Jet Parts Engineering, Inc. v. Quest Aviation Supply, Inc. et al

Filing 84

ORDER granting in part and denying in part 52 Defendants' Motion for Summary Judgment by Chief Judge Ricardo S. Martinez.(SSM) (Main Document 84 replaced on 3/23/2017) (SM).

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1 2 3 4 5 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 6 7 ) JET PARTS ENGINEERING, INC., ) ) Plaintiff, ) ) v. ) ) QUEST AVIATION SUPPLY, INC., et al., ) ) Defendants. ) 8 9 10 11 12 13 I. 14 CASE NO. C15-0530 RSM ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT INTRODUCTION 15 This matter comes before the Court on Defendants’ Motion for Summary Judgment. 16 Dkt. #52. Defendants ask the Court to dismiss all of Plaintiff’s claims on the basis that it 17 cannot meet the elements of its claims on the facts in this record. Id. Plaintiff opposes 18 19 summary judgment, arguing that disputes of material fact require this Court to allow a jury to 20 decide the claims. Dkt. #69-1. For the reasons discussed herein, the Court GRANTS IN PART 21 AND DENIES IN PART Defendants’ Motion for Summary Judgment. 1 22 23 1 24 25 26 27 28 In reviewing this motion, the Court utilized the publically-filed briefs and exhibits, as well as the unredacted briefs and exhibits filed under seal. In this Order, the Court cites to the sealed documents it reviewed, where applicable, and has not included the parallel citation to the redacted version of the same document. However, the Court notes for the public that any citation to a sealed document can be found at the same pages of the public, redacted versions of the briefs and exhibits. The Court further notes that in an effort to preserve the confidentiality of the information that has been sealed, the Court discusses such information only in general terms. The discussion of such information in that manner is not intended to imply that the Court did not examine the entire record before it. ORDER PAGE - 1 II. 1 BACKGROUND 2 This matter arises out of a contract dispute between the parties. Plaintiff Jet Parts 3 Engineering, Inc. (“JPE”) is a Washington corporation. Dkt. #19 at ¶ 1.1. JPE is engaged in 4 the business of designing, manufacturing, distributing, and selling replacement jet parts. Dkt. 5 #19 at ¶ 1.1. Defendant Quest Aviation Supply, Inc. (“Quest”) is a California corporation 6 7 previously engaged in the business of designing, manufacturing and selling replacement 8 airplane parts. 9 shareholder of Quest. Id. at ¶ 1.3. JPE and Quest designed, manufactured, distributed, and sold 10 Id. at ¶ 1.2. Defendant Brent K. de Ruyter was the CEO and the sole replacement jet parts pursuant to Parts Manufacturer Approval (“PMA”) from the Federal 11 Aviation Administration (“FAA”). Dkts. #53 at ¶ ¶ 2 and 3 and #60 at ¶ 2. The grant of PMA 12 13 authority means that approved parts may be installed on commercial aircrafts as an equivalent 14 alternative to corresponding original equipment manufacturer (“OEM”) parts. Id. 15 At the end of 2012 and beginning of 2013, JPE and Quest entered into negotiations for 16 the sale of Quest to JPE. Dkts. #60 at ¶ 5 and #53 at ¶ ¶ 6-10 and Exs. A-D thereto. There 17 18 were several offers from JPE; however, the final offer was to purchase Quest for $1.7 million 19 and employ Mr. de Ruyter as a consultant for five months. Dkt. #60 at ¶ 10 and Ex. D thereto. 20 Ultimately, the sale was not consummated. 21 Distribution Agreements, which provided that JPE would attempt to sell Quest-manufactured Instead, JPE and Quest entered into two 22 parts to two airlines – Air France and Delta. When those airlines chose to purchase such parts, 23 24 25 26 27 Quest would provide them to JPE based on purchase orders from JPE to Quest. Dkts. #60 at ¶ ¶ 5-8 and Exs. A and B thereto and #53 at ¶ 12 and Exs. E and F thereto. In March 2014, Mr. de Ruyter received an unsolicited offer from HEICO, an aircraft parts supplier headquartered in Florida, to purchase Quest’s assets. Dkt. #53 at ¶ 13. The offer 28 ORDER PAGE - 2 1 was to purchase the assets for all cash, and was in an amount significantly higher than what had 2 previously been offered by JPE. Dkt. #53 at ¶ 13. Quest informed JPE of the offer. Although 3 JPE subsequently negotiated with Quest to purchase its assets, Quest ultimately accepted 4 HEICO’s offer. Dkts. #60 at ¶ ¶ 11-12 and #53 at ¶ 13. After the sale of the assets to HEICO, 5 the proceeds were distributed to Quest’s sole shareholder, Mr. de Ruyter. Dkt. #62, Exs. A at 6 7 8 9 10 15:11-15 and E. More specific facts surrounding this transaction and the claims resulting therefrom are further discussed below. On April 3, 2015, JPE filed the instant lawsuit. Dkt. #1. JPE now alleges causes of action for breach of contract against both Quest and Mr. de Ruyter, unjust enrichment against 11 both Quest and Mr. de Ruyter, and fraudulent transfer against Quest. Dkt. #29 at ¶ ¶ 4.1-4.40. 