Shaffer v. Amazon Servs. (In re Potential Dynamix LLC)

In re: POTENTIAL DYNAMIX LLC, Debtor.

TIMOTHY H. SHAFFER, Chapter 11 Trustee, Plaintiff, v. AMAZON SERVICES, LLC, Defendant.

No. 2:11-bk-28944-DPC

Adversary No. 2:13-ap-00799

United States Bankruptcy Court, D. Arizona

July 18, 2022

NOT FOR PUBLICATION

Chapter 11

UNDER

ADVISEMENT ORDER

Daniel P. Collins, Bankruptcy Judge

TABLE OF CONTENTS

I. SUMMARY OF LAWSUIT AND COURT FINDINGS........................................5

II. INTRODUCTION....................................................................................................7

III. JURISDICTION.....................................................................................................12

IV. POTENTIAL DYNAMIX'S BANKRUPTCY......................................................12

V. ADVERSARY PROCEEDING PROCEDURAL HISTORY...............................15

A. The Complaint and Answer....................................................................................15

B. Amazon's Counterclaims.......................................................................................16

C. Discovery Disputes................................................................................................16

D. Motions for Summary Judgment............................................................................16

E. Motions in Limine..................................................................................................18

VI. THE TRIAL...........................................................................................................19

A. Trial Exhibits..........................................................................................................19

B. Trustee's Witnesses................................................................................................20

1. Timothy Shaffer..................................................................................................20

2. Serena Mor ones..................................................................................................21

a) Morones' Damages Report..............................................................................22

b) Morones February 5, 2021, Declaration..........................................................27

c) Morones' Direct, Cross and Re-Direct Examinations.....................................32

3. Thomas Azzarelli................................................................................................38

4. Justin Ice.............................................................................................................39

5. Tasha Bachand....................................................................................................41

6. Jeff Moore...........................................................................................................43

7. Eric Soder............................................................................................................44

8. Jeffrey Cone........................................................................................................45

9. Stephen Ashworth...............................................................................................46

10. Sean Lawcock.....................................................................................................47

11. Daniel A. Bellino................................................................................................49

C. Motion for Directed Verdict...................................................................................49

D. Amazon's Witnesses..............................................................................................50

1. Tasha Bachand....................................................................................................50

2. E. Weiant Williams.............................................................................................52

a) Williams' Rebuttal Report of September 14, 2020.........................................52

b) Williams Declaration.......................................................................................57

c) Williams' Cross and Re-Direct Examinations................................................58

3. Timothy Shaffer..................................................................................................60

4. Justin Ice.............................................................................................................61

5. Jeff Moore...........................................................................................................63

6. Eric Soder............................................................................................................64

7. Jeffrey Cone........................................................................................................66

8. Stephen Ashworth...............................................................................................67

9. Thomas Reilly.....................................................................................................68

10. Sean Lawcock.....................................................................................................69

11. Daniel A. Bellino................................................................................................70

E. Post-Trial Proceedings...........................................................................................71

F. Tentative Under Advisement Order.......................................................................72

VII. ANALYSIS OF TRUSTEE'S CAUSES OF ACTION.........................................72

A. Count 1: Failure to Turnover Estate Property Pursuant to § 542(a)......................72

1. Legal Analysis....................................................................................................72

2. Conclusion on Turnover Claims.........................................................................73

B. Count 2: Violation of the Automatic Stay Pursuant to § 362................................73

1. Legal Analysis....................................................................................................73

2. Conclusion on the Stay Violation Claims...........................................................77

C. Count 3: Breach of Contract...................................................................................77

1. Legal Analysis....................................................................................................77

2. Burden of Proof...................................................................................................78

a) Burden Shifting...............................................................................................79

b) Conclusions Regarding Burden of Proof.........................................................82

3. Findings Regarding Breach of Contract and Damages.......................................83

a) Calculating Replacement Value......................................................................83

b) Cutoff Date of January 31, 2014.....................................................................84

4. Amazon's Contract Breach.................................................................................86

a) The Settlement Data Was Not Introduced Into Evidence...............................86

b) Plaintiffs Proven Inventory Damages............................................................90

c) The Court's Analysis of Codes Used by Amazon and the Impact on Claimed Damages.................................................................................................................92

(1) Code M.........................................................................................................92

(2) Code D.........................................................................................................94

(3) Code Q.........................................................................................................95

d) Unpaid Refunds...............................................................................................97

e) Sales Proceeds Not Remitted to Debtor..........................................................98

f) Trustee Did Not Carry Its Burden of Proof on the Basis of Amazon's Motivation for Termination of the Contract...........................................................99

g) Unclean Hands.................................................................................................99

h) Money Claimed Owing by Debtor to Amazon...............................................99

5. Conclusion on Breach of Contract Claims.......................................................100

D. Prejudgment Interest on Damages........................................................................100

a) Legal Analysis...............................................................................................101

b) Conclusion on Prejudgment Interest.............................................................103

VIII. SUMMARY OF CONCLUSIONS......................................................................103

IX. ORDER................................................................................................................104

I. SUMMARY OF LAWSUIT AND COURT FINDINGS

This Adversary Proceeding^[1] involves a nine count Complaint^[2] brought by Timothy H. Shaffer, Trustee of the Chapter 11 Debtor, Potential Dynamix, LLC against Amazon Services, LLC on July 9, 2013. Over the course of this Adversary Proceeding, Plaintiffs claims have been boiled down to claims for (1) breach of contract, (2) turnover of property to Plaintiff, and (3) a claim for a violation of the bankruptcy automatic stay.

Plaintiff alleges Debtor placed roughly 6.4 million units of product in Amazon's...