United States District Court, S.D. Indiana, Indianapolis Division
BEIJING AUTOMOTIVE INDUSTRY IMPORT AND EXPORT CORPORATION, Plaintiff/Counter-Defendant,
INDIAN INDUSTRIES, INC. d/b/a ESCALADE SPORTS, Defendant/Counter-Plaintiff.
JANE MAGNUS-STINSON, District Judge.
Plaintiff Beijing Automotive Industry Import and Export Corporation ("BAIEC") initiated this lawsuit against Defendant Indian Industries, Inc. d/b/a Escalade Sports ("Escalade") after a ten-year business relationship between the two entities deteriorated. Presently pending before the Court is BAIEC's Motion for Summary Judgment. [Filing No. 68.]
STANDARD OF REVIEW
A motion for summary judgment asks the Court to find that a trial is unnecessary because there is no genuine dispute as to any material fact and, instead, the movant is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(a). As the current version of Rule 56 makes clear, whether a party asserts that a fact is undisputed or genuinely disputed, the party must support the asserted fact by citing to particular parts of the record, including depositions, documents, or affidavits. Fed.R.Civ.P. 56(c)(1)(A). A party can also support a fact by showing that the materials cited do not establish the absence or presence of a genuine dispute or that the adverse party cannot produce admissible evidence to support the fact. Fed.R.Civ.P. 56(c)(1)(B). Affidavits or declarations must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant is competent to testify on matters stated. Fed.R.Civ.P. 56(c)(4). Failure to properly support a fact in opposition to a movant's factual assertion can result in the movant's fact being considered undisputed, and potentially in the grant of summary judgment. Fed.R.Civ.P. 56(e).
In deciding a motion for summary judgment, the Court need only consider disputed facts that are material to the decision. A disputed fact is material if it might affect the outcome of the suit under the governing law. Hampton v. Ford Motor Co., 561 F.3d 709, 713 (7th Cir. 2009). In other words, while there may be facts that are in dispute, summary judgment is appropriate if those facts are not outcome determinative. Harper v. Vigilant Ins. Co., 433 F.3d 521, 525 (7th Cir. 2005). Fact disputes that are irrelevant to the legal question will not be considered. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed. 202 (1986).
On summary judgment, a party must show the Court what evidence it has that would convince a trier of fact to accept its version of the events. Johnson v. Cambridge Indus., 325 F.3d 892, 901 (7th Cir. 2003). The moving party is entitled to summary judgment if no reasonable factfinder could return a verdict for the non-moving party. Nelson v. Miller, 570 F.3d 868, 875 (7th Cir. 2009). The Court views the record in the light most favorable to the non-moving party and draws all reasonable inferences in that party's favor. Darst v. Interstate Brands Corp., 512 F.3d 903, 907 (7th Cir. 2008). It cannot weigh evidence or make credibility determinations on summary judgment because those tasks are left to the fact-finder. O'Leary v. Accretive Health, Inc., 657 F.3d 625, 630 (7th Cir. 2011). The Court need only consider the cited materials, Fed.R.Civ.P. 56(c)(3), and the Seventh Circuit Court of Appeals has "repeatedly assured the district courts that they are not required to scour every inch of the record for evidence that is potentially relevant to the summary judgment motion before them, " Johnson, 325 F.3d at 898. Any doubt as to the existence of a genuine issue for trial is resolved against the moving party. Ponsetti v. GE Pension Plan, 614 F.3d 684, 691 (7th Cir. 2010).
The Court notes at the outset that Escalade has not complied with Local Rule 56-1(b), which provides that a response to a motion for summary judgment "must include a section labeled Statement of Material Facts in Dispute' that identifies the potentially determinative facts and factual disputes that the party contends demonstrate a dispute of fact precluding summary judgment." While Escalade includes a section titled "Statement of Material Facts in Dispute" in its response brief, [Filing No. 86 at 16-17], that section simply lists eight issues that Escalade claims are in dispute. [ See, e.g., Filing No. 86 at 17 ("Whether Escalade's requests to BAIEC for assurances over the course of January 2013 were adequate' based on the factual conditions").] Escalade does not identify specific facts set forth by BAIEC that it contends are in dispute, as required by Local Rule 56-1(b). Instead, it provides its own version of events in a section titled "Background Facts." [Filing No. 86 at 2-16.] Escalade's approach does not comply with Local Rule 56-1(b), and has made review of the motion unnecessarily cumbersome. Escalade should ensure that it complies with this rule in the future.