12 13 Defendants have moved for summary judgment on all claims. III. 14 15 DISCUSSION A. Standard of Review for Motions of Summary Judgment 16 Summary judgment is appropriate where “the movant shows that there is no genuine 17 18 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. 19 R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). In ruling on 20 summary judgment, a court does not weigh evidence to determine the truth of the matter, but 21 “only determine[s] whether there is a genuine issue for trial.” Crane v. Conoco, Inc., 41 F.3d 22 547, 549 (9th Cir. 1994) (citing Federal Deposit Ins. Corp. v. O’Melveny & Meyers, 969 F.2d 23 24 25 26 27 744, 747 (9th Cir. 1992)). Material facts are those which might affect the outcome of the suit under governing law. Anderson, 477 U.S. at 248. The Court must draw all reasonable inferences in favor of the non-moving party. See O’Melveny & Meyers, 969 F.2d at 747, rev’d on other grounds, 512 U.S. 79 (1994). However, 28 ORDER PAGE - 3 1 the nonmoving party must make a “sufficient showing on an essential element of her case with 2 respect to which she has the burden of proof” to survive summary judgment. Celotex Corp. v. 3 Catrett, 477 U.S. 317, 323 (1986). Further, “[t]he mere existence of a scintilla of evidence in 4 support of the plaintiff’s position will be insufficient; there must be evidence on which the jury 5 could reasonably find for the plaintiff.” Anderson, 477 U.S. at 251. 6 7 B. Applicable Law 8 The parties appear to agree that this matter is governed by Washington law. Indeed, the 9 Distribution Agreements at issue contain a governing law provision that provides for 10 governance and construction of the Agreements under Washington law. Dkts. #57-5 at ¶ 14.9 11 and #57-6 at ¶ 14.9. Accordingly, the Court applies such law to the instant motion. 12 13 14 15 C. Breach of Contract Claims Defendants first argue that Plaintiff cannot prove breach of contract against either Quest or Mr. de Ruyter. Dkt. #52 at 10-18. To prevail on a breach of contract claim under 16 Washington law, a plaintiff must establish (1) the existence of a contractual duty, (2) 17 18 defendant’s breach of that duty, and that (3) defendant’s breach of that duty caused damages to 19 the plaintiff whom the duty is owed. Nw. Indep. Forest Mfrs. v. Dep't of Labor & Indus., 78 20 Wn. App. 707, 712, 899 P.2d 6 (1995). 21 Distribution Agreements in multiple ways (dkt. #29 at ¶ 4.5), addressed in turn below. Plaintiff alleges that Defendants breached the 22 1. Right of First Refusal 23 24 Plaintiff alleges that Quest breached the Distribution Agreements by failing to provide 25 Plaintiff a good faith opportunity to match HEICO’s bid or option to purchase Quest’s assets. 26 Dkt. #29 at ¶ 4.5(c). Section 13.2 of the Agreements reads: 27 During the term of this Agreement, and for a period of six (6) months thereafter, in the event SUPPLIER decides to offer any of its assets, or stock 28 ORDER PAGE - 4 for sale, SUPPLIER agrees to notify DISTRIBUTOR of such intent and provides [sic] the DISTIRBUTOR with an opportunity to meet any other potential buyer’s terms and conditions. 1 2 3 4 Dkt. #57, Exs. E and F at ¶ 13.2. Thus, the Agreements gave rise to a duty by Quest to inform JPE of its intent to sell its assets and provide JPE with an opportunity to meet the potential 5 buyer’s terms and conditions. 