JMB MANUFACTURING, INC. v. CHILD CRAFT, LLC et al

Filing 152

ENTRY - Defendants' motion for summary judgment (Dkt. # 89 ) is GRANTED in part and DENIED in part. Child Craft's motion for partial summary judgment (Dkt. # 91 ) is GRANTED in part and DENIED in part. Counterclaim-Defendants' motions for partial summary judgment and to dismiss Mr. Bienias (Dkt. # 135 ) are DENIED. The remaining case shall proceed to trial. Signed by Judge Tanya Walton Pratt on 4/10/2013. (JD)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
NEW ALBANY DIVISION
JMB MANUFACTURING, INC. d/b/a
SUMMIT FOREST PRODUCTS COMPANY
Plaintiff/Counterclaim-Defendant,
v.
CHILD CRAFT, LLC,
G.E.G. OF INDIANA, LLC,
GATEWAY MANUFACTURING, INC.,
DOUGLAS K. GESSFORD,
DARYL EASON,
Defendants
HARRISON MANUFACTURING, LLC,
f/k/a CHILD CRAFT, LLC
Defendant/Counterclaim-Plaintiff
v.
ROB BIENIEAS,
Counterclaim-Defendant.

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Case No. 4:11-cv-65-TWP-WGH

ENTRY ON DEFENDANTS’ AND COUNTERCLAIM-PLAINTIFF’S MOTIONS FOR
SUMMARY JUDGMENT AND PARTIAL SUMMARY JUDGMENT
Plaintiff JMB Manufacturing, Inc., d/b/a Summit Forest Products Company (“Summit
Forest”), sued Defendants, Child Craft, LLC , along with G.E.G. of Indiana, LLC (“G.E.G.”),
Gateway Manufacturing, Inc. (“Gateway”), Harrison Manufacturing, LLC, Douglas K. Gessford
(“D.K. Gessford”), and Daryl Eason (“Mr. Eason”) (collectively, “Defendants”), alleging breach
of contract and conversion, and seeking to pierce the corporate veil.

Defendant Harrison

Manufacturing, LLC (f/k/a Child Craft, LLC) (“Child Craft”)1 counterclaimed against Summit
Forest and its President, Rob Bienias (“Mr. Bienias”) (collectively, “Counterclaim-Defendants”),
claiming breach of contract, breach of implied warranties, and negligent misrepresentation.
Defendants moved for summary judgment, Child Craft moved for partial summary judgment as
the Counterclaim- Defendants moved for summary judgment. For the reasons set forth below,
Defendants’ motion (Dkt. #89) is GRANTED in part and DENIED in part, Child Craft’s
motion (Dkt. #91) is GRANTED in part and DENIED in part, and Counterclaim-Defendants’
motion (Dkt. #135) is DENIED.
I. BACKGROUND
A.

Authority to Act
Mark and Bill Suvak owned Child Craft, Inc. until 2008, when, after being financially

crippled from a 2004 flood, they sought a buyer. D.K. Gessford, Mr. Eason, and Carol Gessford
were co-owners of Gateway. The Gateway principals formed G.E.G. to purchase Child Craft,
Inc.’s real estate. Along with Kevin Romenesko (“Mr. Romenesko”), these parties formed Child
Craft, LLC so as to purchase Child Craft, Inc.’s trademark, inventory, and other assets. Mr.
Romenesko was later bought out.
During all times relevant to this dispute, D.K. Gessford served as President and Chief
Executive Officer (“CEO”) of Child Craft. Mr. Romenesko served as the Chief Financial Officer
(“CFO”) through 2009. Bill Suvak served as Vice President and Chief Design Officer, and Mark
Suvak served as Vice President, Chief Operating Officer (“COO”), and CFO after 2009.

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Harrison Manufacturing, LLC, the sole Counterclaim-Plaintiff, referred to itself as “Child Craft” in its
counterclaim. Dkt. #63 at 15. Therefore, for the purposes of this motion, “Child Craft” refers to both Harrison
Manufacturing, LLC and Summit Forest’s business partner, the former Child Craft, LLC.

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B.

Formation of Business Relationship and Contract
In August 2008, Child Craft and Summit Forest entered into a contract, under which

Child Craft purchased sub-assemblies for cribs and case goods from Summit Forest. Gateway
was listed as the corporate entity on the first purchase order, but this was corrected before the
first order was shipped. Mr. Bienias, as Summit Forest President, would act as Child Craft’s
broker to find a suitable sub-assembler of wood products for Child Craft’s Vogue line of
children’s furniture. Child Craft, in turn, would manufacture the unfinished and semi-finished
wood products into finished baby furniture. In September 2008, Summit Forest identified PT
Cita, an Indonesian company, as a supplier. Mr. Bienias and D.K. Gessford visited PT Cita’s
facility in Indonesia.
PT Cita representatives informed D.K. Gessford and Mr. Bienias that it could properly
develop sub-assembly parts for the Vogue line. In August 2008, after receiving Child Craft’s
first purchase order, Summit Forest ordered sub-assemblies from PT Cita. PT Cita shipped six
containers of sub-assemblies, five by sea and one by expedited air, between December 2008 and
April 2009.
The first container of goods was shipped by expedited air, and the cost was to be split
with Summit Forest. Thereafter, Child Craft was generally obligated to pay the cost of goods and
shipping. Upon receipt of any non-conforming goods, Child Craft had the option to either reject
the goods or accept and rework them. If Child Craft elected to try to rework any defective goods
into salable finished products, Summit Forest agreed to pay Child Craft for all supplies and
$30.00 per man-hour of labor.

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C.

Breach of Agreement
Almost immediately, Child Craft and Summit Forest experienced problems with PT Cita.

