Action Grp., Inc. v. NanoStatics Corp.

2013 Ohio 5542

Action Group, Inc., Plaintiff-Appellant, v. NanoStatics Corporation, Defendant-Appellee.

No. 13AP-72

C.P.C. No. 11CVH-02-1991

COURT OF APPEALS OF OHIO TENTH APPELLATE DISTRICT

Rendered: December 17, 2013

(REGULAR CALENDAR)

DECISION

Owens Law Office, and Robert M. Owens, for appellant.

Porter Wright Morris & Arthur, LLP, and Colleen Marshall, for appellee.

APPEAL from the Franklin County Court of Common Pleas

KLATT, P.J.

{¶ 1} Appellant, Action Group, Inc., appeals a judgment of the Franklin County Court of Common Pleas in favor of appellee, NanoStatics Corporation. For the following reasons, we affirm in part and reverse in part that judgment.

{¶ 2} NanoStatics is a production volume nanofiber company that creates nanofibers for commercial use. Action Group is a company that specializes in product development, manufacturing, and fulfillment.

{¶ 3} In early 2010, NanoStatics approached Action Group seeking its services in developing and manufacturing certain items, including a "head" and components to support the head. After the initial contact, Action Group's president, Frank Denutte, sent NanoStatics' president and CEO a letter dated February 8, 2010 that stated:

I look forward to working with NanoStatics and servicing your needs in the initial research and development stage along with the production stage of your products. Below are research and development hourly rates for the initial development of your project.

Labor will be billed at an hourly rate of $60 per hour and $90 per hour for over time hours. We will invoice these hours on a weekly basis until the initial development stage is complete. This hourly rate is significantly lower than our standard rate as we hope to develop a lasting relationship with you on this project. We are a service driven organization and this is a great opportunity to work in the field of nanotechnology.

Once the initial development stage is complete, we will price our services at cost plus 30% on the production of your items. Our team is flexible on servicing many different industries and customers and with our teams in the local vicinity, we will be able to work with your organization effectively.

Please sign and return this document as it will serve as our agreement on our services provided. * * *

(R. 131.) NanoStatics' president and CEO signed the letter.

{¶ 4} Using NanoStatics' specifications, Action Group worked on multiple iterations of the head. Ultimately, NanoStatics gave Action Group a computer model of a monolithic plastic head that it wanted produced. On September 30, 2010, representatives from NanoStatics visited Action Group's facility to inspect the monolithic plastic head and the supporting components. According to NanoStatics, its representatives determined that the monolithic plastic head had severe defects and was unusable. The NanoStatics representatives also determined that the supporting components did not conform to the tolerances and dimensions that NanoStatics had given Action Group. Due to the defects in the monolithic plastic head, NanoStatics rejected delivery of it. Although NanoStatics accepted delivery of some of the substandard components, it had to modify the design of its system to use those components.

{¶ 5} On February 11, 2011, Action Group filed a breach-of-contract action against NanoStatics. In the complaint, Action Group alleged that "[NanoStatics] ordered [Action Group] to manufacture certain goods that were timely delivered to [NanoStatics] and accepted by [NanoStatics] without defect." (R. 1 at ¶ 6.) Action Group contended thatNanoStatics breached its contract with Action Group by not paying for the goods provided, and that NanoStatics owed Action Group $96,163.90.¹

{¶ 6} NanoStatics answered the complaint and asserted a counterclaim. According to NanoStatics' counterclaim, Action Group promised to develop and manufacture the items that NanoStatics ordered using procedures certified as compliant with ISO 9001:2008. ISO 9001:2008 is an internationally recognized industry standard for quality management systems. It specifies procedures that ensure the consistent production of items that meet customer or government specifications. A certification body may assess the quality management system of a particular company and, if that company has successfully implemented the requirements of ISO 9001:2008, the certification body will certify the company as ISO 9001:2008 compliant. Action Group has an ISO 9001:2008 certification.

{¶ 7} In its counterclaim, NanoStatics averred that Action Group breached its express warranties that (1) Action Group would comply with its ISO 9001:2008 certified procedures, and (2) the monolithic plastic head and supporting components would conform to the specifications NanoStatics provided. Additionally, NanoStatics alleged that Action Group's failure to conform to the specifications breached the parties' contract. Finally, NanoStatics claimed that, when Action Group supplied it with defective and non-conforming goods, Action Group breached various implied warranties, including the warranties of merchantability and fitness for a particular purpose.