6 The parties agree that on March 28, 2014, Mr. de Ruyter notified Vice President and 7 8 Director of Operations of JPE, Nadim Fattaleh, of HEICO’s offer. Dkts. #53 at ¶ 13, Ex. H and 9 #60 at ¶ 11, Ex. D. JPE acknowledges that such “notice was pursuant to § 13.2 of the 10 Distribution Agreements.” Dkt. #60 at ¶ 11. Mr. Fattaleh thanked Mr. de Ruyter, and stated 11 that JPE was interested in the opportunity to meet the terms and conditions of the offer. Dkt. 12 13 #60, Ex. D. He asked for a copy of the offer from the other party, “after redacting any 14 information you are not allowed to share with us,” and Quest’s most recent financial 15 statement. Id. (emphasis added). Quest provided a redacted version of the offer, which did not 16 reveal the identity of the proposed purchaser. Dkt. #53, Ex. H. The redacted version did 17 18 identify the following terms: proposed purchase price, escrow, inventory, representations and 19 warranties, indemnification (without identifying the proposed indemnitee), real estate (without 20 identifying the proposed purchaser), and expenses. 21 financial statement. Id. The “purchase price” term contained no redactions, and stated that 2 Id. Quest also provided its most recent 22 transaction structure would be a purchase of all assets for a cash amount (less escrow) on a debt 23 24 free basis. Id. On April 1, 2014, Mr. Fattaleh responded to Mr. de Ruyter, stating that the offer had 25 26 been redacted to the point where JPE was unable to fully evaluate it. Dkt. #53, Ex. I. 27 28 2 The redacted terms included employee matters, approvals, post-closing transition, regulatory requirements, acquiring entity, due diligence requirements, and contact person. Dkt. #53, Ex. J. ORDER PAGE - 5 1 Accordingly, Mr. Fattaleh asked for a copy of the agreement that essentially included every 2 term and redacted only the Offeror’s name. Dkt. #53, Ex. I. Mr. de Ruyter responded that the 3 redacted offer represented the terms and conditions of the potential buyer, and that the 4 redactions were only non-essential items that protected the anonymity of the buyer. Id. Mr. de 5 Ruyter then stated that the Distribution Agreement did not obligate him to do anything more 6 7 8 9 10 that provide the applicable terms and conditions, which he had done, and asked for a response from JPE. Id. In response, JPE sent a Letter of Intent offering to acquire Quest for the same purchase price in cash. Dkt. #53, Ex. L. However, the offer was structured such that the purchase price 11 would be paid in installments, with a sum certain up front, a sum certain at closing, and the 12 13 balance to be paid in the form of earn out payments over the course of ten years. Id. The offer 14 also included an option for the continued employment of Quest’s President and CEO for five 15 years, and other terms. Id. As noted above, Quest rejected JPE’s offer. 16 JPE now essentially argues that Quest never provided it with a fair opportunity to meet 17 18 the terms and conditions of HEICO’s offer because it was only provided with a heavily 19 redacted version of the offer, which prevented them from making a meaningful offer. Dkt. 20 #69-1 at 18. JPE further asserts that Quest’s actions are questions of material fact. Id. The 21 Court disagrees. 22 With respect to materiality, the Court notes that “the substantive law will identify which 23 24 facts are material.” Anderson, 477 U.S. at 248. Specifically, a “material” fact is one which is 25 “relevant to an element of a claim or defense and whose existence might affect the outcome of 26 the suit.” T.W. Electrical Serv., Inc. v. Pacific Electrical Contractors Ass'n, 809 F.2d 626, 630 27 (9th Cir. 1987). Mere “[d]isputes over irrelevant or unnecessary facts,” therefore, “will not 28 ORDER PAGE - 6 1 preclude a grant of summary judgment.” Id. Determining whether a “genuine” issue exists is 2 often a close question. Id. The Court must consider the substantive evidentiary burden the 3 nonmoving party must meet at trial – e.g. a preponderance of the evidence in most civil cases. 4 Anderson, 477 U.S. at 252. No genuine issue for trial exists where the record, taken as a whole, 5 could not lead a rational trier of fact to find for the non-moving party. Matsushita Elec. Indus. 6 7 Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986) 8 (citing First Nat. Bank of Ariz. V. Cities Service Co., 391 U.S. 253, 289, 88 S. Ct. 1575, 20 L. 9 Ed. 2d 569 (1968)). 