United States District Court, N.D. Indiana, Fort Wayne Division
OPINION AND ORDER
Collins United States Magistrate Judge
Marion T, LLC (“Marion T”), filed this suit
against Defendant Formall, Inc. (“Formall”),
claiming that Formall converted certain spare parts,
miscellaneous items, and bus duct owned by Marion T and
located in Marion T's facility. Formall, in turn, advances a
counterclaim of conversion against Marion T, claiming that
Formall was the rightful owner of this equipment and that
Marion T wrongfully withheld a portion of the bus duct from
Formall. On March 30, 2017, the Court entered an Opinion and
Order on Formall's motion for summary judgment,
identifying the issues that remained for trial: (1) whether
Formall removed from the Marion T facility certain spare
parts and miscellaneous items that Marion T owned; and (2)
whether Formall removed from the Marion T facility a portion
of the bus duct that Marion T owned, or conversely, whether
Marion T withheld from Formall a portion of the bus duct that
Findings of Fact and Conclusions of Law follow a three-day
bench trial held on June 26-28, 2017, on the parties'
competing claims of conversion. (DE 116-DE 118). Following
the preparation of a transcript (DE 119-DE 121),
parties submitted proposed findings of fact and conclusions
of law (DE 124-DE 125). Formall timely filed a response (DE
126) to Marion T's proposed findings of fact and
conclusions of law. Marion T, however, did not file a
response to Formall's proposed findings of fact and
conclusions of law, and its time to do so has passed.
(See DE 123).
examining the entire record, considering the arguments of
counsel, and determining the credibility of the witnesses,
the Court makes the following Findings of Fact and
Conclusions of Law in accordance with Federal Rule of Civil
Procedure 52(a) based upon a preponderance of the evidence.
FINDINGS OF FACT
Marion T Purchases the Thompson/RCA Site
Lee (“Lee”) was the manager of Marion T at the
time of the events pertinent to this suit, and he testified
on Marion T's behalf. (Tr. 25). Lee, who has a high school
education, has started and owned more than 100 companies,
including Lee's Inns of America, a public company with
400 employees; gold mine operations in Yukon territory; and
oil wells in Kentucky. (Tr. 19, 21). Some of his past
businesses involved setting up offices internationally,
including in Russia. (Tr. 21).
March 2005, Marion T purchased for one dollar the former
“Thompson/RCA” television factory site in Marion,
Indiana, including the industrial manufacturing building in
which the equipment in dispute was housed. (Tr. 22, 32, 44;
DE 113 Stip. 1). The site was 62 acres and had over one
million square feet under roof. (Tr. 22). Thompson/RCA left
everything except patentable items because the equipment and
parts had become obsolete.(Tr. 22, 28, 44). Marion T's
business at the facility consisted of salvaging items from
the former operations of Thompson/RCA. (Tr. 44-45).
Marion T and TriEnda Enter Into the TriEnda Lease
December 2008, Marion T entered into a Lease Agreement
(“the TriEnda Lease”) with TriEnda, LLC
(“TriEnda”), a plastic pallet manufacturing
company, leasing 183, 808 square feet of the Marion T
facility to TriEnda for a term of four and a half years. (DE
113 Stip. 4; Ex. 6; Tr. 26-27). TriEnda was the only tenant
at the time. (Tr. 239). TriEnda paid $2.50 per square foot
per year, received the first six months rent free, and
TriEnda was to pay the utility bills, the maintenance, the
taxes, and any expenditures that the building would
26-27; Ex. 6).
portions of the TriEnda Lease applicable to this dispute are,
in relevant part:
Article 7. CARE OF
PREMISES. . . . At the expiration of this Lease
or any extensions hereof, Tenant shall surrender the Leased
Premises, including any alterations, improvements and/or
additions to the Leased Premises made by Tenant which are
required to be left at the termination of this Lease . . . .
Article 11. FIXTURES. Any
trade fixtures belonging to and installed by Tenant in the
Leased Premises prior to or during the term of this Lease, or
any extensions hereof, are to be and remain the property of
the Tenant, no matter how they may be attached to or
incorporated in the Leased Premises, and Tenant shall have
the duty to remove same at the termination of this Lease, or
any extensions hereof, and to repair, at its own expense, any
damage to the Leased Premises caused by the installation or
removal of such fixtures. Trade fixtures shall be
manufacturing equipment and electrical wiring back to the
first junction box or electrical service feed.
Article 12. TENANT
IMPROVEMENTS. Tenant may make such alterations
to the Leased Premises as necessary for conduct of its
business, after submission of plans, specifications and
contracts to Landlord. Any existing equipment or metals
removed in the course of such improvement shall remain the
sole property of Landlord. All improvements (other than trade
fixtures) inure to the benefit of Landlord.
