Global I International LLC v. ProBalance Inc

Filing 130

FINDINGS OF FACT AND CONCLUSIONS OF LAW: Global is entitled to recover from ProBalance on its open account claim in the amount of: $367,452.72 - $36,745.27 = $330,707.45. Global is entitled to prejudgment interest. The prejudgment rate is5%. (Ordered by Judge David C Godbey on 11/9/2016) (sss)

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
GLOBAL INTERNATIONAL, LLC,
Plaintiff,
v.
PROBALANCE, INC.,
Defendant.

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Civil Action No. 3:15-CV-0677-N

FINDINGS OF FACT AND CONCLUSIONS OF LAW
This case proceeded to trial before the Court on August 22-24, 2016. Pursuant to Rule
52(a) of the Federal Rules of Civil Procedure, this constitutes the Court’s findings of fact and
conclusions of law.
I. FINDINGS OF FACT
A. Parties
1.

Plaintiff Global International LLC, formerly known as United I International

Laboratories LLC (“Global”) is a Texas limited liability company with its principal place of
business in the State of Texas. Its member is United Interests LLC, an Oklahoma limited
liability company. The members of United Interests LLC are Joe Cooper and Mary Cooper,
both citizens of Oklahoma. It appears at the time suit was filed that George Mitchell, a
citizen of Texas, may also have been a member of Global. See Complaint ¶ 1.
2.

Defendant ProBalance, Inc. (“ProBalance”) is a Delaware corporation with its

principal place of business in Florida.

FINDINGS OF FACT AND CONCLUSIONS OF LAW – PAGE 1

3.

The amount in controversy exceeds $75,000.
B. Standing

4.

This dispute arises out of unpaid invoices for product that Global manufactured

for ProBalance. At that time, Global was known as United I International Laboratories LLC.
Effective January 1, 2014, after the events at issue in this case, Global sold its assets to
United Laboratories Manufacturing, LLC (“ULM”), including its name, and changed its
name to Global. The sale of assets to ULM included the invoices at issue in this case. After
ULM experienced difficulty collecting on those invoices, it assigned the invoices back to
Global for good and valuable consideration. At all pertinent times during the pendency of
this action Global has owned the invoices in question.
C. Background
5.

This lawsuit arises out of a relatively short contractual manufacturing

relationship between ProBalance and Global.

In 2011, ProBalance entered into the

nutritional supplement business selling drinks that provided dietary protein. ProBalance’s
niche in the market was to provide convenient small drinks (“shots”) that contained a
relatively large amount of protein as compared to other market entrants. ProBalance
contracted with a manufacturer to make its products and contracted with various distribution
channels to sell its products, including grocery and convenience stores, pharmacies, and
health clubs.
6.

In 2012, ProBalance began experiencing problems with its prior vendor. In

September 2012, ProBalance entered into an agreement with Global for Global to

FINDINGS OF FACT AND CONCLUSIONS OF LAW – PAGE 2

manufacture some of ProBalance’s products. There was no written master agreement setting
forth terms and conditions, or more significantly product specifications. Rather, the
relationship was documented by a series of purchase orders.
7.

ProBalance provided Global with the formulation for its drinks. Global took

some responsibility for the flavoring formulation, but ProBalance was primarily responsible
for the formulation. ProBalance’s primary product at the beginning with Global was a 2.5
oz. “protein shot” with 28 grams of protein. Most other vendors in the market for that size
product included around 12-14 grams of protein. ProBalance also specified an animalderived protein source that was difficult to formulate with a pleasant flavor. Because of the
relatively large volume of protein and the type of protein, it was difficult to make
ProBalance’s products taste good. That was not Global’s fault. To that extent, Global was
simply manufacturing according to the recipe that ProBalance required.
8.

ProBalance also required the use of natural flavors. Some of the natural flavors

varied from batch to batch due to the variability inherent in natural products. Some, but not
all, of the variability of flavor is attributable to this inherent variability. Some, however, is
also attributable to variations in Global’s manufacturing process.
9.