10 In this case, the duty set out in § 13.2 of the Distribution Agreements was that Quest 11 was to provide notice of intent to sell its assets and provide an opportunity to JPE to meet the 12 13 other potential buyer’s terms and conditions. There is no dispute that Mr. de Ruyter provided 14 such notice prior to the sale of its assets to HEICO. While JPE asserts that it could not make a 15 meaningful offer because of the redactions to HEICO’s offer, the record demonstrates that the 16 material terms were conveyed, and that the redactions did not hide anything material to the 17 18 purchase price or purchase structure. Moreover, JPE does not identify which redacted 19 provisions, if any, would have meaningfully informed its offer had it known about such 20 provisions at the time it made its offer. Thus, on this record, the Court agrees with Quest that 21 undisputed evidence establishes that Quest satisfied the requirements of § 13.2, and no genuine 22 issue exists for trial. Accordingly, the Court finds that the breach of contract claim based on an 23 24 alleged breach of § 13.2 shall be dismissed. 25 2. Assignment of Distribution Agreements 26 Plaintiff also alleges that Quest breached the Distribution Agreements by failing “to 27 properly seek assignment of the Distribution Agreements and the sale of the substantial part of 28 ORDER PAGE - 7 1 2 its assets was to a competitor.” Dkt. #29 at ¶ 4.5(d). Section 14.2 of the Distribution Agreements states: Assignment. Neither this Agreement nor any right or obligation hereunder is assignable or transferable by either party in whole or in part without the prior written consent of the other party which shall not be unreasonably withheld, and any such purported assignment without such consent shall be void, except that either party shall have the right to assign this Agreement and its rights and obligations hereunder, without obtaining prior written consent of the other party, to any entity (other than a competitor of the other party hereto) with which the assigning party (a) merges, (b) sells a substantial part of its assets or businesses, or (c) sells a substantial part of its assets or business relating to the Products. 3 4 5 6 7 8 9 10 Dkt. #53, Exs. E and F at § 14.2. Although not entirely clear, it appears Plaintiff argues that 11 Quest breached this provision when it sold its website (an asset) to HEICO, which was the 12 mode that JPE used to transmit purchase orders for parts to Quest, and then failed to fill a 13 purchase Order dated June 27, 2014. Dkt. #69-1 at 13-14. Plaintiff asserts that Quest either 14 assigned its obligation to fill purchase orders to HEICO without JPE’s consent, which would be 15 16 a breach of § 14.2, or it breached the Distribution Agreement by failing to fulfill its own 17 obligation with respect to the purchase Order. Id. at 13-16. 18 As an initial matter, the Court notes that § 14.2 creates one duty – that Quest seek 19 consent from JPE before assigning the Agreement or any right or obligation thereunder. The 20 21 remainder of the section sets forth the consequences of any assignment without seeking 22 consent, and certain circumstances where assignment could occur without consent (which are 23 not applicable in this case). The parties agree that the Agreements themselves were never 24 assigned to HEICO. Indeed, Plaintiff alleges as much in its Complaint. Dkt. #29 at ¶ 3.12. 25 Plaintiff also agrees that Quest made an offer to assign the Agreements to HEICO, but that 26 27 Plaintiff rejected the offer. Id. Thus, there can be no breach of § 14.2 on the basis that the 28 Agreements themselves were not assigned to HEICO. ORDER PAGE - 8 1 However, § 14.2 also requires that Quest seek consent before assigning any right or 2 obligation under the Agreements. JPE argues that a pending purchase order was not fulfilled 3 because HEICO had no obligation to fill it, and Quest made no other provision for its 4 obligations after it sold its assets. Dkt. #69-1 at 14-15. Quest responds that JPE failed to 5 submit the purchase Order to Quest as required, and therefore it cannot hold Quest liable for 6 7 any breach. Dkt. #72 at 6-7. The Court agrees with Quest. 8 The Air France Agreement, which is the Agreement related to the purchase Order in 9 question, required JPE to submit purchase orders to Quest. Dkt. #53, Ex. E at § 3. Those 10 purchase orders were submitted through Quest’s website. Dkt. #53 at ¶ 45. HEICO took 11 control of the website on June 14, 2014, after the asset transaction closed. Id. The purchase 12 13 order, dated June 23, 2014, was submitted to the website after HEICO took control of that 14 asset. ¶ ¶ 44-45 and Ex. P thereto. Despite the fact that JPE knew the date of the asset 15 sale, had not consented to the assignment of the Agreements to HEICO, and had contact 16 information for Mr. de Ruyter, JPE did not address the purchase order with Mr. de Ruyter 