Duracore Pty Ltd. v. Applied Concrete Tech., Inc.
| Decision Date | 28 June 2016 |
| Docket Number | CIVIL ACTION NO. 5:13-CV-184-TBR |
| Parties | DURACORE PTY LTD. Plaintiff v. APPLIED CONCRETE TECHNOLOGY, INC., et al. Defendants |
| Court | U.S. District Court — Western District of Kentucky |
This matter comes before the Court upon Plaintiff DuraCore Pty Ltd.'s Motion for Summary Judgment. (Docket No. 67.) Defendant David Johnson has responded, (Docket No. 70), and Plaintiff has replied, (Docket No. 71). Fully briefed, this matter is ripe for adjudication. For the reasons enumerated below, the Court will GRANT in part and DENY in part Plaintiff's Motion.
Plaintiff DuraCore Pty Ltd. ("DuraCore") is an Australian company that sought "to purchase a line of concrete products marketed under the name 'Protecrete'" from Applied Concrete Technology, Inc. ("ACT"). (Docket No. 67-1 at 1.) As of December 2012, the Defendant David Johnson, a resident of Kentucky, was the president and sole shareholder of ACT. (Docket Nos. 67-1 at 5; 67-2 at 17.) ACT was an Illinois Corporation that the Secretary of State of Illinois administratively dissolved in 2013 due to its failure to file an annual report with the Secretary. (Docket Nos. 64 at 4; 67-1 at 5; 67-3 at 69.) This dispute arises from a transaction between DuraCore and ACT, in which ACT was to sell Protecrete concrete products to DuraCore in exchange for $107,400.00 tendered via wire transfer. (Docket Nos. 64 at 3; 67-3 at 119, 142.)
In March of 2013, DuraCore reached out to Mr. Johnson regarding its interest in purchasing concrete products from ACT. (Docket No. 67-1 at 1.) In an email from March 7, 2013, Mr. Johnson expressed his enthusiasm for the business relationship and stated that ACT "look[ed] forward to a long and prosperous future" with DuraCore. (Docket No. 67-3 at 122.) Mr. Johnson also informed Andrew McLeay, director of DuraCore, in the email that he "would want to work with [DuraCore] on a country wide basis and let [DuraCore] setup the distributors for the area." Id. At the conclusion of the email, Mr. Johnson represented to Mr. McLeay that it was "perfectly legal" to sell Protecrete in Australia as ACT "sold there first" and contended that he had "a mountain of proof to support his statement. Id. Consequently, on March 11, 2013, Mr. Johnson sent an invoice to DuraCore for the purchase of Protecrete. (Docket Nos. 67-1 at 2; 67-3 at 144.) ACT was to make the Protecrete products available for pickup in Paducah, Kentucky. (Docket No. 67-4 at 2, 36.) On March 12, 2013, Mr. Johnson emailed Mr. McLeay and stated that he was "[l]ooking forward to [their] business relationship" and commented that it had "been a long time waiting for [DuraCore's] return to the real PROTECRETE." (Docket Nos. 67-3 at 123; 67-4 at 2 (emphasis in original).) Then, on March 13, 2013, Mr. Johnson sent an email to Mr. McLeay to answer some of Mr. McLeay's questions about the transaction and included the comment that "it might be worth [ACT's] while to get as much product as [it] can in[to] AU." (Docket Nos. 67-3 at 135; 67-4 at 2.)
The parties continued to negotiate and finalize their transaction until April 12, 2013 when Mr. McLeay wired $107,400.00 to ACT's bank account at PNC Bank. (Docket No. 67-4 at 3.) According to Mr. McLeay, he arranged for a freight company to pick up the Protecrete productsfrom the designated location in Paducah, Kentucky and deliver them to DuraCore's location in Australia, but ACT refused to deliver the goods. (Docket No. 67-4 at 3.) Mr. McLeay also contends that he made "repeated demands upon David Johnson and ACT to deliver the Protecrete products or return [the] money; however, neither has occurred to date." (Docket No. 67-4 at 3.) Mr. Johnson does not deny these events as described by DuraCore. (See Docket No. 70 at 1.) Instead, he emphasizes that he was involved in the transaction at issue "only in his representative capacity as president of ACT." (Docket No. 70 at 1.)
Mr. Johnson contends that ACT could not deliver the Protecrete products to DuraCore due to a pre-existing exclusive distributorship agreement with another Australian company. (Docket Nos. 67-1 at 3; 67-2 at 67-73; 67-3 at 54-68.) On May 1, 2008, ACT and Mr. Johnson entered into an exclusive distributorship agreement with Protecrete NSW & ACT Pty Ltd. ACN also known as Protecrete International (Aust). (Docket No. 67-3 at 54.) This agreement was still in place and enforceable at the time that Mr. Johnson was negotiating with DuraCore in 2013. (Docket No. 67-2 at 72-73.) After DuraCore wired $107,400 to ACT in April of 2013, attorneys for Protecrete International sent a letter to ACT stating that if ACT proceeded with the transaction with DuraCore, it would take legal action for ACT's breach of their exclusive distributorship agreement. (Docket No. 67-3 at 91.)