(Ex. 6 (emphasis added)).
TriEnda Installs Three Thermoformers and Bus Duct at the
Marion T Facility
installed three large thermoformers-two of which were Brown
thermoformers-into the leased space at the Marion T facility.
(Tr. 107, 266, 272). Thermoformers are very complicated
pieces of machinery with anywhere from 5000 to 10, 000 parts,
components, and pieces. (Tr. 265). Only one other Brown
thermoformer of similar size existed in the world. (Tr. 272,
367). Each Brown thermoformer installed at the Marion T
facility was roughly the size of a 3000 to 5000 square foot
home with a footprint of about 100 feet by 100 feet and 22
feet tall. (Tr. 266).
in general, and the Brown thermoformers in particular,
require a lot of power. (Tr. 268). Lee testified that the
Marion T facility already had three substations, six
powerhouses, transformers, and equipment that would service a
large voltage and amps, but that TriEnda had additional
electrical equipment installed. (Tr. 27-28). In particular,
and most relevant to this dispute, Lee testified that TriEnda
had bus duct installed-which cost $203, 000 at the
time-to connect the two Brown thermoformers to the
building's power source. (Tr. 27-28, 67-69, 107, 187).
The third thermoformer, a Maac, required wiring, but no bus
duct. (Tr. 107, 185-86).
Marion T Claims That It Stored Equipment in TriEnda's
testified that although Marion T still had about 800, 000
square feet of its own space at its disposal, Marion T stored
certain equipment or items of value in an “east parts
room” located within the space that it had leased to
TriEnda. (Tr. 99-100, 137). Lee stated that he left the items
there with TriEnda's permission because the items were
out of the way and because it took a while to move some of
them out. (Tr. 99-100, 137). However, at the trial between
Marion T and TME in 2014 (DE 40), Lee was asked, “Was
there was anything besides assets that TriEnda has brought to
the facility and in the TriEnda spare part room?” to
which, Lee responded, “Well, TriEnda leased it, and
TriEnda, I assume, brought the parts there.” (Tr. 138).
Jones (“Jones”), Lee's property manager at
Marion T, also testified. Jones, who has a high school
education, had worked at Thompson/RCA for 27 years until it
closed down. (Tr. 203-04). After that, he worked for Marion
T, first doing demolition work and later as the site's
property manager. (Tr. 204, 206). Jones testified that when
TriEnda leased the space in 2007, there were still some
“skids that had stuff on it, ” which included
brass valves and similar parts that Marion T had salvaged
from the Thompson/RCA operations. (Tr. 251-52). At his
deposition, however, Jones testified that the Marion T
facility was “[p]retty much vacant” when TriEnda
leased the space in 2007, and that there were no equipment or
parts left from Thompson/RCA that TriEnda had not
used. (Tr. 251-52).
The Sale of the TriEnda Assets to TME
business venture eventually failed, and its assets were sold
in a secured party sale to Spara LLC, which later became
known as Lexington Logistics (“Spara/Lexington”).
(DE 113 Stips. 2, 3). Spara/Lexington refused to pay rent on
the Marion T facility and was later joined as a party to a
lawsuit brought against TriEnda. (DE 113 Stip. 3). As part of
a plant-wide liquidation, Spara/Lexington contracted TME to
sell all of the former TriEnda assets and equipment located
in the Marion T facility. (DE 113 Stip. 4). Plastic pallet
manufacturing equipment is large and has a limited market.
(Tr. 266, 272; DE 113 Stip. 5).
eventually purchased the former TriEnda assets from
Spara/Lexington for $1.5 million. (DE 113 Stip. 4). TME then
worked to find a plastic pallet maker who might buy the
former TriEnda assets. (DE 113 Stip. 4). The TriEnda
equipment remained in the Marion T facility while TME's
owner and president, Donald Kruschke
(“Kruschke”), solicited buyers for the equipment.
(DE 113 Stip. 4).
TME Starts Negotiating With Formall to Purchase Some of the
February 2012, Kruschke started negotiating with Formall, a
Tennessee-based custom manufacturer specializing in plastic
thermoforming, sheet extrusion, metal fabrication, powder
coating, and assembly, to purchase a portion of the TriEnda
equipment that TME had purchased. (DE 113 Stip. 6; Tr. 272).
