Shepard & Assocs. v. Lokring Tech.
| Decision Date | 23 September 2021 |
| Docket Number | 1:20-cv-2488 |
| Parties | Shepard and Associates, Inc., et al., Plaintiffs, v. Lokring Technology LLC, Defendant. |
| Court | U.S. District Court — Northern District of Ohio |
Currently pending is the Motion of Plaintiffs Shepard and Associates Inc. (d/b/a Lokring Southwest Company) and Brad Shepard to Join a Required Party pursuant to Fed.R.Civ.P. 19(a). (Doc No. 76.) Defendant Lokring Technology, LLC filed a Brief in Opposition on August 27, 2021, to which Plaintiffs replied on August 31, 2021. (Doc. Nos. 81, 82.) For the following reasons, Plaintiffs' Motion is DENIED.
In 2003, Joe Shepard, father of Plaintiff Brad Shepard, formed Lokring Southwest Company (hereinafter “Southwest) to act as an exclusive distributor for Defendant Lokring Technology LLC (“Lokring”).[1] (Doc. No. 41 at ¶ 7.) Lokring and Southwest entered into a written agreement for Southwest to act as an exclusive distributor for portions of the southwestern United States. (Id. at ¶ 11.) As a Lokring distributor, Southwest would purchase Lokring products at a stated price and mark up the price for resale to customers, keeping the margin as its profit. (Id. at ¶ 9.) Either party had the right to terminate the distributorship “for any reason.” (Id. at ¶11.) Upon termination, Lokring had the option, but not the obligation, to repurchase some or all of Southwest's inventory. (Id.)
In 2015, Lokring approached Joe Shepard to propose that he establish a new distributorship in the southeastern United States. (Id. at ¶ 17.) Joe Shepard then moved to Florida to establish a new exclusive distributorship as Joe Shepard & Associates, Inc., while at the same time operating Southwest, with the assistance of his son, Brad Shepard, who was a Southwest employee. (Id. at ¶ 18.) After Joe Shepard made the southeast distributorship operational, Lokring advised him that he could not hold two distributorships. (Id. at ¶ 19.)
Subsequently, Joe Shepard advised Lokring that he would be willing to finance the purchase of Southwest by his son. (Id. at ¶ 20.) Pursuant to the terms of the distributorship agreement, such a purchase of a Lokring distributorship by a third party required Lokring's approval. (Id. at ¶ 21.) In 2016, after extended negotiations, Lokring subsequently approved the sale of Southwest's shares to Brad Shepard. (Id. at ¶ 30; Doc. No. 41-3.)
Southwest and Lokring also entered into an Amended & Restated Lokring Exclusive Distributor Agreement (“Distributor Agreement”), dated April 25, 2016. (Doc. No. 41 at ¶ 32; Doc. No. 41-4.) Like the previous Distributor Agreement, the April 2016 Distributor Agreement provides that the agreement “may be terminated by either party for any reason by giving the other party written notice thirty (30) days in advance.” (Doc. No. 41-4 at Section 12.2.) It also contains provisions relating to the repurchase of inventory and tooling upon termination, as well as the same types of requirements and restrictions regarding the promotion and sale of Lokring's products noted above. (Id. at Sections 5, 6, 12.5(c), (d)).
Additionally, according to Lokring, the Distributor Agreement had various Appendices, including a Distributor Confidentiality and Non-Competition Agreement (“NDA”) and Distributor Employee Confidentiality and Non-Competition Agreement (“ENDA”). (Doc. No. 61 at ¶ 16; Doc. No. 9-1 at PageID#s 282-288; Doc. No. 9-3 at PageID#s 295-301.) Lokring alleges that Plaintiffs executed the NDA. (Doc. No. 61 at ¶¶ 16, 18.)
Plaintiffs allege that, after Brad Shepard became the owner of Southwest in 2016, he continued to grow the business and, at Lokring's insistence, invested hundreds of thousands of dollars in Lokring tooling and equipment (some of which was defective and had to be returned to Lokring for refurbishing), established a sales force, leased facilities to accommodate the growing business, and purchased vehicles and equipment to service Southwest's customers. (Doc. No. 41 at ¶¶ 34, 3537.) Among other things, in February 2019, Shephard hired Jared Guidry as a Technical Sales Consultant for Southwest, with a start date of March 1, 2019. (Doc. No. 61 at ¶ 19.) Lokring alleges, “upon information and belief, ” that Guidry signed an ENDA and agreed to be bound thereby. (Id. at ¶ 22.)
In May 2020, Joe Shepard announced his retirement as a Lokring distributor. (Doc. No. 41 at ¶ 41.) In response, Lokring asked him if the successor to his distributorship could purchase the business from him in order to duplicate the structure of Brad Shepard's purchase of Southwest where Joe Shepard financed the transition, which would prevent Lokring from having to outlay any money to repurchase inventory and tooling. (Id. at ¶ 42.) Although it upset Lokring's owner, Bill Lennon, Joe Shepard declined to participate in such a transaction. (Id. at ¶¶ 43-44.) As a result, after Lokring terminated Joe Shepard & Associates, Inc.'s southeast distributorship, it was forced to repurchase most of the inventory for resale to Joe Shepard's successor. (Id. at ¶ 45.)
