LLC v. Crew Design (2013)

MEMORANDUM OF DECISION

This case was tried to the court.   The last post-trial brief was filed on May 28, 2013.   The parties have stipulated that the time for the court to render a decision is extended to and including November 8, 2013.

The plaintiff, Brinker Displays, LLC., sued the defendant, Crew Design, Inc. (“Crew”) to collect an overdue account in the amount of $133,381.35.   Crew denied that it owed the plaintiff anything, filed several special defenses, and counterclaimed for a sum in excess of $4,000,000.   The counterclaim is also addressed to the counterclaim defendant, Blanc Industries, Inc. (“Blanc”).  The court makes the following factual findings and draws the following conclusions of law.

I. Facts

The plaintiff, Brinker Displays, Inc., is engaged in the business of manufacturing advertising displays for use in stores.   This kind of advertising is known as “point of purchase” advertising.   Crew is a creative design and production company which specializes in designing and producing point-of-purchase displays, signs and fixtures.   In August 2008, Diageo, Inc. (“Diageo”) contracted with Crew to design and produce point-of-purchase displays for a project known as Simply Cocktails.   Diageo, a large international purveyor of premium alcoholic beverages, wanted the displays to be placed in liquor stores, grocery stores and other places that alcoholic beverages are sold.

Crew designed multi-level racks with colorful signs that display Diageo spirits and Diageo mixers used to produce various cocktails, together with pockets containing flyers with recipes for the cocktails.   These designs met with approval from Diageo which authorized Crew to produce the display racks, signs and flyers to implement the Simply Cocktails program.   The display racks were to be free-standing, made of metal, and covered with cardboard or heavy paper.

In August of 2008, Crew solicited quotes from an entity then known as Brinker Displays to manufacture various pieces of the display racks.   Brinker Displays was an established company owned by Art Brinker.   Art Brinker had known Crew's principal, Glen Carlin, for many years.   On September 12, 2008 Crew issued a series of purchase orders to Brinker Displays for various aspects of the production.   At issue in this case are three purchase orders issued to Brinker Displays totaling $132,231 for the final production and shipping of the components of the displays.

The credible evidence is that the details of the assembly of the displays evolved during September and early October and were not finalized until just before the displays were shipped by the plaintiff.   Although the final instructions for assembly of the header of one of the displays appears extremely complicated, Diageo rejected having the header shipped in an assembled condition.   Brinker Displays produced components which matched the purchase orders issued by Crew.

During the time that the Simply Cocktails program was in production, the assets of Brinker Displays were in the process of being sold.   Although the evidence concerning the sale is confusing and contradictory,¹ the credible evidence is that in late September or early October 2009 the assets of Brinker Displays were sold to a limited liability company known as Didier Blanc, LLC which simultaneously changed its name to Brinker Displays, LLC. Among the assets transferred to the plaintiff was the Simply Cocktails project which was nearing completion.²  The principal employees of Brinker Displays continued to be employed by the plaintiff and the Simply Cocktails project continued as if there had been no change of ownership.   Most of the work on the project was done by Brinker Displays before the sale of the assets.   However, the final packaging and shipping, was done by the plaintiff, Brinker Displays, LLC. The total amount of out-of pocket expense to Brinker Displays and the plaintiff as a result to this project is $85,000.   The plaintiff sent invoices to Crew which match the original purchase orders.   Crew has failed to pay the three invoices totaling $132,231 and three other small invoices totaling $1,150.35, for a total of $133,381.35.

Although the defendant claimed in its brief that it had not been aware of the sale of Brinker Display's assets to the plaintiff at the time it took place, the credible evidence is otherwise.   The defendant's production manager on the Simply Cocktails project ³ was told about the sale before it took place.   There is no evidence that the defendant raised any objection to completion of the project by the plaintiff and to the collection of the invoices by the plaintiff until sometime during this litigation.

In September 2008 the Simply Cocktails program had a successful demonstration at three locations in Connecticut and had a “roll out” to stores and outlets in Virginia and Arizona in October 2008.   The plaintiff packaged and shipped the display components to retail liquor stores in Virginia for assembly.   On October 13, 2008, when the packages were opened in Virginia, it was discovered that some components were missing from twelve of the boxes so that some of the displays could not be fully assembled.   The credible evidence is that these 12 packages were shipped with an inadequate number of “fin fasteners,” flier pockets and printed material.   Fin fasteners, also known as Christmas tree fasteners, are small conical-shaped plastic pieces with fins that are angled backwards.   The fasteners are pushed through appropriately-sized holes in the cardboard pieces of the displays to hold two pieces together.   Each display was supposed to have 16 fin fasteners but they were shipped with only 4 each.   There were also missing flier pockets.   These pockets are made of clear plastic and are used to hold printed material.   Finally, some of the fliers was missing.   The failure to include these missing pieces was a mistake made by the plaintiff.   Despite the missing components, none of the packages were rejected by Crew or Diageo.   Diageo employees assembled the displays as best they could using tape.   There was insufficient evidence to convince the court that the any of displays were shipped in a damaged condition.

