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Qwinstar Corp. v. Anthony

United States District Court, D. Minnesota

November 17, 2016

Qwinstar Corporation, Plaintiff,
v.
Curtis Anthony, and Pro Logistics, LLC, Defendants.

          John L. Sinatra, Jr., Hodgson Russ, L.L.P., Buffalo, New York, Court J. Anderson, Benjamin J. Hamborg, Daniel C. Oliverio, David Bradley Olsen, Henson & Efron, P.A., Minneapolis, Minnesota, for Plaintiff.

          Adrianna Shannon, Bonnie M. Smith, Shannon Law L.L.C., Minneapolis, Minnesota, for Defendants.

          MEMORANDUM OPINION AND ORDER

          RICHARD H. KYLE United States District Judge.

         INTRODUCTION

         Pursuant to two written contracts, Plaintiff Qwinstar Corporation (“Qwinstar”) purchased replacement parts for check-processing equipment from Defendant Pro Logistics, LLC (“Pro Logistics”) and hired Defendant Curtis Anthony, Pro Logistics's owner, to manage the supply of those parts. One year later, it terminated Anthony after discovering a purported parts shortage. It then commenced this action, alleging inter alia claims for breach of contract, fraud, conversion, and civil theft. Anthony and Pro Logistics have counterclaimed, alleging breach of contract, fraud, and unjust enrichment. Presently before the Court are the parties' cross-Motions for Summary Judgment. For the following reasons, Qwinstar's Motion will be denied, and Anthony and Pro Logistics's Motion will be granted.[1]

         BACKGROUND

         Qwinstar is a Minnesota corporation that maintains paper-check-processing equipment, including the IBM 3890 (the “3890”).[2] (Grunberg Dep. 12.) To facilitate its maintenance services, it buys and stores replacement 3890 parts. At some point before 2007, it started buying 3890 parts from Pro Logistics, a company owned by Anthony. (Atchley Dep. 10.) It also competed with Pro Logistics in the 3890 parts market, at times bidding for the same parts and effectively “running the price up for each other.” (Id. 61.)

         The development of electronic check processing led to less reliance on the IBM 3890 and a corresponding decline in the market for 3890 parts and maintenance. (Diadone Dep. 25-28; George Dep. 55-56.) As a result, in May 2012, Qwinstar and Pro Logistics began negotiations to change their relationship. (Atchley Dep. 63-64.) According to Qwinstar, Anthony suggested that it “acquire him and his company.” (Id. 40.) By contrast, Anthony testified that Qwinstar first proposed a deal. (Anthony Dep. 46.) Regardless, partnership discussions followed. Qwinstar was primarily interested in Pro Logistics's stock of 3890 parts, while Anthony sought employment at Qwinstar. (Atchley Dep. 64, 69.)

         Anthony opened the parties' discussions by touting Pro Logistics's sales numbers and its supply of “over 2.5 million in IBM 3890 new parts . . . [and] numerous 3890 [machines].” (Shannon Decl. Ex. 30.) He also claimed that Pro Logistics had an “endless stream of suppliers and vendors with very good relationships.” (Id.) In late 2012, Anthony again praised Pro Logistics's “substantial inventory of IBM 3890 parts, 85% new.” (Shannon Decl. Ex. 29.) Qwinstar eventually requested a list of Pro Logistics's 3890 parts inventory. (Grunberg Dep. 19; Anthony Dep. 52.)

         On January 10, 2013, Anthony e-mailed Qwinstar a fifty-six page inventory list complete with part numbers, quantities, and descriptions for each line item. (See Shannon Decl. Ex. 9.) Following the final entry, the inventory provided a total parts value of over $4.7 million.[3] (Id.; Atchley Dep. 106.) Anthony told Qwinstar that the inventory “listed everything” Pro Logistics owned as of January 2013. (Shannon Decl. Ex. 33.) He apologized for “the teardrops” on the list, explaining that he went “Stage 4 Carpal Tunnel” during the inventory process (Shannon Decl. Ex. 9), which referred to “the agonizing task[] of inventorying washers, nuts, and screws.” (Anthony Dep. 58.) Anthony testified that, at the time he sent the inventory, he believed it was accurate. (Id. 59.)

         In spring 2013, Qwinstar sent Gary George, its Manager of Technical Services, to assess Pro Logistics's parts inventory. (George Dep. 6.) George's purpose was to decide whether Qwinstar should purchase Pro Logistics's parts, “not necessarily to count the stuff.” (Id. 10.) George toured Pro Logistics's warehouse and, after his visit, told Qwinstar management that Pro Logistics's parts were “desirable.” (Id. 9.) He visited Pro Logistics again in September 2013 “to look over the stuff, ” this time accompanied by John Atchley, Qwinstar's Managing Director. (Id. 21-22.) George testified that “nothing noticeable” had changed between his first and second visit (id. 21), but neither George nor Atchley inventoried the parts. George did not bring Anthony's inventory list with him to Pro Logistics on either visit in 2013; in fact, George never saw Anthony's list prior to his visits, and Qwinstar never asked George to estimate the value of Pro Logistics's parts. (Id. 11, 22.) Qwinstar owner Norman Grunberg also visited Pro Logistics's warehouse at some point in 2013-he does not recall when-to “eyeball” Pro Logistics's parts. (Grunberg Dep. 23.) He “saw a lot of parts” as Anthony “opened bin after bin after bin, ” but did not perform an exact count. (Id. 24.)