Formall makes some of the biggest parts of any company in the
thermoforming industry. (Tr. 265). Christopher Krohn
(“Krohn”), Formall's director of operations,
testified on Formall's behalf at the trial. (Tr. 260,
269). Formall, which has about 200 employees, is owned by
Krohn's family, but Krohn himself has no ownership in the
company. (Tr. 260, 269). Krohn has worked for Formall for
about 20 years in various capacities, including running
thermoforming machines and doing work with set up,
maintenance, tooling, and engineering. (Tr. 260-61). Krohn
has an undergraduate and a master's degree in applied
mathematics with a focus on industrial statistics from the
College of Business at the University of Tennessee. (Tr.
was aware of TriEnda's work because TriEnda was a
competitor of Formall. (Tr. 270). As part of the
negotiations, Krohn went to TriEnda's facility in
Portage, Wisconsin, to inspect a “sister machine”
to the Brown thermoformers located at Marion T. (Tr. 273).
Formall was interested in the Brown thermoformers at the
Marion T facility because they were the largest twin-sheet
thermoformers in existence. (Tr. 266). Krohn visited the
Marion T facility on several occasions during the
negotiations to inspect the TriEnda equipment that Formall
was considering purchasing. (DE 113 Stip. 7).
Formall Visits the Marion T Site to Inspect the TriEnda
informed Jones that representatives from Formall would be
coming to the Marion T facility to look at the west
thermoformer. (Tr. 207). Lee told Jones to show Formall what
they wanted to see, including all of the equipment and the
parts that were laying around. (Tr. 207, 226). Lee never told
Jones to inform Formall that certain items were not for sale.
traveled to the Marion T facility to inspect and take photos
of the west thermoformer, the spare parts inventory, and the
available auxiliary equipment that TME had purchased from
TriEnda. (DE 113 Stip. 7; Tr. 273-74, 281-82). Krohn himself
went to assess the Brown thermoformers because he had
decommissioned and started up thermoformers for Formall; he
estimates that he had moved 15 to 20 other thermoformers
previously. (Tr. 267).
explained that unless the machine is very small, the
disassembly, transportation, and reassembly of a thermoformer
is a fairly complicated process involving not only the
machine, but also its power supply. (Tr. 267-68).
the visit, Jones took Krohn and another person from Formall
through different areas of the Marion T facility, including
the west parts room, the east parts rooms, and the penthouse
where the power supply came in. (Tr. 207-08, 226). Krohn and
his colleague spent between three and four hours looking at
the equipment, parts, and electrical supply during this
visit. (Tr. 208). Formall representatives also made several
subsequent visits to the Marion T facility to look at the
TriEnda equipment. (Tr. 209, 273).
testified that the west thermoformer consisted of a large
rotary oven with loading/unloading stations, two oven
(heating) stations, and a forming station. (Tr. 274-80; Ex.
E). Krohn stated that he took a great deal of photos to
document what Formall looked at and to aide in the
disassembly and reassembly process. (Tr. 281-82; see
Ex. A). Krohn was very interested in the TriEnda spare parts
program and considered the spare parts to be an attractive,
key part of the deal. (Tr. 295). He explained that Formall
runs its manufacturing processes 24 hours a day, either five
or seven days a week, and that thermoformers have thousands
of parts that are constantly being repaired or needing
preventative maintenance, making it a constant struggle to
keep the machines operating 24 hours a day. (Tr. 295-97).
Having a good spare parts program helps to keep the machines
running in order to meet customer demands and production
schedules. (Tr. 296-97). Without an available spare parts
program, Krohn would have had to create one at significant
additional expense. (Tr. 297).
also considered TriEnda's organization of the parts
inventory to be important. (Tr. 297-302). TriEnda had a good
spare parts program where the parts were organized in Akro
Bins, Lawson cabinets, and other cabinets. (Tr. 297-302;
see, e.g., Ex. A at 41). Krohn testified that what
Marion T referred to as the “west parts room” was
actually more of a maintenance shop and main parts room for
the thermoformers, while the “east parts room”
was more of a bone yard of machine parts that could be
retooled, scavenged, or used for the
thermoformers. (Tr. 295, 303, 324-25, 457-58; Ex. A at
testified that the two Brown thermoformers were identical,
and that only three such thermoformers of that size existed
in the world, making their parts interchangeable. (Tr. 367).
Lee disagreed, testifying that while the two Brown
thermoformers were similar, they were of different designs
and configurations, making their spare parts unique to each
thermoformer. (Tr. 31, 130-33). Lee admitted, however, that
he has only a “basic knowledge” of thermoformers
as a “lay person” and “doesn't
understand it all.” (Tr. 125). Furthermore, Lee
testified at his deposition in 2013 that he did not know
whether the two thermoformers were identical or not. (Tr.