During the relatively short relationship between ProBalance and Global,

ProBalance received various customer complaints about the product. These included: bad
taste, variable product, leaking product, and foaming or fizzing product. There was some
overlap between the leaking and the foaming and fizzing. Some of the product both leaked

FINDINGS OF FACT AND CONCLUSIONS OF LAW – PAGE 3

and fizzed, but some that did not leak nonetheless fizzed when opened. The product was not
intended to be carbonated or sparkling.
10.

Global had standard operating procedures (“SOP”) that required it to complete

various documentation regarding its processes. Some of those were required by government
regulation. In several pertinent instances Global failed to follow its SOPs in connection with
its ProBalance contract(s). Global’s failure to follow its SOPs in some cases has interfered
with the Court’s efforts to determine what actually happened. These failures do not appear
to have been a deliberate attempt to conceal evidence and do not approach anything
resembling spoliation. Likewise, these failures do not appear to have contributed in any way
to the customer complaints regarding ProBalance products.
11.

ProBalance was correspondingly imprecise in its dealings under the contracts

with Global. When products were returned from customers, ProBalance did not return those
products to Global or even necessarily notify Global of the defects. Likewise, ProBalance
did not keep accurate records of what products were returned for what reasons. Nor did
ProBalance retain the returned products. These failures made it impossible for Global, and
of necessity the Court, to determine exactly what happened with the products, what was the
nature and extent of any defects of deficiencies, and whether Global or one of its successors
in fact manufactured the returned products.
12.

The unappetizing taste of some of the Global-manufactured ProBalance

product was not the result of a product manufacturing defect, but rather simply reflected the
nature of the product – in some instances it just did not taste very good.

FINDINGS OF FACT AND CONCLUSIONS OF LAW – PAGE 4

13.

Around December 2013, ProBalance replaced Global as a supplier.
D. Sworn Account

14.

Global’s sworn account claim relates to the fourteen invoices in Plaintiff’s

Exhibit 14 (the “Invoices”), dated from October 2, 2013 to December 20, 2013, in the total
amount of $376,452.72.
15.

Global did not manufacture product for ProBalance unless and until

ProBalance submitted a purchase order (“PO”) for the product to Global. Upon receipt of
the PO, Global would proceed to manufacture the product for ProBalance. ProBalance was
free to inspect and sample Global’s product before accepting it and did on several occasions
inspect and sample to product. Upon manufacturing, Global would hold the completed
product in its warehouse for pickup by ProBalance’s designated shipper. Some of the
completed product was shipped to ProBalance in Florida, and some was drop-shipped
directly to ProBalance’s customers. The term of delivery was free on board (“FOB”) at
Global’s warehouse. This basically means that delivery is complete when ProBalance’s
shipper collects the product from Global’s warehouse, and ProBalance is responsible for
shipping and any associated risk of loss. Upon delivery to ProBalance, Global would issue
an invoice to ProBalance for the delivered product.
16.

All of the Invoices reflect product that was manufactured and delivered in

accordance with this process. That is, Global manufactured the product referenced in the
Invoices in response to POs issued to Global by ProBalance. All of the product reflected in

FINDINGS OF FACT AND CONCLUSIONS OF LAW – PAGE 5

the Invoices was delivered to ProBalance FOB Global’s warehouse. Global and ProBalance
agreed to the price of the product, as reflected in the Invoices
17.

Upon receipt of the Invoices, ProBalance entered the Invoices into its

computerized accounting system (except Invoice 9472). This indicates that at the time,
ProBalance agreed that it had ordered the product from Global, Global had manufactured and
delivered the product to ProBalance, and the amount of the Invoices was due and owing from
ProBalance to Global.
18.

There are some discrepancies in the invoices, including references to Australia

and 2.5 oz. bottles after ProBalance had quit selling to Australia and had moved to 3 oz.
bottles. These are puzzling and the Court is not able definitively to state a reason for those
discrepancies. On balance, however, the Court finds that it is more likely than not that the
invoices still reflect product that ProBalance ordered and that Global manufactured and
delivered.
19.

