Hongda Chem. United States, LLC v. Shangyu Sunfit Chem. Co.
| Decision Date | 15 March 2018 |
| Docket Number | 1:12CV1146 |
| Court | U.S. District Court — Middle District of North Carolina |
| Parties | HONGDA CHEMICAL USA, LLC, et al., Plaintiffs, v. SHANGYU SUNFIT CHEMICAL COMPANY, LTD., et al., Defendants/Third-Party Plaintiff, v. GARY DAVID MCKNIGHT, et al., Third-Party Defendants. |
This matter is before the court upon several dispositive motions: Defendant YMS Agriculture International Corporation's ("YMS") motion for summary judgment (Docket Entry 129), Plaintiffs Hongda Chem USA, LLC ("Hongda Chem") and Hongda Group Limited, LLC's ("Hongda Group") (collectively "Hongda") motions for partial summary judgment (Docket Entries 143, 145), Third-Party Defendants Eco Agro Resources, LLC ("Eco Agro"), KaDi Resources, LLC ("KaDi"), Vasto Chemical Company, Inc. ("Vasto"), Gary David McKnight, Raymond P. Perkins, and Wei Xu's (collectively "Third Party Defendants") motions for summary judgment (Docket Entries 131, 133, 135, 137, 139, 141), and Defendant Shangyu Sunfit Chemical Company, Ltd.'s ("Sunfit") motion for partial summary judgment (Docket Entry 149). All motions are ripe for disposition.
This action arises from a contractual dispute regarding the sale of a chemical ingredient that enhances the performance of fertilizers. On September 29, 2011, Hongda and Sunfit entered into a 5-year contract ("the Agreement") according to which Sunfit agreed to produce N-(n-Butyl) thiophosphoric Triamide ("NBPT") exclusively for sale by Hongda in North America, and Hongda agreed to buy and sell NBPT only from Sunfit.1 (See Sales Agreement, Docket Entry 37-1.) Paragraph 4 of the Agreement provides:
No material shall be sold in North America (USA and Canada) by Sunfit directly or [through] other representatives than Hongda Chem USA during the time frame this agreement is in effect.
(Id. ¶ 4.) According to the First Amended Complaint, Hongda purchased a significant amount of NBPT from Sunfit, and entered into a contract to sell NBPT to a client, Albemarle Corporation ("Albemarle"), in reliance on the Hongda-Sunfit Agreement. ( Hongda alleges that prior to entering into the Agreement, Sunfit created YMS in March 2011 to sell NBPT in North America. (Id. ¶ 24.) Sunfit eventually passed a shareholders resolution authorizing the sale of NBPT through YMS to North American buyers. (Id. ¶ 25.) As such, Hongda alleges that, while negotiating the Agreement, Sunfit "misrepresented its sales activities in North America and also misrepresented its intentions to use Hongda as its exclusive distributor of NBPT." (Id. ¶ 26.)
Hongda further alleges that YMS had knowledge of, and intentionally interfered with, the Agreement, acting as Sunfit's vehicle for selling its NBPT product to purchasers in NorthAmerica. (Id. ¶¶ 27-31.) For example, in January 2012, YMS representatives approached the U.S.-based company Agrium Advanced Technologies, Inc. ("Agrium") to sell NBPT to Agrium. (Id. ¶ 32.) Hongda alleges that YMS representatives told Agrium that YMS was formed by Sunfit to sell NBPT in North America, and arranged for Agrium's representatives to view Sunfit's facility in China. (Id. ¶¶ 33-34.) During this time, YMS falsely represented to Agrium that the Hongda-Sunfit Agreement did not apply to sales to Agrium, and also told Agrium that Hongda failed to pay its bills on time. (Id. ¶¶ 35-36.) YMS subsequently sold NBPT to Agrium and other customers in North America. (Id. ¶¶ 37-38.)
As a result, Hongda alleges that it has suffered direct sales losses and future business opportunities, totaling an excess of $10,000,000. (Id. ¶ 40.) Hongda asserts six causes of action in this matter: (1) a declaratory judgment as to the rights and obligations of Hongda and Sunfit; (2) a breach of contract claim against Sunfit; (3) a claim for intentional interference with a contractual relationship against Sunfit; (4) a claim for intentional interference with a contractual relationship against YMS; (5) a claim for fraud against Sunfit; and (6) a claim under the North Carolina Unfair and Deceptive Trade Practices Act ("UDTPA") against Sunfit and YMS. (Id. ¶¶ 41-89.)