TME Contracts to Sell Some of the TriEnda Equipment to
March 23, 2012, TME contracted to sell certain equipment,
including one of the Brown thermoformers, to Formall for
$890, 000. (DE 113 Stip. 8; Ex. 1). The purchase order
(“the Formall Agreement”) described what Formall
purchased as follows (including handwritten modifications):
1 2009 Brown 114 x 210 4 Station Twin Sheet
Thermoformer To Include Vacuum Pumps and Cooling
Tunnels Scamatics [sic], manuals, clamp frame, vacuum pumps
24 EAC [sic] Temperature Control Unit the Bank with
Brown Thermoformer 3000 AMP Power Panel Conveyors in
front of machine and to side of machine Wiring from switch
gear to machine to include bus bar from switch gear to Power
Panel ALL Brown spare parts 1) If more than 24 temp control
units are located in bank at the thermoformer, the additional
units will be included in this purchase. $40,
(DE 113 Stip. 8; Ex. 1). The thermoformer that Formall
purchased was known as the “west” thermoformer
and was located on the west side of the TriEnda space. (DE
113 Stip. 9; Ex. 7). The Formall Agreement provided that the
equipment was being transferred free and clear of any liens
or encumbrances. (DE 113 Stip. 12).
paid TME for the equipment it purchased through four
electronic payments dated March 23, 2012 ($100, 000), April
5, 2012 ($150, 000), and May 14, 2012 ($637, 500 and $2,
500). (DE 113 Stip. 13). Full funds for the equipment that
Formall purchased were paid by Formall to TME as of May 14,
2012. (DE 113 Stip. 14). Therefore, title to the equipment
that Formall purchased from TME passed to Formall no later
than May 14, 2012. (DE 113 Stip. 15).
TME Contracts to Sell the Other Brown Thermoformer to Vantage
March 27, 2012, four days after the sale to Formall, TME
contracted to sell the other Brown thermoformer, that is, the
“east” thermoformer, to Vantage Plastics. (DE 113
Stips. 10, 11; Ex. 2). The purchase order (“the Vantage
Plastics Agreement') describes what Vantage Plastics
purchased as follows:
1 2009 Brown 114 x 210 4 Station Twin Sheet
Thermoformer To Include Vacuum Pumps and Cooling
Tunnels Scamatics [sic], manuals, clam frame, vacuum pumps
30 AEC Temperature Control Units $40, 000.00
(DE 113 Stip 10; Ex. 2). Vantage Plastics did not remove any
bus duct from the Marion T facility. (Tr. 108, 222).
TME, Spara/Lexington, and Marion T Enter Into the Marion T
TME had sold the TriEnda equipment to third parties (Formall
and Vantage Plastics), a dispute arose between TME and
Spara/Lexington over the ownership of the equipment, which
resulted in a lawsuit filed in the Cuyahoga County Court of
Common Pleas, Case No. 779257. (DE 113 Stip 16). Meanwhile,
Marion T's dispute with Spara/Lexington over unpaid rent
was still pending. (DE 113 Stip. 17). In this context, Lee
began strategizing closely with TME and its owner and
president, Kruschke, to obtain compensation from
Spara/Lexington. (DE 113 Stip. 17).
Spara/Lexington, and Marion T eventually entered into
settlement negotiations to resolve their respective disputes
in an effort to bring the overlapping claims against
Spara/Lexington to a close. (DE 113 Stip. 18). The agreement
between TME and Marion T was relatively simple: TME would get
the equipment specified in the agreement between TME and
Marion T, TME would pay Marion T $80, 000 to cover a portion
of the rent due on the building, and the equipment not
specified would be owned by Marion T in lieu of rent. (DE 113
Stip. 19). TME, Spara/Lexington, and TME negotiated a
contract that eventually was signed and dated May 18, 2012
(“the Marion T Agreement”). (DE 113 Stip.
Marion T Agreement provides that the following equipment was
permitted to be removed and sold by TME:
3. TM & E shall remove and sell only the following items
a. Two Brown Thermoformers with cooling tunnels and roof
mounted a/c units attached to the machine and all temp
control units the temp control units from the Maac
Thermoformer b. spare parts currently in the building for the
west Thermoformer only.
c. Only one bus ducting from the west Thermoformer to
Transformer or switch gear. Does not include transformer or
switch gear. If affects any other alarms, heat, lights, or
other factory functions[, ] client will repair or modify. No
bus duct to be removed on east Thermoformer.
d. Cumberland 100 HP Grinders including cyclone dust
collectors. All material including scrap regrind, floor
sweepings, rejected parts, finish sheets, finished parts, all
plastics materials in the building.
e. One CMM Machine.
f. One plastimeter. (“specified equipment”)
4. In further satisfaction for occupying the building, all
the right, title and ownership of the equipment, other than
that specified (and except tooling) shall be the exclusive
property of Marion T.
5. The specified equipment shall be removed at the expense of
TM & E at the first ...