Diageo immediately notified Crew about the missing pieces and Crew immediately notified the plaintiff.   On October 14, 2008, the plaintiff sent the missing pieces by overnight delivery to each store location in Virginia where the packages had been sent.   The cost of these overnight deliveries was absorbed by the plaintiff and has not been billed to Crew. Crew sent production manager, Joseph Meyer, to Virginia to assist with completion of assembly of the twelve displays.   Once the missing pieces were received, assembly of the displays was completed.

Diageo representatives on the scene in Virginia were quite unhappy about the missing pieces and communicated their displeasure to Crew. They indicated that Diageo held Crew responsible.   Crew was informed that the displays needed to be “right” for a visit by Diageo executives the following week.   To help address Diageo's displeasure, Crew sent Mr. Meyer to Arizona to supervise the assembly of displays the following week.   Crew was unable to prove with credible evidence that there were any significant problems with assembly in Arizona or with the executive visit in Virginia.   Diageo eventually paid Crew for the Simply Cocktails program through the rollout in Virginia and Arizona but Crew never billed Diageo for $24,691 it incurred for the extra travel and time spent by Mr. Meyer in Virginia and Arizona and for correction of the mistakes made by the plaintiff in leaving out components sent to Virginia.

The second phase of the “Simply Cocktails” program involved a nationwide roll-out.   Diageo gave this work to another firm rather than have Crew continue with the project.   The credible evidence is that this decision was made because of Diageo's displeasure with the way the first phase was handled by Crew. As the Diageo representative testified, the omission of parts in the first phase was “very fresh in everyone's mind.”   Crew was told to wait awhile until things simmered down before coming back with more project ideas.   In significant part, Diageo's displeasure stemmed from the plaintiff's mistake in leaving out parts in the displays shipped to Virginia.

Crew was able to prove by a fair preponderance of the evidence that Diageo did not ask it to continue with the balance of the Simply Cocktails project because it was not pleased with the way the roll-out in Virginia had been handled by Crew. In significant part, Diageo's displeasure stemmed from the plaintiff's mistake in leaving out parts in displays shipped to Virginia.   However, Crew did not prove by a fair preponderance of the evidence that its failure to secure new projects from Diageo was caused by the plaintiff's failure to include all of the parts in the displays shipped to Virginia.   The court credits the testimony of Margaret Parshanov, Crew's direct contact at Diageo and the corporate representative at a deposition of Diageo, that there were other reasons why Crew has not secured any future business from Diageo.   Of particular importance is a change in the way Diageo engages point of purchase contractors.   Since the Simply Cocktails project, point of purchase development is directed to a centralized Diageo process, using two outsource vendors who do 98% of the purchasing for national projects.   The outsource vendors had not been in place for the Simply Cocktails project.

Crew had worked on over 40 projects for Diageo since 2006, and Diageo had become Crew's biggest customer in terms of revenue.   Following the first phase of the Simply Cocktails project, Crew has not secured any new projects from Diageo although it has continued to service an ongoing project involving the Captain Morgan statue.   The evidence was insufficient for the court to find, based upon a fair preponderance of the evidence, that the failure to secure new projects from Diageo was caused by the plaintiff's failure to include all of the parts in the displays shipped to Virginia.   The court credits Ms. Parshanov's testimony that there had been no corporate decision not to use Crew on new projects.   There was no evidence that Crew had been in contact with these outsource vendors about new work.   Even if there had been, it would be pure speculation for the court to conclude that Crew was unable to secure new business based upon the failure to include all of the parts in the original shipment to Virginia.

II. Discussion and Conclusions of Law

A. Standing

Crew argues that the plaintiff has no standing to recover for the unpaid invoices originally issued to Brinker Displays.   The plaintiff purchased the assets of Brinker Displays.   These assets included the partially completed purchase orders from Crew. The plaintiff completed the purchase orders and sent Crew an invoice for the entire amount due for all three purchase orders.   Crew knew about the transfer of assets to the plaintiff and did not object.   The purchase orders contained fixed prices which match the invoices.   The complaint seeks recovery for the “agreed upon price.”   As the owner of the purchase orders, the plaintiff has standing to recover.