The Court has attempted to sift through Escalade's version of events, determine which facts set forth by BAIEC it disputes, and construe disputed facts in Escalade's favor when Escalade has provided citations to evidence in the record. But failure to comply with Local Rule 56-1(b) can result in a concession of the movant's version of events. See, e.g., Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 922 (7th Cir. 1994) (the Seventh Circuit has "repeatedly upheld the strict enforcement of these rules, sustaining the entry of summary judgment when the non-movant has failed to submit a factual statement in the form called for by the pertinent rule and thereby conceded the movant's version of the facts").
The Court finds the following to be the undisputed facts, supported by proper citation to admissible evidence in the record:
A. BAIEC and Escalade Begin Their Business Relationship
BAIEC is a Chinese company engaged in the business of supplying sports and other equipment to customers in the United States. [Filing No. 72-1 at 1-2.] Escalade is an American company that sells sports and other equipment in the United States. [Filing No. 72-1 at 2.] Escalade originally manufactured its basketball products domestically, but in 2005 it realized that in order to remain competitive, it would need to shift its basketball manufacturing operations to China. [Filing No. 86-1 at 3.] As part of that shift, Escalade sought the assistance of a Chinese entity to "facilitate the development and operation of its Chinese supply chain to manufacture in-ground basketball systems." [Filing No. 86-1 at 3.] Escalade had previously worked with Jian Qian Wang, also known as John Wei, to source Chinese parts for its table tennis and billiards products. [Filing No. 86-1 at 3.] Mr. Wei owns a company in Hong Kong called Expert Base Limited ("Expert Base"), and Expert Base works as a sales representative for BAIEC. [Filing No. 72-2 at 3.] Mr. Wei is also an Assistant General Manager of BAIEC. [Filing No. 72-2 at 3.]
Escalade retained BAIEC to assist it in "developing and operating a supply chain to manufacture in-ground basketball systems and export those systems to the United States for sale to Escalade's retail customers." [Filing No. 86-1 at 3.] Escalade "relied on BAIEC to ensure [its] Chinese supply chain ran smoothly, to facilitate communications between the various links in the chain, and to handle problems as they arose." [Filing No. 86-1 at 3.]
Mr. Wei and Expert Base worked on the Escalade account. [Filing No. 72-2 at 3.] Specifically, Mr. Wei was responsible for negotiating and fulfilling purchase order contracts ("POCs") whereby Escalade would purchase sporting goods equipment manufactured in China from BAIEC, including basketball equipment, tennis kits, and pool tables. [Filing No. 72-2 at 3.] Included in that equipment were Goalrilla, Silverback, and Goliath basketball systems and accessories, and these products are the subject of this lawsuit. [Filing No. 72-2 at 3-4.] Mr. Wei was also involved with developing new products, developing the procedure for producing the products, and quality control of the products. [Filing No. 72-2 at 3.] Over the course of the relationship between the two entities, Escalade dealt almost exclusively with Mr. Wei. [Filing No. 86-1 at 3.]
The usual course of business between the entities involved Escalade sending purchase orders electronically to BAIEC which described the equipment to be purchased and the price and arrival date. [Filing No. 72-2 at 4.] The purchase orders stated that they were subject to the terms of a Vendor Partnership Guide. [ See, e.g., Filing No. 72-4 at 2.] BAIEC would accept the purchase orders by signing them and returning them to Escalade within a day or two. [Filing No. 72-2 at 4.] The purchase orders then became POCs and were marked "FIRM ORDER." [Filing No. 72-2 at 4.] BAIEC and Escalade did not have a written contract that specified the terms of their agreement - the POCs were the only written contracts. [Filing No. 72-2 at 4.] The POCs contained the following language: "This is a FIRM ORDER. Please sign, date, and fax this back to [Escalade] acknowledging your acceptance of the terms, quantity, price, ship date, and additional terms/conditions outlined in Escalade's Vendor Partnership Guide." [ See, e.g., Filing No. 72-4 at 2.] The Vendor Partnership Guide provides, in relevant part:
DELIVERY/CANCELLATION:... If deliveries of materials or services are not made as specified, or if all specifications are not fulfilled, or if our requirements change, we reserve the right, without liability and in addition to any other rights and remedies, to cancel any part or all of our purchase orders by notice to you as to items not shipped and to purchase substitute items elsewhere, in which event you shall reimburse us for all additional costs and expenses incurred within seven (7) days of our notice to you of such additional costs and expenses.