17 18 (Quest). Instead, JPE addressed the purchase order with HEICO for several weeks. Id. at ¶ 46 19 and Ex. Q thereto. Ultimately, JPE told HEICO that it had been instructed by its attorney to 20 hold off on fulfilling the purchase order. Id. 21 Under these facts, the Court finds no breach of § 14.2. While JPE argues that a question 22 of fact remains as to whether Quest could have fulfilled the purchase order, that argument is of 23 24 no import because JPE does not dispute that it never directed the purchase order to Quest. If it 25 had, and Quest did not fulfill the order, that may have left JPE in a different position now. But 26 that is not what occurred. JPE’s own actions left Quest with no knowledge of the purchase 27 28 ORDER PAGE - 9 1 2 3 4 order or opportunity to fill it. Thus, Quest’s duty to fulfill the purchase order never arose, and it cannot be liable for breach of contract. Further, even if JPE could demonstrate that the duty arose and Quest breached the duty, JPE cannot demonstrate that Quest’s alleged breach damaged JPE. The record is clear that JPE 5 informed HEICO it would not be resubmitting a purchase order for the single part requested by 6 7 Air France, because it was instructed by its attorney to do so. Dkt. #53 at ¶ 46 and Ex. Q 8 thereto. Thus, any damages resulted from JPE’s own actions as well. For all of these reasons, 9 the Court denies any breach of contract claims based on § 14.2 and/or Quest’s alleged failure to 10 fulfill a purchase order. 11 3. Technical Support 12 13 Finally, Defendant seeks dismissal of any alleged breach of § 5.1 JPE alleges that 14 Quest breached the Distribution Agreements by failing to provide engineering support and 15 cooperate in obtaining approval of parts for Delta Airlines. Dkt. #29 at ¶ 4.5(b). Specifically, 16 JPE argues that Defendants failed to provide technical support as was required by § 5.1 of the 17 18 19 20 21 22 Distribution Agreement. Dkt. #69-1 at 16-17. Section 5.1 of the Agreements provides: Technical Support: SUPPLIER shall provide technical support to DISTRIBUTOR’s sales personnel and customers, and promptly provide to DISTRIBUTOR such additional technical information developed or acquired by SUPPLIER from time to time as may reasonably be expected of assistance to DISTRIBUTOR in fulfilling its obligation hereunder. 23 24 25 26 27 28 SUPPLIER shall provide an information pack to support DISTRIBUTOR with Exclusive Customers’ decision making for all Products. SUPPLIER gives DISTRIBUTOR full permission to disclose any and all technical documentation, drawings analysis or other information to the Exclusive Customers for the purpose of obtaining technical approval or for any reasons including but not limited to reasons associated with Continued Operational Safety. The information shall include, but not be limited to: 5.1.1 All testing analysis ORDER PAGE - 10 5.1.2. 5.1.3. 5.1.4. 5.1.5. 5.1.6. 5.1.7. 1 2 3 4 5 6 7 PMA supplement Sample 8130 form Drawing Sample Parts Lead times Reliability details and warranty details. Dkt. #53, Exs. E and F at § 5.1. In late 2013, JPE advised Mr. de Ruter about a potential opportunity to sell Quest parts (seals to be installed on thrust reversers on MD-90 aircraft) to Delta. Dkt. #53 at ¶ 51. At 8 JPE’s request, Quest prepared eight Basic Engineering Review Packages (“BERPs”) addressing 9 10 15 Quest part numbers. Id. The BERPs were provided to JPE, which then transmitted them for 11 review by Delta’s engineering personnel. The BERPs are very large data files, containing 12 detailed technical information about the parts’ designs and their approval by the FAA as PMA 13 parts. Id. The BERPs were submitted to Delta on a rolling basis in or about December 2013 14 and January 2014. 15 16 On May 7, 2014, JPE advised Quest that Delta had rejected Quest’s parts. Dkt. #53, Ex. 17 R. The email provided reasons for the rejection, including that Quest would be a new vendor 18 and that the parts offered were simply too different from the OEM parts. Id. JPE asked Quest 19 to come up with “a game plan.” Id. On May 13, 2014, Mr. de Ruyter participated in a phone 20 21 call with JPE and Delta, wherein he was told that the reason the parts were being rejected was 22 because they were too different. Dkt. #53 at ¶ 54. Mr. de Ruyter offered to travel to Atlanta to 23 meet with Delta engineering personnel. Id. at ¶ 55. No meeting was ever arranged. 