Dennis Garberg & Associates, Inc. v. Pack-Tech Intern. Corp., PACK-TECH

• Decision Date: 06 June 1997
• Docket Number: PACK-TECH,No. 95-3160,95-3160
• Parties: , 97 CJ C.A.R. 856 DENNIS GARBERG & ASSOCIATES, INC., Plaintiff-Appellee, v.INTERNATIONAL CORPORATION and Sunflower Technologies, Ltd., Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 767

115 F.3d 767

38 Fed.R.Serv.3d 294, 97 CJ C.A.R. 856

DENNIS GARBERG & ASSOCIATES, INC., Plaintiff-Appellee, v. PACK-TECH INTERNATIONAL CORPORATION and Sunflower

Technologies, Ltd., Defendants-Appellants.

No. 95-3160.

United States Court of Appeals, Tenth Circuit.

June 6, 1997.

Louis A. Huber, III (Frank W. Lipsman and Jacqueline M. King with him on the brief), of Bryan Cave LLP, Kansas City, Missouri, for Plaintiff-Appellee.

John M. McFarland (Michael S. Dodig with him on the brief), of Gage & Tucker L.C., Overland Park, Kansas, for Defendants-Appellants.

Before TACHA, GODBOLD, ^* and HOLLOWAY, Circuit Judges.

HOLLOWAY, Circuit Judge.

This is an appeal from a default judgment for $2,292,428.73 in a diversity case involving claims for breach of contract, guaranty, express warranty, implied warranty of merchantability, implied duty of fitness for particular purpose, negligent misrepresentation, fraudulent misrepresentation, conspiracy and replevin. The district court's jurisdiction was based on diversity of citizenship, 28 U.S.C. § 1332(a)(2), and we have jurisdiction of this appeal under 28 U.S.C. § 1291.

I

Defendants are both Canadian corporations; Sunflower Technologies is described as a "sister" company of Pack-Tech International. Plaintiff Dennis Garberg & Associates, Inc. (Garberg) is a Kansas company. Plaintiff entered into a contract with one of the defendants for the manufacture of a prototype machine referred to as Model 9000. The Model 9000 machines were to be designed to take sheets of plastic film and manufacture newspaper bags with pocket enclosures for promotional samples of products and to insert the sample into the sealed pocket. The contract set a purchase price for the prototype, with a lower price to be charged for additional machines, if ordered. The contract also called for the first defendant to operate the machines in Canada to fill orders for plaintiff's customers. The operations portion of the contract was later vacated when the plaintiff entered into a contract with the second defendant for it to perform the operations. In the remainder of this opinion we will refer to defendants generally since it seems to be immaterial to the issues on appeal to differentiate between them.

Within about four months from the date of the initial contract, plaintiff had ordered a total of ten machines. About two months later, plaintiff completed payment of the purchase price of the first five machines and sent partial payment for the remaining five. The amount owed under the contract for purchase of those five machines is apparently slightly less than $95,000, plus accumulating interest.

Defendants allegedly could not get the machines to perform as desired. They allege that their performance of the contract was hindered by other factors, including delays in getting raw materials and product samples to be packaged, as well as unanticipated demands from plaintiff for extremely fast production of large orders. In any event, plaintiff was dissatisfied with defendants' difficulties in filling orders. Plaintiff Garberg gave notice of intent to terminate the contracts and demanded delivery of the machines, which were to belong to it under the contract, ¹ but for which it had not completely paid.

II

Defendants refused to deliver the machines without payment in full and Garberg filed suit on June 16, 1994, asserting the claims enumerated above. Defendants responded to service of the original complaint by threatening to sell the machines if the suit was not dismissed. Defendants also threatened to release to the public a prototype ziplock bag which plaintiff had obtained from a third-party subject to a confidentiality agreement. Release of that item allegedly would have exposed plaintiff to substantial liability to the third-party. Plaintiff then filed an amended complaint on July 12, 1994, adding a count of replevin to recover the prototype bag.

Plaintiffs also filed on July 12 a motion for preliminary injunctive relief and an application for a restraining order prohibiting defendants from interfering with plaintiff's recovery of personal property (the machines) or alternatively a restraining order protecting personal property during the pendency of the litigation, citing Kan.Stat.Ann. § 60-1005(b). This application sought the "return" of the ten Model 9000 machines for "repair or redesign." Alternatively, plaintiff asked for a restraining order to ensure the preservation of the property during the litigation, but also suggested that as part of this relief the court should permit plaintiff "access to the Model 9000s in an effort to repair and redesign them for use...." Plaintiff offered to file with the district court a letter of credit for $100,000 to secure payment of the balance of the purchase price which it admittedly owed.

