Nationwide Book Indus., LLC v. Weiss

NATIONWIDE BOOK INDUSTRIES, LLC, Plaintiff, v. ANDREW WEISS, Defendant.

CIVIL ACTION NO. 11-12195-JGD

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

October 21, 2013

FINDINGS OF FACT AND RULINGS OF LAW

DEIN, U.S.M.J.

I. INTRODUCTION

This action arises out of a series of purchase orders under which the plaintiff, Nationwide Book Industries, LLC ("Nationwide"), agreed to sell more than 216,000 books to the defendant A&S Booksellers, Inc. ("A&S").¹ Nationwide claims that it made its initial sales to A&S, and continued to ship books to A&S, based on repeated assurances from A&S' principal, defendant Andrew Weiss, that A&S' business was prospering and that payment to Nationwide would be made in full. It further claims that Weiss' representations were false, and were made only as a pretense to obtain books from the plaintiff without paying for them. By its Complaint, Nationwide has brought claims against A&S for breach of contract (Count I) and unfair and deceptive business practices(Count II). It has also asserted a claim against Weiss for fraudulent pretense and deception, by which A&S is seeking to hold Weiss personally liable for A&S' debt under Mass. Gen. Laws ch. 93A (Count III). On January 13, 2012, A&S filed for Chapter 11 bankruptcy, as a result of which Nationwide's claims against that defendant are currently stayed.

A jury-waived trial of Nationwide's claims against Weiss was held before this court on August 12, 2013. Weiss and Erez Bredmehl, the principal of Nationwide, testified. After careful consideration of the testimony, exhibits, pleadings and arguments of the parties, this court finds that Nationwide has failed to meet its burden of proving that Weiss acted with fraudulent intent when he ordered the books, or that Weiss made actionable misrepresentations of fact. In addition, Nationwide has not met its burden of proving that its reliance on Weiss' representations was reasonable. Therefore, and for the reasons detailed herein, judgment shall enter in favor of Weiss on Nationwide's claims against him.

II. FINDINGS OF FACT

The Parties

The plaintiff, Nationwide, is a small Massachusetts LLC engaged in the wholesale purchase, sale and distribution of overstock and remainder books and other media products. Its principal owner is Erez Bredmehl, who opened Nationwide in 2009.

Bredmehl has been in the business of buying and selling remainder and bargain books since approximately 1994. Prior to starting Nationwide, Bredmehl had operated asimilar business under the name "Strictly by the Book." That company had gone out of business.

The defendant, Andrew Weiss, was the president and sole owner of A&S, a company which operated "pop-up stores." Under this business model, A&S would enter into short-term leases with retail landlords to temporarily occupy vacant retail space. Although the leases were short-term, they could be renewed and on occasion the "temporary" occupancy could last for years.

A&S bought overstock, returns and remainder books and related merchandise from sellers such as Nationwide. It then sold the merchandise in its "temporary" bookstores at a deep discount. A&S also operated pop-up stores which sold Halloween and related merchandise.

The Halloween business was highly seasonal, with as much as 40% of its revenue being generated in the few days preceding Halloween.

Weiss had first started to sell books under this pop-up model in the 1990's. At some point early on he purchased the inventory of Crown Books, a company which had gone out of business. Weiss had opened approximately 13 pop-up bookstores in retail space vacated by Crown Books, as a result of which his revenues had doubled. Weiss operated these bookstores under the name Crown Books and later A&S (or related names). Eventually, his use of the name Crown Books was discontinued. A&S added the Halloween business in or around 2007.

A&S filed for Chapter 11 bankruptcy in January 2012. Weiss continued to work for the company until January 2013, at which time the company went into liquidation. Weiss' wife purchased the abandoned inventory of A&S, and started a business which appears to be substantially identical to A&S' business. She is operating under the name Crown Books, and Weiss is "advising" her in connection with running the business.

Weiss and Bredmehl (when he was running Strictly by the Book) started doing business together in or about 1997. According to Bredmehl, Weiss was "always a man of his word" and someone he could trust. (Tr. 122). Weiss had always paid his bills in full, albeit slowly and with partial payments until paid in full.