Crew also argues that the plaintiff has no standing because it was transacting business in Connecticut but has not complied with the requirements of C.G.S. § 34–233(a).   This section provides:  “A foreign limited liability company transacting business in this state may not maintain an action, suit or proceeding in a court of this state until it has registered in this state.”   Crew argues that the plaintiff is a New Jersey limited liability company, that it is transacting business in Connecticut, and that it has not registered in Connecticut.

Subsequent to the trial, the parties stipulated to the following facts:  1) the plaintiff is registered in New Jersey as an LLC.;   2) the plaintiff registered in Connecticut on or about September 5, 2013;  3) there is sufficient evidence in the record for the court to determine whether the transactions in the record constitute interstate commerce as defined by C.G.S. §§ 34–233 and 34–235.

The court resolves this issue in favor of the plaintiff.   There are two subsections in § 34–235 which provide the plaintiff with exceptions from the requirement to register in Connecticut. § 34–235(a) provides in relevant part:  “Any foreign limited liability company may ․ sell ․ personal property in this state for its lawful uses and purposes ․ without such action constituting transacting business in this state for the purposes of § 34–100 to 34–242, inclusive.”  C.G.S. § 34–235(b)(11) provides:  “without excluding other activities which may not constitute transacting business in this state, a foreign limited liability company shall not be considered to be transacting business in this state, for the purposes of sections 34–100 to 34–242, inclusive, by reason of carrying on in this state any one or more of the following activities:  (11) transacting business in interstate commerce.”

Both of these exceptions apply to the facts of this case.   The purchase orders are for the sale by the plaintiff of personal property in Connecticut for its lawful uses and purposes.   Therefore, § 34–235(a) applies.   The purchase orders were issued by a Connecticut company to a New Jersey company for the creation of products to be used in Virginia and Arizona.   The plaintiff is engaged in transacting business in interstate commerce.   Therefore, § 34–235(b)(11) applies.   Accordingly, the plaintiff has standing to maintain this cause of action.   See, Alply Architectural Building Systems, LLC v. Total Wall Systems, Inc., Superior Court, judicial district of New Haven, Docket No. 106016213 (October 25, 2012).

B. The Plaintiff's Complaint and the Defendant's Special Defenses, Setoff and Counterclaim.

The plaintiff's amended complaint dated January 27, 2010 is in one count and states one theory of liability:  breach of contract by the failure to pay the purchase orders and verbal orders issued by the defendant at the agreed upon price of $133,381.35.  “The elements of a breach of contract action are the formation of an agreement, performance by one party, breach of the agreement by the other party and damages.”  (Citations omitted.)  Seligson v. Brower, 109 Conn.App. 749, 753 (2008).   The plaintiff has proven each of the elements by a fair preponderance of the evidence.   Crew's purchase orders constitute offers to the plaintiff's predecessor to accept by its performance.   See, e.g. Auto Glass Exp., Inc. v. Hanover Insurance Co., 293 Conn. 218, 227 (2009).   Brinker Displays and the plaintiff performed in accordance with the purchase orders and the plaintiff is owed the amounts specified by Crew in the purchase orders.

The central issue in the case is raised by Crew's six special defenses, setoff and counterclaim.   This issue is whether Crew's relationship with Diageo was destroyed as a result of the plaintiff's mistake in leaving out parts in the displays shipped to Virginia and whether this has caused a loss of profits in excess of $4,000,000 since 2007.   Crew has the burden to prove the counterclaim, setoff and counterclaim by a fair preponderance of the evidence.   See, Mankert v. Elmatco Products, Inc., 84 Conn.App. 456, 463–64 (2004).   The court is not permitted to speculate, surmise or guess as to the material facts.

The six special defenses of Crew must be considered.   They are all based upon the same basic allegations:  that some of the displays shipped to Virginia were missing parts, that this caused additional expense to Crew, and that this adversely affected Crew's relationship with Diageo.   To some extent the defenses are redundant.   Three of the defenses are found to apply and they each result in the same thing:  that Crew is entitled to reduce the amount owed to the plaintiff by the sum of $24,691.

The first special defense is that the plaintiff committed breaches of the contract in several ways, all of which relate to the plaintiff's mistake in shipping components to Virginia with missing pieces.   The defense concludes with this statement:  “As a result of the plaintiff's breaches, Crew has suffered damages in an amount that exceeds the sum plaintiff claims to be due.”   The credible evidence is that:  1) the plaintiff's mistake in leaving out pieces from some of the packages was a breach of its contract as evidenced by the purchase orders;  and 2) as a result of the plaintiff's breach of contract, Crew incurred losses of $24,691 for extra travel time and correction of the mistakes.

