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Deng v. Scroggins

Supreme Court of Alabama

December 5, 2014

Victor Deng and DM Technology & Energy, Inc.
v.
Clarence " Buddy" Scroggins and Complete Lighting Source, Inc

Page 1016

Appeal from Jefferson Circuit Court, Bessemer Division. (CV-07-0563).

For Appelants: Patrick J. Ballard, Ballard Law Office, Birmingham.

For Appellees: Jason L. Yearout, Yearout & Traylor, P.C., Birmingham.

Moore, C.J., and Stuart, Bolin, Parker, Murdock, Shaw, Main, and Wise, JJ., concur.

OPINION

Page 1017

BRYAN, Justice.

Victor Deng and DM Technology & Energy, Inc. (" DM" ), appeal from a judgment based on the jury's verdict entered by the Jefferson Circuit Court in favor of Clarence " Buddy" Scroggins and Complete Lighting Source, Inc. (" Complete Lighting" ), on their claims against Deng and DM alleging breach of contract and fraud. We affirm the judgment as to the breach-of-contract claim but reverse the judgment as to the fraud claim, and we remand the case to the circuit court for a new trial on that claim.

Facts and Procedural History

Scroggins is the owner of Complete Lighting, an Atlantabased company that sells lighting equipment, including lamps, ballasts, and fixtures. Deng is the owner of DM, a California-based company that

Page 1018

also sells lighting equipment. Scroggins began to work as a sales representative for DM in late 2004 or early 2005. Scroggins testified that the parties originally intended for Scroggins to sell DM's fluorescent products but that he had difficulty selling those products because DM did not have the necessary stock to fill the orders he generated.

As part of its business, Complete Lighting sold lighting equipment to owners of aquariums. Scroggins became aware of concerns expressed by aquarium owners related to high energy consumption, costs, and heat caused by existing aquarium-lighting fixtures. Scroggins testified that, in response to those concerns, he developed an idea for an LED lamp tube that could be used in aquariums. Scroggins did not have the ability to manufacture the LED lamp tube, so he communicated his idea to Deng, who owned a company in China with manufacturing capabilities. Deng developed a prototype of the LED lamp tube, which he sent to Scroggins. Scroggins testified that the first prototype was " not even close" to his original idea. He discussed his concerns with Deng, who, according to Scroggins, sent him a second prototype that was better. However, Scroggins still was not satisfied with the prototype. Scroggins testified that the third prototype Deng sent him was something that Scroggins thought was marketable.

While the prototype for the LED lamp tube was in development, a friend of Scroggins's, Skip Busby, suggested an alternative use for the LED lamp tubes in display counters in retail businesses, such as Wal-mart Stores, Inc. (" Wal-mart" ). Busby arranged a meeting for Deng and Scroggins in Bentonville, Arkansas, with one of Wal-mart's suppliers, Leggett & Platt, Inc., to demonstrate the LED lamp tubes. In July 2006, while in Bentonville but before the meeting with Leggett & Platt, Scroggins and Deng executed an agreement that had been drafted by Scroggins (" the exclusivity agreement" ). The exclusivity agreement provided, among other things:

" 1. [DM] gives the right to sell to Complete Lighting exclusively for one year from the signed date. At the end of this term, said contract will be reviewed and re-negotiated if needed.
" 2. [DM] guarantees 5% commission for present and future sales from any and all customers [Complete Lighting] brings of the LED [lamp] [t]ube.
" 3. [DM] guarantees to deliver product in quality condition.
" 4. [DM] guarantees not to sell [to] customer[s] direct[ly] without commissions to [Complete Lighting] under any circumstances."

As a result of their meeting with Leggett & Platt, Gabriel Logan, a limited liability company that sells to Walmart through Leggett & Platt, expressed interest in the LED lamp tube and, in November 2006, purchased 25 samples, or $88,940.22 worth of product, from DM. The samples were to be used in a test run in stores. Scroggins testified that he had received very positive feedback from Wal-mart and " Zales," presumably Zales Jewelry Company, to whom Scroggins testified he had sent a sample.

