Kehoe Component Sales Inc. v. Best Lighting Prods., Inc.

• Decision Date: 20 March 2013
• Docket Number: 2:10–CV–00789.,Case Nos. 2:08–CV–00752
• Citation: 933 F.Supp.2d 974
• Parties: KEHOE COMPONENT SALES INC., d/b/a Pace Electronic Products, Plaintiff, v. BEST LIGHTING PRODUCTS, INC., Defendant. Kehoe Component Sales Inc., d/b/a Pace Electronic Products, et al., Plaintiffs, v. Best Lighting Products, Inc., Defendant.
• Court: U.S. District Court — Southern District of Ohio

933 F.Supp.2d 974

KEHOE COMPONENT SALES INC., d/b/a Pace Electronic Products, Plaintiff,

v.BEST LIGHTING PRODUCTS, INC., Defendant.

Kehoe Component Sales Inc., d/b/a Pace Electronic Products, et al., Plaintiffs,

v.Best Lighting Products, Inc., Defendant.

Case Nos. 2:08–CV–00752, 2:10–CV–00789.

United States District Court,

S.D. Ohio,

Eastern Division.

March 20, 2013.

James Douglas Colner, Shumaker Loop & Kendrick LLP, Columbus, OH, Ronald G. Hull, Underberg & Kessler, LLP, Rochester, NY, for Plaintiffs.

Edward Joel Wesp, Wesp/Barwell, LLC–Attorneys at Law, Dublin, OH, Gregory Paul Barwell, Columbus, OH, Lloyd Pierre-Louis, Wesp Barwell Co., LLC, Dublin, OH, Kendra Lynn Carpenter, Columbus, OH, for Defendants.

OPINION AND ORDER

EDMUND A. SARGUS, JR., District Judge.

These consolidated diversity cases stem from a contractual dispute between Plaintiff/Counter–Defendant Kehoe Component Sales, Inc., d/b/a Pace Electronic Products (hereinafter “Pace Electronic”); Plaintiff/Counter–Defendant Pace Technology Co., Ltd. (hereinafter “Pace Technology”); ¹ and Defendant/Counter–Claimant Best Lighting Products, Inc. (hereinafter “Best”). This matter is before the Court for consideration of the parties Cross–Motions for Summary Judgment. ( See ECF Nos. 54, 64, 66.²) For the reasons that follow:

• Defendant/Counter–Claimant Best Lighting Products, Inc.'s Motions for Summary Judgment are DENIED. (ECF Nos. 54, 66.)

• Plaintiffs' Motion for Summary Judgment is GRANTED in part and DENIED in part subject to the conditions outlined in this Opinion and Order. (ECF No. 64.)

• Plaintiffs' Complaint in Case No. 2:10–cv–789 is DISMISSED without prejudice subject to the conditions outlined in this Opinion and Order.

• The Clerk is DIRECTED to STRIKE the Declaration of James J. Hooley. (ECF No. 72–1.)

I. BACKGROUND

A. Factual Background

1. Best's Pre–2007 Relationship with the Pace Companies

Alvin Katz (“A. Katz”) founded Best, an Ohio corporation, in 1995. (A. Katz Dep. 5, ECF No. 52–1.) Best sells emergency lighting products, emergency ballasts, exit lighting, and related products. A. Katz testifies that, in creating Best's product line, he came up with hand-drawn concepts and designs for Best products. ( Id. at 40, 71.) A. Katz states that he would sometimes start with samples from other manufacturers when making Best products. ( Id. at 42, 72.)

In approximately 2000, Pace Electronic—a New York corporation—approached Best offering to manufacture its products. ( See id. at 56–57; Kehoe Dep. 38, ECF No. 52–4.) Eventually, a relationship developed in which Pace Electronic and its affiliates manufactured products for Best. ( See Katz Dep. 62.) According to F. Patrick Kehoe (“Kehoe”)—the CEO of Pace Electronic and partial owner of the other Pace companies—Pace Technology, a Pace affiliate based in China, began making molds (also referred to as “tooling”) to produce Best products beginning in 2000. (Kehoe Dep. 7, 40, ECF No. 52–4.) Kahoe avers that the Pace companies made this tooling from “garden variety samples that we got from the marketplace.” ( Id. at 89.) A. Katz testifies that Best also submitted orders to other suppliers from 2000 to 2006. ( See A. Katz Dep. 81–83.)

Beginning in 2004, and more prominently in 2005, Best became concerned that the Pace companies were selling lighting products to Best's customers. ( See id. at 96–99.) In August 2004, A. Katz sent Kehoe an email indicating that Best did not want the Pace companies giving quotes to Best's customers. ( Id. at 96; Pl.'s Mot. Summ. J. Ex. D, ECF No. 64–3.) In March 2005, Kahoe emailed A. Katz assuring him that Pace Electronic, Pace Technologies, and another Pace affiliate, would not offer emergency lighting products to any of Best's customers in North America without Best's permission. (A. Katz Decl. Ex. 6, ECF No. 54–1.) A. Katz avers, however, that during 2005 Best discovered that—despite written assurance from Pace Electronic—Pace Electronic and its affiliates had been selling lighting products to Best's customers. (A. Katz Decl. ¶ 4, ECF No. 54–1.) On October 11, 2005, A. Katz sent two emails to Kehoe expressing considerable displeasure based on his belief that Pace Electronic and its affiliates were “back door selling” products made with Best's tooling to multiple customers. (Pl.'s Mot. Summ. J. Ex. D at 2–3.) Kahoe responded to these emails maintaining that he had not purposely competed with Best and that he considered Best to be a partner. (A. Katz Decl. Ex. 4, ECF No. 54–1.)