After initially informing Mark Suvak that the first container would probably ship from Indonesia
about October 7, 2008 and arrive about November 15, 2008, Mr. Bienias learned on October 3
and November 3, 2008 that PT Cita was delaying the first, second, and third containers. Mark
Suvak expressed immediate concern that these delays would not give Child Craft enough time to
create finished products for its customers. Therefore, Mr. Bienias arranged for air shipment of
the first container to ensure the cribs would ship from Indonesia by the end of November 2008.
Child Craft received the first shipment, containing cribs, and the second shipment, containing
case goods, between December 9 and 12, 2008.
There were serious problems with the sub-assemblies, especially high moisture content
with the crib wood and veneer problems with the case goods. Child Craft and Summit Forest
communicated extensively about the problems in December 2008 and January 2009. Child Craft
properly rejected the first shipment of 90 cribs as non-conforming and attempted to salvage the
goods from the remaining shipments into finished products. However, the finished products it
attempted to sell were either returned by retailers or were rejected by retailers outright.
Mark Suvak promptly notified Mr. Bienias that drying the sub-assemblies failed to make
them into salable products. Nevertheless, he subsequently urged Mr. Bienias to get an estimated
time of arrival from PT Cita on the third container and agreed to continue with future orders.
On January 13, 2009, Child Craft asked Summit Forest to stop shipment of further goods
until Child Craft could assure that the goods were suitable. Mr. Bienias communicated this
message to PT Cita, but PT Cita continued to ship defective products. Child Craft agreed to

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reduce its rework rate for shipments received before January 31, 2009, from $30.00 per manhour to $36.00 per case. Ultimately, Child Craft incurred $53,532.62 in rework charges.
Summit Forest invoiced Child Craft for all shipments except for the first shipment of 90
cribs. Consistent with its position that it would not pay until it was sure the cribs were usable,
Child Craft refused payment to Summit Forest no later than January 27, 2009 and never paid
thereafter. On February 20, 2009, Mark Suvak sent an e-mail to Mr. Bienias stating that all cribs
had been rejected and that Child Craft had effectively and timely communicated the product
problems, requesting that a container of replacement cribs be shipped immediately, and
reiterating its refusal to pay until usable cribs were delivered.
Child Craft never delivered non-defective cribs.

Unable to sell any of the Vogue

furniture line to retailers, Child Craft ceased operations on June 19, 2009. Thereafter, in July
2009, D.K. Gessford and Mark Suvak sold approximately $41,692.52 of the subassemblies
provided by Summit Forest to Foundations Worldwide, Inc. (“Foundations”). On January 4,
2010, Mr. Bienias asked Child Craft to dispose of the components, since he could not pay for
storage. In early 2010, Child Craft transferred some of the product to a storage facility owned by
Gateway Manufacturing, Inc. (“Gateway”), where some were destroyed or used as kindling
material by Gateway, but some are still stored. The remaining Summit Forest components stored
at Child Craft were destroyed before the Child Craft building was auctioned.
C.

Claims raised in the pleadings
Summit Forest has sued the Defendants for breach of contract (Plaintiff’s Amended

Complaint Count I), to pierce the corporate veil against D.K. Gessford and Mr. Eason as the
controlling members of the LLC defendants (id. at Count II), and for criminal conversion. Id. at
Count III. Child Craft filed a counterclaim against Summit Forest, alleging breach of contract,

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breach of the implied warranties of merchantability and fitness for particular use, and negligent
misrepresentation.

Mr. Bienias was sued individually for negligent misrepresentation.

Jurisdiction and venue are proper in this court. 28 U.S.C. §§ 1332, 1391(b). Additional facts
will be supplied as necessary.
II.

STANDARD OF REVIEW

Summary judgment is appropriate “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” FED. R. CIV.
P. 56(a). The moving party bears the burden of demonstrating the absence of a genuine issue of
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 325 (1986). The non-moving party,
however, may not rest on mere allegations or denials in its pleadings, but rather must set forth
specific facts showing that there is a genuine issue for trial. FED. R. CIV. P. 56(c); Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). This notion applies equally where, as here,
opposing parties each move for summary judgment in their favor pursuant to Rule 56. I.A.E.,
Inc. v. Shaver, 74 F.3d 768, 774 (7th Cir.1996).
A genuine issue of material fact exists if “there is sufficient evidence favoring the
nonmoving party for a jury to return a verdict for that party.” Anderson, 477 U.S. at 249. Stated
differently, only disputes over material facts—i.e., “facts that might affect the outcome of the
suit under the governing law”—will preclude the entry of summary judgment. Id. at 248. When
determining whether a genuine issue of material fact exists, the Court views the record and all
reasonable inferences in the light most favorable to the nonmoving party. Id. at 255.

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III. DISCUSSION
A.

Defendants’ motion for summary judgment (Dkt. 89)
Defendants make several arguments as to why they are entitled to summary judgment on

Summit Forest’s claims, including: (1) that Summit Forest’s breach of contract claim fails
because conforming goods were never delivered; (2(a)) Indiana law does not permit a conversion
claim; (2(b)) Summit Forest cannot establish the elements of conversion; and (3) there is no basis
for piercing the corporate veil or applying the alter ego doctrine.
1.

Whether Summit Forest can sustain a breach of contract claim

Defendants argue Summit Forest’s breach of contract claim cannot be sustained because
Summit Forest never delivered conforming goods in a timely manner. They contend that Child
Craft never received non-defective cribs.2 Therefore, Defendants argue Child Craft was justified
in rejecting all of the goods under the Uniform Commercial Code (“UCC”), and they owe none
of the $110,816.28 Summit Forest alleges. See Ind. Code §§ 26-1-2-301, -601.
Summit Forest responds that Child Craft used all of the goods except for the first 90
cribs, for which Summit Forest does not allege breach of contract. Child Craft’s reworking of
the goods, shipping to retailers, and selling goods to Foundations were acts inconsistent with the
seller’s ownership, and thus purportedly constituted acceptance under Article 2 of the UCC. See
Ind. Code § 26-1-2-606(1)(c). By accepting the goods and reworking them, Summit Forest
argues, Child Craft contractually waived any claim it might have had against Summit Forest for
failing to perfectly tender goods.

See Ind. Code § 26-1-2-719; see also Caudill Seed &

Warehouse Co., Inc. v. Rose Seeding & Sodding, Inc., 764 F. Supp. 2d 1022, 1031 (S.D. Ind.
2010). According to Summit Forest, once the goods were accepted and the window in which a

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Mr. Bienias admitted that he knew the other furniture was worthless to Child Craft without the cribs; i.e.,
conforming cribs were at the heart of the bargain.