Further, the credible evidence is that Crew's relationship with Diageo was damaged and that, as a direct result, Crew did not receive the contract for the remainder of the Simply Cocktails project.   Diageo's representative, Margaret Parshanov, testified that Diageo's displeasure with the Virginia roll-out was “very fresh in everyone's mind” when the contract for the second phase was awarded.   Crew was told to wait awhile until things simmered down before coming back with more project ideas.   This testimony is sufficient for the court to conclude that Crew lost the profit it would have generated from the second phase of the contract.   However, there was no evidence as to the amount of this lost profit.   The court is unable to award damages for this lost profit without any evidence.

The larger issue is whether Crew has proven that it lost profit as a result of an inability to secure additional contracts (beyond Simply Cocktails) that it would have received if the plaintiff had not breached its contract by leaving pieces out of the packages shipped to Virginia.  “[C]ontract damages are ordinarily based on the injured party's expectation interest and are intended to give him the benefit of the bargain by awarding a sum of money that will, to the extent possible, put him in as good a position as he would have been in had the contract been performed ․ Such damages, moreover are to be determined at the time of the breach ․ The plaintiff has the burden of proving the extent of the damages suffered ․ Although the plaintiff need not provide such proof with [m]athematical exactitude ․ the plaintiff must nevertheless provide sufficient evidence for the trier to make a fair and reasonable estimate.”   (Citations omitted;  internal quotation marks omitted.)  Little Mountain Enterprises, Inc. v. Groom, 141 Conn.App. 804, 809–10 (2013).  “[T]he trial court has broad discretion in determining damages ․ The determination of damages involves a question of fact that will not be overturned unless it is clearly erroneous ․ Damages are recoverable only to the extent that the evidence affords a sufficient basis for estimating their amount in money with reasonable certainty ․ Thus, [t]he court must have evidence by which it can calculate the damages, which are not merely subjective or speculative, but which allows for some objective ascertainment of the amount.”  (Citations omitted;  internal quotation marks omitted.)  Ed Lally and Associates, Inc. v. DSNC, 145 Conn.App. 718, 733 (2013).

If the plaintiff had shipped all of the pieces of the displays in the boxes going to Virginia, would Crew have secured additional business from Diageo?   The loss of further Diageo business was not proven by a fair preponderance of the evidence and is speculative in nature.   Crew presented the testimony of its founder, Glen Carlin, its chief financial officer, Brandon Ince, and Richard Royston, a Certified Public Accountant, Certified Valuation Analyst, and AICPA Accredited forensic accountant.   Royston prepared a projection of Crew's lost profits from the loss of Diageo's business since 2007 with the input of Carlin and Ince. Royston's projection estimates Crew's lost profits to be in excess of four million dollars.   Carlin further testified that the loss of Diageo's business diminished the value of Crew as a business by an even greater sum.   Crew argues that these estimates are conservative because they do not include any lost profits for 2008, they project a decreased level of sales of $1.1 million for 2009 (down from actual sales of $1.7 million for 2008), and a gradual increase in sales up to $2.9 million in 2014.   But, these projections all depend upon proof, by a fair preponderance of the evidence, that any loss of sales to Diageo (beyond the second phase of Simply Cocktails) was caused by the plaintiff's breach of contract in leaving out pieces from 12 boxes shipped to Virginia and not received until the next day.   This proof is lacking.   Margaret Parshanov testified that there were other reasons why Crew has not secured any future business from Diageo.   Diageo changed the way it engages point of purchase contractors.   Since the Simply Cocktails project, point of purchase development is directed to a centralized Diageo process, using two outsource vendors who do 98% of the purchasing for national projects.   The outsource vendors had not been in place for the Simply Cocktails project.   Diageo has made no corporate decision not to use Crew on new projects.   There was no evidence that Crew has been in contact with these outsource vendors about new work in order to mitigate its damages.  “The nonbreaching party has a duty to minimize any damages as a result of the breach.”  Williams v. Breyer, 21 Conn.App. 380, 384, cert. denied, 215 Conn. 812 (1990).   It is pure speculation for the court to conclude that Crew was unable to secure new business based upon the failure to include all of the parts in the original shipment to Virginia.

In summary, the first special defense was proven by a fair preponderance of the evidence with proven damages of $24,691.00.

The second special defense is that the plaintiff breached an implied warranty of fitness set forth in C.G.S. § 42a–2–315.   That section provides:  “Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under section 42a–2–316 an implied warranty that the goods shall be fit for such purpose.”   Crew argues that it proved a breach of this section.   I do not find that this section applies to these facts.   Crew designed the displays.   The plaintiff supplied the goods designed by Crew. Although pieces were missing from twelve of the boxes shipped to Virginia, Crew accepted the boxes and the missing pieces were supplied within a reasonable time thereby making the displays fit for the purposes for which they were designed.