Around October 2013, ProBalance rejected a 200,000 bottle run. The Invoices

do not include any of the rejected 200,000 bottle run.
20.

Some of the shipped product leaked during shipment. This was due to a

combination of excess liquid nitrogen and imperfect lid application. Product that leaked was
defective. It is impossible for the Court to say definitively what portion of the product
leaked. On balance the Court finds it more likely than not that ten percent (10%) of the
product leaked.

FINDINGS OF FACT AND CONCLUSIONS OF LAW – PAGE 6

21.

Product that fizzed but did not leak was not defective. The fizzing was simply

due to excess liquid nitrogen added before sealing the bottles. Fizzing did not affect the taste
or any other salient characteristic of the product. Product that tasted bad was not defective,
but rather reflected ProBalance’s formulation. Not any of the product reflected in the
Invoices was contaminated.
22.

Beyond the 10% of leaky product, ProBalance did not establish that any of the

product subject to the Invoices was defective at the time of delivery. Retailers returned
product because: it did not sell well (probably due to the flavor); because of the migration
to the 3 oz. size; because customers did not like the fizzing; and because of the transition to
Protein 15. These reasons do not establish a defective product at the time of delivery.
E. ProBalance’s Counterclaims
23.

ProBalance failed to show by a preponderance of the evidence the amount of

any product manufactured by Global that was returned by ProBalance’s customer due to any
defect in the product, other than the approximately 10% that leaked. The other 90% of the
product subject to the Invoices was merchantable and not defective.
24.

ProBalance did not notify Global of any defect in the product within a

reasonable time after ProBalance became aware of any alleged defect. Consequently, Global
did not have any opportunity to inspect the allegedly defective product.
25.

ProBalance failed to establish the amount of any lost profits, loss of reputation,

or loss of goodwill with reasonable certainty by a preponderance of the evidence.
ProBalance was at the time a relatively new business and whether it would make any profits

FINDINGS OF FACT AND CONCLUSIONS OF LAW – PAGE 7

is very speculative. ProBalance did not prove any amount of damages (other than the offset
for leaking bottles) with any degree of reasonable certainty.
26.

ProBalance’s purchases of product from Global constitute a set of transactions

relating to the same project. Those purchases involved consideration in excess of $500,000,
in fact in excess of $1,000,000.
27.

All findings of fact that are more properly considered to be conclusions of law

are also adopted by the Court as conclusions of law.
II. CONCLUSIONS OF LAW
1.

The Court has subject matter jurisdiction over this action and personal

jurisdiction over the parties.
2.

Global owns the Invoices and has standing to seek payment of the Invoices.

3.

Global manufactured the product reflected in the Invoices at the request of

ProBalance. Global and ProBalance agreed to the price for the product as shown in the
Invoices. The product reflected in the Invoices was delivered to ProBalance FOB at Global’s
facilities. Not any of the product reflected in the Invoices was timely rejected by ProBalance.
4.

Approximately ten percent (10%) of the product reflected in the Invoices was

defective due to leaking. ProBalance is entitled to a ten percent (10%) offset on the amount
of the Invoices due to that defect.
5.

ProBalance is not otherwise entitled to any offset or credit against the Invoices.

The balance of the Invoices remain due and unpaid. Global has made demand on ProBalance
for payment of the Invoices more than thirty (30) days before trial.

FINDINGS OF FACT AND CONCLUSIONS OF LAW – PAGE 8

6.

After allowing for all just and lawful offsets or credits, Global is entitled to

recover from ProBalance on its open account claim in the amount of:
$367,452.72 - $36,745.27 = $330,707.45
7.

Global is entitled to prejudgment interest. Johnson & Higgins of Tex., Inc. v.

