LEI Packaging, LLC v. Emery Silfurten Incorporated et al

Filing 155

MEMORANDUM OPINION AND ORDER denying Plaintiff LEI Packaging, LLC's request for damages as to Samey ehf as premature until Plaintiff's claims against Defendant Hedinn Ltd. are resolved (Written Opinion). Signed by Judge Ann D. Montgomery on 03/22/2017. (TLU)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

LEI Packaging, LLC,
Plaintiff,
MEMORANDUM OPINION
AND ORDER
Civil No. 15-2446 ADM/BRT

v.
Emery Silfurtun Inc., Samey ehf, and
Hedinn Ltd.,

Defendants.
______________________________________________________________________________
Sarah A. Horstmann, Esq., Maslon LLP, Minneapolis, MN, on behalf of Plaintiff.
Matthew A. Lee, Esq., Quinn Emanuel Urquhart & Sullivan, New York, NY, and Randi J.
Winter, Esq., Felhaber Larson, Minneapolis, MN, on behalf of Defendant Hedinn Ltd.
______________________________________________________________________________
I. INTRODUCTION
This matter is before the undersigned United States District Judge for a ruling on the
damages claim of Plaintiff LEI Packaging, LLC (“LEI”) after being granted Default Judgment
against Defendant Samey ehf (“Samey”) [Docket No. 135]. Defendant Hedinn Ltd. (“Hedinn”),
who is still actively defending in this case, filed a Response [Docket No. 147]. For the reasons
stated below, LEI’s request for damages as to Samey is denied as premature.
II. BACKGROUND
A. Parties, the Machine, and the Machine Agreement
This dispute concerns contracts for the purchase of a Rotary Quattro TO Pulp Moulding
Machine (the “Machine”), which was designed to be capable of producing 7,200 egg cartons per
hour. On January 22, 2014, LEI, a Minnesota manufacturer and seller of molded pulp packaging
products, including egg cartons and trays, agreed to pay Emery Silfurtun Inc. (“Emery”)

$4,509,858 to design, construct, and install the Machine. Second Am. Compl. [Docket No. 66]
¶¶ 1, 7, Ex. A (“Machine Agreement”). Emery, a Canadian company, and LEI are the only
signatories to the Machine Agreement.
Emery in turn contracted with Samey and Hedinn (collectively, the “Icelandic
Defendants”) to assist in fulfilling its obligations under the Machine Agreement. Id. ¶¶ 19, 27;
Lee Decl. [Docket No. 82] Ex. 1 § 1.0, Ex. 2 § 1.0 (collectively, the “Icelandic Contracts”). The
Second Amended Complaint alleges that Samey agreed to provide project management and
testing services, assume responsibility over the Machine’s electrical and automation parts, and
source and order several major Machine components. Second Am. Compl. ¶ 21. Hedinn’s role
was to build steel constructions and to provide steel materials for the Machine’s construction.
Id. ¶ 29.
Machine design and manufacture started in January 2014, and installation began in
September 2014. Id. ¶¶ 35, 40. The Icelandic Defendants spent considerable time in Minnesota
working on the Machine. Id. ¶¶ 41, 43.
Sometime thereafter, LEI identified a number of problems with the Machine. These
problems included the inability of the Machine to produce the promised 7,200 egg cartons per
hour, the poor quality of the finished product, and individualized issues with specific Machine
components, such as the Machine’s rotor, robotic transfer system, dryer, and hot press. Id. ¶¶ 47,
48. On March 16, 2015, LEI and Emery entered into an “agreement in order to remedy faults
and design flaws that have emerged post installation of the Emery Silfurtun Quattro egg carton
production line at LEI Packaging.” Compl. [Docket No. 1-1] Ex. B (“Modification
Agreement”). The Icelandic Defendants are not parties to the Modification Agreement.