24 Between May 20th and May 27th, JPE and Quest continued to discuss the rejection of the 25 Quest parts. Dkt. #61, Ex. A. After a phone call between Mr. Goel and Mr. de Ruyter, Mr. 26 27 Goel emailed Mr. de Ruyter asking him to “send me email as we discussed. I need it before I 28 send steve [sic] out to fight battle.” Id. JPE asserts that Mr. de Ruyter never did respond as ORDER PAGE - 11 1 requested. Dkt. #61 at ¶ 2. Quest does not address this assertion in its briefing. The Court 2 agrees with Plaintiff that this email exchange raises a genuine dispute as to a material fact. It is 3 not clear based on this exchange whether Quest provided the technical support that it was 4 required to provide under the Distribution Agreements. Accordingly, the Court will not 5 dismiss Plaintiff’s breach of contract claim alleging a breach of § 5.1. 6 7 4. Breach of Contract Claim Against Mr. de Ruyter/Alter Ego Doctrine 8 Plaintiff has also alleged a breach of contract claim against Mr. de Ruyter individually. 9 Dkt. #29 at ¶ ¶ 4.7-4.18. Although styled as a breach of contract claim, it appears that Plaintiff 10 really seeks to hold Mr. de Ruyter personally liable for any Quest breach under the alter ago 11 doctrine. See id. and Dkt. #69-1 at 22-23. As this Court has previously held, Plaintiff’s breach 12 13 of contract claim is dismissed to the extent that it can be read to assert a breach claim against 14 Mr. de Ruyter. Dkt. #28 at 4-5. This Court has also previously explained, a “‘request to pierce 15 the corporate veil is only a means of imposing liability for an underlying cause of action and is 16 not a cause of action in and of itself.’” Id. at 5 (quoting Local 159, 342, 343 & 444 v. Nor-Cal 17 18 Plumbing, Inc., 185 F.3d 978, 985 (9th Cir. 1999)). 19 Washington recognizes the “alter ego” doctrine, which provides, “‘Where a private 20 person so dominates and controls a corporation that such corporation is his alter ego, a court is 21 justified in piercing the veil of corporate entity and holding that the corporation and private 22 person are one and the same.’” Standard Fire Ins. Co. v. Blakeslee, 54 Wn. App. 1, 5, 771 P.2d 23 24 1172 (1989) (quoting Pohlman Inv. Co. v. Va. City Gold Mining Co., 184 Wash. 273, 283, 51 25 P.2d 363 (1935)). Under Washington law, “[t]he corporate entity is disregarded and liability 26 assessed against shareholders in the corporation when the corporation has been intentionally 27 used to violate or evade a duty owed to another.” Morgan v. Burks, 93 Wash. 2d 580, 585, 611 28 ORDER PAGE - 12 1 2 3 P.2d 751 (1980) (citation omitted). Both of the following elements must be proved before the corporate entity will be disregarded: 1. That there is such a commingling of property rights or interest as to render it 4 apparent that the corporation and some other entity were intended to function as 5 one; 6 7 2. That to regard the corporation and the other entity as separate would aid the consummation of a fraud or wrong upon others. 8 9 10 Thomas V. Harris, Washington’s Doctrine of Corporate Disregard, 56 Wash. L. Rev. 253, 258 (1981) (citing Morgan, 93 Wash. 2d at 587-88). 11 “The first element requires the court to determine whether the shareholders abused the 12 13 corporate form,” while “[i]n considering [the] second requirement, the court must determine, in 14 each particular case, if any of the wrongful corporate activities actually harmed the party 15 seeking relief.” Harris, supra. “‘Mere common ownership of stock, the same officers, 16 employees, etc., does not justify disregarding the separate corporate identities unless a fraud is 17 18 being worked upon a third person.’” Minton v. Ralston Purina, Co., 146 Wn.2d 385, 399, 47 19 P.3d 556 (2002) (quoting Rena-Ware Distributors, Inc. v. State, 77 Wn.2d 514, 518, 463 P.2d 20 622 (1970)). 21 In the instant matter, JPE fails to present any evidence to support the first element 22 required to raise an issue of fact as to commingling. Indeed, JPE fails to address that element at 23 24 all in its Response. See Dkt. #69-1 at 20-22. Further, while JPE asserts that Mr. de Ruyter 25 “was Quest” and ignored the corporate form when HEICO paid him directly for the sale of 26 Quest’s assets, JPE ignores the fact that the asset sale and distribution were reflected in Quests 27 28 ORDER PAGE - 13 1 2 accounting. Dkt. #62, Ex. A at 15:20-16:6. Accordingly, the Court will dismiss any breach of contract claim pertaining to Mr. de Ruyter under the theory of alter ego liability. 