[Filing No. 72-5 at 8.] Escalade believes it provided BAIEC with a copy of the Vendor Partnership Guide in the course of their relationship, [Filing No. 94-2 at 26], but BAIEC denies having received that document prior to discovery in this case, [Filing No. 72-2 at 4].
BAIEC retained several factories (the "Component Factories") to manufacture certain components of the basketball systems is purchased, such as the glass backboards, nets, pole padding, and actuator (which raises and lowers basketball goals with adjustable height settings). [Filing No. 86-1 at 4.] Those component parts were paid for with BAIEC's money, then shipped to Tangshan Lai Yuan Metal Products Co., Ltd. ("Lai Yuan"), a factory responsible for manufacturing the steel components of the basketball system, assembling all of the components into the finished basketball system, and transporting the systems to port for shipment to Escalade in the United States. [Filing No. 72-2 at 5; Filing No. 86-1 at 4.] BAIEC worked with Lai Yuan to assure its production process met Escalade's engineering specifications. [Filing No. 72-2 at 4.] BAIEC did not have a written agreement with Lai Yuan, however. [Filing No. 72-2 at 4.] Lai Yuan was the key supplier in Escalade's basketball supply chain, and BAIEC acknowledges this because BAIEC had trained its employees and had "established some kind of a trust or system." [Filing No. 94-3 at 22-23.]
From the time Escalade placed a purchase order with BAIEC and the order was accepted, it generally took 90-120 days for the basketball systems in that purchase order to be manufactured, assembled, and then delivered to the United States. [Filing No. 86-1 at 4.] Based on their usual course of business, Escalade would wire payment to BAIEC within approximately seven days after shipment of the goods from port. [Filing No. 72-2 at 5.] Lai Yuan would send BAIEC invoices within a day or two of shipment of the goods, and BAIEC would pay Lai Yuan within sixty days of shipment (which later changed to thirty days). [Filing No. 72-2 at 5.] BAIEC was required to pay the Component Factories within sixty days after the Component Factories shipped the component parts to Lai Yuan (or often within thirty days) pursuant to a long-standing oral agreement between them. [Filing No. 72-2 at 6.] BAIEC routinely paid Lai Yuan and the Component Factories on time. [Filing No. 72-2 at 6.]
When BAIEC first began using Lai Yuan to manufacture the equipment for Escalade's POCs, Escalade was ordering, on average, approximately $5.5 million in products annually from BAIEC. [Filing No. 86-1 at 5.] By 2012, Escalade's orders had grown to over $10 million annually. [Filing No. 86-1 at 5.]
B. The Relationship Between BAIEC and Escalade Begins to Deteriorate
Lai Yuan and BAIEC had worked together without a written contract for many years, but in 2010 Lai Yuan requested that the parties enter into a written contract. [Filing No. 94-5 at 9-11.] Lai Yuan's payment from BAIEC was "very undefined" without a written contract, and as Lai Yuan began producing a larger quantity of products, it wanted a written agreement that governed payment to protect itself. [Filing No. 94-5 at 11-12.] Further exacerbating Lai Yuan's concerns, Lai Yuan had been under the impression that Escalade was paying it directly, but learned in 2010 that it was actually being paid from a Hong Kong bank account controlled by Mr. Wei. [Filing No. 94-5 at 12-13.] Additionally, Lai Yuan had been under the impression that Escalade would not pay for replacement parts, but had found out by 2012 that Escalade was paying BAIEC for 90% or more of the replacement parts Lai Yuan provided, but BAIEC was not passing that payment on to Lai Yuan. [Filing No. 94-5 at 32.] Finally, BAIEC had threatened Lai Yuan in 2012 to move the steel manufacturing and assembling business to another factory, although BAIEC did not have another factory ready to take over production at that point. [Filing No. 94-3 at 51-54.] Despite Lai Yuan's concerns, in 2012 Mr. Wei informed Qing Zhong Yu, the co-owner and General Manager of Lai Yuan, that a written agreement would not be forthcoming. [Filing No. 86-7 at 1; Filing No. 94-5 at 16-17.]
