Kadant Johnson, Inc. v. D'Amico

• Decision Date: 07 September 2012
• Docket Number: CIVIL ACTION NO. 11-36,CIVIL ACTION NO. 10-2869,Pertains only to 10-2869
• Parties: KADANT JOHNSON, INC. v. JOSEPH V. D'AMICO, LOUISIANA STEAM EQUIPMENT, LLC and UTILITIES OPTIMIZATION GROUP, LLC
• Court: U.S. District Court — Eastern District of Louisiana

KADANT JOHNSON, INC. v.JOSEPH V. D'AMICO, LOUISIANA STEAM EQUIPMENT, LLC and UTILITIES OPTIMIZATION GROUP, LLC

CIVIL ACTION NO. 10-2869

CIVIL ACTION NO. 11-36

Pertains only to 10-2869

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA SECTION "C" (2)

Dated: September 7, 2012

ORDER & REASONS

This matter was tried on the issue of liability before the Court, without a jury, from June 11 through June 28, 2012, and taken under advisement on June 28, 2012.(Rec. Doc. 640).Having considered the evidence and the testimony adduced at trial, the record, the post-trial memoranda of counsel, and the law, the Court now issues its opinion.

I.BACKGROUND

This case involves two companies, PlaintiffKadant Johnson, Inc.("Kadant") and DefendantLouisiana Steam Equipment, LLC("LSE"), as well as Defendant Utilities Optimization Group ("UOG"), which manufactures, installs, and services equipment for LSE, and DefendantJoseph D'Amico("D'Amico"), who is the president and owner of LSE, and the Chief Executive Officer ("CEO") and owner of UOG, (collectively, "Defendants").Kadant and LSE have maintained a business relationship in the paper industry since the 1930s.Plaintiff claims that Defendants breached four (4) contracts:

(1) two Manufacturer's Agent Agreements (collectively, "MAAs") signed on May 14, 1993 and terminated on January 16, 2010, wherein LSE sold Kadant's product within a designated territory.¹(Tr. Exs. 240, 241).Kadant claims that Defendants breached both the "solicitation" and the "representation" clauses of Section 5.04 of the MAAs when they allegedly solicited orders from alleged Kadant customers and used Kadant product numbers as part of Defendants' numbering of non-Kadant parts.Kadant also claims that Defendants violated the confidentiality clause of Section 4.06 by disclosing and using in direct competition items - drawings, dryer studies, and price lists - that Plaintiffs allege were confidential.

(2) the Post-MAA Termination 10% Agreement ("10% Agreement"), created on January 20, 2010, wherein Kadant agreed to sell products to Defendants at a 10% discount following the termination of the MAAs.(Tr. Exs. 102, 258).The agreement to sell at a discount ended in June 2010, when Kadant stopped selling discounted parts to Defendants.((Tr. Ex. 226)(October 30, 2010 email from Eklund to Georgia-Pacific Monticello representatives and Kadant employees indicating that Kadant "discontinued selling parts to [LSE] in May/June 2010"); (Tr. Vat 229-232)(Eklund testimony not disputing that LSE bought $1.5 million worth of Kadant products through June 2010)).Defendants continued to sell the parts it had bought under the 10% Agreement through September 2010.(Tr. Ex. 887).Kadant claims that Defendants breached this agreement because Defendants sold the discounted products to customers allegedly not covered by the agreement and because they failed to truthfully inform Kadant of the identity of customers to whom they sold Kadant products under the agreement. (3) the Non-Competition, Non-Solicitation, and Non-Disclosure Agreement ("NDA") executed on August 6, 1999 and terminated on January 16, 2010, which restricted Defendants' activities under conditions detailed more fully below.(Tr. Ex. 244).D'Amico signed this agreement individually and as agent for LSE.(Tr. Ex. 244at 9).Kadant claims that Defendants breached the non-competition, non-solicitation, and non-disclosure articles of the NDA for alleged activities between the termination of the MAAs until October 2010.

Also before the Court are Defendants' counterclaims against Kadant for defamation, tortious interference, unfair trade practices, and breach of the non-disparagement clause of the December 20, 2006 Buyout Agreement, wherein Kadant bought all of Defendants' interest in a joint venture they had created under the August 6, 1999 Operating Agreement.(Rec. Doc. 259-3, Ex. A-4, ¶ 4.4).The main basis for these claims are Kadant's alleged statements to Defendants' customers that Defendants were selling parts that Defendants falsely represented were Kadant parts when in fact the parts were "pirated" or "counterfeit" parts manufactured by companies other than Kadant.