Following the parties' failed transaction, Mr. Johnson, as the sole officer and shareholder of ACT, made the decision to allow ACT to be administratively dissolved by the Secretary of State of Illinois. (Docket Nos. 67-2 at 74-77; 67-3 at 69.) However, even after ACT's dissolution, Mr. Johnson continued to take orders for Protecrete under the corporation's name from customers and to pay himself a commission for sales made using funds from the dissolved corporation's checking account. (Docket Nos. 67-2 at 83-104; 67-3 at 72-86.)
In addition to his continued operation of ACT after its involuntary dissolution, Mr. Johnson also used funds from ACT's checking account to pay for personal expenses as well as the legal fees associated with the creation of All Green Chemical Solutions, LLC ("All Green Chemical"). (Docket Nos. 67-2 at 140-42, 145-52, 174-76; 67-3 at 93, 100-11, 116.)
With regards to personal expenses, Mr. Johnson used ACT's funds to pay for a warehouse in which he stored his personal car collection and items from his garage. (Docket Nos. 67-2 at 146; 67-3 at 103-06.) In total, Mr. Johnson spent $10,700 of ACT's funds to pay Rasche Cycle Company to store his personal car collection and items from his garage in a warehouse. (Docket No. 67-3 at 103-11.) ACT's only property stored in the approximately 7,000 square foot warehouse was three paint sprayers. (Docket No. 67-2 at 148-49.)
In addition to the payments he made to rent the warehouse for his personal car collection and garage items, Mr. Johnson also authorized payments from ACT to his family members. Sandra Johnson, Mr. Johnson's mother, signed three checks from ACT to herself for a total amount of $6,500.00 between May 24, 2013 and June 18, 2013. (Docket Nos. 67-2 at 140-42; 67-3 at 100-03.) Sandra Johnson was still a signatory on the account despite her formal retirement from ACT. (Docket No. 67-2 at 143.) According to Mr. Johnson, Sandra Johnson received the close in time payments as compensation "[f]or past, current, and present consulting fees for bookkeeping." (Docket No. 67-2 at 144.) When asked about the fair market value for bookkeeping service, Mr. Johnson responded that he felt he owed his mother the money. (Docket No. 67-2 at 145.) Mr. Johnson also approved of checks written on behalf of ACT to his sister, Andrea Bright. (Docket Nos. 67-2 at 168; 67-3 at 98, 113.) On August 7, 2014, Andrea Bright signed a check on behalf of ACT to herself in the amount of $1,000. (Docket No. 67-3 at 113.) Mr. Johnson contends that the check from ACT to Andrea Bright was to compensate her for theconsulting she did on behalf of ACT. (Docket No. 67-2 at 169.) When asked about the nature of her consulting work, Mr. Johnson responded that her work was "[p]robably [for the] website." (Docket No. 67-2 at 169.)
Mr. Johnson also used ACT's funds to pay for the legal fees to form All Green Chemical, his new limited liability company. (Docket No. 67-1 at 6.) On April 7, 2014, Mr. Johnson used funds from ACT's account to pay LegalZoom.com for its assistance in forming All Green Chemical. (Docket Nos. 67-2 at 174-76; 67-3 at 116.) According to ACT's bank statement, Mr. Johnson paid LegalZoom.com $522.99 to form All Green Chemical using ACT's funds. (Docket No. 67-3 at 116.)
It was not until August 28, 2014 that Mr. Johnson opened an account at U.S. Bank for the newly formed All Green Chemical and formally discontinued his use of ACT's bank account for his personal and business transactions. (Docket No. 67-3 at 90.) When Mr. Johnson opened All Green Chemical's bank account, he made the decision to withdraw the remaining $15,440.33 from ACT's bank account, the total sum of ACT's funds, close the account, and transfer all of ACT's funds to All Green Chemical's new account. (Docket Nos. 67-2 at 118; 67-3 at 89.) Mr. Johnson's transfer of ACT's remaining funds provided All Green Chemical with "its initial capital infusion." (Docket No. 67-2 at 119.) While Mr. Johnson contends that in return for all of ACT's funds All Green Chemical assumed all of ACT's liabilities, there is no formal or even informal documentation of such an arrangement. (Docket No. 67-2 at 120-21.) Additionally, Mr. Johnson sold ACT's "intellectual property, trademarks, copyrighted literature, testing documentation, customer, vendors, suppliers, and anything else" to All Green Chemical for a mere one dollar. (Docket No. 67-3 at 112.) With regards to the trademark alone, Mr. Johnson has admitted that it has a value of greater than one dollar. (Docket No. 67-2 at 158.)
Following Mr. Johnson's aforementioned actions, ACT has no assets and has not satisfied its obligations to its many creditors. (Docket Nos. 67-2 at 45-62; 67-3 at 89-90, 112.)
As a result of the failed transaction between the parties, DuraCore filed this action on October 18, 2013. (Docket No. 1.) Subsequently, on March 11, 2014, DuraCore received a default judgment against ACT and Mr. Johnson as a result of their failure to respond to DuraCore's Complaint. (Docket No. 11.) Then, on September 17, 2014, Mr. Johnson filed a Motion pursuant to Rule 60(b) of the Federal Rules of Civil...
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