5. Limitation on Damages 3 4 Defendants ask this Court to limit damages should any of Plaintiff’s breach of contract 5 claims survive this motion. Dkt. #52 at 18. Defendants rely on § 9.1 of the Distribution 6 7 Agreements, which reads: Procedures: On the termination of this Agreement, except for cause pursuant to Section 8.20, SUPPLIER shall continue to honor DISTRIBUTOR’s orders for Products up to the effective date of termination and for a period of sixty (60) days thereafter, and DISTRIBUTOR shall pay for all such Products on the terms and conditions of this Agreement. 8 9 10 11 12 13 Dkt. #53, Exs. E and F at § 9.1. 3 Defendants argue that because the Agreements were terminated for cause under Section 8.2, its duties ended at the time specified in Section 9.1. 14 Dkt. #52 at 18. According to Defendants, any damages would therefore be limited to contract 15 16 damages based on hypothetical sales occurring prior to September 8, 2014, which is the date of 17 the liquidation of Quest’s assets and the effective termination of the Distribution Agreements. 18 Id. JPE argues that Section 9.1 does not apply at all if Section 8.2 is invoked. Dkt. #69-1 at 14. 19 The Court agrees with Plaintiff that Section 9.1 is inapplicable due to Defendants’ 20 21 termination of the Agreements for cause. Indeed, Defendants themselves note that all Section 22 9.1 provides is that Defendants would continue to honor purchase orders for 60 days after 23 termination if Defendants had not terminated for cause. Dkt. #72 at 9. However, the Court 24 also agrees with Defendants that its duties terminated as of September 8, 2014, because that is 25 the date the Agreements effectively terminated, and no duty to fulfill orders received after that 26 27 28 3 The parties appear to agree that the reference to Section 8.20 is a typographical error, as no such paragraph exists in the Agreements, and instead should be read as a reference to Paragraph 8.2 entitled “Termination.” ORDER PAGE - 14 1 2 3 date existed. Accordingly, Defendants can have no liability for damages tied to hypothetical purchase orders after that date. D. Unjust Enrichment 4 Defendants next move for the dismissal of Plaintiff’s unjust enrichment claim. Dkt. #52 5 at 18-19. Under Washington law, “[u]njust enrichment is the method of recovery for the value 6 7 of the benefit retained absent any contractual relationship because notions of fairness and 8 justice require it.” Young v. Young, 164 Wn.2d 477, 484, 191 P.3d 1258 (2008). Where a valid 9 contract governs the rights and obligations of the parties, unjust enrichment does not apply. 10 See Mastaba, Inc. v. Lamb Weston Sales, Inc., 23 F. Supp. 3d 1283, 1295-96 (E.D. Wash. 11 2014). In this case, no one disputes that Quest and JPE entered into valid Distribution 12 13 Agreements. Consequently, JPE has an adequate legal remedy for breach of contract against 14 Quest. Whether or not it can prove its breach of contract claim is a different question, but that 15 does not permit it to raise unjust enrichment with respect to Quest. 16 Plaintiff responds that its unjust enrichment claim should be presented to the jury as to 17 18 Mr. de Ruyter as an alternative to the alter ego theory of liability. Dkt. #69-1 at 22. The Court 19 disagrees. The alter ago theory of liability is rooted in a breach of contract claim against Quest. 20 Therefore, unjust enrichment does not apply. 21 E. Fraudulent Transfer 22 Finally, Defendant seeks the dismissal of Plaintiff’s fraudulent transfer claim. Dkt. #52 23 24 at 22-24. JPE alleges that Quest transferred the proceeds of the sale of its assets to Mr. de 25 Ruyter with the actual intent to hinder, delay, or defraud its creditor JPE in violation of RCW 26 19.40.041. Dkt. #29 at 4.37. 