The third special defense is based upon a breach of the Implied Warranty of Merchantability set forth in C.G.S. § 42a–2–314.   That section provides that contracts for the sale of goods shall contain an implied warranty that the goods are merchantable.   Crew failed to prove this claim in that the missing parts were supplied within a reasonable time after the original shipment.   There was no evidence that the goods were not merchantable.

The fourth special defense is based upon a claim that the plaintiff delivered nonconforming goods as set forth in C.G.S. § 42a–2–711.   However, this section seems to apply to situations where the seller fails to make delivery or the buyer rejects the goods, neither of which happened in this case.   Crew did not brief this claim in a way that was of any assistance to the court in understanding it.   It is deemed abandoned.

The fifth special defense alleges a common-law setoff.   Crew is entitled to setoff its proven damages of $24,691 against the amount still owed to the plaintiff of $133,381.35.

The sixth special defense alleges that Crew is entitled to deduct its damages for the purchase price of the goods sold, in accordance with C.G.S. § 42a–2–717.   That section provides:  “The buyer on notifying the seller of his intention to do so may deduct all or any part of the damages from any breach of the contract from any part of the price still due under the same contract.”   This special defense entitles Crew to deduct the damages of $24,691 from the price still owed of $133,381.35.

Crew's counterclaim reaches the same result as the three proven special defenses.   Count one alleges a breach of contract.   It was proven by a fair preponderance of the evidence.   The proven damages are Crew's losses of $24,691 as a result of the plaintiff's mistake in failing to ship all of the displays with the necessary parts.   Count two is in the nature of a setoff and reaches the same result.   Count three relates to alleged successor liability of Blanc Industries, Inc. For the reasons set forth above Blanc Industries, Inc. is not liable for damages in this case.

In summary, judgment may enter in favor of the plaintiff on the complaint in the amount of $133,381.35 offset by $24,691.00 for a total judgment of $108,690.35.

BY THE COURT,

John W. Pickard

FOOTNOTES

FN1. The defendant produced evidence that the counter-claim defendant, Blanc Industries, Inc., purchased Brinker Displays and that Brinker Displays is now a division of Blanc Industries, Inc. Despite the fact that this evidence came from Blanc Industries, Inc. itself, the court does not find it credible.   The more credible evidence is based on the testimony of Didier Blanc, the owner of Blanc Industries, Inc., that the purchaser of the assets of Brinker Displays was a limited liability company now known as Brinker Displays, LLC..  FN1. The defendant produced evidence that the counter-claim defendant, Blanc Industries, Inc., purchased Brinker Displays and that Brinker Displays is now a division of Blanc Industries, Inc. Despite the fact that this evidence came from Blanc Industries, Inc. itself, the court does not find it credible.   The more credible evidence is based on the testimony of Didier Blanc, the owner of Blanc Industries, Inc., that the purchaser of the assets of Brinker Displays was a limited liability company now known as Brinker Displays, LLC.

FN2. The credible evidence is that the former owner of Brinker Displays, Art Brinker, has an agreement with the plaintiff that any funds recovered by the plaintiff in this suit will be shared with the plaintiff in accordance with a formula which reflects the amount of labor and expense each contributed to the completion of the Simply Cocktails project with the defendant..  FN2. The credible evidence is that the former owner of Brinker Displays, Art Brinker, has an agreement with the plaintiff that any funds recovered by the plaintiff in this suit will be shared with the plaintiff in accordance with a formula which reflects the amount of labor and expense each contributed to the completion of the Simply Cocktails project with the defendant.

FN3. Glen Carlin, Crew's President and principal stockholder, feels that Art Brinker should have called him to discuss the pending sale to the plaintiff.   But, the Crew's production manager on the Simply Cocktails project was Joseph Meyer who signed the purchase orders on behalf of Crew. He made several visits to the plaintiff's facility during the production of the Simply Cocktails components and was the logical person for Mr. Brinker to inform about the sale of the Brinker Displays assets..  FN3. Glen Carlin, Crew's President and principal stockholder, feels that Art Brinker should have called him to discuss the pending sale to the plaintiff.   But, the Crew's production manager on the Simply Cocktails project was Joseph Meyer who signed the purchase orders on behalf of Crew. He made several visits to the plaintiff's facility during the production of the Simply Cocktails components and was the logical person for Mr. Brinker to inform about the sale of the Brinker Displays assets.

Pickard, John W., J.