On September 21, 2020, although Lennon had informed Brad Shepard that he was doing a “great job” only months before, Lokring notified Brad Shepard that it was terminating Southwest's distributorship. (Id. at ¶¶ 46, 48; Doc. No. 41-5.) At that time, Brad Shepard still owed hundreds of thousands of dollars to Joe Shepard on the promissory note for his purchase of Southwest. (Doc. No. 41 at ¶ 47.) Lokring did not provide a reason for its decision. (Id. at ¶ 49.)
The April 2016 Distributorship Agreement terminated on October 21, 2020. (Doc. No. 61 at ¶ 76.) Lokring alleges that Guidry's employment with Plaintiffs ended on that same date. (Id. at ¶ 95.) Following his termination, Guidry commenced employment with Tube-Mac, a direct competitor of Lokring. (Id. at ¶ 96.) According to Lokring, Plaintiffs and Guidry then created and implemented a scheme to interfere with Lokring's business by diverting Lokring's customers to Tube-Mac. (Id. at ¶ 93.)
Meanwhile, Plaintiffs and Lokring became embroiled in a dispute over Plaintiff's inventory and tools. Lokring alleges that, based on an inspection conducted on October 24, 2020, it offered to pay Plaintiffs $963, 590.29 for their inventory and tools.[2] (Doc. No. 61 at ¶ 82, 83.) According to Plaintiffs, however, the full value for Southwest's inventory and tooling is approximately $1, 350, 000. (Doc. No. 41 at ¶ 52.) Plaintiffs allege that Lokring has wrongfully refused to pay this full amount without demanding a release, in violation of the April 2016 Distributor Agreement. (Id.) Lokring, on the other hand, alleges that Plaintiffs have improperly refused to return the inventory and that this refusal is “part of Plaintiffs' scheme to solicit Lokring's customers and cause damage to the latter's business.” (Doc. No. 61 at ¶ 89, 91.)
In the midst of this ongoing dispute, Lokring appointed Alba Pipework (“Alba”) as its new exclusive distributor for the region previously serviced by Plaintiffs. (Doc. No. 76-1 at ¶ 11.) Alba Pipework is a Texas limited liability company that maintains its principal place of business in Austin, Travis County, Texas. (Id. at ¶ 1.) According to Alba, it identified itself as the new Lokring distributor and provided correct payment information to Lokring's customers. (Id. at ¶ 13.) Alba claims, however, that “[s]ome of Lokring's customers to which Alba Pipework has sold Lokring's products have mistakenly forwarded payment for the purchases from Alba Pipework to [Shepard & Associates].” (Id.) Specifically, Alba claims that Plaintiffs have acknowledged receipt of customer funds for the sales made by Alba Pipework in the amount of $239, 439.92. (Id. at ¶ 15.) Alba states that, “[d]espite demand and without justification, [Shepard & Associates] has failed and refused to turn over the money to Alba Pipework.” (Id. at ¶ 17.)
On November 3, 2020, Plaintiffs filed a Complaint in this Court against Lokring. (Doc. No. 1.) Shortly thereafter, on November 12, 2020, Plaintiffs filed an Amended Complaint, setting forth the following causes of action: (1) breach of contract, (2) breach of fiduciary duty, (3) unjust enrichment, (4) intentional interference with contract, and (5) equitable estoppel. (Doc. No. 5.)
Lokring filed a Motion to Dismiss, seeking the dismissal of all claims in Plaintiffs' Amended Complaint for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6), which Plaintiffs opposed. (Doc. Nos. 6, 7.) In addition, and while Lokring's Motion to Dismiss was still pending, Lokring filed an Emergency Motion to Enforce the Contracts in which it asserted that Plaintiffs had failed to return Southwest's inventory as required under the Distributor Agreement and should be ordered to do so by the Court. (Doc. No. 9.) Plaintiffs opposed the Motion. (Doc. No. 10.)
On March 19, 2021, this Court issued a Memorandum Opinion & Order, in which it denied Lokring's Emergency Motion to Enforce the Contracts on the basis that Lokring had not filed any counterclaims against Plaintiffs regarding their alleged breach of the Distributorship Agreement. (Doc. No. 13 at pp. 7-11.) With regard to Lokring's Motion to Dismiss, the Court (1) denied Lokring's Motion with regard to Plaintiff's claims for breach of contract and breach of fiduciary duty; and (2) granted the Motion with regard to Plaintiff's unjust enrichment, intentional interference with contract, and equitable estoppel claims. (Id. at pp. 11-27.)
A flurry of complaints and counterclaims followed the Court's ruling. On March 25, 2021, Lokring filed Counterclaims against Plaintiffs for (1) breach of the April 2016 Distributor...
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