Epsilon-NDT Endustriyel Kontrol Sistemleri Sanayi VE Ticaret, A.S. ("Epsilon") v. Powerrail Distribution, Inc., ("PowerRail")

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EPSILON-NDT ENDUSTRIYEL KONTROL SISTEMLERI SANAYI VE TICARET, A.S. (“Epsilon”), Plaintiff, v. POWERRAIL DISTRIBUTION, INC., (“PowerRail”), Defendant.

Civil Action No. 3:18-cv-821

United States District Court, M.D. Pennsylvania

March 25, 2024

MEMORANDUM

MALACHY E. MANNION, United States District Judge

Presently before the court is Defendant's motion for summary judgment. (Doc. 53.) Plaintiff, an industrial equipment provider based in Istanbul, Turkey, brings suit against Defendant, a distributor of after market train parts based in Duryea, Pennsylvania, for inter alia breach of contract. In 2015, Plaintiff entered into a Sales Agreement with non-party Rail and Traction Canada (“RTC”) to buy train parts for resale to non-party Egyptian National Railways (“ENR”). However, RTC failed to deliver the train parts promised under the agreement, which in turn caused Plaintiff to breach its separate resale agreement with ENR. Plaintiff alleges that Defendant is ultimately liable for these breaches because it was (1.) the alter ego of RTC, (2.) the principal on behalf of which RTC acted as agent, and (3.) assumed the rights and obligations of RTC under the Sales Agreement. Defendant moves for summary judgment on the basis that Plaintiff has provided no admissible evidence to support these allegations and otherwise has failed to raise a genuine dispute of material fact regarding its other claims.

I. Background

On November 30, 2015, Plaintiff entered a contract with ENR to source spare parts and equipment for ENR's fleet of Henschel-branded diesel locomotives. In or around that time Plaintiff contacted RTC, its preferred North American supplier of after market train parts, to procure and deliver that inventory of goods to ENR. Plaintiff and RTC then formed the Sales Agreement by exchange of a firm offer from RTC and a purchase order from Plaintiff accepting the offer. RTC already had 80 of the 95-line items under the Sales Agreement in its inventory at the time the agreement was entered. Pursuant to the terms of the agreement, Plaintiff paid 50% of the order price, or $172,000, in advance, with the remaining 50% to be paid upon presentation of the shipment invoice. Despite this significant advanced payment, the Sales Agreement did not specify at what point title to the goods purchased under it would pass to Plaintiff.

Throughout 2016 and 2017, ENR experienced delays and difficulties in obtaining the U.S. dollar-denominated letter of credit necessary to effect payment under its separate contract with Plaintiff. Still Plaintiff assured RTC that it remained intent on taking delivery of the goods under the Sales Agreement and agreed that RTC would continue to hold the goods already procured at its warehouse in St. Thomas, Ontario, but would pause any further efforts to procure the remaining items. In April 2017 ENR remained unable to pay for the goods and RTC could no longer hold those goods at its Ontario warehouse, as it was in financial distress that required the liquidation of its assets including its warehouse. Consequently, Plaintiff gave RTC written authorization to find other potential buyers for the goods on April 24, 2017.

On September 18, 2017, Plaintiff assented, in writing, to RTC transferring the goods to Defendant. RTC delivered those goods to Defendant's warehouse in Duryea, Pennsylvania, in early October 2017 and soon thereafter went out of business. Between October and December 2017 Plaintiff communicated with Defendant and acknowledged the latter's possession of the goods. However, it soon became clear that there was a miscommunication between Plaintiff, RTC, and Defendant. First, Plaintiff believed it owned the goods already procured under the Sales Agreement by RTC, who it further believed was simply holding those goods on consignment until they could be sold. Second, Plaintiff also believed that Defendant bought the goods (which had appreciated in price) from RTC for $180,000 that would be remitted to Plaintiff under its consignment arrangement with RTC. Conversely Defendant believed RTC owned the disputed goods outright and that RTC had sold it those goods free of any obligation to Plaintiff in exchange for forgiving an outstanding trade debt RTC owed Defendant.

