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Honda Manufacturing of Indiana LLC v. Custom Machines, Inc.

United States District Court, S.D. Indiana, Indianapolis Division

November 1, 2017

HONDA MANUFACTURING OF INDIANA LLC, Plaintiff,
v.
CUSTOM MACHINES, INC., and DEAN McCLENATHEN. Defendants. CUSTOM MACHINES, INC., Counter Claimant,
v.
HONDA MANUFACTURING OF INDIANA LLC, Counter Defendant.

          ENTRY ON CROSS-MOTIONS FOR SUMMARY JUDGMENT AND ENTRY REGARDING STATUS OF DEFENDANTS COUNTERCLAIM

          TANYA WALTON PRATT, JUDGE

         This matter is before the Court on cross motions for summary judgment. The disputes in this matter surround Plaintiff Honda Manufacturing of Indiana LLC's (“Honda”) claims against Defendants Custom Machines, Inc. (“CMI”) and Dean McClenathen (“McClenathen”) (collectively, “Defendants”) for breach of contract. Honda alleges that Defendants failed to perform obligations under a contract to build an automated engineering process at its Greensburg, Indiana plant, breached confidentiality obligations, and misappropriated trade secrets. Defendants filed a Motion for Summary Judgment regarding the claims made against it by Honda. (Filing No. 126.) Honda has also filed a Motion for Partial Summary Judgment on the issue of liability in its favor as to its breach of contract claims against CMI. (Filing No. 131.) For the reasons set forth below, the Court grants in part and denies in part Defendants' Motion for Summary Judgment and grants Honda's Motion for Summary Judgment. The Court will also address the status of the Defendants' counterclaim. (Filing No. 11 at 14.)

         I. LEGAL STANDARD

         The purpose of summary judgment is to pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial. See Matsushita Elec. Indust. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Under Federal Rule of Civil Procedure 56, summary judgment is appropriate only where there exists “no genuine issue as to any material facts and … the moving party is entitled to judgment as a matter of law.” In ruling on a motion for summary judgment, the Court reviews “the record in the light most favorable to the non-moving party and draw[s] all reasonable inferences in that party's favor.” Zerante v. DeLuca, 555 F.3d 582, 584 (7th Cir. 2009) (citation omitted). “However, inferences that are supported by only speculation or conjecture will not defeat a summary judgment motion.” Dorsey v. Morgan Stanley, 507 F.3d 624, 627 (7th Cir. 2007) (citation and quotation marks omitted).

         This notion applies equally where, as here, opposing parties each move for summary judgment in their favor pursuant to Rule 56. I.A.E., Inc. v. Shaver, 74 F.3d 768, 774 (7th Cir. 1996). Indeed, the existence of cross-motions for summary judgment does not necessarily mean that there are no genuine issues of material fact. R.J. Corman Derailment Serv., Inc. v. Int'l Union of Operating Eng'rs, 335 F.3d 643, 647 (7th Cir. 2003). Rather, the process of taking the facts in the light most favorable to the non-movant, first for one side and then for the other, may reveal that neither side has enough to prevail without a trial. Id. at 648. “With cross-motions, [the court's] review of the record requires that [the court] construe all inferences in favor of the party against whom the motion under consideration is made.” O'Regan v. Arbitration Forums, Ins., 246 F.3d 975, 983 (7th Cir. 2001) (quoting Hendricks-Robinson v. Excel Corp., 154 F.3d 685, 692 (7th Cir. 1998)).

         II. BACKGROUND

         Honda is a limited liability company with its principal place of business in Greensburg, Indiana. CMI is a Michigan corporation that maintained its corporate headquarters and principal place of business in Michigan. (Filing No. 126-4 at 2.) McClenathen was the president and owner of CMI at all times relevant to this action. (Filing No. 126-4 at 2.)

         A. Bid and Contract

         On September 3, 2013, Honda issued a request for quotation for contractors to bid to perform work at Honda's plant, identified as the Buzz Point Automation Project (“the Buzz Project”). (Filing No. 126-4 at 3.) McClenathen and CMI became aware of Honda's request for bids via CMI's project estimator, Mike Chase (“Chase”). (Filing No. 140-1 at 6.) Prior to submitting CMI's bid, McClenathen traveled with Chase to Honda's facility in Greensburg, Indiana, for a pre-bid meeting with Honda representatives to discuss technical specifications for the Buzz Project. (Filing No. 140-1 at 9.) McClenathen personally reviewed Honda's bid packet, including the written specifications for the Buzz Project, and stated that he understood the Buzz Project's purpose. (Filing No. 140-1 at 9.) McClenathen believed that CMI had the capacity to complete the Buzz Project and approved the submission of CMI's bid to Honda. (Filing No. 140-7 at 2; Filing No. 140-9 at 10-12.) On or about September 26, 2013, Honda accepted CMI's bid and signed a contract with CMI wherein CMI agreed to work on the Buzz Project in exchange for payment of $742, 500.00 (“the Contract”). (Filing No. 140-7 at 2.) McClenathen consulted with an attorney regarding the Contract and understood its requirements. (Filing No. 140-1 at 7-9.)