         As negotiations continued, Anthony again touted Pro Logistics's “good rapport and customer base offering supplies to customers such as HP, IBM, Canon, BancTec, NEC, Toshiba, and Printronix.” He claimed that “this [deal] would[] bring millions of dollars of IBM parts” to Qwinstar (Shannon Decl. Ex. 31 (emphasis in original)), and he predicted that “Qwinstar would IMMEDIATELY realize a substantional [sic] increase in sales of parts and supplies, approximately 1000 percent/plus the first year, to only expand . . . over the next decade of business.” (Id.) In his view, the deal brought “NO RISK to the table for [Qwinstar].” (Id.) He sought only a “fair salary over the next 5 years” in exchange. (Id.)

         Ultimately, the parties' executed two contracts effective October 1, 2013: an Asset Purchase Agreement (“APA”) and an Employment Agreement (“EA”). Under the APA, Qwinstar purchased “assets[] held, used, or otherwise relating to [Pro Logistics's] 3890 business . . . [including] all finished goods, raw materials, work in process, packaging, parts, supplies, tooling, and other inventory.” (Shannon Decl. Ex. 15, ¶ 1.1 (emphasis added).) Pro Logistics agreed to store this inventory at its Oklahoma facility at no cost, and Anthony agreed to ship the inventory as directed by Qwinstar. (Id. ¶ 4.1.) In consideration, Anthony and Pro Logistics received $50, 000. (Id. ¶ 1.3; Anthony Dep. 22.) Execution of the APA was conditioned upon the contemporaneous execution of the EA (Shannon Decl. Ex. 15, ¶ 1.5.), under which Anthony became an employee of Qwinstar, as its Corporate Supply Chain Director for five years-his responsibilities included managing the supply of 3890 parts Qwinstar purchased under the APA. (Id. Ex. 16, ¶ 1(a).) Anthony was to “devote [his] full business time and attention to the[se] duties” in exchange for an annual salary of $200, 000 (id. ¶¶ 1-2), and Qwinstar could terminate Anthony at any time for “cause” as defined by the EA. (Id. ¶ 4.) In sum, under these contracts, Qwinstar bought “all” of Pro Logistics's 3890 parts and employed Anthony to manage the supply of those parts in exchange for a five-year salary and payments totaling $1, 050, 000. Though structured as two separate agreements, Anthony's salary under the EA was “really the vehicle to pay for the parts.” (Grunberg Dep. 36.)

         Anthony performed his new duties for roughly one year but, by fall 2014, he allegedly “claimed to run out of certain parts that should have existed” (Atchley Decl. ¶ 16), although he does not recall making such a claim. (Anthony Dep. 77.) To investigate, Qwinstar sent George and former employee Rodney Moore to Pro Logistics's warehouse. (George Dep. 30.) While there, George observed that “the remaining inventory was sparse compared to the quantity that [he] observed a year earlier.” (George Decl. ¶ 4.) Similarly, Moore was “shocked by how few IBM 3890 parts were there, ” even though it was his first visit. (Supp. Moore Decl. ¶ 7.) They did not see all the remaining parts-Anthony had intermixed his personal property with Qwinstar's parts, so he “directed [George] to what he wanted [George] to see.” (George Dep. 30.) There were areas of the facility that George and Moore did not see at all. (Moore Decl. ¶ 14.) And, once again, the two “were not going to complete a full inventory.” (Id. ¶ 10.) George did not bring a copy of the inventory list Anthony had prepared. (Id. 31.) According to Moore, the pair spent at most six hours at Pro Logistics's warehouse over the course of their two-day trip.[4] (Moore Decl. ¶¶ 11-13.)

         On November 18, 2014, after this purported parts shortfall was discovered, one of Qwinstar's owners asked Anthony by e-mail, “Of the $4.6 Mil in inventory in Oklahoma[], it is my understanding there is very little product left. We agree that approximately $1.0 Mil was shipped to St. Paul, where is the rest?” (Shannon Decl. Ex. 19.) According to Qwinstar, Anthony never answered this question to its satisfaction, even after it posed the question to him in person. (Diadone Dep. 81 (“I didn't get any answer that would substantiate what the difference was.”); Atchley Dep. 172 (“He did not respond . . . He didn't talk.”).) Anthony does not recall discussing a parts shortage. (Anthony Dep. 78-81.)

         By December 2014, Qwinstar decided to ship all remaining 3890 parts from Pro Logistics to Qwinstar's St. Paul warehouse. (Atchley Dep. 175.) Qwinstar employees Marlin Brown and Howard Ridgeway were sent to Oklahoma to “pack up everything and bring it back.” (Id. 175.) But they were not instructed to inventory the remaining parts (id. 176), they scrapped four truckloads of parts at George's direction (George Decl. ¶ 5; Moore Decl. ¶ 15), and they left parts behind. According to Brown, they left “very little” behind, so they made no effort to track those parts. (Brown Dep. 22-23.) However, according to Anthony, Qwinstar “abandoned 70 percent of the items” that remained.[5](Anthony Dep. 30.)

         On January 28, 2015, Qwinstar retroactively terminated Anthony's employment “for cause effective December 15, 2014” and stopped paying him. (Shannon Decl. Ex. 24.) Then, on May 4, 2015, it filed this action, alleging breach of contract, fraud, conversion, and civil theft under Minnesota Statutes section 604.14. Anthony and ...


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