Epac Techs., Inc. v. Harpercollins Christian Publ'g, Inc.

• Decision Date: 01 July 2019
• Docket Number: No. 3:12-cv-00463,3:12-cv-00463
• Citation: 398 F.Supp.3d 258
• Court: U.S. District Court — Middle District of Tennessee
• Parties: EPAC TECHNOLOGIES, INC., Plaintiff, v. HARPERCOLLINS CHRISTIAN PUBLISHING, INC., f/k/a Thomas Nelson, Inc., Defendant.

398 F.Supp.3d 258

EPAC TECHNOLOGIES, INC., Plaintiff,

v.HARPERCOLLINS CHRISTIAN PUBLISHING, INC., f/k/a Thomas Nelson, Inc., Defendant.

No. 3:12-cv-00463

United States District Court, M.D. Tennessee, Nashville Division.

Filed July 1, 2019

Alex Bartko, Joseph C. Sharp, William B. Hill, Jr., Polsinelli P.C. (Atlanta Office), Ronni D. Solomon, Susan M. Clare, King & Spalding LLP (Atlanta Office), Atlanta, GA, Heather Howell Wright, R. Brandon Bundren, Thor Y. Urness, Bradley Arant Boult Cummings LLP (Nashville, TN Office), Jonathan M. Redgrave, Redgrave LLP, Chantilly, VA, Timothy C. Travelstead, Narayan Travelstead P.C., Hayward, CA, for Plaintiff.

D. Alexander Fardon, John R. Jacobson, Keane A. Barger, W. Russell Taber, III, Riley, Warnock & Jacobson, Nashville, TN, Jenna Lyn Harris, Ritholz Levy Fields, LLP, Nashville, TN, Steven Allen Riley, Timothy L. Warnock, Riley, Warnock & Jacobson, Nashville, TN, for Defendant.

MEMORANDUM OPINION

WAVERLY D. CRENSHAW, JR., CHIEF UNITED STATES DISTRICT JUDGE

This case was tried before a jury from January 8-18, 2019. EPAC ultimately argued two claims against Thomas Nelson before the jury: (1) breach of the Master Services Agreement ("MSA"); and (2) fraudulent concealment. The jury returned a verdict in favor of EPAC on both claims. (Doc. No. 1061.) The jury awarded EPAC $3 million in compensatory damages for breach of the MSA and $60,000 for compensatory damages and an additional $12 million for punitive damages for fraudulent concealment. (Id. at 1.) Currently pending before the Court is Thomas Nelson's Renewed Motion for Judgment as a Matter of Law and Motion for a New Trial (Doc. No. 1083) that has been fully briefed. (See also Doc. Nos. 1119, 1122.) For the reasons below, Thomas Nelson's motion will be granted in part and denied in part.

I. Evidence at Trial ¹

When Johann Gutenberg invented the printing press in 1440, it is doubtful he could have envisioned that many centuries later, sophisticated parties in the industry he birthed would be looking for a way to print less, rather than more. Yet, at heart, this case is about "less is more" revolutions in the printing industry, and the parties' ill-fated attempt to translate these revolutionary processes into profits.

Thomas Nelson is a book publisher that traces its roots back to 1798. (Doc. No. 1102 at 7.) In the broadest terms, as a publisher, Thomas Nelson "curates" content, meaning that it takes raw content from authors or other sources and develops that content into consumable products such as print books, electronic books, and audiobooks. (Id. at 10.) In terms of its print business, Thomas Nelson contracts with multiple printers depending on its needs. (Id. at 14-15.) In December 2007, EPAC sought to become one of Thomas Nelson's printers. (Doc. No. 1098 at 94.)

EPAC was a digital printing company that, through its proprietary EPAC2 system, could print small batches of books "on demand." (Id. at 87-89.) The EPAC2 system "changed the game" because it represented a dynamic supply-chain solution to a problem that had plagued publishers. (Id. at 90-91.) The EPAC2 system allowed publishers, like Thomas Nelson, to order limited batches of books to satisfy limited demand, eliminating the need to store leftover product and thereby lowering inventory and warehousing costs. (Id. at 91.)

In December 2007, Rob Cubelo, EPAC's Senior Vice President for Sales and Marketing, cold-called George Gower, a Thomas Nelson executive in charge of the company's printing solutions. (Id. at 95.) Cubelo pitched Gower on the EPAC2 system, which Gower was interested in because he had received a mandate from Thomas Nelson's Chief Financial Officer—Stuart Bitting—to reduce inventory costs. (Id. ) After Gower and Cubelo met in person, Gower traveled to Edison, New Jersey, where EPAC had a plant, to see the EPAC2 system in operation. (Id. at 96.) Upon arriving, Gower met with EPAC's CEO, Sasha Dobrovolsky, executed a non-disclosure agreement ("NDA") and toured the plant. (Id. at 95-97.) Gower was intrigued by the system, but stated that he would have to discuss it with his superiors because the system was so new and unfamiliar. (Id. at 100.) Later, in September 2008, EPAC formally pitched its EPAC2 system in a Powerpoint presentation to Thomas Nelson executives, touting the substantial savings Thomas Nelson could realize by partnering with EPAC. (Id. at 104.) Following this meeting, in January 2009, Michael Hyatt, Thomas Nelson's Chief Executive Officer, Bitting, and other high-level executives visited EPAC's Edison plant to observe the EPAC2 system. (Id. at 107-109.) The Thomas Nelson executives left EPAC "incredibly impressed" and eager to move the relationship forward. (Id. )