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buyer can timely revoke had passed, Child Craft was liable for the sales price regardless of
whether the goods were conforming. See Ind. Code § 26-1-2-607(1-2).
Summit Forest also claims that, assuming Child Craft accepted the goods, it failed to
revoke its acceptance in a timely manner. Revocation of acceptance must happen “before any
substantial change in the condition of the goods which is not caused by their own defects.” Ind.
Code § 26-1-2-608(2). Failure to do so deprives a buyer of a breach of contract action. Ind.
Code §§ 26-1-2-607(3), -608(2), -714(1). Even after Mark Suvak concluded in late December
2008 that the goods were probably not salvageable, he urged Mr. Bienias to find out when PT
Cita was making its next shipment. Summit Forest claims Mark Suvak did not refuse payment
until January 27, 2009, and did not reject all cribs until February 20, 2009.
The Court simply finds too many issues of disputed fact to entitle Defendants to summary
judgment on this issue.

It is not clear, for example, whether Child Craft, by accepting,

reworking, and selling some of the defective goods, effectively waived its remedies under the
perfect tender rule. See Ind. Code § 26-1-2-601. Mark Suvak’s statements as to the quality of
the various shipments are sufficiently ambiguous and the Court cannot conclude that, as a matter
of law, Child Craft was rejecting outright each and every shipment. It is also not clear whether
the February 20, 2009 e-mail, even if it is considered a confirmatory memorandum, see Ind.
Code § 26-1-2-201(2), constituted timely rejection or revocation of acceptance for all shipments.
Finally, Child Craft’s selling of some of the sub-assemblies to Foundations in July 2009 suggests
that Defendants may be liable for at least some of the contract price sued on by Summit Forest.
For these reasons, Defendants’ motion for summary judgment on breach of contract is denied.
2.

Whether Summit Forest can sustain a claim for conversion
a.

Whether Indiana law permits a conversion claim in a contract dispute

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Summit Forest accuses Defendants of conversion by selling and destroying the goods
without the consent of Summit Forest or remitting payment. In response, Defendants contend
the dispute between the parties is a simple bona fide contract dispute, and that Indiana law does
not permit conversion claims in these instances. To allow otherwise, Defendants claim, would
allow a plaintiff to “up the ante” by repackaging a breach of contract claim as one for
conversion. See French-Tex Cleaners, Inc. v. Cafaro Co., 893 N.E.2d 1156, 1167-68 (Ind. Ct.
App. 2008). Summit Forest does not seek punitive damages, making the conversion damages
sought—the value of the goods—identical damages to those for breach of contract. See, e.g.,
Auburndale St. Bank v. Dairy Farm Leasing Corp., 890 F.2d 888, 894-95. Since the issues are
inextricably intertwined, Defendants argue Summit Forest cannot pursue a conversion claim.
Summit Forest, however, counters that the contract dispute subsumes the issue of
conversion only for Child Craft. It claims goods were transferred to Foundations and Gateway
and some of the goods were burned by Gateway for kindling purposes. Summit Forest argues
these acts were all done without their consent and without payment to Summit Forest; as such,
these acts expose Gateway and potentially G.E.G. (as the real estate owner) to potential
conversion liability. If the corporate veil is pierced on the breach of contract claim, individual
owners of Gateway and G.E.G. (D.K. Gessford and Mr. Eason) could be liable as well.
Aside from the burning of some products for kindling by Gateway, Summit Forest has
presented no evidence of acts independent of the underlying contract dispute which could be
reasonably construed as conversion, nor has it presented any evidence that G.E.G. was involved
in the burning of the goods. Summit Forest also has not presented, and the Court cannot find,
any case law suggesting that this or a similar set of facts would justify the extraordinary step of
allowing a conversion claim to proceed based on the same underlying facts as a breach of

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contract claim. Therefore, before examining the merits of Summit Forest’s claims against
Gateway, D.K. Gessford and Mr. Eason, summary judgment is granted for all other Defendants.
b.

Whether Summit can establish a claim for conversion against
Gateway, D.K. Gessford, and Mr. Eason

To make an actionable claim for conversion against parties who were not signatories to
the underlying contract, Summit Forest would have to prove that the remaining Defendants
“knowingly or intentionally exerted unauthorized control over [Summit’s] property.” FrenchTex Cleaners, Inc., 893 N.E.2d at 1166 (citing Ind. Code § 35-43-4-3). Defendants claim that,
even assuming arguendo a conversion claim would be recognized in Indiana, Summit Forest
cannot prove Gateway—or, by extension, D.K. Gessford or Mr. Eason—exercised such control.
Specifically, Defendants argue that Summit Forest took almost no action after Child Craft
rejected the goods. It neither demanded their return nor gave Child Craft instructions on what to
do with the goods beyond asking Child Craft to dispose of the components. In doing so, Summit
Forest allegedly abandoned its interest in the property, which gave Child Craft or any other party
the right to appropriate it and affords them a complete defense to a conversion claim. Right
Reason Publ’ns v. Silva, 691 N.E.2d 1347, 1351 (Ind. Ct. App. 1998). Further, Defendants argue
that because Child Craft’s initial control of the goods was lawful and Summit Forest never
demanded return of the goods, Child Craft believed the goods were abandoned and was never on
notice that their exercise of control was no longer authorized. Since an unqualified demand for
return of goods is an element of a conversion claim, Coffel v. Perry, 452 N.E.2d 1066, 1069 (Ind.
Ct. App. 1983), Defendants could not have had the requisite mens rea.
Summit Forest briefly counters that Defendants were on notice that the burning and
selling of some goods was not authorized because it had demanded payment by invoicing Child
Craft. Summit Forest further claims it was not required to seek return of goods because Mr.
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Bienias believed the goods were already converted, destroyed, or being reworked by Child Craft.
However, there is no Indiana case law suggesting that a conversion claim’s demand requirement
can be waived. Summit Forest therefore cannot meet a key element for a conversion claim even
if Child Craft was knowingly exercising unauthorized control. Summary judgment must be
granted to Gateway, D.K. Gessford and Mr. Eason on the conversion claim as well.
3.

