4brava, LLC v. Daniel Sachs, DSC Prods., Inc.

4BRAVA, LLC, Plaintiff, v. DANIEL SACHS, DSC PRODUCTS, INC.,and DSC PRODUCTS HOLDING, LLC, Defendants.

LEDUC GIFTS & SPECIALTY PRODUCTS, LLC, d/b/a Signature USA, Plaintiff, v. DANIEL SACHS, DSC PRODUCTS, INC., DSC PRODUCTS HOLDING, LLC, Defendants.

DSC PRODUCTS, INC., Counter Claimant, v. LEDUC GIFTS & SPECIALTY PRODUCTS, LLC, d/b/a Signature USA, Counter Defendant.

DSC PRODUCTS, INC., Cross Claimant/Third Party Plaintiff, v. BRUCE LEDUC, JENNEA LEDUC, MARCI LEDUC,and 4BRAVA, LLC, Cross Defendants/Third Party Defendants.

Civil No. 15-2744 (JRT/DTS)

Civil No. 15-2743 (JRT/DTS)

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

March 30, 2017

MEMORANDUM OPINION AND ORDER

Adrianna Shannon, SHANNON LAW, LLC, 333 South Seventh Street, Suite 2830, Minneapolis, MN 55402, for 4Brava, LLC and LeDuc Gifts & Specialty Products, LLC.

Bonnie M. Smith, SHANNON LAW, LLC, 333 South Seventh Street, Suite 2830, Minneapolis, MN 55402, for 4Brava, LLC, LeDuc Gifts & Specialty Products, LLC, Bruce LeDuc, Jennea LeDuc, and Marci LeDuc.

Timothy J. O'Connor, LIND JENSEN SULLIVAN & PETERSON, PA, 901 Marquette Avenue South, Suite 1300, Minneapolis, MN 55402, for LeDuc Gifts & Specialty Products, LLC, Bruce LeDuc, Jennea LeDuc, and Marci LeDuc.

Troy J. Hutchinson, ROCK HUTCHINSON, PLLP, 1907 East Wayzata Boulevard, Suite 330, Wayzata, MN 55391, for Daniel Sachs, DSC Products, Inc., and DSC Products Holding, LLC.

These two related cases involve an abandoned business venture that sought to sell tumblers to Walmart and other large retailers under the name Three Two Eight, LLC ("Three Two Eight"). On one side of the deal were Daniel Sachs and his companies DSC Products, Inc. ("DSC Products") and DSC Products Holding, LLC (collectively, "Defendants"). On the other side were the LeDuc family, including Bruce,¹ his daughter Jennea, and his wife Marcellas (collectively "the LeDucs"), and their companies, LeDuc Gifts & Specialty Products, LLC ("Signature") and 4Brava, LLC ("4Brava") (collectively, "Plaintiffs").

Before the Court are six motions and objections to an order of the Magistrate Judge. Plaintiffs seek affirmative summary judgment against Defendants in both cases.Plaintiffs and the LeDucs also seek dismissal of DSC Products' counterclaims, crossclaims, and third-party complaint claims.

For the reasons that follow, the Court will grant in part and deny in part 4Brava's motion for affirmative summary judgment and deny Signature's motion for affirmative summary judgment. The Court will order the windup and termination of Three Two Eight. The Court will grant the motion to dismiss settled claims and Signature's, 4Brava's, and the LeDucs' motions for summary judgment on Defendants' counterclaims, crossclaims, and third-party complaint claims.

BACKGROUND

I. FACTUAL BACKGROUND

A. Initial Discussions

In early March 2014, Sachs contacted Bruce about supplying DSC Products with tumblers. (Decl. of Troy J. Hutchinson, Ex. A ("Sachs Dep.") at 18:23-19:5, 69:19-70:14, Oct. 20, 2016, Docket No. 147;² Decl. of Adrianna Shannon ("Shannon Decl."), Ex. 2 ("B. LeDuc Decl.") ¶ 6, Aug. 15, 2016, Docket No. 118.) Bruce, along with Marcellas and Jennea, were "governors/managers" of Signature who owned injection molds and had been "designing, manufacturing, and selling double-wall thermal tumblers to individuals and retail establishments since 2004." (B. LeDuc Decl. ¶¶ 2, 4-5, 21; seealso Shannon Decl., Ex. 3 ("J. LeDuc Decl.") ¶ 4.)³ Sachs and DSC Products had a preexisting relationship with Walmart, and Sachs testified that he sought out Bruce because Sachs' prior manufacturer attempted to sell directly to Walmart. (Decl. of Daniel Sachs ("Sachs Decl.") ¶¶ 2, 4, Oct. 19, 2016, Docket No. 145; Sachs Dep. at 70:9-14.)

On April 23, 2014, Signature sent Sachs a price list for some of its tumblers. (Sachs Dep. at 93:11-23; B. LeDuc Decl. ¶ 7; Shannon Decl., Ex. 4.) In May 2014, Signature sent Sachs product samples, which Sachs used in sales presentations to Walmart. (B. LeDuc Decl. ¶¶ 8; Sachs Dep. at 71:16-72:10.) Bruce and Sachs met in person with a Walmart buyer, Jason Rogers, in August 2014. (B. LeDuc Decl. ¶¶ 14-21; Sachs Dep. at 147:17-148:10.) At that meeting, Sachs and Bruce pitched Rogers American Tumbler products and showed him Signature's catalog. (Sachs Dep. at 148:12-149:3, 169:6-8; Shannon Decl., Ex. 5 ("Rogers Dep.") at 24:19-27:16.)