In September 2012, Safari Chung, head of Escalade's Shanghai, China office and Escalade's Chinese supply chain, received a visit from Mr. Yu. [Filing No. 86-7 at 2.] Mr. Yu informed Mr. Chung that Lai Yuan was dissatisfied with the existing relationship between Lai Yuan and BAIEC/Mr. Wei. [Filing No. 86-7 at 2.] Specifically, Mr. Yu complained that:
Lai Yuan did not have a written agreement with any entity relating to its production of basketball systems that were ultimately sold to Escalade;
Lai Yuan's relationship was not with BAIEC, but was with Mr. Wei and Expert Base;
Due to the lack of a formal agreement, Lai Yuan had no formal payment schedule or legal documents on which to rely if BAIEC/Mr. Wei failed to pay Lai Yuan for goods produced for Escalade; and
Mr. Wei had lied to Lai Yuan when he said it was being paid directly by Escalade when, in fact, Mr. Wei received payment from Escalade and then paid Lai Yuan out of the proceeds from Expert Base's bank account.
[Filing No. 86-7 at 2-3.] Mr. Yu also told Mr. Chung that Lai Yuan had expressed these concerns to Mr. Wei numerous times over the years, but that Mr. Wei would not address them, and that Lai Yuan would not continue to do business under the existing arrangement. [Filing No. 86-7 at 3.] Because Escalade's annual orders had grown to over $10 million by 2012, Mr. Yu was particularly concerned that Lai Yuan would not have any recourse if it was not paid. [Filing No. 86-1 at 5; Filing No. 94-5 at 17-18.]
Mr. Chung contacted James Allshouse, Vice President of Operations in Product Development for Escalade. [Filing No. 86-1 at 2; Filing No. 86-1 at 5.] Mr. Chung passed on Mr. Yu's concerns to Mr. Allshouse, including that Lai Yuan would not continue doing business under the existing arrangement. [Filing No. 86-1 at 5.] This was the first time that either Mr. Chung or Mr. Allshouse were aware of any issues between Lai Yuan and BAIEC/Mr. Wei. [Filing No. 86-1 at 5; Filing No. 86-7 at 3.] Mr. Allshouse took Lai Yuan's complaints and statement that it would not continue to do business under the current arrangement very seriously. [Filing No. 86-1 at 6.] This was because Lai Yuan was the final link in Escalade's supply chain, and because Mr. Allshouse believed it would take six months to a year to find an adequate replacement for Lai Yuan in the supply chain. [Filing No. 86-1 at 6.] Mr. Allshouse asked Mr. Chung to set up a meeting with Lai Yuan's owners to discuss the situation. [Filing No. 86-7 at 3.]
Escalade did not know whether Lai Yuan's complaints were valid, but was concerned. [Filing No. 86-1 at 8.] Immediately after his initial meeting with Mr. Yu, Mr. Chung began communicating with Mr. Yu regarding obtaining pricing quotes for certain products, including table tennis and basketball systems, if Lai Yuan were to provide them directly to Escalade without BAIEC's involvement. [ See Filing No. 72-11 (September 19, 2012 email from Mr. Chung to Mr. Yu requesting price quotes).] These communications regarding price quotes continued for several months. [ See Filing No. 72-12 (November 2 and November 3, 2012 email chain between David Fetherman (President of Escalade's Sports Division), Mr. Allshouse, and Mr. Chung regarding price quotes from Mr. Yu).] In the meantime, Escalade continued to enter into POCs with BAIEC and to pay BAIEC for the products that it delivered. [Filing No. 86-1 at 7.]
C. December 3, 2012 Meeting Between Escalade and Lai Yuan
On December 3, 2012, Mr. Allshouse, Mr. Chung, and Mr. Yu met in China to address Lai Yuan's concerns with BAIEC and Mr. Wei. [Filing No. 86-7 at 3.] Mr. Yu reiterated the same complaints he had raised with Mr. Chung at their earlier meeting, and again said that if the arrangement did not change, Lai Yuan would not continue doing business with BAIEC and Mr. Wei. [Filing No. 86-7 at 3.]