Whether there is a basis for piercing the corporate veil or applying the alter
ego doctrine
a.

Piercing the corporate veil

Summit Forest claims that D.K. Gessford, Mr. Eason, Gateway, G.E.G., and Harrison
made a sham of the corporate forms to, among other things, promote fraud and injustice against
Summit Forest and the corporate veil should therefore be pierced to hold D.K. Gessford, Mr.
Eason, G.E.G., Harrison and Gateway jointly and severally liable for the amount due Summit
Forest from Child Craft. Child Craft counters that since there was no fraud perpetrated or
corporate form disregarded and none of the reasons for piercing exists, the individual defendants
should not be held personally liable.
“In general, a corporate officer or employee is not individually liable for the corporation's
actions, and an office or corporate status, even a very senior one, does not in itself expose an
individual to personal liability.” Comm’r, Dep’t of Enviro. Mgmt. v. RLG, Inc., 755 N.E.2d 556,
559 (Ind. 2001). However, in some instances courts determine there is no practical difference
between the officers and shareholders and the corporation, or the officer or shareholder had an
additional connection with the corporation’s tort beyond her position. In those cases, courts can
pierce the corporate veil and subject shareholders and corporate officers to personal liability.
Escobedo v. BMH Health Assocs., Inc., 818 N.E.2d 930, 933 (Ind. 2004); Roake v. Christensen,
528 N.E.2d 789, 791-92 (Ind. Ct. App. 1998).
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The party seeking to pierce must show by a preponderance of evidence that the corporate
form was so ignored, controlled, or manipulated that it was merely the instrumentality of another
and that not piercing would constitute fraud or injustice. Escobedo, 818 N.E.2d at 933. There
are eight practices that most often result in a court deciding to disregard the corporate form:
(1) undercapitalization; (2) absence of corporate records; (3) fraudulent
representation by corporation shareholders or directors; (4) use of the corporation
to promote fraud, injustice or illegal activities; (5) payment by the corporation of
individual obligations; (6) commingling of assets and affairs; (7) failure to
observe required corporate formalities; or (8) other shareholder acts or conduct
ignoring, controlling, or manipulating the corporate form.
Anderson v. Price, 644 N.E.2d 864, 867 (Ind. 1994). Finally, the moving party must show a
causal connection between misuse of the form and the harm suffered by the movant. CBR Event
Decorators, Inc. v. Gates, 962 N.E.2d 1276, 1282 (Ind. Ct. App. 2012).
Summit Forest raises four grounds as to why the corporate form should be disregarded
and the respective Defendants held personally liable.
i.

Asset transfer to Foundations Worldwide

Summit Forest accuses D.K. Gessford and Mr. Eason of making fraudulent
representations in asset transfer to Foundations, claiming that Foundations was obtaining the
goods with outright and good marketable title when in fact they were encumbered by Summit
Forest’s remaining interest. Defendants claim they made no fraudulent statements and there was
no statement actually made to Summit Forest in connection with the transfer to Foundations.
Thus, Defendants argue there was no connection between the alleged fraud and harm Summit
Forest suffered. Summit Forest did not respond to Defendants’ allegation that there was no
causal connection, so the Court treats Summit Forest as having abandoned this claim. See, e.g.,
Rangel v. Schmidt, 2011 WL 5570691, *14, (N.D. Ind., Nov. 16, 2011) (“It is well established

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that when a party fails to respond to an issue raised in a summary judgment motion, the issue is
deemed abandoned and waived.”).
ii.

Transferred assets to G.E.G. and Gateway without records or
consideration

Next, Summit Forest claims that Child Craft transferred assets to Gateway and G.E.G.
without formal records of the transfer and that Gateway and G.E.G. did not pay consideration to
Child Craft for the asset transfer. This alleged failure to observe corporate formalities and
comingling of assets harmed Summit Forest since it still had not been paid by Child Craft for the
goods when they were transferred. Defendants rejoin that the assets were never sold to Gateway
or G.E.G.; they were merely stored in Gateway facilities (which sat on land owned by G.E.G.).
Since Summit Forest has designated no evidence that the assets were actually transferred, the
court cannot pierce the corporate veil on this basis.
iii.

D.K. Gessford and Mr. Eason made fraudulent asset transfers

Summit Forest claims that, while Child Craft was taking orders for Summit Forest’s
products, D.K. Gessford and Mr. Eason began secret negotiations to sell Child Craft’s assets to
Gateway and Foundations in order to leave it insolvent and judgment-proof. By withholding
payment from these sales Child Craft prejudiced Summit Forest. In response, Child Craft
contends the last shipment of Summit Forest goods was on April 28, 2009, while Child Craft did
not try to sell its assets until it ran out of money on June 19, 2009. Moreover, Defendants argue
Child Craft’s selling its assets as it wound down is not misbehavior, but rather indicative of
insolvency.
The Court agrees with Defendants. Summit Forest has designated no evidence that
Gateway or G.E.G. was sold any of Child Craft’s assets or that D.K. Gessford and Mr. Eason
sold any of Summit Forest’s products to Foundations at less than fair market value. More
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importantly, Summit Forest has produced no evidence that the asset transfers were done with the
intent to defraud Summit Forest and, in fact, Defendants agree that income from selling products
to Foundations is deducted from its counterclaim damages. In the absence of such fraud, the
Court will not take the extraordinary step of piercing the veil on this ground.
iv.

D.K. Gessford and Mr. Eason made a sham of the corporate
form

Summit Forest accuses D.K. Gessford and Mr. Eason of controlling Child Craft’s
corporate form to carry out personal wishes, making a sham of the corporate form and blurring
the line between Gateway, G.E.G., and Child Craft out of existence. Summit Forest claims Child
Craft borrowed money from its landlord G.E.G. to finance operating expenses, and after
becoming insolvent, Gateway acquired some of Child Craft’s property to offset some of the
debts Child Craft owed Gateway. Gateway not only provided engineering and other services for
Child Craft, it was listed as the corporate entity on Child Craft’s purchase order it submitted to
Summit Forest.

Finally, Summit Forest claims that Mr. Eason, D.K. Gessford, and Carol

Gessford owning equal shares in all three companies supports its argument that the individual
defendants could be held personally liable.

