Pipe Restoration Techs., LLC v. Coast Bldg. & Plumbing, Inc.
| Decision Date | 16 November 2018 |
| Docket Number | Case No. 8:13-cv-00499-JDE |
| Court | U.S. District Court — Central District of California |
| Parties | PIPE RESTORATION TECHNOLOGIES, LLC, a Nevada Limited Liability Company; ACE DURAFLO SYSTEMS, LLC, a Nevada Limited Liability Company; and PIPE RESTORATION, INC., a California Corporation, Plaintiffs, v. COAST BUILDING & PLUMBING, INC., a California Corporation d/b/a PIPELINE RESTORATION, PIPE RESTORATION SERVICES, and PIPELINE RESTORATION SERVICES, INC; ROY TERRY, an individual; and DOES 1 through 10, inclusive, Defendants. |
FINDINGS OF FACT AND CONCLUSIONS OF LAW FOLLOWING TRIAL PURSUANT TO RULE 52(a)
Date: June 5, 2018
Time: 9:00 a.m.
The above-entitled action came on for a bench trial commencing on June 5 and concluding on June 8, 2018. Pursuant to Rule 52(a) of the Federal Rules of Civil Procedure and Local Rule 52-1, based upon the evidence presented at trial and the arguments of counsel for the parties in pretrial filings and at trial, the Court makes the following findings of fact and conclusions of law.
1. The Plaintiffs in this case are Pipe Restoration Technologies, LLC, ACE Duraflo Systems, LLC, and Pipe Restoration, Inc. (collectively, "Plaintiffs"). Final Pretrial Conference Order (Dkt. 257, "FPTCO"), § V, Admitted Facts.
2. The Defendants are Roy Terry ("Terry") and Pipeline Restoration Plumbing, Inc. ("PRPI") (collectively, "Defendants"); Terry is the founder, sole shareholder and only officer of PRPI. Id.
3. Plaintiffs and Defendants compete for pipe restoration work involving the use of epoxy in small diameter, potable plumbing applications in residential properties in Orange County. Id.
4. Plaintiffs have been in the epoxy pipe restoration business since the late 1990s. In approximately October 2008, Defendants began providing epoxy pipe restoration services in Southern California. Id.
5. Generally, the epoxy small diameter pipe restoration process used by both Plaintiffs and Defendants involves the following steps applied to a piping system: (1) isolate the piping system; (2) dry the interior of the piping system by applying air into the system; (3) clean the interior of the piping system by applying air with an abrasive medium into the system; and (4) apply a liquid epoxy to the interior of the piping system by blowing the epoxy into the system. The epoxy dries, resulting in a new epoxy pipe layer covering the entire interior of the piping system. Id.
6. In 2008, Terry, whose background is in plumbing and construction, became interested in the epoxy pipe restoration business. While researching the process, Defendants purchased a package of equipment to perform epoxy pipe restoration services for $35,000, which included a large number of cases of epoxy known as AquataPoxy A-61 ("AquataPoxy"). Reporter's Transcript of Court Trial ("RT") 6/5/18, Volume ("Vol.") II, 90:13-19; 91:12-19; 92:19-93:14.
7. In addition to investing in the equipment and a lease, Defendants purchased parts and specialized equipment, resulting in a total initial investment of over $100,000. RT 6/5/18, Vol. II, 95:19-96:20.
8. After being advised they would be unable to purchase more AquataPoxy, Defendants investigated using epoxy manufactured by 3M. RT 6/5/18, Vol. II, 97:5-12.
9. Epoxy used for drinking water systems must be certified for use in one-half inch or larger pipes, including hot water pipes, pursuant to NSF/ANSI Standard 61 ("NSF Standard 61"). RT 6/5/18, Vol. I, 17:16-21; 20:3-8; 40:4-19; 41:7-42:1; RT 6/7/18, Vol. I, 6:24-7:11.
10. Beginning in late 2008, Defendants began advertising and performing single line pipe restoration services in Orange County using a 3M epoxy known as 162PWX. RT 6/5/18, Vol. II, 97:13-98:4; 102:2-10; RT 6/6/18, Vol. I, 12:4-18; 14:13-19; 15:8-15.
11. Since at least October 6, 2008 and continuing through the time of trial, one or more of Defendants' websites have stated that the epoxy used in their epoxy pipe restoration services was certified to NSF Standard 61. FPTCO § V, Admitted Facts; RT 6/5/18, Vol. I, 41:9-42:1.
12. From the time Defendants began performing single line epoxy pipe restoration services in late 2008 until Defendants started using AquataPoxy in early 2009, the 3M epoxy 162PWX was not certified under NSF Standard 61 for use in half-inch hot water potable pipe, although it did have a certification for use in one-inch cold water pipes. RT 6/5/18, Vol. I, 21:13-15; 47:12-16.
13. A representative of 3M told Terry that the 162PWX epoxy was suitable for use in the applications to which Defendants planned to use it. RT 6/5/18, Vol. II, 97:13-100:7. 14. Defendants knew the 3M epoxy it was using in late 2008 and early 2009 was not NSF Standard 61 certified for use in half-inch hot water pipes. RT 6/5/18, Vol. I, 45:20-25.