On May 28, 2010, LSE and D'Amico filed a declaratory action against Kadant in this Court, seeking declarations related to the agreements described above.(Case No. 10-1600, Rec. Doc. 1).That case was dismissed on August 31, 2010.(Case No. 10-1600, Rec. Doc. 16).On June 21, 2010, Kadant filed suit in Alabama state court against Defendants, making breach of contract and other claims that were later amended several times.(Rec. Docs. 1-8, 22, 73, 242).Defendants then filed counterclaims and amended counterclaims against Plaintiff.(Rec. Docs. 3, 75).Defendants removed the suit to the Middle District of Alabama on July 6, 2010(Rec. Doc. 1-2), and then filed a motion to transfer the suit to the Eastern District of Louisiana on the ground that their declaratory action was ongoing in this Court.(Rec. Docs. 1-6, 1-7).That motion was granted, and the suit was eventually transferred to this Court on September 8, 2010.(Rec. Docs. 1-29, 5).On September 30,2010, Kadant filed a second suit against Defendants in the Western District of Michigan, this time bringing patent, copyright, and trademark infringement claims related to products Defendants sold during the existence of the aforementioned agreements.Defendants filed a motion to transfer, and the case was transferred to the Eastern District of Louisiana on January 14, 2011.(Case No. 11-36, Rec. Docs. 8, 28, 29).This second case was consolidated with the instant case on January 18, 2011.(Rec. Doc. 34).At the eve of trial, on June 8, 2012, after approximately a year and a half of litigation in both suits, the parties settled the second suit and settled some of the claims in the instant suit.Accordingly, the only remaining claims are Kadant's claims for breach of the MAAs, the 10% Agreement, and the NDA, and Defendants' counterclaims for defamation, tortious interference, unfair trade practices, and breach of the Buyout Agreement.

II.FINDINGS of FACT and CONCLUSIONS OF LAW

The Court heard testimony from twenty-seven (27) witnesses: (1)Carl Howe, Kadant's vice president of sales (Tr. I,6/18/12, Rec. Doc. 644("Tr. I") and Tr. II, 6/19/12, Rec. Doc. 658("Tr. II")); (2)Dennis Moon, who has worked as a director of finance and controller for Kadant (Tr. II); (3)Kenneth Hill, an engineer and Kadant's systems group president (Tr. II); (4)Alan Ives, an engineer and Kadant's director of product development (Tr. III,6/20/12, Rec. Doc. 645("Tr. III")); (5)Gerald Timm, an engineer and Kadant's vice president of corporate engineering (Tr. III); (6)John Hotovy, a field service engineer for Kadant (Tr. III); (7)Sue-Anne Pierce, Kadant's systems development manager in Houston, Texas (Tr. III); (8)Todd Martin, UOG's executive vice president (Tr. III); (9)Jeffrey Downs, a plant engineer that designs and installs equipment for RockTenn, formerly known as Smurfit Stone(Tr. IV,6/21/12, Rec. Doc. 646("Tr. IV"));(10)Sam Canatella, LSE's operations manager of inside sales (Tr. IV); (11)Tim DeFrance, a sales engineer for LSE (Tr.IV); (12)John Monteith, a district sales manager for Kadant (Tr. IV); (13)John Picone, LSE and UOG's controller (Tr. IV); (14)Chris Norris, a sales engineer for LSE(Tr. V,6/22/12, Rec. Doc. 147("Tr. V"));(15)Joseph Canale, LSE's director of sales, pulp and paper division since mid-2010 and a former sales engineer for LSE (Tr. V); (16)Robert Logan, Jr., owner of Process Systems, Inc., a representative for Deublin, Corp., which is a competitor to Kadant (Tr. V); (17)John Eklund, Kadant's regional sales director for the South and Southeast group of the Paperline group (Tr. V); (18)Brian Card, Kadant's systems development manager in Vancouver, Washington since 2012 and former manager of day-to-day operations of the No. 20 paper machine at Georgia Pacific Camas(Tr.VI, 6/25/12, Rec. Doc. 648("Tr. VI")); (19)Paul Cornelison, a reliability engineer for Graphic Packaging International (Tr. VI); (20)Robert Tully, LSE's director of corporate sales (Tr. VI); (21)Joseph D'Amico, owner and president of LSE and owner and CEO of UOG (Tr. VI, Tr. VII,6/26/12, Rec. Doc. 649 ("Tr. VII"), and Tr. IX, 6/28/12, Rec. Doc. 651("Tr. IX")); (22)Larry LeBlanc, a maintenance planner for the No. 2 paper machine for International Paper (Tr. VII); (23)Robert Eckhoff, a former reliability engineer for International Paper (Tr. VII); (24)James Dechnik, Kadant's former treasurer, vice president of finance, chief financial officer and chief operating officer (Tr. VII); (25)William Rabby, Clearwater Paper Wiggins's safety manager (Tr. VII); (26)Don Lasseigne, Superior Fabricators's former purchasing, safety, environmental and office manager (Tr. VII); and (27)Gregory Wedel, Kadant's former vice president of marketing and technology and current vice president and manager (Tr. Tr. VII and Tr. VIII, 6/27/12, Rec. Doc. 650("Tr. VIII")).

In addition, depositions from two (2) witnesses were admitted into the record: Rudolph Leerentveld, former president and CEO of Kadant (Rec. Doc. 642-1), John Peter, a research engineer for Kadant (Rec. Doc. 639).

A.Credibility of Witnesses

In its Post-Trial Brief on Remaining Issues of Liability, Kadant asks the Court to draw negative inferences about D'Amico's credibility on several grounds.(Rec. Doc. 674at 22-26).The Court dismisses these arguments.First, Kadant argues that D'Amico's testimony is biased because he has a stake in the outcome of the proceedings personally and as owner of LSE and UOG.Although none of Kadant's witnesses were sued in their personal capacity, most of them are Kadant employees and therefore may have a personal interest in the outcome.Accordingly, bias is an issue for both sides and thus the argument is largely moot.

Second, Kadant maintains that D'Amico and...