See Konrad Motor & Welder Serv., Inc. v.

Magnetech Indus. Services, Inc., 973 N.E.2d 1158, 1164-65 (Ind. Ct. App. 2012).
Defendants counter that Summit Forest has offered no evidence in support of its
argument that the principals made a sham of the corporate form. However, D.K. Gessford’s
deposition testimony presents a disputed issue of material fact as to whether the individual
defendants comingled assets when Gateway assumed some of Child Craft’s assets to offset debts
after Child Craft’s insolvency. Defendants have not explained why Gateway was allowed this
seemingly favored position vis-à-vis other creditors.

If the trier of fact finds Defendants

breached their contract with Summit Forest, and thus Summit Forest was entitled to Child Craft
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income as offset, Summit Forest would be Child Craft’s creditor, and it is possible Summit
Forest was harmed as a result of the comingling. Harm and clear causal connection would
satisfy key requirements to pierce the corporate veil. CBR Event Decorators, Inc. v. Gates, 962
N.E.2d 1276, 1282 (Ind. Ct. App. 2012). Therefore, the Court declines to hold that, as a matter
of law, D.K. Gessford and Mr. Eason could not be held personally liable for this reason.
Defendants’ summary judgment motion is hereby DENIED.
b.

Whether the alter ego doctrine can be applied

In addition to piercing the corporate veil, a court may also use the corporate alter ego
doctrine to disregard the corporate form and hold individuals personally liable. The corporate
identity can be disregarded “where one corporation is so organized and controlled and its affairs
so conducted that it is a mere instrumentality or adjunct of another corporation.” Oliver v.
Pinnacle Homes, Inc., 769 N.E.2d 1188, 1191 (Ind. Ct. App. 2002) (internal quotation omitted).
This is done “to avoid the inequity that results when one corporation uses another corporation as
a shield from liability.” Konrad, 973 N.E.2d at 1165 (internal quotation omitted). Factors in
considering whether to apply the alter ego doctrine are: (1) similar corporate name; (2) common
principle corporate officers, directors, and employees; (3) similar business purposes; and (4)
same office locations, telephone numbers, and business cards. Oliver, 769 N.E.2d at 1192.
As discussed supra, Summit Forest claims that D.K. Gessford and Mr. Eason were
operating Gateway as the mere alter ego of Child Craft to escape liability for Child Craft’s debts
by transferring Summit Forest’s goods to Gateway without consideration. Summit Forest lists
the following facts in support: the identical ownership across Child Craft, G.E.G., and Gateway;
Gateway being listed as the corporate entity on Child Craft’s purchase order; and Gateway
making independent use of the Summit Forest products.

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Child Craft responds that D.K.

Gessford was the only common officer or employee, Gateway is based in Kentucky whereas
Child Craft was based in Indiana, all three LLCs were adequately capitalized, and Child Craft is
not attempting to continue operations as either Gateway or G.E.G.
The listing of Gateway as the corporate entity on Child Craft’s purchase order and D.K.
Gessford, Child Craft’s President and CEO, serving as an officer and employee of Gateway
suggests the possibility of Gateway existing as Child Craft’s alter ego. However, Defendants
assert that listing Gateway was a clerical error, which Child Craft corrected on the amended
purchase order it sent to Summit Forest before the first shipment. The amended purchase order
had specific information to fulfill Summit Forest’s purchase from PT Cita, so Summit Forest was
not harmed. Defendants rightly point out that in the absence of a causal connection between the
alleged misuse of the corporate form and harm suffered, an alter ego claim cannot be sustained.
CBR Event Decorators, Inc., 962 N.E.2d at 1282. Since Summit Forest did not allege any harm
from this listing, and there are no other grounds that suggest Gateway may have been a sham
continuation of Child Craft, Summit Forest cannot pierce the corporate veil under a theory of
corporate alter ego.
4.

Summary

For the foregoing reasons, Defendants’ motion for summary judgment is DENIED as it
pertains to Summit Forest’s breach of contract claim and piercing the corporate veil on the basis
of comingling funds. It is GRANTED as it pertains to Summit Forest’s criminal conversion
claim or piercing the corporate veil for any other reason.
B.

Child Craft’s motion for partial summary judgment (Dkt. 91)
With respect to its Motion, Child Craft advances claims that it is entitled to: (1) summary

judgment for rework charges in the amount of $53,532.62; (2) partial summary judgment as to

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liability on its breach of contract claim; and (3) partial summary judgment on its breach of
implied warranty claim.
1.

Rework Charges

Child Craft asserts the contract language unambiguously obliges Summit Forest to
deliver conforming goods, and Mr. Bienias has admitted that Summit Forest failed to deliver
non-defective cribs. Child Craft claims it is similarly undisputed that Summit Forest agreed to
pay Child Craft $30.00 per man-hour, plus any parts and material costs, for any rework of the
defective products. This rate was later modified by agreement for work done prior to January 31,
2009, but was unchanged for goods received on or after that date. Summit Forest counters that
because Child Craft reworked the goods rather than rejecting them, it accepted the goods and
was obligated to pay for them. Ind. Code § 26-1-2-607(1-2). In failing to do so, Summit Forest
claims that Child Craft became the first party to breach the contract, and it lost the right to
recover rework damages resulting from Summit Forest’s failure to deliver conforming goods.
Licocci v. Cardinal Assocs., Inc., 492 N.E.2d 48, 52 (Ind. Ct. App. 1986).3
The Court agrees with Child Craft that they incurred $53,532.62 in legitimate rework
charges.4 However, Child Craft reads too broadly its buyer’s remedies. Child Craft may only
engage in resale in the same manner as an aggrieved seller if it had rejected or rightfully revoked
acceptance of the goods. Ind. Code § 26-1-2-711(3). As stated supra, there are disputed issues
of material fact as to whether Child Craft accepted the goods and, if so, whether it properly
revoked acceptance. If it did either of those actions, then Child Craft’s assessment of damages is
3

Licocci cited 17 AM. JUR. 2D CONTRACTS § 365, which was subsequently deleted. 17A AM. JUR. 2D
CONTRACTS Correlation Table (2013). However, the principle that the party who breached first cannot complain if
the other party does not perform has not been invalidated in Indiana law.
4

Child Craft concedes that it partially offset its losses by selling some of the non-conforming goods to Foundations
Worldwide. Therefore, Child Craft’s recovery would be offset by approximately $41,692.52, the sale price to
Foundation.