15. Some time after January 6, 2009, the date Defendants first ordered AquataPoxy for purchase from a dealer, Defendants stopped using 3M epoxy and started using AquataPoxy. RT 6/6/18, Vol. I, 15:12-15; 18:23-25; 19:12-16; 20:6-7; Trial Exhibit ("Exh.") 519 at 5.
16. Defendants reviewed and relied upon a Certificate of Listing ("Listing") for AquataPoxy issued by IAPMO Research and Testing, Inc. ("IAPMO") stating that AquataPoxy was certified under NSF Standard 61 for use in half-inch hot water pipes. RT 6/6/18, Vol. I, 17:8-18:11; 19:17-20:5; Exh. 132.
17. Terry was told by the owner of CuraFlo and on that basis understood that AquataPoxy and CuraPoxy were epoxy products manufactured by the same company and contained the same materials, but were simply labelled differently. RT 6/6/18, Vol. I, 20:11-16; 22:3-7.
18. On October 29, 2009, after Terry asked a representative of Cohesant, the manufacturer/distributor of AquataPoxy, about the significance of changes in AquataPoxy's packaging, Terry was initially advised by the manufacturer that the "product has not changed," but one day later was advised that AquataPoxy was "no longer certified to commercial hot . . . Due to the expense(s) associated with maintaining the commercial hot certification." RT 6/6/18, Vol. I, 23:10-19; 24:14-21; 25:9-23; Exh. 52.
19. Terry did not believe the information provided by Cohesant because the IAPMO Listing still identified AquataPoxy as certified under NSF Standard 61 for half-inch hot water use, and as a result continued to use AquataPoxy or CuraPoxy, which he understood was materially chemically identical to AquataPoxy. RT 6/6/18, Vol. I, 20:11-16; 24:7-21; 25:9-23; 27:14-28:1.
20. In 2011, Terry contacted Truesdail Laboratories, Inc. ("Truesdail") regarding testing of two 3M epoxy products that Terry intended to rebrand: 3M 162PWX and 3M 323PWX, which Terry intended to re-brand as AirKote 100 and AirKote 300, respectively. RT 6/5/18, Vol. I, at 88:23-89:1; RT 6/6/18, Vol. I, 29:3-30:16.
21. On August 31, 2011, Truesdail advised Defendants by letter that AirKote 100 and AirKote 300 had been tested and were found to be in compliance with NSF Standard 61 for use in half-inch hot water pipe. Exh. 235. The actual certification paperwork from Truesdail was delayed, in part, because Truesdail did not have the proper paper stock for the certificate. Exh. 38 at 1.
22. At some point after August 31, 2011, when Terry understood Truesdail to have certified the AirKote products as compliant with NSF Standard 61, Defendants stopped using AquataPoxy and began using AirKote 100 and AirKote 300, the rebranded 3M products, in its pipe restoration projects. RT 6/6/18, Vol. I, 38:18-39:14.
23. On October 28, 2013, Terry was advised that Truesdail intended to delist the epoxies because there were discrepancies in Truesdail's testing. Exh. 65; RT 6/6/18, Vol. I, 42:4-15.
24. On October 28, 2013, in response to the statement from Truesdail, Terry telephonically directed his staff to stop using the AirKote/3M epoxy materials and instead use remaining stocks of AquataPoxy in pipe restoration projects. RT 6/6/18, Vol. I, 42:21-43:6.
25. In late 2013, Defendants submitted the AirKote 100 and AirKote 300 products, identical to 3M 162PWX and 3M 323PWX, respectively, for testing to IAPMO (RT 6/6/18, Vol. I, 43:14-21; 45:1-4). On December 12, 2013, IAPMO issued a test report stating that the AirKote 100 epoxy complied with NSF Standard 61 for domestic hot water, but did not comply with immediate return to service standards (Exh. 120); on December 16, 2013, IAPMO issued atest report stating that AirKote 100 epoxy complied with NSF Standard 61 for use in domestic hot water at an exposure rate of 490 in2/liter (Exh. 68).
26. At the time Defendants received the IAPMO testing results in December 2013, a representative of IAPMO told Terry that based upon the passing test, a certification would be issued. Based upon that assurance, Defendants began using the AirKote epoxy products again in pipe restoration projects. RT 6/6/18, Vol. I, 46:11-47:15.
27. IAPMO issued a Listing for the AirKote epoxy products effective from: May 2014 to May 2015 (Exh. 624); May 2015 to May 2016 (Exh. 659); May 2016 to May 2017 (Exh. 625); and May 2017 to May 2018 (Exh. 626).
28. In June and July 2014, an issue arose regarding IAPMO's compliance with its own internal certification procedures that caused IAPMO to question AirKote listings pending a site inspection of the location where the products were manufactured. The issue was resolved after IAPMO conducted a site visit at the 3M plant in England where the epoxy products were manufactured. RT 6/5/18, Vol. II, 58:10-19, 60:1-6, 69:16-71:1. Terry did not understand that the issues IAPMO had regarding its internal certification procedures had any impact on the existing certificate he had for the AirKote products. RT 6/6/18, Vol. I, 49:12-23; 86:19-88:19.
29. Defendants received revenue of $5,875 in 2008 and $3,685 from January 1 to January 13, 2009 in connection with single line epoxy pipe restoration projects. RT 6/5/18, Vol. II, 86:4-13; Exhibit A to Exh. 527 at 5.
30. Defendants had no documentary...
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