E.S.E. did not respond to any of those offers.

53. On November 10, 2016, E.S.E. assigned all rights to any claims it has against Bright Light to its credit insurer, Euler Hermes ("Euler").

54. The next day, Euler paid E.S.E. $337,667.10. This insurance payment was not for the TX Wheels E.S.E. sold to Bright Light, but for different products that E.S.E. did not receive from Guillemot.

55. E.S.E.'s initially responsed to EDC's interrogatories no. 11 and 12 by interposing a relevancy objection to the question of...