Events Leading to the First Purchase Orders

Weiss and Bredmehl met at a book trade show in Atlanta, Georgia in March 2011, where Nationwide was exhibiting and Weiss had gone to purchase inventory for A&S. At that time, Borders had recently announced that it would be closing a number of its stores, and the closure was a subject of conversation at the trade show.

At that time, Nationwide was still a new business, and Bredmehl was investing his own money in the company to make it operational. For his part, Weiss testified that although the book business had gotten "very slow" for him by 2011, and his focus was on Halloween costumes, he saw the recent announcement that Borders was going to be closing stores as a great opportunity to open pop-up book stores in some of these locations. (Tr. 13). This had been a very successful business model for him when Crown Books had gone out of business.

As noted above, Bredmehl and Weiss knew each other from prior transactions. They verbally agreed that Nationwide would sell, and A&S would buy, books for resale in its existing and anticipated bookstores. Bredmehl understood that Weiss needed product for existing stores, as well as for future stores that he planned on opening in Borders' locations.

Bredmehl testified as follows regarding the alleged representations made by Weiss at the trade show. These are some of the representations that form the basis of his claim of fraud:

Q. Once you were beyond the stage of pleasantries and the like, what was the nature of your discussion with Mr. Weiss at that trade show?

A. Mr. Weiss was sharing with me the success of A&S Booksellers, past tense, present tense, and future tense in regards to the prosperity and the growth of his company; and that's why he's at a trade show, looking for book deals.

Q. If you remember, what did he say to you with respect to the financial condition of his company in terms of growth prosperity?

A. We weren't discussing numbers, but the story line is what counted, and that's where he had my blessings, if you will, through his story line that A&S Book is doing great, it's doing well, it has a number of prospects for growth. That was the essence of the conversations.

Q. What was said with respect to Borders?

A. Borders I believe filed in Chapter 11 in February of 2011. He did find that there would be potential on the real estate market for stores to become available and taking over Borders Bookstores, or at least its locations.

Q. What did he say, if anything, with respect to his need for inventory from your company or others that were wholesale booksellers?

A. Well, through the conversations, he had an existing book business, retail business, and so he needed product for those stores; also needed product for stores that he was putting online that were already materialized in regards to real estate dealings, and that was the essence of the April conversations in regards to the orders.

(Tr. 123-24). As detailed below, this court finds that these statements do not rise to the level of actionable misrepresentations of fact.

Weiss testified that he told Bredmehl that he hoped to get six to ten Borders stores, although, as Bredmehl knew, he had not acquired any locations at the time of the trade show. He testified further that he expected to have four to six stores running during the summertime, although he was only ordering inventory for four stores. In fact, A&S did open several bookstores during the summer and had four to six stores open by year end.

Bredmehl never did a credit check on A&S or Weiss, and never asked Weiss for a personal guarantee of any payment. Bredmehl knew from experience that although A&S eventually paid its bills in full, it often made only partial payments for inventory, paid late, and needed to use its credit cards to gain time to make payments.

Bredmehl and Weiss had general discussions about the mixture of books Nationwide would sell to A&S, including the optimal number of each title to be sold per store. It is undisputed, however, that Nationwide was free to set the amount of books being sold to A&S, and the actual composition and distribution of titles in each order.

Bredmehl and Weiss agree that they discussed payment terms, although their description of that conversation varies greatly. Bredmehl testified that he proposed payment terms of 30 days, but Weiss said that he needed longer since he would beopening new stores, and asked for net 90 days. According to Bredmehl, he reluctantly agreed to 90 day terms.

Weiss testified that although Bredmehl requested payment terms of 90 days, he told Bredmehl that payment would be made after Halloween. According to Weiss, payment was to be made from the income from his Halloween store sales, and that until that time money would be put into buying inventory for the existing and new stores.

Bredmehl denies that there was any conversation about payment being tied to Halloween at this initial meeting. He does admit, however, that the Halloween business was at least mentioned by Weiss. As detailed below, it is undisputed that at least by September 2011, there were conversations relating to payments being made after Halloween.

I find that while Weiss may have informed Bredmehl that most of A&S' income would be available to pay for inventory after Halloween, there was never any agreement reached that no payment would be made for the book...