Chemtall, Inc. v. Citi-Chem, Inc.

• Decision Date: 27 January 1998
• Docket Number: No. CV 496-218.,No. CV 496-192.,CV 496-218.,CV 496-192.
• Citation: 992 F.Supp. 1390
• Parties: CHEMTALL INCORPORATED, Plaintiff, v. CITI-CHEM, INC. and Calvin M. King, Defendants. PEARL RIVER POLYMERS, INC., Plaintiff, v. CITI-CHEM, INC. and Calvin M. King, Defendants.
• Court: U.S. District Court — Southern District of Georgia

992 F.Supp. 1390

CHEMTALL INCORPORATED, Plaintiff, v. CITI-CHEM, INC. and Calvin M. King, Defendants.

PEARL RIVER POLYMERS, INC., Plaintiff, v. CITI-CHEM, INC. and Calvin M. King, Defendants.

No. CV 496-218.

No. CV 496-192.

United States District Court, S.D. Georgia, Savannah Division.

January 27, 1998.

COPYRIGHT MATERIAL OMITTED

Brent Jamieson Savage, Savage, Herndon & Turner, Savannah, GA, for Pearl River Polymers, Incorporated, plaintiff.

Donald Campbell Bowman, Jr., Karsman, Brooks & Callaway, Savannah, GA, for Citi-Chem, Inc., Calvin King, defendants.

ORDER

EDENFIELD, District Judge.

Before the Court is a slew of motions filed by plaintiffs Pearl River Polymers, Inc. ("Pearl River"), and Chemtall, Incorporated ("Chemtall"), against defendants Citi-Chem, Inc. ("Citi-Chem") and Calvin M. King. King has filed some of his own. The caption above has been amended to reflect the Court's consolidation of Chemtall, Incorporated v. Citi-Chem, Inc. and Calvin M. King, CV496-218 with Pearl River Polymers, Inc. v. Citi-Chem, Inc., Calvin M. King, CV496-192. The two cases present common questions of law and fact within the meaning of F.R.Civ.P. 42(a). Pearl River, originally assigned to Judge W.T. Moore, is reassigned to the undersigned. See CV496-192, doc. # 69. Henceforth, all filings shall bear the consolidation caption used above and shall be filed, for administrative convenience only, under the Pearl River proceeding, CV496-192.

I. BACKGROUND

A. The Product Sales Agreement

In the 1980s, Citi-Chem — then and now 100% owned and controlled by King — entered into a sales relationship with Chemtall. CV496-218, doc. # 40, exh. A (Stipulations (a) & (d)). Chemtall, a Riceboro, Georgia company, manufactured water-treatment polymer products for sale by Citi-Chem under its "Citi-Chem" trade name. Carlson Aff. ¶ 6, CV496-192 doc. # 56, exh. 1.¹ Chemtall shipped its products from Georgia directly to Citi-Chem customers, then billed Citi-Chem, located in New Jersey. Carlson Aff. ¶¶ 6, 27. Citi-Chem, in turn, simultaneously invoiced its customers, and on each invoice instructed them to remit their payments to a Georgia bank lockbox. Carlson Aff. ¶¶ 6-7. From there the money would be divided pursuant to the parties' agreement.² Carlson Aff. ¶¶ 6-7, 9.

After Chemtall's Georgia-based parent company acquired Pearl River, which also manufactures water-treatment polymers but is located in Louisiana, Pearl River joined Chemtall in the same arrangement with Citi-Chem. Carlson Aff. ¶¶ 10-12, 25-26. Chemtall's corporate parent managed Pearl River from Riceboro, Georgia. Carlson Aff. ¶ 10. Citi-Chem's "Pearl-River" customers were also to remit to the Georgia lockbox. Id. ¶ 19.

B. Lockbox Problems — "The Early Days"

The lockbox arrangement originated from Chemtall's conclusion that neither Citi-Chem nor King, who is Citi-Chem's CEO, were creditworthy. Carlson Aff. ¶ 7; CV496-218, doc. # 40, exh. A (Stipulations); see also 1/28/97 King Dep. at 47-48 (King insisting that he did not know why the parties entered into the lockbox arrangement); but see id. at 86 (admitting that the lockbox was set up "[t]o control the receivables of Citi-Chem"). Nevertheless, Chemtall initially agreed to let King act as the lockbox's "managing agent." Carlson Aff. ¶ 13. Hence, it left it to King to divide the revenues according to the marketing agreement and send Chemtall its share, while issuing a check to Citi-Chem for its share. Carlson Aff. ¶ 14.

By 1991, however, King began to take too long in forwarding to Chemtall (and now Pearl River) their share, so the parties mutually agreed that Chemtall would replace King as the managing agent vested with sole check-writing authority. Carlson Aff. ¶ 13. Chemtall/Pearl River performed all lockbox accounting activity in Georgia, and from there sent checks to Citi-Chem in New Jersey. Id. As before, all payments should have been sent directly from Citi-Chem customers to the Georgia lockbox, not to Citi-Chem directly. Carlson Aff. ¶ 17.