{¶ 8} On March 5, 2012, NanoStatics moved to compel full responses to its first set of interrogatories and requests for production. In part, NanoStatics sought discovery related to Action Group's ISO 9001:2008 certification. In response to the interrogatories and production requests related to the ISO 9001:2008 certification, Action Group had simply stated "[n]ot applicable" or "N/A." (R. 55.) NanoStatics asked the trial court to order Action Group to answer the relevant interrogatories and production requests. Action Group did not respond to NanoStatics' motion to compel.

{¶ 9} The trial court granted NanoStatics' motion to compel in an order dated April 13, 2012. The trial court required Action Group to provide complete responses toNanoStatics' first set of interrogatories and requests for production by April 26, 2012. The trial court also awarded NanoStatics reasonable attorney fees incurred in pursuing the discovery responses and in preparing and prosecuting the motion to compel. The trial court directed NanoStatics to file and serve an affidavit detailing its attorney fees. The trial court allowed Action Group 14 days to file and serve any objections to the attorney fees set forth in the affidavit.

{¶ 10} In compliance with the trial court's order, NanoStatics' attorney submitted an affidavit stating that the attorney fees awarded in the April 13, 2012 order amounted to $6,067.50. Action Group did not object, or respond in any way, to the affidavit.

{¶ 11} Following the trial court's April 13, 2012 order, Action Group provided NanoStatics with a link to an on-line storage site containing more than 300 pages of documents. According to NanoStatics, the vast majority of the 300 pages were neither responsive to the discovery requests nor relevant to the case. For example, Action Group supplied NanoStatics with instructions on how to assemble a door, documents related to work for other customers, and photographs of boxes prepared for shipment to other customers. Significantly, the on-line storage site did not contain requested documents such as Action Group's quality manual; a copy of Action Group's ISO 9001:2008 certificate; design and review notes related to the items manufactured for NanoStatics; internal communications regarding design issues, inspection, and testing records; or records for any of the raw materials purchased for use in the manufacture of the relevant items.

{¶ 12} In a letter dated May 8, 2012, NanoStatics' attorney informed Action Group's attorney of the deficiencies in Action Group's discovery responses. The letter contained a list of the documents that NanoStatics sought, but Action Group had not provided. Action Group's attorney replied that "[m]y client says to the extent that documents exist on your request list, you have them already." (R. 91.)

{¶ 13} When NanoStatics' attorney deposed Frank Denutte, Action Group's president, she discovered that not only did many of the requested documents exist, but also that Denutte had no explanation for Action Group's failure to produce them. Denutte admitted that Action Group had an ISO 9001:2008 certificate, which hung in Action Group's lobby. The following colloquy about Action Group's certificate ensued:

Q: If you have a certificate, do you know why you have failed to produce it?

A: No.

Q: Can you produce it?

A: I would assume so.

Q: Why haven't you produced it?

A: I don't have an answer.

(R. 95 at 63.)

{¶ 14} Denutte also acknowledged that Action Group had a quality manual. When asked why Action Group had not provided its quality manual to NanoStatics, Denutte answered, "Same answer as before. I don't know." (R. 95 at 73.)

{¶ 15} On July 9, 2012, NanoStatics moved for dismissal of Action Group's claims because Action Group had failed to comply with the April 13, 2012 order compelling it to fully respond to NanoStatics' discovery requests. Citing to Denutte's deposition testimony, NanoStatics argued that Action Group's defiance of the April 13, 2012 order was willful and in bad faith.

{¶ 16} In its memorandum contra NanoStatics' motion to dismiss, Action Group first argued that it had turned over its quality manual. According to Action Group, NanoStatics introduced the quality manual as an exhibit during Denutte's deposition and used the manual to question Denutte. Next, Action Group blamed its discovery failures on Denutte's bout with multiple myeloma, which severely incapacitated him from May 2011 to June 2012.

{¶ 17} At the same time it responded to NanoStatics' motion to dismiss, Action Group moved for reconsideration of the portion of the April 13, 2012 order that awarded NanoStatics its attorney fees. Action Group advanced Denutte's illness as the basis for reconsidering that order and relieving Action Group of the obligation to pay the fees.

{¶ 18} In its reply to Action Group's memorandum...