KR Enters., Inc. v. Zerteck, Inc.

Decision Date20 May 2020
Docket NumberCause No. 3:16CV708-PPS
Citation461 F.Supp.3d 825
Parties KR ENTERPRISES, INC., Plaintiff, v. ZERTECK, INC., d/b/a Boat-N-RV Warehouse, Tilden Recreational Vehicles, Inc., d/b/a Boat-N-RV Superstore, Ridgeland Recreational Vehicles, Inc., d/b/a Boat-N-RV Megastore, Crossville BNRV Sales, LLC, d/b/a Boat-N-RV Supercenter, Florida BNRV Sales, LLC, d/b/a Factory Direct Marine & RV, and Ridgeland Recreational Vehicles, Inc., d/b/a Boat-N-RV World (North Carolina), Defendants.
CourtU.S. District Court — Northern District of Indiana

Jeffery A. Johnson, May Oberfell Lorber, Mishawaka, IN, for Plaintiff.

Angela Kelver Hall, Faegre Baker Daniels LLP, Indianapolis, IN, Gary Lynn Edwards, PHV, II, Pro Hac Vice, Baker Donelson Bearman Caldwell & Berkowitz PC, Johnson City, TN, Jamie M. Ballinger-Holden, PHV, Pro Hac Vice, Baker Donelson Bearman Caldwell & Berkowitz PC, Knoxville, TN, for Defendants.

OPINION AND ORDER

PHILIP P. SIMON, JUDGE

A consortium of RV dealerships received 21 new RVs valued at over $800,000 from a manufacturer, Evergreen Recreational Vehicles LLC, but never paid for them. This case is about how much, and to whom, the dealerships owe on those 21 RVs. The defendant dealerships are related to one another, and so the parties and I collectively refer to them as "BNRV" — which is short for Boat-N-RV. Evergreen, the manufacturer, has never been a party to the case and is now out of business and has been liquidated. Instead, the complaint was filed initially by 1st Source Bank as the plaintiff. 1st Source claimed that it stood in the shoes of Evergreen to collect on the debt because the bank had a first priority blanket security interest in all of Evergreen's assets, including its accounts receivable, derived from Evergreen's execution of a Loan and Security Agreement with 1st Source in 2009.

This case was originally set for a bench trial in August 2018. But in the run up to the trial, 1st Source disclosed that a few months earlier, it sold its claims against BNRV to an entity known as KR Enterprises, Inc. Because BNRV wanted time to sort out the significance, if any, of this assignment of the claim, the trial was postponed, and discovery was reopened so BNRV could ascertain the circumstances leading to the assignment to KR.

Eventually a second amended complaint was filed, in which KR was substituted for 1st Source as the party-plaintiff. [DE 111.] KR's complaint claims that on or about May 1, 2018, it "purchased a certain amended and restated promissory note executed by Evergreen in favor of 1st Source Bank," and that as part of that transaction, 1st Source assigned to KR all of its interest in 1st Source's Loan and Security Agreement with Evergreen, as well as 1st Source Bank's interest in this lawsuit and its claims against BNRV. [DE 111 at ¶11-14.] The second amended complaint makes three legal claims, all in pursuit of a judgment of $808,663.00 plus treble damages, attorney's fees and pre-and post-judgment interest. The causes of action KR Enterprises asserts are all based on state law: Account Stated (Count I), Breach of Contract (Count II) and Conversion (Count III). Subject matter jurisdiction is based on diversity of citizenship which has been verified.

The matter was tried to the court without a jury. Pursuant to Fed.R.Civ.P. 52(a), this opinion includes my findings of fact and conclusions of law resolving the case to judgment.

Findings of Fact

On June 19, 2009, Evergreen Recreational Vehicles and 1st Source Bank entered into a Loan and Security Agreement pursuant to which 1st Source Bank agreed to lend money to Evergreen from time to time. To secure its obligations to the bank under the Agreement, Evergreen granted 1st Source a first priority blanket security interest in all of its assets including all present and future accounts, accounts receivable, contract rights, contracts, and claims. The schedule of collateral, always including this language, was amended and restated at least once each year until Evergreen's closure in 2016. 1st Source perfected its interest in this collateral by filing a Financing Statement with the Indiana Secretary of State on July 2, 2009, as continued on January 7, 2014, and as continued again on January 18, 2019.