During this same general period, in April 2005, a dispute arose between the Pace companies and Best regarding defective products and the ownership of tooling. (A. Katz Dep. 102–04.) A. Katz testifies that he had a disagreement with Peter Yang, a part owner of Pace Technology, regarding whether Pace Technology or Best owned the tooling that the Pace companies were using to make Best's products. ( Id. at 102–03.) During his deposition, A. Katz expressed the belief that “over the course of the years” he had paid for some of the tooling in question but that he had not paid for all of the tooling. ( Id. at 106.) According to Jeffrey Katz (“J. Katz”), the CEO of Best, during this period the Pace companies sent Best a bill for outstanding tooling payments. (J. Katz Dep. 100, ECF No. 96.) During the same period, Best claimed that it was forced to pay approximately $300,000 to correct defective products from the Pace companies. (A. Katz Dep. 103–04.) In a transaction that the parties refer to as the “big wash,” Best received ownership of the tooling in question in exchange for the expenses it was claiming to repair the alleged defect in products. ( See id. at 104–05; J. Katz Dep. 100.) An April 19, 2005 email from Kehoe described the transaction as follows: “[t]ooling—Pace will accept the proposal to wash all pending tooling cost against the pending rework charge without any contingency.” (Katz Decl. Ex. 3.) Pace Electronicalso submitted a list dated March 23, 2005—which was originally an exhibit to the Kehoe deposition—that sets forth various tooling charges purportedly pending at that time. (Hull Decl. Ex. B, ECF No. 71–1.)

In 2006, the relationship between Best and the Pace companies continued to dissolve. During 2006, A. Katz avers that Best still believed that the Pace companies were actively selling lighting products to Best's customers. ( See A. Katz Decl. ¶ 4.) Moreover, according to Kehoe, Best owed the Pace companies approximately $ 1.5 million and was refusing to pay. (Kehoe Dep. 46.)

In light of these circumstances, the companies engaged in negotiations during late 2006 and into 2007. (Katz Decl. ¶ 5.) A. Katz avers that in light of Best's concern over Pace companies selling competing products, it was seeking “enforceable assurances” in order to continue the relationship. ( Id. at ¶ 6.) During this general period, Kehoe made a number of statements to Best assuring them of his trustworthiness. For example, on November 27, 2006 Kehoe emailed Katz stating “I swear on my saintly mother's grave my motivation is not to raid your customer list” and promising that he would not violate a non-compete under any circumstances. (Katz Decl. Ex. 1, ECF No. 54–1.) Two days later, Kehoe stated that the Pace companies would accept a one year non-compete agreement. (Katz Decl. Ex. 5, ECF No. 54–1.) Finally, A. Katz avers that during a meeting in which the companies negotiated the final terms of an agreement, Kehoe specifically represented that the Pace companies would not sell lighting products to any of Best's North American customers without written authorization. (A. Katz Decl. ¶ 10.)

Despite Kehoe's representations, the record reflects that Best still mistrusted him during the course of negotiations. During his deposition, A. Katz specifically stated “[n]o way in God's name did I trust [Kehoe] in 2006 ....” (A. Katz Dep. 118.) Moreover, within his Declaration, A. Katz avers that because Best mistrusted Kehoe it would not have entered an agreement with Pace without “a strict written agreement” limiting Pace's ability to sell products in North America. (A. Katz Decl. ¶¶ 8, 12.) Richard Melbourne Haughton, a former Vice–President at Best, similarly testified:

The purpose of [the negotiations] was to put in place what we believed to be a legally enforceable agreement that would govern the conduct of the parties moving forward in a commercial relationship, because the past had indicated to us things like a handshake or my word, quote/unquote, from Pat Kehoe, would not provide us with any reasonable security that the relationship would proceed on acceptable terms, and we needed something enforceable.

(Melbourne Haughton Dep. 64–65, ECF No. 52–2.)

2. 2007 Supply Agreement

Best, Pace Electronic, and Pace Technology ultimately entered into an agreement (the “Supply Agreement”) which became effective on January 10, 2007. ³ Pace Products, Ltd. (formerly known as Max–Lion Corporation Limited), another Pace affiliate (hereinafter “Pace Products”), was also a party to the agreement.⁴ Under the Supply Agreement, Best agreed to purchase $ 7,000,000 worth of products from the Pace companies annually.⁵ The Supply Agreement fixed prices for the relevant products with the caveat that “the Parties agree[d] to review prices for Products on a bi-annual basis based on the Effective Date....” (Supp. Agr. 1.) The Supply Agreement required Best to place purchase orders directly with Pace Electronic. ( Id.) The duration of the Supply Agreement was one year from the effective date, January 10, 2007, with either party having the ability to submit a written request for renewal within thirty days of expiration. ( Id.)

The Supply Agreement contained non-compete provisions that provided as follows:

During the term of the agreement, Pace shall not sell emergency lights or exit signs nor ballasts, nor solicit sales of these items to any party in North America without Best's prior written consent. Such sales, if approved by Best,...