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B. Procedural History
On May 11, 2015, citing diversity jurisdiction, Emery removed the original Complaint
from Minnesota state court to federal court. 28 U.S.C. § 1332. On July 17, 2015, the Icelandic
Defendants filed a Motion to Dismiss [Docket No. 18], which was later withdrawn after LEI
filed an Amended Complaint [Docket No. 30]. On August 21, 2015, LEI and Emery stipulated
[Docket No. 32] to arbitrate their claims and to stay the litigation between themselves. That
same day, the Icelandic Defendants renewed their Motion to Dismiss [Docket No. 34]. On
September 3, 2015, LEI filed a Motion to Compel the Icelandic Defendants to Arbitrate [Docket
No. 41]. The Icelandic Defendants’ Motion to Dismiss and LEI’s Motion to Compel were both
denied by Order [Docket No. 56] dated December 22, 2015. On February, 23, 2016, LEI filed its
Second Amended Complaint, the operative complaint in this action.
On March 15, 2016, the Icelandic Defendants again moved to dismiss [Docket No. 79],
arguing that the Second Amended Complaint suffered from jurisdictional and venue defects,
while also not stating plausible third-party beneficiary and implied warranty claims. That
motion was denied on August 16, 2016. See Order [Docket No. 105].
Shortly thereafter, counsel for Samey moved to withdraw [Docket No. 113] and Samey
stopped defending this case. On September 15, 2016, LEI Applied for Entry of Default [Docket
No. 119] against Samey, which was granted by the clerk of court on September 26, 2016. See
Entry Default [Docket No. 122]. On October 5, 2016, LEI moved for Default Judgment as to
Samey [Docket No. 127]. The Motion was granted, and LEI was ordered to submit evidence to
substantiate its damages claims against Samey. See Order [Docket No. 135].
LEI submitted its damages memorandum on January 18, 2017. See Mem. [Docket No.

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144]. Hedinn, who remains active in this case, submitted a response on February 8, 2017. After
an exchange of Letters [Docket Nos. 151, 152] to address concerns raised in the memorandum
and response, this issue can now be adjudicated.
III. DISCUSSION
LEI pleads that the Icelandic Defendants are jointly and severally liable for damages
sustained by the Machine’s failures. In its memorandum supporting its damages claim, with the
exception of “repairs, replacement parts, and reprogramming directly attributable to Samey,”
LEI contends that it “reserves the right to seek joint and several liability against all Defendants
up to 100%” of the damages. Hedinn argues that LEI is asking for a damages judgment against
defaulting defendant Samey that it will later try to recover from non-defaulting defendants
Hedinn and Emery, even though there has been no finding of liability or attribution of fault
caused by a non-defaulting defendant. Hedinn argues that it is premature to enter a default
judgment against Samey for any category of damages where LEI reserves its right to seek joint
and several liability against the non-defaulting defendants, and urges that LEI’s request be
stayed pending final adjudication as to the remaining defendants.
Guidance on this issue comes from the venerable case of Frow v. De La Vega, 82 U.S.
(15 Wall.) 552 (1872). In Frow, the plaintiff sought determination of title to certain real
property, alleging that defendants had engaged in a conspiracy to defraud him of the land
through a forged power of attorney. One of the fourteen defendants failed to plead, and a default
judgment was therefore entered against him. The other defendants proceeded to trial and
prevailed against the Plaintiff. On appeal, the Supreme Court reversed the default judgment,
observing:

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If the court in such a case as this can lawfully make a final decree against one
defendant separately, on the merits, while the cause was proceeding undetermined
against the others, then this absurdity might follow: there might be one decree of the
court sustaining the charge of joint fraud committed by the defendants; and another
decree disaffirming the said charge, and declaring it to be entirely unfounded, and
dismissing the complainant's bill. And such an incongruity, it seems, did actually
occur in this case. Such a state of things is unseemly and absurd, as well as
unauthorized by law.
Id. at 554. Subsequent interpretations have narrowed this holding, agreeing that it prohibits
entry of a default judgment
against one of several defendants (1) where the theory of recovery is one of true joint
liability, such that, as a matter of law, no one defendant may be liable unless all
defendants are liable, or (2) where the nature of the relief demanded is such that, in
order to be effective, it must be granted against each and every defendant.
6 J. Moore, et al., Moore’s Federal Practice ¶ 55.06 at 55–39 (2d ed. 1991). Recognizing that
liability may be joint and several, “courts have consistently held that it is appropriate to enter
judgment solely as to liability and not as to the amount of damages to be assessed against the
defaulting party, since a separate determination of damages would pose the prospect of
inconsistent judgments.” Friedman v. Lawrence, No. 90-5584, 1991 WL 206308, at *3
(S.D.N.Y. Oct. 2, 1991).
In Pfanenstiel Architects, Inc. v. Chouteau Petroleum Co., 978 F.2d 430, 433 (8th Cir.
1992), the Eighth Circuit advised that “[w]hen there are multiple defendants who may be jointly
and severally liability for damages alleged by plaintiff, and some but less than all of those
defendants default, the better practice is for the district court to stay its determination of damages
against the defaulters until plaintiff's claim against the nondefaulters is resolved.” The
underlying rationale is “to avoid inconsistent judgments when co-defendants are similarly
situated.” Angelo Iafrate Constr., LLC v. Potashnick Constr. Inc., 370 F.3d 715, 722 (8th Cir.

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2004).
LEI asserts that the Icelandic Defendants and Emery are jointly and severally liable for
the myriad of the Machine’s failures, and the allegations in the Second Amended Complaint
reflect that the Icelandic Defendants’ roles in designing and constructing the Machine were not
completely independent. One of Samey’s core responsibilities, for example, was project
management, and it shared responsibility with Hedinn for “Packing machinery.” Second Am.
Compl. ¶¶ 24, 32; Johnson Decl. [Docket No. 45] Ex. E. And, although each Icelandic
Defendant was responsible for manufacturing certain components of the $4.5 million Machine,
memorialized in the separate Icelandic Contracts, those components were expected to work
together to produce the promised 7,200 egg trays or cartons per hour. This demonstrates a
significant amount of overlap, but not congruity, between the Icelandic Defendants in designing,
manufacturing, and installing the Machine. As such, there is no risk of entirely inconsistent
judgments of liability; if Hedinn is later absolved from blame for performing its contractual
obligations, Samey’s liability could remain. See In re Uranium Antitrust Litig., 617 F.2d 1248,
1257–58 (7th Cir. 1980) (finding that Frow’s holding does not preclude entry of default
judgment against more than one but less that all defendants because there is little possibility of
inconsistent adjudications of liability).
However, although differing liability determinations are permitted, two distinct
determinations as to damages arising out of a single defective Machine must be avoided. If
damage amounts are entered against Samey now, and LEI later prevails on the merits against
Hedinn, damages would then have to be determined as to Hedinn, raising the real risk of
inconsistent damage awards. The joint nature of LEI’s claim related to the single Machine

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means there can only be one amount of damage for lost production, lost prices, and the other
categories of pecuniary harm that LEI is pursuing. As the Tenth Circuit has cautioned,
“consistent damage awards on the same claim are essential among joint and several tortfeasors.
Otherwise, plaintiffs armed with joint and several liability on a single claim could seek to
execute on a larger damage award from a party against whom the court awarded a much smaller
damage verdict.” Hunt v. Inter-Globe Energy, Inc., 770 F.2d 145, 148 (10th Cir. 1985).
Therefore, determination of damages is premature until LEI’s claim against Hedinn is resolved.
This is “the better practice” and preserves judicial economy by eliminating the potential and real
risk of an inconsistent result. Pfanenstiel Architects, 978 F.2d at 433.
IV. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS
HEREBY ORDERED that Plaintiff LEI Packaging, LLC’s request for damages as to Samey ehf
is DENIED as premature until Plaintiff’s claims against Defendant Hedinn Ltd. are resolved.
BY THE COURT:

s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: March 22, 2017.

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