Cambridge Valley Machining, Inc. v. Hudson MFG LLC

470 F.Supp.3d 230

CAMBRIDGE VALLEY MACHINING, INC., Plaintiff,

v.HUDSON MFG LLC, et al., Defendants.

No. 1:18-CV-1022 (CFH)

United States District Court, N.D. New York.

Signed July 2, 2020

ADAM R. SHAW, ESQ., JOHN F. DEW, ESQ., Boies, Schiller & Flexner LLP, 30 South Pearl Street, 11^th Floor, Albany, New York 12207, Attorneys for Plaintiff.

JACK K. REID, ESQ, Grable Martin Fulton PLLC, 4361 South Congress Ave, Suite 110, Austin, Texas 78745, Attorney for Defendants.

MEMORANDUM, DECISION & ORDER

Christian F. Hummel, U.S. Magistrate Judge Plaintiff Cambridge Valley Machining, Inc. ("CVMI") brings this diversity action against defendants Hudson MFG LLC ("Hudson"), Billie Cyril Hudson III ("Cy Hudson"), Lauren Hudson, and Hudson Standard LLC ("Hudson Standard") (collectively, where appropriate, "defendants") for breach of contract and fraudulent conveyance to recover unpaid balances for goods manufactured for and delivered to Hudson. See Dkt. No. 50 ("Second Amended Complaint" or "SAC"). Defendants answered and asserted counterclaims for breach of contract. See Dkt. No. 26. Presently pending before the Undersigned¹ are: (1) CVMI's motion for summary judgment on its (a) breach of contract and (b) fraudulent conveyance claims, see Dkt. No. 69; (2) defendants’ motion for summary judgment on their counterclaims for breach of contract, see Dkt. No. 70; and (3) CVMI's opposition and cross motion for summary judgment to dismiss defendants’ counterclaims. See Dkt. No. 74. Defendants oppose CVMI's motion for summary judgment. See Dkt. No. 75. Each party has filed a reply to the respective oppositions in response to motions for summary judgment. See Dkt. Nos. 76, 77. For the reasons that follow, (1) CVMI's motion for summary judgment is granted in its entirety; (2) defendants’ cross motion for summary judgment is denied in its entirety; and (3) plaintiff's cross motion for summary judgment is granted in part and denied in part.

I. Background

A. Undisputed Facts

1. The Parties’ Contract

CVMI is a New York corporation that performs machining and manufacturing services for the production of component parts for, among other things, firearms. See Dkt. No. 50 at 1. Defendant Hudson was a Texas Limited Liability Company ("LLC") that manufactured and sold firearms. See id. ² Defendants Cy Hudson and his wife, Lauren Hudson, were the sole members and managers of defendant Hudson Standard, which was the sole owner of Hudson and non-party Skunk Laboratories LLC ("Skunk Labs"). See Dkt. No. 69-2 at 7.

a. February 2016 Email Exchange

In February 2016, Cy Hudson emailed James Moore ("Moore"), president of CVMI, to begin discussions regarding CVMI's production of component parts for a handgun, the Hudson H9. See Dkt. No. 70-3 at 3. On February 15, 2016, Cy Hudson asked Moore for his "thoughts on [CVMI]’s ability to handle the 10,000/month rate of production" and indicated that Hudson was "crunching through [its] cash flow analysis trying to nail down lead times for the steel frame and the slides" and that "[t]he lead times [we]re the stick in the mud for [Hudson]" at that time. Id. Moore replied, "[r]egarding the 10,000/month production rate, it is impossible to say for sure without knowing more about the design and reviewing drawings." Id.

On February 17, 2016, Cy Hudson acknowledged that he "underst[ood that] the design ha[d] to be finalized before [Hudson could] submit a formal RFQ," indicated that he was "attaching pictures of [Hudson's] current [H9] prototypes and a screen picture of the drawings," and asked Moore whether Hudson "could get any guesstimate on lead times based on the drawings or based on frames [CVMI] worked before (1911 or other)"³ because Hudson was "trying to identify the ... production numbers and any dependencies for [its] schedule." Id. at 2. On February 18, 2016, Moore sent Cy Hudson an email, stating "16 weeks for first production samples is a good guide—this time would be spent designing tooling/building tooling/programming/and producing the first article⁴ samples. Once approved, it could take another 4-6 weeks for first production deliveries depending on coating and heat treat requirements. Regarding quantities, it depends on the design." Id. Cy Hudson responded, "[t]hanks for the help[, w]e hope to be reaching out with preliminary drawings in the next few weeks." Id.

b. Exchange of Forms

On September 21, 2016, Hudson sent CVMI request for quotation ("RFQ") No. RFQ2016-546 ("the September 21, 2016 RFQ") for prices for the production of grips (Part No. H9-200-0001) and slides (Part No. H9-200-003) for the Hudson H9, to be produced according to Hudson's specifications. See Dkt. No. 26-1 at 2 (Grip: "[f]inish and other specs per print. Please see marking note below"; Slide: "[f]inish and other spec per prints"). The September 21, 2016 RFQ contained a "REQUIREMENTS" box, which included "[e]stimated [v]olume: [s]ee options below[,] [s]tart of [p]roduction: Nov-16, and [e]nd of [p]roduction: [c]ontinuing." Id. at 2. In particular, the September 21, 2016 RFQ stated,

Please quote each part below in the following volumes:

Option 1: 10,000 piece spot buy, 2500 piece monthly releases.

Option 2: Full production levels. We expect initial volumes to be in the 30,000 year range, ramping up to 120,000.