         Under the terms of the Contract, CMI agreed to provide the following services: (1) Buzz Project Management; (2) System Design; (3) Construction; (4) Installation; (5) Material Procurement; (6) System Debugging; (7) Commissioning; and (8) Associate Training. (Filing No. 140-3 at 3.) CMI also agreed to create and deliver drawings associated with the Buzz Project (“Project Drawings”), which included: (1) Electrical Diagrams; (2) Pneumatic Diagrams; (3) Detailed Component Drawings; (4) Assembly Drawings; (5) Layout Drawings; and (6) System Diagram. (Filing No. 140-3 at 10.)

         CMI was also “responsible for updating and revising [the Project Drawings] due to any mechanical or electrical changes made to the equipment before final acceptance by [Honda].” (Filing No. 140-3 at 10.) CMI agreed to deliver to Honda, in AutoCAD format, “two complete sets of drawings with a digital copy as well.” (Filing No. 140-3 at 10.) “The entire work product of [the] contract, including drawings, details, sketches, calculations, specifications, etc. [were] the property of Honda.” (Filing No. 140-2 at 9.) CMI agreed to maintain, for a period of ten years, “an adequate inventory of all unique or specially manufactured parts to support and maintain the [Buzz Project, ]” as well as a list maintaining all manufacturers used in connection with the Buzz Project. (Filing No. 140-5 at 28.) Before Honda would pay the final 10% of the amount owed on the Buzz Project (“Retainage”), CMI had to deliver the final Project Drawings to Honda. (Filing No. 140-2 at 8-9.) Finally, upon completion of CMI's work or inability to continue working on the Buzz Project, CMI agreed to immediately surrender all Buzz Project Materials to Honda. (Filing No. 140-4 at 1-2.)

         CMI agreed that any and all Project Materials “[are] the proprietary and confidential information of Honda and may not be used, copied, reproduced, distributed or disclosed to any third party[.]” (Filing No. 86-1 at 4.)

         B. CMI's Performance

         CMI commenced work on the Buzz Project in late September 2013. (Filing No. 140-6 at 2.) CMI employees traveled to Honda's plant in Greenburg, Indiana to work on the Buzz Project. (Filing No. 140-7 at 2-3.) McClenathen and CMI were aware that at least some of the electronic data could only be created and stored digitally. (Filing No. 140-9 at 27.) CMI's Buzz Project Manager, Ryan Mueller, maintained a three-ring binder that contained documents that related to the Buzz Project, but the binder did not contain electronic CAD drawings, digital representations of 3D images, because they could not be produced on paper. (Filing No. 140-8 at 4.)

         CMI's Controls Engineer, David Birdsall (“Birdsall”), used a laptop computer owned by CMI to perform work on the Buzz Project at Honda's facility. (Filing No. 140-10 at 1-2.) Birdsall used the CMI laptop to access, create, supplement, revise, amend, update and save the Project Drawings and materials. Id. Birdsall was the last CMI employee to work at Honda's facility and the last CMI employee to perform any work of any kind on the Buzz Project. (Filing No. 140-10 at 2.) In May 2014, Birdsall left Honda's facility for the last time, even though the Buzz Project was not complete. (Filing No. 140-10 at 2.) When Birdsall spoke to McClenathen after his last day at the Honda facility, McClenathen told him that “CMI was done working on the Buzz Project” and terminated his employment with CMI. (Filing No. 140-10 at 2.) After McClenathen terminated Birdsall's employment, he instructed Birdsall to return CMI's laptop, which he did. (Filing No. 140-10 at 2.) The laptop returned by Birdsall “contained the Project Materials, as well as the most recent Project Drawings.” (Filing No. 140-10 at 3.)