Kenneco Energy, Inc., 962 S.W.2d 507, 528 (Tex. 1998). Global asserted its claim on March
3, 2015, see Plaintiff’s Exhibit 49, and filed this action on March 2, 2015. Accordingly,
prejudgment interest runs from March 2, 2015 (the earlier of 180 days after written notice
or the date suit is filed). Johnson & Higgins, 962 S.W.2d at 530-31. The Court takes judicial
notice that the prime interest rate is currently 3.5%. Accordingly, the prejudgment rate is
5%. See TEX. FIN. CODE § 304.003(c); Johnson & Higgins, 962 S.W.2d at 530-31.
Prejudgment interest is thus:
$330,707.45 * 5% * (618/365) = $27,996.88
8.

Aside from the offset above, ProBalance failed to prove any breach of contract

by Global. ProBalance failed to prove any of the product subject to the Invoices was
defective or not merchantable, aside from the offset for leaking bottles.
9.

Global tendered delivery of the product subject to the Invoices to ProBalance

FOB Global’s facility. ProBalance accepted the product subject to the Invoices. ProBalance
thereafter failed to notify Global of any alleged breach of the implied warranty of
merchantability within a reasonable time, and Global was actually prejudiced by that failure
to notify. See TEX. BUS. & COMM. CODE § 2.607(c)(1); Martin v. Home Depot U.S.A., Inc.,
369 F. Supp. 2d 887, 893 (W.D. Tex. 2005).

FINDINGS OF FACT AND CONCLUSIONS OF LAW – PAGE 9

10.

Other than the offset for leaking bottles, ProBalance failed to prove its

damages, if any, from any breach of contract with reasonable certainty.
11.

Other than the offset previously allowed, ProBalance failed to prove it is

entitled to recover from Global on ProBalance’s claim for breach of implied warranty of
merchantability.
12.

Section 17.49(g) of the Texas Deceptive Trade Practices Act (“DTPA”)

provides:
Nothing in this subchapter [the DTPA] shall apply to a cause of action arising
from a transaction, a project, or a set of transactions relating to the same
project, involving total consideration by the consumer of more than $500,000,
other than a cause of action involving a consumer’s residence.
TEX. BUS. & COMM. CODE § 17.49(g).
13.

As this Court held in SPRAJ Properties LLC v. Regions Bank, 2015 WL

11120528, (N.D. Tex. 2015):
[Plaintiffs’] argument is foreclosed by section 17.49(g)’s language excluding
from the DTPA any “set of transactions relating to the same project” with
value of over $500,000. TEX. BUS. & COM. CODE ANN. § 17.49(g). Although
the DTPA does not define “project,” the Court interprets that term in light of
section 17.49(g)’s purpose of “remov[ing] from the scope of the [DTPA] . . .
litigation between big businesses.” Citizens Nat’l Bank v. Allen Rae Invs.,
Inc., 142 S.W.3d 459, 473 (Tex. App – Fort Worth 2004, no pet.) (ellipses in
original). In Fidelity Telealarm, L.L.C. v. Silver Resources Inc., 2004 WL
1047661 (E.D. Pa. 2004) the court, applying the Texas DTPA, defined
“project” as a “planned undertaking,” and held that a long running distribution
relationship between two parties constituted a project. Id. at *7.
Id. at *6.
14.

Likewise here the manufacturing and distribution relationship between the two

parties constitutes a “project” within the meaning of section 17.49(g). This relationship

FINDINGS OF FACT AND CONCLUSIONS OF LAW – PAGE 10

obviously did not involve a consumer’s residence. This set of transactions involved total
consideration by ProBalance of more than $500,000.
15.

The Texas DTPA does not apply to ProBalance’s claims against Global.

ProBalance is not entitled to recover against Global under the Texas DTPA.
16.

It appears that Global may be entitled to recover its attorneys’ fees in

connection with its claim for open account. Global shall move for such fees in accordance
with Federal Rule of Civil Procedure 54(d)(2).
17.

All conclusions of law that are more properly considered to be findings of fact

are also adopted by the Court as findings of fact.
Signed November 9, 2016.

_________________________________
David C. Godbey
United States District Judge

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