Prototypes: Please quote order quantities of 4, 8, and 15, as we have multiple prototype and other requirements in the future.

Please reference any deviations from the prints requested under comments.

We are pending a marking variance so would prefer parts not be marked immediately to see if we can have this.

Id. at 2. Moreover, the September 21, 2016 RFQ stated, "Terms and Conditions can be referenced at hudsonmfgllc.com." Id. at 2.

On October 18, 2016, CVMI sent Hudson a price quote (Quote Q61280), which referenced RFQ2016-546, and provided unit prices and "[e]xtended" prices for Grip REV⁵ C. (No. H9-200-001), Frame Insert Rev J. (No. H9-200-002), Slide Rev K. (No. H9-200-003), Recoil Spring Guide Rev. B. (No. H9-200-0021), and the cost of fixtures, programming, and engineering for each part. See Dkt. No. 50-1 at 2-3. CVMI's October 18, 2016 price quote stated that "all quantities quoted are monthly," and provided monthly unit and extended price quotes based on the monthly production of 500 units per month; 1,000 units per month; 2,500 units per month; and the single-non-recurring engineering cost ("NRE") for each of the quoted items. See id. In particular, CVMI provided the following price quotes:

Item	Quantity	Unit Price	Extended Price
GRIP REV C (H9-200-0001)	500	$147.95	$73,975.00
1,000	$144.21	$144,210.00
2,500	$141.96	$354,900.00
1 NRE	$93,250.00	$93,250.00
FRAME INSERT REV J (H9-200-0002)	500	$80.08	$40,040.00
1,000	$76.37	$76,370.00
2,500	$74.14	$185,350.00
1 NRE	$21,750.00	$21,750.00
SLIDE REV K (H9-200-0003)	500	$127.10	$63,550.00
1,000	$123.36	$123,360.00
2,500	$121.11	$302,775.00
1 NRE	$48,000.00	$48,000.00
RECOIL SPRING GUIDE REV B (H9-200-0021)	500	$8.99	$4,495.00
1,000	$6.54	$6,540.00
2,500	$5.23	$13,075.00

The total price quoted by CVMI in response to Hudson's September 21, 2016 RFQ (RFQ2016-546) was $1,551,640.00. See id. at 3. Further, CVMI's October 18, 2016 price quote stated that "CVM[I's] Terms & Conditions (D106) Apply http://www.cvmusa.com/terms/d106.pdf." Id. Of particular relevance here, CVMI's Terms & Conditions state, "[t]his quotation is an offer by CVMI and becomes a binding contract on the terms set forth herein when accepted in writing or upon shipment of customer furnished material for the work described herein." Dkt. No. 50-2 at 2.

In November 2016, Hudson sent CVMI Purchase Order ("PO") No. 2016516 ("the November 2016 PO"). See Dkt. No. 50-3. The November 2016 PO contained an "order date" of November 4, 2016, for 10,000 grips (Rev. C) at a unit price of $120.00; 10,000 9mm barrels (Rev. F) at a unit price of $33.00; and 10,000 strikers (Rev. C) at a unit price of $15.75, for a total of $1,687,500.00. Id. at 2 (capitalization omitted). The "[d]elivery [t]erms" stated "FOB: Original," and "[r]equired [d]elivery" stated "[p]er schedule in notes." Id. Under the caption "purchase order comments," the PO stated "[p]arts to be released in 2,500 piece monthly quantities starting 2/1/2017." Id. (capitalization omitted). Lauren Hudson prepared and signed the PO, which is dated November 8, 2016. See id.

On December 6, 7, and 13, 2016, CVMI sent Hudson Sales Order Acknowledgement Forms for 10,000 grips (Rev. C) at a unit price of $120.00; 10,000 9mm barrels (Rev. F) at a unit price of $33.00; and 10,000 strikers (Rev. C) at a unit price of $15.75, "to be released in 2,500 monthly quantities starting 2/1/17," for a combined total of $1,687,500.00. Dkt. Nos. 1-4 at 2, 3, 4; 50-4 at 2, 3, 4.

2. The May 10, 2018 Conveyances

In 2015, Cy's father (Lauren's father-in-law), Billie Hudson, Jr., advanced $6,750,000.00 to Standard. See Dkt. No. 69-15 at 2. On May 10, 2018, Cy and Lauren Hudson, Standard, Hudson, Sunk Labs, and Billie Hudson, Jr., signed a Debt Restructuring and Redemption Agreement, pursuant to which Standard issued Billie Hudson Jr. a $9,736,240.92 promissory note "as consideration for the Redemption and Restructure"—the buy-back of Billie Hudson, Jr.’s shares in Standard. See id. at 2, 7, 8; see also Dkt. No. 69-16 (Secured Promissory Note). Cy Hudson signed on behalf of Standard, as well as Hudson and Skunk Labs, which were listed as pledgors under the agreement. See Dkt. No. 69-15 at 7. Cy and Lauren Hudson signed the agreement as guarantors. See id. at 7, 8; see also Dkt. No. 69-19 at 2-6 (Guarantee Agreement signed by Cy and Lauren Hudson as guarantors and Billie Hudson, Jr. as beneficiary). Also, on May 10, 2018, Cy Hudson signed a Pledge and Purchase Money Security Agreement on behalf of Hudson and Skunk labs, which pledged all of Hudson's and Skunk Lab's assets and listed Billie Hudson, Jr. as the secured party. See Dkt. No. 69-17 at 2, 8; see also Dkt. No. 69-20 at 2-4 (UCC Financing Statement pledging Hudson's and Skunk Lab's assets to Billie Hudson,...