         At the time CMI ceased working on the Buzz Project, Honda had issued CMI progress payments totaling $628, 250.00. (Filing No. 140-6 at 2.) However, Honda withheld the Retainage, pending, in part, upon receipt of the final Project Drawings from CMI. (Filing No. 140-6 at 2.) Honda never received the final Project Drawings from CMI. (Filing No. 140-6 at 2.)

         C. Withholding of Project Drawings

         On May 5, 2014, Honda's Purchasing Department Manager Tim Kiste (“Kiste”) emailed McClenathen regarding the status of the Buzz Project. (Filing No. 140-13.) Kiste stated that he “ha[d] some concerns that CME [sic] did not meet all of the job scope requirements[, ]” but that Honda would “release the last portion of [its] payment” on certain conditions, which included the return of the Project Drawings. (Filing No. 140-13 at 2-3.) McClenathen knew the information Honda requested was “left at Custom Machines” and that additional information was saved on CMI's computers.[1] (Filing No. 140-1 at 11.)

         On May 31, 2014, McClenathen caused CMI to cease business operations without providing notice to Honda. (Filing No. 140-1 at 11; Filing No. 140-11 at 4-5.) McClenathen retained CMI's corporate documents. (Filing No. 140-9 at 2.)

         On May 15, 2014, McClenathen signed an Auction Marketing Agreement with Thompson Auction Company, which purchased CMI's computers that purportedly contained the Project Drawings. (Filing No. 140-14 at 11; Filing No. 126-2 at 137.)[2] McClenathen did not take any precautions to protect data stored on CMI's computers before allowing them to be sold. (Filing No. 126-2 at 168.) McClenathen did not notify Honda that the Project Drawings would be deleted from the computers prior to their sale. (Filing No. 140-9 at 29.) However, all information stored on the computers, including data belonging to Honda under the Contract, was deleted from the computers prior to their sale. (Filing No. 126-2 at 139-40.)

         On June 24, 2014, counsel for Honda sent a letter to CMI outlining various problems with the Buzz Project and demanded that CMI “provide all Buzz Project electrical and mechanical drawings, parts lists and manuals[.]” (Filing No. 140-12 at 2-3.) McClenathen refused to hand over the Project Drawings and admitted to “holding [them] hostage” until he was paid the Retainage. (Filing No. 126-2 at 132-33.)

         On September 28, 2015, Honda finally received a copy of the Buzz Project binder via counsel for McClenathen and CMI. (Filing No. 140-6 at 2.) However, the binder did not include the final Project Drawings or any digital Project Materials. (Filing No. 140-6 at 2.)

         D. Maple Row Farms

         In addition to CMI, McClenathen is the sole owner of a farming operation, Maple Row Farms. (Filing No. 126-4 at 3.) McClenathen withdrew money from his Maple Row Farms' accounts to pay for the registration fees required to keep his other companies, including CMI, in good standing. (Filing No. 126-2 at 36-37.) McClenathen no longer maintains a personal bank account and when he needs money for personal expenses, he withdraws money from Maple Row Farms' account. (Filing No. 126-4 at 125-26.)

         E. Loan Agreements

         On December 23, 2009, McClenathen executed a series of agreements pursuant to which: (1) McClenathen obtained a loan from United Bank & Trust for the purpose of personally extending funds to CMI; (2) CMI and McClenathen entered into an agreement whereby McClenathen was authorized to advance funds to CMI for a limited period of time set by the agreement (“McClenathen Loan”); (3) Maple Row Farms and CMI entered into an agreement whereby Maple Row Farms was authorized to advance funds to CMI for a limited period of time set by the agreement (“Maple Row Loan”); and (4) Maple Row Farms and CMI entered into an agreement whereby CMI was authorized to advance funds to Maple Row Farms for a limited period of time set by the agreement (“CMI Loan”) (collectively, “the Loans”). (Filing No. 140-16 at 27-76.)

         Each of the Loans were for different amounts: (1) the McClenathen Loan permitted McClenathen to advance $1, 500, 000.00; (2) the Maple Row Loan permitted Maple Row Farms to advance $500, 000.00; and (3) the CMI Loan permitted CMI to advance $500, 000.00. (Filing No. 140-16 at 27-28, 45-46, 53-62, 69-76.)

         All three Loans contained a similar provision stating that “[t]he full outstanding balance of principal and accrued interest owed by Borrower to Bank pursuant to the Loan Documents shall be due and payable no later than the earlier of (i) Bank's demand therefore; or (ii) May 1, 2010.” (Filing No. 140-16.)[3], [4]

         F. CMI&# ...


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