Around September 2014, Walmart committed to "ordering 24 items for 200 stores," which is referred to as "Flow 1." (B. LeDuc Decl. ¶ 24; see also Rogers Dep. at 29:1-24, 120:2-17.) Four of Signature's injection molds could fill the order, but needed some modifications to use the Tritan material that Walmart required. (B. LeDuc Decl. ¶¶ 25-27; see also Rogers Dep. at 116:15-117:13; Shannon Decl., Ex. 50 (December 2014 email chain, including Sachs asking about the cost and time it would take "to convert the current super traveler into Tritan").)

Bruce allegedly told Sachs that Sachs would "be responsible for paying half of the costs to modify Signature USA's molds" - estimated at "between $30,000 and $40,000" - because Signature did not want to "bear the risks on the [Walmart] orders alone." (B. LeDuc ¶ 28.) In September 2014, Sachs emailed a manufacturer for estimates regarding his "friend Bruce LeDuc" who was "looking for a lid for his coffee mug." (Shannon Decl., Ex. 7.)

In September 2014, Sachs emailed Bruce and informed him that he submitted samples for a second, larger order with Walmart, referred to as "Flow 2." (Shannon Decl., Ex. 9; B. LeDuc Decl. ¶¶ 36, 38-39.) Bruce explained that Sachs said this additional order would not require delivery until later in the next year; however, Walmart agreed to a faster timeframe than anticipated, which required the parties to fill Flow 2 early in 2015 rather than later that year. (B. LeDuc Decl. ¶¶ 38-39.)

B. Purchasing Molds

Bruce decided Signature would need to "have some new equipment built," including copying some of its existing molds, in order to meet the needs of the new order. (Id. ¶¶ 40-41.) Bruce allegedly told Sachs that Signature was not interested in funding the new molds for the second order, but because Sachs had already committed, Signature agreed to "commission the design and build of the additional needed molds and equipment," if Sachs provided "copies of the purchase orders from [Walmart] and funds . . . in advance." (Id. ¶ 43.) Bruce stated, "Sachs agreed to assist with financing the design and build of the new molds and equipment needed to fill the [Walmart] orders, butonly if he would have a guarantee of receiving his money back upon completion of the Flow 2." (Id. ¶ 47; see also J. LeDuc ¶ 27 (stating that Sachs agreed to contribute to the molds, but that "he wanted at least some of his money back if Three Two Eight failed and the partnership was dissolved in less than three years").)

Sachs disputes the LeDucs' characterization of the purchase of the molds. Sachs testified that he initially intended to purchase the product from Signature; but, once it became apparent that Signature could not fulfill the Walmart orders with its existing molds, he testified that "Bruce and [Sachs] decided on a verbal agreement that [they] were going to . . . purchase tooling together, and [they] were going to start a business together that sold product to the mass retailers. And [they] agreed that [they] were going to split the tools," as well as the costs, profits, and losses. (Sachs Dep. at 72:13-74:4.) But, Sachs could not identify a particular date or a specific conversation in which they reached this agreement. (Id. at 74:5-10.) Sachs only stated that the verbal agreement occurred before the confirmation of Walmart's Flow 1 order, at some point between April 2014 and September 2014. (Id. at 109:17-110:24, 171:22-172:1.)

Sachs also testified that either he purchased the molds to own himself or their partnership purchased the molds making him a co-owner. (See, e.g., id. at 125:7-15; Sachs Decl. ¶ 7-11.) However, Sachs thought that he would receive reimbursement for his financing of the molds if the partnership ended, and admitted that the parties never discussed Sachs keepings the molds if the partnership fell through, (see Sachs Dep. at 125:2-25), which does not necessarily conflict with the LeDucs' characterization of the arrangement - aside from whether Sachs was considered to have "purchased" or"invested" in the tools. Sachs also stated that Sachs and Bruce "agreed that [they] would invest in new tooling." (Id. at 55:23-56:4.) Sachs admitted no written contract exists stating Sachs would own the tools. (Id. at 123:25-124:14.) But Sachs testified to his belief that "purchasing," providing money for the molds, equated to "ownership." (Id. at 74:12-78:15,124:18-19.) Sachs specifically stated that "[i]f I purchase something with my money, then yes, I own - I have ownership in that." (Id. at 78:14-15.)

The record evidence shows that Signature entered into agreements with Aroplax Corporation ("Aroplax") to create the additional molds. (See Shannon Decl., Ex. 10; B. LeDuc Decl. ¶ 32.) Signature corresponded directly with Aroplax in creating the molds. (Shannon Decl., Ex. 11; B. LeDuc Decl. ¶ 56.) Sachs was not directly involved in discussions with Aroplax about the molds. (Shannon Decl., Ex. 11 (showing the LeDucs and Aroplax did not copy Sachs on emails about the mold designs); Sachs Dep. at 89:12-90:2 (Sachs acknowledging he did not have "a whole lot" of involvement in the design of the molds).) Sachs recognized that "Signature, in Aroplax's eyes, was the owner of the tools, on paper" because "Signature gave Aroplax the purchase orders for the tools." (Sachs Dep. at 208:8-14.)

C. Three Two Eight LLC

Sachs "broached the idea of a partnership between" DSC Products and Signature after they met with Rogers, but Bruce stated he "was not interested in exposing Signature USA to the risks required to sell to mass-market discount retailers like [Walmart]," and he did not want to "cr...