Kelly Rose was founder, chairman and majority owner of KR Enterprises which, in turn, was the principal owner of Evergreen. Evergreen manufactured recreational vehicles out of its headquarters in Elkhart, Indiana. Rose had decision-making control over both KR and Evergreen, and Rose was a guarantor of Evergreen's indebtedness to 1st Source. When times were lean at Evergreen, as they often were in 2015 and 2016, Rose would make periodic capital infusions to keep the business afloat. Don Emahiser was Evergreen's President, and Joseph E. Katona, III was Evergreen's Chief Financial Officer.

The BNRV defendants are six boat and recreational vehicle retailers located in New York, Pennsylvania, Tennessee, North Carolina, South Carolina, and Florida. Evergreen and BNRV had an established course of dealing in which Evergreen would sell and deliver RVs to BNRV, and BNRV would pay Evergreen for the RVs upon receipt of an invoice. Sales coordinators of Evergreen would deal directly with Derwood "Don" Littlefield, the principal of all the BNRV defendants, for approval of RV purchases, irrespective of the dealership to which the RV would ultimately be sent.

During April and May of 2016, BNRV ordered 21 RVs from Evergreen, the total invoice price for which was $808,663.00. In accordance with their course of dealing, Evergreen shipped the 21 RVs, each with its corresponding Certificate of Origin, to the designated BNRV dealerships. Three RVs went to defendant Zerteck's "Warehouse" dealership in New York; five went to the Florida defendant's "Factory Direct" dealership in Panama City Beach; two went to defendant Ridgeland's North Carolina "Boat-N-RV World" and three to its South Carolina "Megastore" dealership; three went to defendant Tilden's Pennyslvania "Superstore;" and finally, five went to defendant Crossville's "Supercenter" location in Tennessee. The Certificates of Ownership certified that each RV was the property of Evergreen and identified the individual dealership defendant as the transferee. None of the invoices for the 21 RVs — totaling $808,663.00 — has ever been paid.

Evergreen would "accrue" 3% of its monthly total of all sales for future warranty repair reimbursement. CFO Katona explained that this didn't mean putting 3% of the actual total invoice amount aside, but just making "a journal entry to set up a potential liability." [DE 162 at 87, ll. 12-13.] Actual warranty costs paid by Evergreen would be reflected against that accrual for bookkeeping purposes. In 2015, Evergreen began incurring unusually high warranty obligations, exceeding the 3% accrual. While this wasn't the sole reason that Evergreen went out of business, it was a contributing factor.

In the course of dealing between Evergreen and BNRV, a dealer would submit a warranty claim to Evergreen's parts, service and warranty department for approval, and after the claim was resolved, Evergreen would reimburse the dealer by check. In this way, warranty claims were handled and accounted for separately from floor plan purchase amounts. Prior to going out of business in June 2016, Evergreen had last paid BNRV for warranty parts and labor by a check dated January 26, 2016.

At the time the 21 RVs were delivered in 2016, Evergreen was offering a rebate program on terms spelled out in a March 14, 2016 letter to Don Littlefield from Michael Scheetz, Evergreen's Vice President of Sales and Marketing:

Per our conversation we would like to offer you the following program on Lifestyle, Bay Hill, Bayview and Tesla Fifth Wheels and Layton and Sun Valley Travel Trailers ...
Quarterly, Evergreen RV will rebate 3% of purchases on products that were shipped and funded in that quarter less any discounts or incentives not including freight[.]
Quarterly, Evergreen RV will pay you personally $650 ... per unit on all units shipped and funded in that quarter[.]
This program is effective on all units shipped and funded on or after 3/1/2016 and will continue on all units shipped and funded through 2/28/2017.

[Def. Exh. 42, p. 3.]