Sunfit filed an Answer and also asserted counterclaims in this action. (Second Am. Countercls. & Third-Party Compl., Docket Entry 51.) According to Sunfit, Hongda has defaulted in the payment of material sums under the Agreement. (Second Am. Countercls. ¶ 4.) Sunfit states that it questioned Hongda about the failed payments, and Hongda representatives falsely misrepresented that it had no funds with which to pay because it was not receiving payment from its client, Albemarle. (Id. ¶ 16.) Sunfit thereafter contactedAlbemarle and discovered that Albemarle was remitting timely payments to Hongda. (Id. ¶ 17.) When approached by Sunfit, Hongda falsely asserted that Sunfit was attempting to make a direct sale to Albemarle in violation of the Agreement. (Id. ¶ 18.) Sunfit eventually sent a final demand for all delinquent payments and threatened to terminate the Agreement if Hongda failed to pay the monies owed by October 26, 2012. (Id. ¶ 20.) In response, Hongda ignored the demand and filed the pending lawsuit. (Id.)
Sunfit also alleges that, prior to execution of the Agreement, Hongda and its principals, McKnight (President and Chief Executive Officer of Hongda and managing member of Third-Party Defendant entities), Perkins (Officer of Hongda and managing member of Eco Agro), Xu (Officer of Hongda), in conjunction with several corporate entities including Eco Agro, Vasto, and KaDi, conspired to create a competing venture. (Id. ¶ 37.) They decided to create a new entity or entities through which they would manufacture NBPT in China, then ship it to the United States, and sell it through such entities. (Id. ¶ 38.) On September 21, 2011, Perkins e-mailed McKnight and Xu after learning that Sunfit wanted to add to the draft contract the requirement that Hongda purchase NBPT for sale in North America solely from Sunfit. (Id. ¶ 40.) In other words, Sunfit wanted the exclusivity provision in the contract to be reciprocal. (Id.) Perkins emphatically suggested to McKnight and Xu that someone had leaked their secret plans. (Id.) Nevertheless, with Third-Party Defendants having conspired to create a venture to manufacture and sell NBPT in competition with Sunfit, McKnight entered into the Agreement with Sunfit on behalf of Hongda and agreed to the reciprocal exclusivity provision. (See Sales Agreement ¶ 4.)
Sunfit further asserts that Hongda and Third-Party Defendants also devised a scheme whereby they would induce Sunfit to manufacture and ship NBPT to Hongda which would sell it and, rather than pay Sunfit according to the contract terms, Hongda and Third-Party Defendants would transfer the sale proceeds from Hongda and invest them into their scheme, using Sunfit's money to build Hongda and Third-Party Defendants' new, competing distribution system. (Second Am. Countercls. ¶ 41.) In furtherance of this scheme, Hongda repeatedly requested additional deliveries of NBPT from Sunfit, knew that it had no intention of remitting the sale proceeds to Sunfit, subsequently refused to remit payment to Sunfit, and, instead, used the proceeds to create a competing venture. (Id. ¶ 42.) In its counterclaims, Sunfit asserts several causes of action: (1) a breach of contract claim for Hongda's failure to remit payment for sixteen invoices in excess of $5,000,000; (2) a claim for conversion; (3) a claim under the UDTPA; (4) a claim in quantum meruit for the reasonable value of goods provided by Sunfit for which it has not been paid; and (5) and claim under the Uniform Fraudulent Transfer Act ("UFTA"). (Id. ¶¶ 12-66.)
Additionally, Sunfit filed a Third-Party Complaint against McKnight, Perkins, Xu, Eco Agro, Vasto and KaDi. (Am. Third-Party Compl., Docket Entry 51.) The factual allegations of the counterclaims serve, in large measure, as the factual allegations for the Amended Third-Party Complaint. The Third-Party Complaint seeks two causes of action against Third-Party Defendants: (1) a UDTPA claim; and (2) a UFTA claim.2 (Id. ¶¶ 16-27.)
All parties have moved for summary judgment on several issues in this matter. (Docket Entries 129, 131, 133, 135, 137, 139, 141, 143, 145, 149.) Summary judgment is appropriate when there exists no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Zahodnick v. Int'l Bus. Machs. Corp., 135 F.3d 911, 913 (4th Cir. 1997). The party seeking summary judgment bears the initial burden of coming forward and demonstrating the absence of a genuine issue of material fact. Temkin v. Frederick County Comm'rs, 945 F.2d 716, 718 (4th Cir. 1991) (citing Celotex v. Catrett, 477 U.S. 317, 322 (1986)). Once the moving party has met its burden, the non-moving party must then affirmatively demonstrate that there is a genuine issue of material fact which requires trial. Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). There is no issue for trial unless there is sufficient evidence favoring the non-moving party for a fact finder to return a verdict for that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986); Sylvia Dev. Corp. v. Calvert County, Md., 48 F.3d 810, 817 (4th Cir. 1995). Thus, the moving party can bear his burden either by presenting affirmative evidence or by demonstrating that the non-moving party's evidence is insufficient to establish his claim. Celotex, 477 U.S. at 331 (Brennan, dissenting).
When making the summary judgment determination, the Court must view the evidence, and all justifiable inferences from the evidence, in the light most favorable to the non-moving party. Zahodnick, 135 F.3d at 913; Halperin v. Abacus Tech. Corp., 128 F.3d 191, 196 (4th Cir. 1997). However, the party opposing summary judgment may not rest on...
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