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Marion T LLC v. Formall Inc.

United States District Court, N.D. Indiana, Fort Wayne Division

March 29, 2018

MARION T LLC, Plaintiff,
FORMALL INC., Defendant,


          Susan Collins United States Magistrate Judge

         Plaintiff 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.[1] 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 Formall owned.

         These 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), [2] the 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).

         After 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.

         I. FINDINGS OF FACT[3]

         A. Marion T Purchases the Thompson/RCA Site

         Lester 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.[4] (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).

         In 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.[5] (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.[6](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).

         B. Marion T and TriEnda Enter Into the TriEnda Lease

         In 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 need.[7]

         (Tr. 26-27; Ex. 6).

         The 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)).

         C. TriEnda Installs Three Thermoformers and Bus Duct at the Marion T Facility

         TriEnda 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).

         Thermoforming in general, and the Brown thermoformers in particular, require a lot of power.[8] (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[9] installed-which cost $203, 000 at the time-to connect the two Brown thermoformers to the building's power source.[10] (Tr. 27-28, 67-69, 107, 187). The third thermoformer, a Maac, required wiring, but no bus duct. (Tr. 107, 185-86).

         D. Marion T Claims That It Stored Equipment in TriEnda's Leased Space

         Lee 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).

         Jim 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.[11] (Tr. 251-52).

         E. The Sale of the TriEnda Assets to TME

         TriEnda's 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).

         TME 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).

         F. TME Starts Negotiating With Formall to Purchase Some of the TriEnda Equipment

         In 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.[12] (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. 260).

         Krohn 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).

         G. Formall Visits the Marion T Site to Inspect the TriEnda Equipment

         Lee 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. (Tr. 226).

         Krohn 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).

         Krohn 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).

         During 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).

         Krohn 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).

         Krohn 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.[13] (Tr. 295, 303, 324-25, 457-58; Ex. A at 175-180).

         Krohn 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. 125-26).

         H. TME Contracts to Sell Some of the TriEnda Equipment to Formall

         On 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 $850, 000.00
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, 000.00

(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).

         Formall 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).

         I. TME Contracts to Sell the Other Brown Thermoformer to Vantage Plastics

         On 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 $850, 000.00
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).

         J. TME, Spara/Lexington, and Marion T Enter Into the Marion T Agreement

         After 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).

         TME, 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”).[14] (DE 113 Stip. 20).

         The 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 of equipment:
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 ...

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