For the remainder of December 2012, Mr. Allshouse researched whether Escalade could work directly with Lai Yuan. [Filing No. 86-1 at 7.] He was concerned about BAIEC's reaction when it learned of Lai Yuan's complaints, and "wanted to be prepared for the worst case scenario." [Filing No. 86-1 at 7.] Mr. Allshouse explored shifting future purchase orders directly to Lai Yuan, but keeping BAIEC involved to supervise quality control and expedite shipping. [Filing No. 86-1 at 7.] Mr. Allshouse also requested that Lai Yuan provide Escalade with price quotations for the basketball products it was to produce, and "discussed how a direct relationship between Escalade and Lai Yuan would function if Escalade chose to no longer do business with BAIEC and Mr. Wei." [Filing No. 86-1 at 7.] A December 5, 2012 email from Mr. Allshouse to Mr. Fetherman indicates that the two were speculating regarding BAIEC's profit margin and what was "an acceptable fee to manage the business." [Filing No. 70-1 at 2.]
Mr. Chung was also concerned that BAIEC would disrupt Escalade's supply chain, and recommended to Mr. Allshouse on several occasions that Escalade sever ties with BAIEC and Mr. Wei because he "did not trust them, " and "believed [they] would retaliate against Lai Yuan and/or Escalade if they believed they were going to lose Escalade's future business." [Filing No. 86-7 at 4.] Mr. Chung sent Ms. Allshouse a December 13, 2012 email which contained the subject line "Lai Yuan versus BAEIC" and attached a document with the same title. [Filing No. 70-2 at 2.] The printed email contains a handwritten note that says "First Direct Comparison of Prices." [Filing No. 70-2 at 2.]
On December 14, 2012, Evan Lederman, Category Manager-Sports for Escalade, emailed Mr. Wei and stated, "As one of our biggest vendors, [Mr. Fetherman and Mr. Allshouse] would like to sit down with you in Evansville to discuss the state of both of our businesses. No hidden agenda at all. They are meeting with all of our vendors. Please give me some dates that you could come in for a day." [Filing No. 70-7 at 4.] They eventually set the meeting up for January 4, 2013 in Evansville. [Filing No. 70-7 at 2-3.]
On December 15, 2012, Mr. Allshouse emailed Mr. Chung to advise him that a meeting with Mr. Wei was being scheduled, and to request that Mr. Chung ask Mr. Yu about Lai Yuan's accounts receivables from BAIEC and the prices BAIEC pays the factory for each item. [Filing No. 75-1 at 1-2.] Mr. Allshouse stated: "We need this information to understand the best timing to shut off [Mr. Wei]. (we believe it is now...). We also need it to protect the factory. We believe that worst case, we'll tell John that we'll pay for all POs that have shipped, but we are paying the factory direct and then paying you. The balance of the POs will be cancelled for BAIEC and reissued directly to the factory." [Filing No. 75-1 at 2.] Mr. Allshouse requested that the "banking information and all documents" be signed and ready by the January 4 meeting with Mr. Wei. [Filing No. 75-1 at 2.]
Mr. Chung responded to Mr. Allshouse on December 17, 2012, stating "[n]eed to discuss the details about how...we want to proceed with the termination and Lai Yuan still can [be] producing for us without any delay on the raw material." [Filing No. 75-1 at 1.] He attached a list of accounts receivable, which showed that BAIEC had made all payments for products that had shipped through December,  indicating BAIEC was not behind on payments to Lai Yuan at that time. [Filing No. 75-1 at 1; Filing No. 75-1 at 5-14.]
On December 18, 2012, Escalade and Lai Yuan entered into a Frame Agreement of Purchase, which is signed by Lai Yuan's General Manager and has Mr. Chung's name typed on behalf of Escalade but is not signed by Mr. Chung. [Filing No. 74-1.] Escalade was concerned that BAIEC would react negatively when it heard about Lai Yuan's complaints, and that BAIEC would attempt to shut off Escalade's Chinese supply chain. [Filing No. 86-1 at 8; Filing No. 86-8 at 3.]
Mr. Chung emailed Mr. Allshouse on December 23, 2012 to advise him that "Mr. Yu has a concern that [Mr. Wei] will [hold] the payment to his factory after the [January 4] meeting. This will turn out to [be] a big cash flow problem for them because no agreement between [Mr. Wei] and Lai Yuan." [Filing No. 70-5 at 2.] On January 3, 2013, Mr. Chung emailed Mr. Allshouse and stated "I talked with Mr. Yu just now and he also suggest[ed] to have [Mr. Wei] step out from the business and not interrupt the daily operation after the meeting. Like you said, all the production issue, deliver and suppliers will be communicate between Lai Yuan, Shanghai and EVV. Escalade can pay BAIEC 55% commission for 2013 to show the business relationship and no need [for Mr. Wei] to get involve[d] on anything. Mr. Yu will take care [of] the ...