17

accurate. If it failed to, it would still be liable to Summit Forest for the sale price, offset by the
rework charges and any damages it could recover via breach of warranty. Id. at -714(2). This
dispute means the Court must deny summary judgment to Child Craft for the claimed amount.
2.

Issue of liability for the remainder of Child Craft’s breach-of-contract claim

Child Craft claims that it has the right to bring a breach-of-contract counterclaim
regardless of whether it accepted the goods. It further argues that Summit Forest’s failure to ever
deliver conforming goods means there is no dispute of material fact that Summit Forest breached
its contract. Child Craft is correct that it is well-established that even if it accepts and does not
properly reject contract goods, it may still bring a breach of contract claim. See Ind. Code §§ 261-2-607(3), -714. It is undisputed that the first shipment of 90 cribs was non-conforming, and
Child Craft prevails on the issue of liability for that shipment. However, there is a material
dispute over the remaining cribs. It is undisputed that Summit Forest never delivered nondefective cribs. However, it is not clear as a matter of law whether Child Craft used the goods
for a reasonable time prior to acceptance to determine defects, accepted the remaining goods,
properly revoked its acceptance, or promptly notified Summit Forest of its breach. Ind. Code §§
26-1-2-606(1), 607(3)(a). Failure to do so would mean Child Craft would be liable for the
contract sales price on the remaining goods. Ind. Code § 26-1-2-607(1-2). Child Craft’s motion
for partial summary judgment on the issue of liability is therefore GRANTED for the first
shipment of 90 non-conforming cribs and DENIED for subsequent shipments.
3.

Issue of liability for Child Craft’s breach-of-warranty counterclaims

Next, Child Craft claims that Summit Forest’s failure to deliver conforming goods
violated the UCC’s implied warranties protecting buyers: merchantability and of fitness for
particular use.

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a.

Implied Warranty of Merchantability

The implied warranty of merchantability attaches in every sale of goods under the UCC if
the seller is a merchant of those goods. Ind. Code § 26-1-2-314(1). It is undisputed that Summit
Forest is a merchant in this transaction, which is defined as one dealing “in goods of the kind or
otherwise by his occupation holds himself out as having knowledge or skill peculiar to the
practices or goods involved in the transaction or to whom such knowledge or skill may be
attributed by his employment of an agent or broker. . . .” Id. at -104(1). A merchant warrants
with each sale that the goods are merchantable, id. at -314(1), which means, among other things,
that the goods “are of fair, average quality within that description,” id. at -314(2)(b), and “are fit
for the ordinary purposes for which such goods are used.” Id. at -314(2)(c).
In this case, Child Craft properly rejected the first shipment of 90 cribs, reworked all the
subsequent shipments since they were all defective, and Child Craft could not manufacture the
sub-assemblies into salable final products. Summit Forest therefore has failed to meet the
requirements in subsections (b) and (c).

However, it is unclear whether Child Craft ever

accepted the goods, and whether Child Craft timely notified Summit Forest of their breach of
warranty, a condition precedent to recover under Ind. Code § 26-1-2-607(3)(a). Even assuming
that the December 2008 and January 2009 e-mails were, as Child Craft claims, notifications of
breach, Child Craft has not cited any case law suggesting that notification within a certain
amount of time constitutes timely notification as a matter of law. The Court therefore DENIES
Child Craft’s motion for summary judgment for breach of implied warranty of merchantability.
b.

Implied Warranty of Fitness for a Particular Use

The implied warranty of fitness for a particular use does not arise automatically in a
commercial transaction. Rather, a plaintiff buyer must show that a warranty was created and

19

there is vertical privity between the buyer and merchant, Atkinson v. P&G-Clairol, Inc., 813 F.
Supp. 2d 1021, 1026 (N.D. Ind. 2011), which there is in this case. For a warranty of fitness for
particular use to be created, the buyer must show that the “(1) seller . . . had reason to know
buyer’s particular purpose, (2) that seller must have had reason to believe buyer was relying on
seller’s skill and judgment, and (3) that buyer in fact had relied on seller’s skill and judgment.”
Paper Manufacturers Co. v. Rescuers, Inc., 60 F. Supp. 2d 869, 881 (N.D. Ind. 1999) (quoting
Ind. Code § 26-1-2-315). Child Craft easily meets the elements, as Summit Forest knew the subassemblies were for Child Craft’s Vogue line, a top-line product that Child Craft hoped would
revitalize the company. Moreover, Mr. Bienias was obligated to find a suitable supplier for
Child Craft’s specifications and to ensure Child Craft received defect-free sub-assemblies.
Finally, PT Cita manufactured and Summit Forest shipped the defective sub-assemblies,
constituting actual reliance by Child Craft.

However, as with the implied warranty of

merchantability, it is not clear as a matter of law whether Child Craft timely notified Summit
Forest of its breach. Summary judgment is therefore DENIED for Child Craft’s breach of
implied warranty for particular use claim as well.
c.

Auxiliary issues

The Court finds it sufficient to deny summary judgment due to uncertainty over timely
notification. However, other issues raised by the parties merit brief comment by the Court.
Summit Forest claims that the implied warranties do not attach until a party has accepted and
paid for the goods. While it is generally true that the damage for breach of warranty is the
difference between the value of goods accepted and value as warranted, Ind. Code § 26-1-2-

20

714(2)5, breach of warranty generally happens at time of tender, not time of acceptance. Id. at 725(2). Therefore, acceptance has no bearing on liability for breach. The Court also does not
find as a matter of law whether Child Craft’s rework option constituted a limitation of Child
Craft’s remedies for breach of implied warranties.
4.

Summary

For the foregoing reasons Child Craft’s motion for partial summary judgment is
GRANTED as it pertains to the first shipment of 90 cribs on its breach of contract claim. It is
DENIED as it pertains to its recoverable rework charges, the remainder of its breach of contract
claim, and its breach of implied warranties claim.
C.