On July 15, 1994, defendants' Canadian solicitor faxed a letter to the judge adamantly stating that defendants would not submit to the jurisdiction of the court in Kansas. A hearing was set for July 18, 1994, on the requests for a restraining order and injunctive relief. Defendants did not appear at the hearing on July 18. Plaintiff filed a memorandum setting out its contentions to support jurisdiction over the defendants. At the July 18 hearing, the court issued a restraining order directing the return of the prototype ziplock bag and, to preserve the status quo pending a hearing on the remainder of plaintiff's application, restraining defendants from transferring or disassembling the machines. The order also required defendants to "allow [plaintiff] access" to the ten machines and set a hearing for August 19 on plaintiff's motion for a preliminary injunction.

On July 20, 1994, a Canadian bailiff appeared at defendants' premises with a copy of the restraining order and demanded possession of the prototype bag and access to view the machines. The order was served on one of defendants' principals, Gerard Davoren, whose first response was to tell the bailiff that he was going to call his attorney for advice. Mr. Davoren then told the bailiff that on advice of counsel, he would not obey the order and asked the bailiff to leave the premises. Aplt App. at 60-61. Defendants' answer date of July 25, 1994, passed without defendants appearing in the case. On August 4, plaintiff filed a motion for contempt based on defendants' refusal to deliver the prototype bag and their refusal to allow access to the machines, and a motion for a default judgment.

Those motions were heard at the August 19, 1994, hearing already scheduled on the motion for a preliminary injunction. Defendants appeared through counsel at that hearing, arguing against default and orally seeking leave to file a motion to dismiss for lack of personal jurisdiction. Plaintiff argued for entry of default or, alternatively, a citation for contempt and an order that the machines be delivered to plaintiff in Kansas at defendants' expense. The court ruled that defendants would be allowed to file their motion to dismiss for lack of jurisdiction but directed counsel to prepare an order setting out conditions for denial of the motion for entry of default. That order was entered on September 12, 1994. Defendants' motion to dismiss was filed on August 26, one week after counsel's appearance at the hearing.

The September 12, 1994, order stated that the court "will grant Defendants' motion to deny Plaintiff's motion for entry of default judgment and consider Defendants' motion to dismiss for lack of personal jurisdiction on condition that, no later than October 1, 1994," (emphasis added), the ziplock bag be returned and that the defendants deliver the machines to plaintiff in Kansas at defendants' expense, including sending employees to assemble the machines to an operating condition after transport, if they were disassembled for transport. Aplt.App. at 122-125. Defendants were ordered to pay over $4,000 in costs and attorneys' fees to plaintiff for the expense of the contempt motion, but otherwise the order made no findings or rulings on the contempt motion. The order also provided that defendants could move in good faith for an extension of the October 1 deadline for performance of the conditions. The order concluded with a provision that failure by the defendants to timely satisfy all the conditions would result in the court taking up the plaintiff's motion for default judgment. No determination on the court's jurisdiction over the Canadian defendants was made in the order of September 12, 1994.

On September 28, 1994, defendants applied for an extension of time for performance of the conditions. Plaintiff opposed any extension and asked, in the alternative, that any extension be conditioned on defendants' reimbursing plaintiff for its expense in leasing space at which to store the machines and $90 for attorneys' fees caused by the request for the extension. On September 30, the court ordered that defendants could have an extension of time to October 17 only on satisfaction of the conditions requested by plaintiff. By letter of October 11, defendants informed plaintiff that they would not comply because they believed the conditions were punitive and unjustifiable. In a second letter of October 17, defendants said they would pay the $4,600 in attorneys' fees and service costs sought by plaintiff in the earlier contempt application as required by the September 12 order, if plaintiff would stipulate that this reimbursement was not a waiver of defendants' personal jurisdiction defense or of any other claims or defenses. (The defendants by this time had returned the prototype bag.) Plaintiff refused to stipulate as requested.

Plaintiff renewed its motion for judgment by default, based on defendants' failure to plead responsively and failure to meet the conditions of the orders of September 12 and September 30. In an order of November 30, 1994, the court ruled that the defendants' solicitor's July 15, 1994, letter,...