In an email to Plaintiff's representative on November 6, 2017, RTC's CEO, Stephane Claveau, acknowledged that there had been a miscommunication in the rush to clear out RTC's Ontario warehouse and informed Plaintiff that it had two options. Defendant could continue to sell the goods already procured under the Sales Agreement and pay out to Plaintiff as they were sold (i.e., continue the consignment arrangement), which was recommended by Claveau, or the parties could work out a payment plan where Defendant would pay Plaintiff $180,000 for the goods over the course of 12 months. Claveau signed this email “On behalf of PowerRail” and copied multiple employees of Defendant, including Defendant's Director of Supply Chain, James Fazio, who did not contradict Claveau's offer or authority to act on Defendant's behalf. Plaintiff expressed frustration at the miscommunication but agreed with Claveau's recommendation to continue selling the goods on consignment through Defendant. In responding to Claveau and Defendant's employees Plaintiff also indicated it would help look for buyers interested in purchasing the goods now held by Defendant.

In December 2017, ENR confirmed to Plaintiff that it would have the appropriate letter of credit ready soon and could take delivery of the goods. Plaintiff in turn notified Defendant that they had found a buyer for the goods and began to make arrangements for their shipment from Pennsylvania to Egypt, including by arranging visas for Egyptian inspectors to visit Defendant's site in Duryea. However, on December 28, 2017, when Plaintiff's representative contacted Defendant to confirm the items and quantities of parts transferred from RTC to Defendant, and to request help getting visas for ENR's inspectors, Defendant's President and CEO, Paul Foster, responded that Defendant had no involvement in Plaintiff's transaction with ENR and told Plaintiff to stop contacting his employees. The same day, Plaintiff's representative asked for clarification about this position and for Foster's input on how else it could sell or take possession of the goods procured for it by RTC. Foster responded that he was unaware of any interest Plaintiff may have in the goods and claimed Plaintiff was misinformed.

As a result, Plaintiff, first through Turkish counsel, on January 8, 2018, and then through American counsel, on March 7, 2018, sent letters to Defendant demanding it deliver the disputed goods to ENR, who had the letter of credit needed to complete the sale as of January 11, 2018. In these letters Plaintiff reiterated that upon delivery it would pay the balance of the Sales Agreement to Defendant. But Defendant still refused to deliver the disputed goods to either Plaintiff or ENR. Plaintiff was unable to find another source of parts for ENR and in early May 2019, ENR declared Plaintiff to be in breach of their 2015 contract and demanded forfeiture of the “guarantee deposit” or performance bond under that contract.

Plaintiff initiated this action on April 16, 2018, alleging that Defendant is liable for RTC's breach of the Sales Agreement because RTC was in fact the Canadian subsidiary/affiliate of Defendant with Defendant's CEO and majority shareholder, Paul Foster, also owning 49% of RTC (the remaining 51% was held by RTC CEO Stephane Claveau). Furthermore, Plaintiff alleges that the closure of RTC and subsequent transfer of the goods to Defendant was the direct result of Foster's actions. In fact, Plaintiff submits evidence that in April 2017 Claveau even tried to sell his majority stake in RTC to Plaintiff to stop the closure of RTC by Foster. Conversely Defendant, who is 70% owned by Foster (with the remaining 30% held by his employees), argues that it is a distinct corporate entity from RTC, from whom it merely bought the disputed goods without any knowledge of RTC's contract with Plaintiff or Plaintiff's contract with ENR. Defendant further asserts that regardless of the nature of its relationship with RTC Plaintiff has no evidence it ever had title to the goods. It merely made a substantial advanced payment towards those goods that RTC never refunded. Thus, in Defendant's view only RTC, a now defunct entity with no assets, is solely liable for Plaintiff's damages.

II. Legal Standard

Summary judgment is appropriate “if the pleadings, the discovery [including, depositions, answers to interrogatories, and admissions on file] and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c); See also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Turner v. Schering-Plough Corp., 901 F.2d 335, 340 (3d Cir. 1990). A factual dispute is genuine if a reasonable jury could find for the nonmoving party and is material if it will affect the outcome of the trial under governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Aetna Cas. & Sur. Co. v. Ericksen, 903 F.Supp. 836, 838 (M.D. Pa. 1995).

At the summary judgment stage, “the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Anderson, 477 U.S. at 249; See also Marino v. Indus. Crating Co., 358 F.3d 241, 247 (3d Cir. 2004) (a court may not weigh the evidence or make credibility determinations). But the court must consider all evidence and inferences drawn therefrom in the light most favorable to the nonmoving ...