In his 1/28/97 deposition, King denied that Citi-Chem had agreed to do that, see 1/28/97 King Dep. at 115-16, though he had previously acknowledged that plaintiffs "forced" him to comply with such "arrangement." Id. at 86. In the next breath, however, he conceded that in fact he did "agree" to it, id. at 87, but only because he "had no choice. I was told what to do." Id.; see also 7/14/97 Cobb Dep. at 48. In that King has advanced no formal coercion or duress defense here, see Fields v. Thompson, 164 Ga.App. 331, 332-33, 297 S.E.2d 100 (1982); Evans v. Merrill Lynch, 213 Ga.App. 808, 810, 446 S.E.2d 215 (1994), nor could he, see Evans, 213 Ga.App. at 810, 446 S.E.2d 215, the Court finds no factual dispute — only King's puerile semantics — on this point: plaintiffs and Citi-Chem in fact did reach the lockbox agreement that plaintiffs have described.³

C. 1995-1996 Lockbox Problems

According to plaintiffs, Citi-Chem began to violate the lockbox agreement in late 1995. Carlson Aff. ¶ 13. They maintain that King, without their knowledge, directed Citi-Chem customers to send their payments to a New Jersey address that he controlled. Carlson Aff. ¶ 13.⁴ Citi-Chem then failed to remit to Chemtall/Pearl River their share of the revenues. Id. ¶ 18. These diversions continued into 1996, though they were not uniform. In a 4/29/96 letter to a Los Angeles municipal customer, Citi-Chem instructed it to send its remittance to the Georgia lock box. CV496-192, doc. # 56, exh. 11. Carlson had called Citi-Chem and requested that this be done. 7/14/97 Stackhouse Dep. at 27-28. Plaintiffs claim that this was one of the factors that induced them to continue shipping their products to Citi-Chem customers. CV496-192, doc. # 59 at 7.

Nevertheless, it was just one week later that Citi-Chem instructed a Louisiana municipal customer to remit payments directly to Citi-Chem. CV496-192, doc. # 56, exh. 12. And, a Citi-Chem agent also verbally contacted another customer — the City of New Orleans — to likewise remit to Citi-Chem, and not to the lockbox address. CV496-192, doc. # 59 at 7; # 56, exh. 12 (handwritten notation);⁵ 7/14/97 Stackhouse Dep. at 51-52.

D. "Shifting Testimony"

(1) Calvin King

In his January, 1997 deposition King initially denied knowledge of the above-mentioned lockbox diversions, see 1/28/97 King Dep. at 81, but then agreed that Citi-Chem received remittances directly, id. at 82, though he insisted that they were not for Chemtall or Pearl River products. Id. at 83. A moment later, however, King conceded that Citi-Chem diverted one payment for Pearl River products and simply kept the money. Id. at 84-85 (admitting that Citi-Chem "used the money for operations").

Still, he refused to admit that he advised the customer in question to divert payment from the lockbox to Citi-Chem. Id. at 99. And, he denied that he ever directed any customer to ignore the lockbox address and instead remit directly to Citi-Chem. Id. at 101, 104-05; id. at 118-19 (denying any knowledge that Citi-Chem's bookkeeper, L. Stackhouse, wrote a Los Angeles municipal customer and instructed it to remit to Citi-Chem instead of the lockbox); id. at 223 ("Q. Do you know of any efforts after [8/15/96] to contact Citi-Chem's customers directly and tell them to mail the money direct to [Citi-Chem's P.O. Box in] Cherry Hill [N.J.]? A. I don't know of any specific instance, no. I don't recall any").

As for why, after four years (1991-1995), numerous Citi-Chem customers supplied with Chemtall/Pearl River products "suddenly" stopped remitting to the lockbox and instead remitted to Citi-Chem, King claimed ignorance. 1/28/97 King Dep. at 180-81. In other words, having denied that he or a Citi-Chem employee or agent directed them, he simply could not explain how Citi-Chem's customers "spontaneously" began remitting to Citi-Chem's New Jersey P.O. Box rather than to the Georgia lockbox address. See, e.g., 1/28/97 King Dep. at 142 ("Q. How do you believe that L.A. Water and Power started to send checks directly to Citi-Chem in New Jersey rather than to the [Georgia] lockbox? A. I don't know"); see also id. at 150, 159-60. King suggested that perhaps his customers were "incompetent":

Q. And you have no idea as to how a customer who gets an invoice telling them to mail it to P.O. Box 93146, Atlanta, ends up sending money to P.O. Box 3836 [N.J.], assuming that to be the case?

A. Do I know?

Q. Yes, sir.

A. Incompetence, perhaps.

Q. On the part of the customers?

A. Right.

Id. at 145.

Even though he repeatedly denied knowledge or complicity in those diversions, King nevertheless repeatedly conceded that hundreds of thousands of dollars were diverted from the lockbox to Citi-Chem. Indeed, he authored a 4/29/96 memo admitting that Citi-Chem had collected $656,621.34 in invoices constituting money Citi-Chem now owes to Chemtall/Pearl River. 1/28/97 King Dep. at 114-117, 149, 177 & exh. 54; 1/29/97 King Dep. at 256-57; 1/28/97 King Dep. at 185-86 (further conceding that all of the $656,621.34 in Chemtall/Pearl River-based customer payments listed on his 4/29/96 memo were remitted directly to his company in New Jersey, and not the Georgia lockbox). And he did not dispute Pearl River's computation showing that Citi-Chem owes it $1,259,854.05 in customer remittances that Citi-Chem failed to turn over to Pearl River. 1/28/97 King Dep. at 140-42.

King also conceded that plaintiffs were not informed of the diversion; he justified this by insisting that somehow the lockbox agreement dissolved, as did his obligation to communicate that belief to the plaintiffs. This is reflected in his rhetorical response, "Why did I have to inform them?" 1/28/97 King Dep. at 186 (emphasis added). When pressed again on this point, King retreated to his now oft-used "I don't recall" response:

Q. Did you ever inform [plaintiffs] [prior to the spring of 1996] that [the payments were not] going to the Atlanta lockbox?

....

A. I don't recall.

Id...