JMB Mfg., Inc. v. Child Craft, LLC

• Decision Date: 10 April 2013
• Docket Number: Case No. 4:11–cv–65–TWP–WGH.
• Citation: 939 F.Supp.2d 909
• Parties: JMB MANUFACTURING, INC. d/b/a Summit Forest Products Company, Plaintiff/Counterclaim–Defendant, v. CHILD CRAFT, LLC, G.E.G. of Indiana, LLC, Gateway Manufacturing, Inc., Douglas K. Gessford, Daryl Eason, Defendants. Harrison Manufacturing, LLC, f/k/a Child Craft, LLC, Defendant/Counterclaim–Plaintiff v. Rob Bienias, Counterclaim–Defendant.
• Court: U.S. District Court — Southern District of Indiana

939 F.Supp.2d 909

JMB MANUFACTURING, INC. d/b/a Summit Forest Products Company, Plaintiff/Counterclaim–Defendant,

v.CHILD CRAFT, LLC, G.E.G. of Indiana, LLC, Gateway Manufacturing, Inc., Douglas K. Gessford, Daryl Eason, Defendants.

Harrison Manufacturing, LLC, f/k/a Child Craft, LLC, Defendant/Counterclaim–Plaintiff

v.Rob Bienias, Counterclaim–Defendant.

Case No. 4:11–cv–65–TWP–WGH.

United States District Court,

S.D. Indiana,

New Albany Division.

April 10, 2013.

Gordon D. Ingle, Faith Ingle Smith LLC, Corydon, IN, for Plaintiff/Counterclaim–Defendant.

Jeffrey A. Savarise, Fisher & Phillips LLP, Louisville, KY, John C. Roach, S. Chad Meredith, W. Keith Ransdell, Ransdell & Roach, PLLC, Lexington, KY, for Defendant/Counterclaim–Plaintiff.

ENTRY ON DEFENDANTS' AND COUNTERCLAIM–PLAINTIFF'S MOTIONS FOR SUMMARY JUDGMENT AND PARTIAL SUMMARY JUDGMENT

TANYA WALTON PRATT, District Judge.

Plaintiff JMB Manufacturing, Inc., d/b/a Summit Forest Products Company (“Summit Forest”), sued Defendants, Child Craft, LLC, along with G.E.G. of Indiana, LLC (“G.E.G.”), Gateway Manufacturing, Inc. (“Gateway”), Harrison Manufacturing, LLC, Douglas K. Gessford (“D.K. Gessford”), and Daryl Eason (“Mr. Eason”) (collectively, “Defendants”), alleging breach of contract and conversion, and seeking to pierce the corporate veil. Defendant Harrison Manufacturing, LLC (f/k/a Child Craft, LLC) (“Child Craft”) ¹ counterclaimed against Summit Forest and its President, Rob Bienias (“Mr. Bienias”) (collectively, “Counterclaim–Defendants”), claiming breach of contract, breach of implied warranties, and negligent misrepresentation. Defendants moved for summary judgment, Child Craft moved for partial summary judgment as the Counterclaim–Defendants moved for summary judgment. For the reasons set forth below, Defendants' motion (Dkt. # 89) is GRANTED in part and DENIED in part, Child Craft's motion (Dkt. # 91) is GRANTED in part and DENIED in part, and Counterclaim–Defendants' motion (Dkt. # 135) is DENIED.

I. BACKGROUND

A. Authority to Act

Mark and Bill Suvak owned Child Craft, Inc. until 2008, when, after being financially crippled from a 2004 flood, they sought a buyer. D.K. Gessford, Mr. Eason, and Carol Gessford were co-owners of Gateway. The Gateway principals formed G.E.G. to purchase Child Craft, Inc.'s real estate. Along with Kevin Romenesko (“Mr. Romenesko”), these parties formed Child Craft, LLC so as to purchase Child Craft, Inc.'s trademark, inventory, and other assets. Mr. Romenesko was later bought out.

During all times relevant to this dispute, D.K. Gessford served as President and Chief Executive Officer (“CEO”) of Child Craft. Mr. Romenesko served as the Chief Financial Officer (“CFO”) through 2009. Bill Suvak served as Vice President and Chief Design Officer, and Mark Suvak served as Vice President, Chief Operating Officer (“COO”), and CFO after 2009.

B. Formation of Business Relationship and Contract

In August 2008, Child Craft and Summit Forest entered into a contract, under which Child Craft purchased sub-assemblies for cribs and case goods from Summit Forest. Gateway was listed as the corporate entity on the first purchase order, but this was corrected before the first order was shipped. Mr. Bienias, as Summit Forest President, would act as Child Craft's broker to find a suitable sub-assembler of wood products for Child Craft's Vogue line of children's furniture. Child Craft, in turn, would manufacture the unfinished and semi-finished wood products into finished baby furniture. In September 2008, Summit Forest identified PT Cita, an Indonesian company, as a supplier. Mr. Bienias and D.K. Gessford visited PT Cita's facility in Indonesia.