The parties held a number of meetings and negotiations ensued throughout 2009 and into 2010. (Doc. No. 1099 at 14-15.) Rob Cubelo led negotiations on behalf of EPAC, and Gower and Bitting were the leads for Thomas Nelson. (Id. at 15.) The resulting agreement—the MSA—was highly negotiated and went through more than ten versions before it was executed. (Doc. No. 1103 at 92.) Both sides were represented by counsel during the negotiation process. (Id. at 185.) On August 1, 2010, Jim Gentlicore, EPAC's then-CEO (replacing Dobrovolsky), and Bitting signed the MSA. (Doc. No. 499-1 at 12.) Essentially, the MSA obligated Thomas Nelson to purchase certain categories of books from EPAC. (Id. at 2.) Specifically, under the MSA, Thomas Nelson, as the "Customer," was required to order from EPAC:

all of Customer's requirements of 1-color softbound books that are in formats that EPAC supports and that are defined by Customer as either Print-on-Demand, Short-Run, and Mid-Run but specifically excluded Web Offset/IRON

. For avoidance of doubt and to be clear, titles with quantities exceeding 1,500 units are herein defined as Web/Offset/IRON. Print-on-Demand titles are defined to mean titles delivered with one (1) day turnaround in any quantity up to 499 units per title with a maximum of 4,000 units per day during the first year of this Agreement...Short-Run titles are defined to mean titles delivered with four (4) days turnaround in quantities up to 499 units per title. Mid-Run titles are defined to mean titles delivered within seven (7) business days in quantities of 500 to 1,500 units per title ... In the event EPAC cannot provide product in strict accordance with Customer's orders, Customer shall have the right, but not the obligation, to utilize the services of third party suppliers.

(Id. ) The MSA was a five-year deal and primary production of the books was to occur at EPAC's new EPAC2 facility in Fairfield, Ohio, which was built, in part, to service Thomas Nelson. (Id. at 4, 7.) Further, the MSA provided that the file formatting and book production processes arising from EPAC2 would be tested to the parties' "reasonable satisfaction" before volume production would commence. (Id. at 13.) Finally, the MSA had a 60-day cure period, allowing a breaching party to cure any material breaches within the cure period and continue performance under the agreement. (Id. at 7.)

Thomas Nelson has contractual relationships with many different printers. Specifically, Thomas Nelson had a preexisting relationship with Lightning Source, Inc. ("LSI"), who partially handled the company's digital printing needs—the very line of business covered by the MSA. (Doc. No. 1102 at 510-51.) EPAC knew of Thomas Nelson's preexisting relationship with LSI, and, indeed, even knew of the prices Thomas Nelson was paying to LSI. (Id. at 164.) In June 2010, during the MSA negotiations with EPAC, Thomas Nelson reached out to LSI and informed it that some of the work covered by LSI would be shifted to EPAC per the MSA. (Id. at 166.)

Upon learning that Thomas Nelson intended to shift a portion of its digital printing business to EPAC, LSI submitted an offer to reduce its existing pricing for print-on-demand and digital short-run printing (the very business Thomas Nelson was getting ready to send to EPAC) if Thomas Nelson would commit to purchase at least 1 million of such books each year. (Id. at 221-222.) Thomas Nelson rejected this proposal because: (1) they typically did not like to commit to such large volume requirements; and (2) the proposal directly implicated work that they were anticipating sending to EPAC through the MSA. (Doc. No. 1103 at 13-14.) However, LSI, undeterred, sent a new proposal, offering the same reduced pricing but removing the 1 million volume requirement. (Id. at 14-15.) At that point, Thomas Nelson had not signed the MSA, and, therefore, had several choices. (Id. at 16.) It could follow through with the MSA, accept LSI's new proposal, or do some combination of the two. (Id. ) Thomas Nelson chose to "go with both providers because [they] wanted to have two vendors and two print suppliers." (Id. at 18.) Thomas Nelson executed the MSA on August 1, 2010 (Doc. No. 499-1 at 12), and, in November 2010, entered into a contract with LSI, per the terms of the reduced-price proposal. (Doc. No. 1103 at 118-119.) EPAC was aware that Thomas Nelson was going to "keep LSI around" for at least a period of time after the MSA. (Doc. No. 1099 at 89.)

After Thomas Nelson and EPAC executed the MSA, Thomas Nelson began to order books from EPAC. (Id. at 90-93.) However, from the outset, Thomas Nelson raised quality concerns regarding the books. (Id. ) Among these "quality concerns" were scuffing, chipping, and out-of-square edges (i.e., the book cover was not aligned properly). (Id. ) Thomas Nelson "raised pretty much every quality issue they could think of." (Id. at 92.) On November 23, 2010, Gower emailed Cubelo summarizing Thomas Nelson's frustrations:

We have stayed the course and today I asked [my team] if on December 1st we would be compliant with what we contracted for in regards to quality. The answer was an absolute no. They said quality was a huge issue. I asked what advances were being made. They showed me the last

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