Under the immediately preceding rebate program, Littlefield was to be paid $250 per unit, and the dealerships’ rebate was 1% of invoice. Evergreen had paid BNRV all rebates due through 2015. On April 13, 2016, Michael Scheetz sent an email to Don Littlefield with a spreadsheet showing rebates due for first quarter 2016 sales, and indicating that payment of the rebates would be forthcoming. Evergreen failed to make those rebate payments. As of January 31, 2018, Littlefield assigned his claims for unpaid rebates to defendant Crossville, the Tennessee dealership.

Evergreen set up separate accounts with each of the defendant dealerships, based on their separate dealership applications. BNRV's floor plan financing with M&T Bank is a co-borrowing arrangement with a single master note and master loan agreement with total availability of over $36 million, under which each individual dealership has a sub-limit of borrowing. Although BNRV would send requests for funding from a particular dealership for a particular RV, M&T's approval decision would be based not only on the individual dealer's sub-limit but the bank's overall exposure with BNRV as a whole. On that basis, credit would sometimes be approved for more than a particular dealership's sub-limit.

At some point in time, Kelly Rose decided that he no longer wanted to make capital infusions to keep Evergreen afloat, and so in June 2016, Evergreen went out of business. As a result, by memo dated June 8, 2016, BNRV instructed M&T Bank, its floorplan lender, not to make any further payments to Evergreen, including for the 21 RVs BNRV recently received and that are now the subject of this lawsuit. At the same time, BNRV sent Evergreen a letter terminating its...

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3 cases
  • KR Enters., Inc. v. Zerteck Inc., s. 20-2069 & 20-2155
    • United States
    • U.S. Court of Appeals — Seventh Circuit
    • June 3, 2021
    ...for warranty and rebate claims that the manufacturer had owed to the dealers on earlier RV sales. See KR Enterprises, Inc. v. Zerteck, Inc. , 461 F. Supp. 3d 825 (N.D. Ind. 2020).The defendant dealers have appealed, arguing they owe nothing for the RVs they received, at least not to this pl......
  • Ram Iron & Metal, Inc. v. Exeon Processors LLC
    • United States
    • U.S. District Court — Northern District of Indiana
    • May 16, 2023
    ... ... intended to cover mere breach of contract or failure to pay a ... debt.” KR Enterprises, Inc. v. Zerteck, Inc., ... 461 F.Supp.3d 825, 835 (N.D. Ind. 2020) (citing GHPE ... Holdings, LLC v. Huxley, 69 N.E.3d 513, 522 (Ind.Ct.App ... ...
  • Zimmer Biomet Holdings, Inc. v. Insall
    • United States
    • U.S. District Court — Northern District of Illinois
    • April 11, 2023
    ... ... ascertain and effectuate the intent of the parties.” ... KR Enterprises, Inc. v. Zerteck, Inc ., 461 F.Supp.3d ... 825, 833 (N.D. Ind. 2020) (citing Vic's Antiques ... & Uniques, Inc. v. J. Elra Holdingz, LLC , 143 N.E.3d ... ...
2 books & journal articles
  • Weekly Case Digests July 5, 2021 July 9, 2021.
    • United States
    • Wisconsin Law Journal No. 2021, March 2021
    • August 20, 2021
    ...and rebate claims that the manufacturer had owed to the dealers on earlier RV sales. See KR Enterprises, Inc. v. Zerteck, Inc., 461 F. Supp. 3d 825 (N.D. Ind. The defendant dealers have appealed, arguing they owe nothing for the RVs they received, at least not to this plaintiff. The secured......
  • Prejudgment Interest.
    • United States
    • Wisconsin Law Journal No. 2021, March 2021
    • August 18, 2021
    ...and rebate claims that the manufacturer had owed to the dealers on earlier RV sales. See KR Enterprises, Inc. v. Zerteck, Inc., 461 F. Supp. 3d 825 (N.D. Ind. The defendant dealers have appealed, arguing they owe nothing for the RVs they received, at least not to this plaintiff. The secured......

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