Counterclaim-Defendants’ Motion for Summary Judgment (Dkt. 135)
Finally, the Counterclaim-Defendants have moved for summary judgment on the issues

of negligent misrepresentation and on Child Craft’s breach of contract counterclaim. They also
move to dismiss Mr. Bienias from the lawsuit.
1. Negligent Misrepresentation
Child Craft accuses Mr. Bienias of negligent misrepresentation by assuring Child Craft
that P.T. Cita’s shipment of goods would comply with Child Craft’s expectations and that
Summit Forest could make timely deliveries of the goods. Negligent misrepresentation was first
recognized in Indiana in 1983, when the Court of Appeals adopted Restatement (Second) of
Torts § 552, to permit recovery when a plaintiff suffers loss due to defendant’s non-fraudulent
misrepresentation. Eby v. York-Division, Borg Warner, 455 N.E.2d 623, 628 (Ind. Ct. App.
1983), aff’d Passmore v. Multi-Mgmt. Svcs., Inc., 810 N.E.2d 1022, 1025 (Ind. 2004).

To meet

its burden, Child Craft must show that: (1) Mr. Bienias supplied false information in guiding
5

“Damages can also be measured by the cost of replacement or the cost of repair.” Hyundai Motor Am., Inc. v.
Goodin, 822 N.E.2d 947, 952 n.4 (citing Rheem Mfg. Co. v. Phelps Heating & Air Conditioning, Inc., 746 N.E.2d
941, 955–56 (Ind. 2001).

21

Child Craft in its business transactions; (2) Mr. Bienias “failed to exercise reasonable care or
competence in obtaining and communicating the information”; and (3) Child Craft justifiably
and detrimentally relied on Mr. Bienias’s information. Restatement (Second) of Torts § 552(12). The Counterclaim-Defendants argue Child Craft cannot meet its evidentiary burden for two
reasons: first, there is no evidence Mr. Bienias made any misrepresentations; and second, even if
he did, Child Craft did not justifiably rely on them.
a.

Whether Bienias made any material representations

During Mr. Bienias and Child Craft executives’ visit, PT Cita executives told Child Craft
and Mr. Bienias they could work with and properly dry the wood species for the Vogue line, and
it is undisputed that Mr. Bienias had no reason to doubt PT Cita’s veracity at that point.
Counterclaim-Defendants argue that any misrepresentations Mr. Bienias may have made were
not relied upon by Child Craft until after contract formation. Therefore, Child Craft cannot show
how Mr. Bienias’s statements caused harm, and thus cannot sustain a negligent misrepresentation
claim.
Moreover, Counterclaim-Defendants claim that Mr. Bienias never made false
representations after formation of the contract. Rather, his statements regarding the shipping
dates, in a series of e-mails between Summit Forest and Child Craft, were merely Mr. Bienias’s
best guesses based on the information supplied to him by PT Cita. The shipping schedule was
entirely dependent on PT Cita’s ability to make the product. Counterclaim-Defendants conclude
that Mr. Bienias never falsely represented that PT Cita could timely deliver goods, and even if he
had, the e-mails Mr. Bienias sent to Mark and Bill Suvak informing them of his ongoing
difficulties with PT Cita meant there was no justifiable reliance.

22

Child Craft responds that Mr. Bienias’s representations that PT Cita could make
conforming goods and that Summit Forest agents were inspecting the sub-assemblies in
Indonesia to ensure conformity, resulted in detrimental reliance by Child Craft. Specifically, the
representations led Child Craft to continue to do business with Summit Forest and PT Cita, rather
than attempt to find other suppliers. After the first shipment of defective goods, Mr. Bienias’s
representations that his agents had inspected the subsequent shipments and found them to be in
conformity caused Child Craft to continue to accept the ultimately non-conforming goods. This
was particularly important, Child Craft claims, since the contract between Child Craft and
Summit Forest was not in effect for a specific length of time or for a minimum amount of
product purchased. Thus, even assuming that Mr. Bienias had not made any misrepresentations
prior to contract formation, Child Craft still suffered harm due to his post-formation
misrepresentations.
Furthermore, Child Craft claims Mr. Bienias once stated in 2008 that PT Cita “was a very
good supplier who had a strong and consistent track record of providing quality products.”
However, the February 2009 e-mails show Mr. Bienias’s skepticism that PT Cita could dry the
wood properly and that he had waited for months after there were problems before inquiring
whether PT Cita actually could perform the job Summit Forest asked it to do. Moreover, on
several occasions, Mr. Bienias told Child Craft that Summit Forest agents had inspected the PT
Cita goods, as they were obligated to under contract, and they were conforming. However, all
the subsequent goods received were defective, and Mr. Bienias admitted that the inspections
were of random items, rather than of all items. Child Craft argues this shows Mr. Bienias
misrepresented PT Cita’s ability to produce conforming goods and Summit Forest’s inspection of
the products.

23

On the first issue—whether Mr. Bienias’s post-contract formation misrepresentations
could have harmed Child Craft—the Court agrees with Child Craft. Counterclaim-Defendants
have offered no evidence that the contract between Summit Forest and Child Craft prevented the
latter from contracting with another supplier for subsequent shipments. Therefore, Child Craft
may have suffered harm if Mr. Bienias made misrepresentations. On the second issue—whether
Mr. Bienias, in fact, made misrepresentations—the Court holds that a reasonable trier of fact
could conclude that Mr. Bienias made misrepresentations to Child Craft. We therefore DENY
Counterclaim-Defendants’ motion for summary judgment on that ground.
b.