From July 2006 to March 2007, there were no further sales of LED lamp tubes. Scroggins testified that he had trouble getting working samples from DM that could be delivered to customers. Another difficulty in selling the LED lamp tubes was that the drivers in the samples kept burning out.[1] In August 2006, Deng applied

Page 1019

for a patent for the LED lamp tube in the United States. Deng was listed as the sole " inventor" of the LED lamp tube. Scroggins was not named in the patent application.

In March 2007, Deng sent Scroggins a letter, stating:

" It is with regret that we find the need to terminate the contract of 'exclusiveness' regarding the LED Lamp Tubes as manufactured by us. It is our belief that the conditions of said agreement have not been fulfilled. Over an eight month period only one customer has been produced. As with you, we also believed the future potential of this customer could have been vastly significant. However, [DM] has invested a large amount of dollars for this product's R[esearch] & D[evelopment]. And unfortunately, to help continue this new product's growth, DM feels it need[s] to have more sales/customers by this time.
" This termination will be effective March 31, 2007. All commissions accrued up to that date will be paid as per our agreement."

Deng did not pay Scroggins a commission on the November 2006 sale to Gabriel Logan.

In April 2007, Scroggins and Complete Lighting sued Deng, DM, and BARTCO Lighting (" BARTCO" ), a company to whom Deng and DM had sold some " Retrofit LED tubes." Scroggins and Complete Lighting alleged in the complaint:

" 14. Upon information and belief, and prior to the ... unilateral termination of the [exclusivity agreement], DM Technology and Deng and BARTCO entered into a conspiracy to not only defraud Scroggins and Complete Lighting of the proprietary LED Lamp Tubes technology they created, but also any and all future commissions or sales associated with the LED Lamp Tubes.
" 15. Upon information and belief, and in furtherance of the conspiracy, DM Technology and Deng entered into an agreement with BARTCO wherein BARTCO would [sell] the LED Lamp Tubes that were created by Scroggins and Complete Lighting and subsequently manufactured by DM Technology and Deng.
" 16. Scroggins and Complete Lighting also completed sales to Gabriel Logan and are owed back commissions for sales.
" 17. Scroggins and Complete Lighting are owed past and future commissions on sales of all LED Lamp Tubes by DM Technology and Deng and BARTCO.
" 18. Upon information and belief, DM Technology and Deng have sold BARTCO over 2.8 million dollars of LED Tubes, for which Scroggins and Complete Lighting are owed a five percent (5%) commission of $140,000.00.
" 19. Upon information and belief, DM Technology, Deng and BARTCO have continued the conspiracy by continuing to market the LED Lamp Tube[s], by effectuating further sales of LED Lamp Tubes."

Scroggins and Complete Lighting sought an injunction preventing Deng, DM, and BARTCO from manufacturing, making, or selling the LED lamp tubes. They also sought damages for, among other claims, breach of contract and fraud. BARTCO was eventually dismissed from the case and is not a party to this appeal.

The action was removed to federal court but was remanded to the Jefferson Circuit Court because of " fatal procedural defects

Page 1020

in the removal." Deng and DM moved the circuit court to dismiss the claims against them, arguing that the court did not have jurisdiction over them. The circuit court initially granted their motion but later set aside the dismissal on Scroggins and Complete Lighting's motion to alter, amend, or vacate the judgment.

In March 2013, the case was tried before a jury. At trial, questions were posed regarding an alleged promise by Deng to include Scroggins's name on the patent for the LED lamp tubes. Scroggins testified that he and Deng had discussed patenting the idea for LED lamp tubes but did not discuss a time frame for securing that patent.

Prior to trial, Scroggins had testified by affidavit in June 2007 and again in May 2008 that

" [a]pproximately a year to a year and a half into th[e] process [of developing the LED lamp tube] Deng suggested that the LED ...

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