PT Cita representatives informed D.K. Gessford and Mr. Bienias that it could properly develop sub-assembly parts for the Vogue line. In August 2008, after receiving Child Craft's first purchase order, Summit Forest ordered sub-assemblies from PT Cita. PT Cita shipped six containers of sub-assemblies, five by sea and one by expedited air, between December 2008 and April 2009.

The first container of goods was shipped by expedited air, and the cost was to be split with Summit Forest. Thereafter, Child Craft was generally obligated to pay the cost of goods and shipping. Upon receipt of any non-conforming goods, Child Craft had the option to either reject the goods or accept and rework them. If Child Craft elected to try to rework any defective goods into salable finished products, Summit Forest agreed to pay Child Craft for all supplies and $30.00 per man-hour of labor.

C. Breach of Agreement

Almost immediately, Child Craft and Summit Forest experienced problems with PT Cita. After initially informing Mark Suvak that the first container would probably ship from Indonesia about October 7, 2008 and arrive about November 15, 2008, Mr. Bienias learned on October 3 and November 3, 2008 that PT Cita was delaying the first, second, and third containers. Mark Suvak expressed immediate concern that these delays would not give Child Craft enough time to create finished products for its customers. Therefore, Mr. Bienias arranged for air shipment of the first container to ensure the cribs would ship from Indonesia by the end of November 2008. Child Craft received the first shipment, containing cribs, and the second shipment, containing case goods, between December 9 and 12, 2008.

There were serious problems with the sub-assemblies, especially high moisture content with the crib wood and veneer problems with the case goods. Child Craft and Summit Forest communicated extensively about the problems in December 2008 and January 2009. Child Craft properly rejected the first shipment of 90 cribs as non-conforming and attempted to salvage the goods from the remaining shipments into finished products. However, the finished products it attempted to sell were either returned by retailers or were rejected by retailers outright.

Mark Suvak promptly notified Mr. Bienias that drying the sub-assemblies failed to make them into salable products. Nevertheless, he subsequently urged Mr. Bienias to get an estimated time of arrival from PT Cita on the third container and agreed to continue with future orders.

On January 13, 2009, Child Craft asked Summit Forest to stop shipment of further goods until Child Craft could assure that the goods were suitable. Mr. Bienias communicated this message to PT Cita, but PT Cita continued to ship defective products. Child Craft agreed to reduce its rework rate for shipments received before January 31, 2009, from $30.00 per man-hour to $36.00 per case. Ultimately, Child Craft incurred $53,532.62 in rework charges.

Summit Forest invoiced Child Craft for all shipments except for the first shipment of 90 cribs. Consistent with its position that it would not pay until it was sure the cribs were usable, Child Craft refused payment to Summit Forest no later than January 27, 2009 and never paid thereafter. On February 20, 2009, Mark Suvak sent an e-mail to Mr. Bienias stating that all cribs had been rejected and that Child Craft had effectively and timely communicated the product problems, requesting that a container of replacement cribs be shipped immediately, and reiterating its refusal to pay until usable cribs were delivered.

Child Craft never delivered non-defective cribs. Unable to sell any of the Vogue furniture line to retailers, Child Craft ceased operations on June 19, 2009. Thereafter, in July 2009, D.K. Gessford and Mark Suvak sold approximately $41,692.52 of the sub-assemblies provided by Summit Forest to Foundations Worldwide, Inc. (“Foundations”). On January 4, 2010, Mr. Bienias asked Child Craft to dispose of the components, since he could not pay for storage. In early 2010, Child Craft transferred some of the product to a storage facility owned by Gateway Manufacturing, Inc. (“Gateway”), where some were destroyed or used as kindling material by Gateway, but some are still stored. The remaining Summit Forest components stored at Child Craft were destroyed before the Child Craft building was auctioned.

D. Claims raised in the pleadings

Summit Forest has sued the Defendants for breach of contract (Plaintiff's Amended Complaint Count I), to pierce the corporate veil against D.K. Gessford and Mr. Eason as the controlling members of the LLC defendants ( id. at Count II), and for criminal conversion. Id. at Count III. Child Craft filed a counterclaim against Summit Forest, alleging breach of contract, breach of the implied warranties of merchantability and fitness for particular use, and negligent misrepresentation. Mr. Bienias was sued individually for negligent misrepresentation. Jurisdiction and venue are proper in this court. 28 U.S.C. §§ 1332, 1391(b). Additional facts will be supplied as necessary.

II. STANDARD OF REVIEW

Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The moving party bears the burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The non-moving party, however, may not rest on mere allegations or denials in its pleadings, but rather must set forth specific facts showing that there is a genuine issue for trial. Fed. R. Civ. P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). This notion applies equally where, as here, opposing parties each move for summary judgment in their favor pursuant to Rule 56. I.A.E., Inc. v. Shaver, 74 F.3d 768, 774 (7th Cir.1996).

A genuine issue of material fact exists if “there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.” Anderson, 477 U.S. at 249, 106 S.Ct. 2505. Stated differently, only disputes over material facts—i.e., “facts that might affect the outcome of the suit under the...