Whether Child Craft justifiably relied on Mr. Bienias’s representations

Counterclaim-Defendants argue that since Mr. Bienias did not have exclusive knowledge
of the facts he allegedly misrepresented and Child Craft was not wholly without knowledge of
the facts conveyed, Child Craft could not have justifiably relied on any misrepresentations made
by Mr. Bienias. Counterclaim-Defendants direct the Court to Child Craft executives’ decision to
go to Indonesia to ensure PT Cita knew of the importance of on-time delivery and to examine
issues of fit and finish with the sub-assemblies, about which they were more expert than Mr.
Bienias. Mr. Bienias himself urged Child Craft executives to revisit PT Cita after quality issues
with the cribs developed. Also, Child Craft and PT Cita representatives often communicated
directly about these issues. Given such opportunity to ascertain the validity of Mr. Bienias’s
representations, Counterclaim-Defendants argue, Child Craft could not have reasonably relied on
these representations.
Child Craft argues the Counterclaim-Defendants misstate its prima facie burden, and that
it need not show that Mr. Bienias had exclusive knowledge at the summary judgment stage;
rather, justifiable reliance is usually a matter for the trier of fact. Jeffrey v. Methodist Hosps.,

24

956 N.E.2d 151, 157-58 (Ind. Ct. App. 2011). Child Craft further claims it had no way of
knowing whether PT Cita had used the desired wood species previously, if it could meet Child
Craft’s quality expectations for the Vogue line, and that PT Cita was a strong, consistent, and
quality-minded supplier. Since Child Craft and PT Cita had no previous relationship, and
Summit Forest was the intermediary between them, Mr. Bienias had superior knowledge as to his
initial misrepresentations. Given Mr. Bienias’s education and experience, it felt justified in
relying on his subsequent representations that Summit Forest agents had inspected the
subsequent PT Cita goods to be shipped, and that those goods were in conformity.
The Court agrees with Child Craft.

Counterclaim-Defendants cite several cases in

support of its argument that defendants can be liable for negligent misrepresentation only if the
facts were within defendants’ exclusive knowledge and plaintiffs were without equal opportunity
to ascertain the facts.6

However, such a requirement has never been adopted in Indiana.7

Moreover, there are clear disputes over what facts Child Craft had access to during and after its
representatives’ visit to Indonesia, and to what extent, if any, Summit Forest’s intermediary
function and Mr. Bienias’s knowledge and experience made Child Craft’s reliance justifiable.
Indiana courts have traditionally held that justifiable reliance is a fact-sensitive inquiry to be
resolved by the judge or jury, Jeffrey, 956 N.E.2d at 157-58, and the Court must DENY
Counterclaim-Defendants’ motion for summary judgment on this issue.
Whether Mr. Bienias can be held personally liable

6

B&M Linen Corp. v. Kannegiesser USA Corp., 679 F. Supp. 2d 474, 484 (S.D.N.Y. 2010); Guernsey Petroleum v.
Data General Corp., 359 S.E.2d 920, 924 (Ga. Ct. App. 1987); O’Brien v. Noble, 435 N.E.2d 554 (Ill. 1982).
7

While the Court in Craig v. ERA Mark Five Realtors cites the O’Brien holding, the information relied on by
plaintiffs in that case was a matter of public record, and even then, the trial court made specific factual findings and
conclusions of law. Craig, 509 N.E.2d 1144, 1146, 1148 (Ind. Ct. App. 1987).

25

In Count III of the Amended Counterclaim, Child Craft sued Mr. Bienias individually
along with Child Craft. The Court has discussed extensively the facial validity of Child Craft’s
claim in an earlier entry8, and the law for piercing the corporate veil supra in the present entry;
the Court will not rehash those discussions. Counterclaim-Defendants ask again that Mr. Bienias
be dismissed from the case since “there are no issues of material fact to support [a negligent
misrepresentation claim]. Without the tort . . . there is no tort to which Ron Bienias could have
personal connection.” (Dkt. #148 at 13). Since the Court has denied Counterclaim-Defendants’
motion for summary judgment on Child Craft’s negligent misrepresentation claim, and Child
Craft alleges that Mr. Bienias made all of Summit Forest’s misrepresentations, Mr. Bienias could
still be held personally liable. Roake, 528 N.E.2d at 791-92 (Ind. Ct. App. 1998). The Court
DENIES Counterclaim-Defendants’ motion to dismiss Mr. Bienias from the case.9

2. Whether Child Craft’s breach of contract claim can be sustained
Counterclaim-Defendants claim that since Defendants/Child Craft accepted all the goods
and failed to pay, it is undisputed that they were the first to breach the contract. Child Craft
counters that since Summit Forest admits it never delivered conforming goods, CounterclaimDefendants cannot receive summary judgment on Child Craft’s breach of contract claim. As
discussed supra, the issue of “who breached first” cannot be resolved in favor of either party at
this stage.

8

For the same reasons Summit Forest and Child Craft’s motions for summary

Dkt. #113 at 4-5.

9

The Court does, however, wish to reiterate that courts are generally loathe to pierce the corporate veil. Child Craft
bears as heavy a burden in attempting to hold Mr. Bienias liable as Summit Forest does in attempting to hold D.K.
Gessford and Mr. Eason personally liable.

26

judgment for their respective breach of contract claims were denied, the Court also DENIES
Counterclaim-Defendants’ motion.
3. Summary
Counterclaim-Defendants’ motion for summary judgment is denied for both Child Craft’s
negligent misrepresentation and breach of contract claims. Their motion to dismiss Bienias from
the case is also denied.
IV.

Conclusion

For the reasons set forth herein, Defendants’ motion for summary judgment (Dkt. #89) is
GRANTED in part and DENIED in part. Child Craft’s motion for partial summary judgment
(Dkt. #91) is GRANTED in part and DENIED in part. Counterclaim-Defendants’ motions for
partial summary judgment and to dismiss Mr. Bienias (Dkt. #135) are DENIED. The remaining
case shall proceed to trial.
SO ORDERED.

04/10/2013
Date: ____________________

________________________
____________________________________
Hon. Tanya Walton Pratt, Judge
TANYA WALTON PRATT,
United States District Court JUDGE
United States District Court
Southern District of Indiana
Southern District of Indiana

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DISTRIBUTION:
Gordon D. Ingle
FAITH INGLE SMITH LLC
[e-mail]

Jeffrey A. Savarise
FISHER & PHILLIPS LLP
[e-mail]

John C. Roach
RANSDELL & ROACH, PLLC
[e-mail]

S. Chad Meredith
RANSDELL & ROACH, PLLC
[e-mail]

W. Keith Ransdell
RANSDELL & ROACH, PLLC
[e-mail]

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