27 28 ORDER PAGE - 15 1 Under RCW 19.40.041(a), a transfer made by a debtor is fraudulent to a creditor, if the 2 property was transferred “(1) [w]ith actual intent to hinder, delay, or defraud any creditor of the 3 debtor; or (2) [w]ithout receiving a reasonably equivalent value in exchange for the transfer or 4 obligation, and the debtor: (i) Was engaged or was about to engage in a business or a 5 transaction for which the remaining assets of the debtor were unreasonably small in relation to 6 7 the business or transaction; or (ii) Intended to incur, or believed or reasonably should have 8 believed that he or she would incur, debts beyond his or her ability to pay as they became due.” 9 RCW 19.40.041(a). A fraudulent transfer occurs where “one entity transfers an asset to another 10 entity, with the effect of placing the asset out of the reach of a creditor, with either the intent to 11 delay or hinder the creditor or with the effect of insolvency on the part of the transferring 12 13 entity.” Thompson v. Hanson, 168 Wn.2d 738, 744, 239 P.3d 537 (2009). Any party making a 14 claim under the UFTA carries the burden of proving that the transfer in question was 15 fraudulent. Sedwick v. Gwinn, 73 Wn. App. 879, 885, 873 P.2d 528 (1994). Proof of actual 16 intent to defraud must be clear and satisfactory. Clearwater v. Skyline Const. Co., Inc., 67 Wn. 17 18 App. 305, 321, 835 P.2d 257 (1992). 19 Defendants argue that this claim fails for several reasons. First, Defendants assert that 20 Quest is not a “debtor” and JPE is not a “creditor” for purposes of the statute. “‘Creditor’” 21 means a person who has a claim.” RCW 19.40.011(4). “‘Debtor’ means a person who is liable 22 on a claim.” RCW 19.40.011(6). “‘Claim’ means a right to payment, whether or not the right 23 24 is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, 25 disputed, undisputed, legal, equitable, secured, or unsecured.” RCW 19.40.011(3). The statute 26 provides that a fraudulent transfer can occur “whether the creditor’s claim arose before or 27 after the transfer was made or the obligation was incurred.” RCW 19.40.041 (emphasis 28 ORDER PAGE - 16 1 added). “Thus, under the definitions provided in the UFTA, a creditor need only have a right to 2 collect a payment to void a fraudulent transfer.” Douglas v. Hill, 148 Wn. App. 760. 765, 199 3 P.3d 493, 496 (2009). In this case, the Court has determined that at least one claim of breach 4 survives summary judgment, and, should JPE be successful on that claim, it would be 5 considered a creditor for purposes of the statute. Accordingly, the Court finds material 6 7 8 9 10 11 questions are present as to whether the parties constitute a debtor and creditor. Quest next argues that there is no evidence in the record that it distributed assets with the actual intent to defraud JPE. Dkt. #52 at 22-24. RCW 19.40.041(b) provides: (b) In determining actual intent under subsection (a)(1) of this section, consideration may be given, among other factors, to whether: 12 (1) The transfer or obligation was to an insider; 13 (2) The debtor retained possession or control of the property transferred after the transfer; 14 15 (3) The transfer or obligation was disclosed or concealed; 16 (4) Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; 17 18 (5) The transfer was of substantially all the debtor’s assets; 19 (6) The debtor absconded; 20 (7) The debtor removed or concealed assets; 21 (8) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; 22 23 24 (9) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; 25 26 (10) The transfer occurred shortly before or shortly after a substantial debt was incurred; and 27 28 ORDER PAGE - 17 (11) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor. 1 2 RCW 19.40.041(b). JPE argues that five of these factors can be answered affirmatively. Dkt. 3 4 #69-1 at 23. 5 The Court finds that on this record, questions of fact for the fact finder as to intent exist. 6 Quest argues that the factors presented by JPE can easily be explained. Dkts. #52 at 22-24 and 7 #72 at 12. However, that is a question for the fact finder. Accordingly, the Court finds that it 8 would be premature to dismiss Plaintiff’s fraudulent transfer claim. 9 IV. 10 11 12 13 CONCLUSION Having reviewed the relevant pleadings, the declarations and exhibits attached thereto, and the remainder of the record, the Court hereby ORDERS: 1. Defendants’ Motion for Summary Judgment (Dkt. #52) is GRANTED IN PART 14 AND DENIED IN PART as discussed above. 15 16 2. The only surviving claims for trial in this matter are: (a) breach of contract on the 17 basis that Quest breached § 5.1 of the Distribution Agreements; and (b) fraudulent 18 transfer. 19 3. The Court will address the pending motions in limine in due course. 20 21 22 DATED this 23rd day of March 2017. 23 24 A 25 RICARDO S. MARTINEZ CHIEF UNITED STATES DISTRICT JUDGE 26 27 28 ORDER PAGE - 18

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