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RPG Receivables Purchase Group, Inc. v. WKW Erbsloeh North America, LLC

United States District Court, N.D. Alabama, Middle Division

October 21, 2019

RPG Receivables Purchase Group, Inc., Plaintiff,
v.
WKW Erbsloeh North America, LLC, and WKW Erbsloeh North America Holding, Inc., Defendants.

          MEMORANDUM OPINION

          COREY L. MAZE UNITED STATES DISTRICT JUDGE

         When Butcher Industrial Finishings, Inc. (“Butcher”) shuttered its business in March 2017, (at least) two of its partners were left holding the bag: plaintiff RPG Receivables Purchase Group (“RPG”) and defendant WKW Erbsloeh North America (“WKW”). There is no genuine, material dispute that WKW holds the heavier bag of losses; thus, WKW is entitled to summary judgment.

         Factual Background

         WKW is a Pell City, Alabama, business that supplies car parts to BMW for use in BMW's X5 SUV. Before 2016, WKW finished certain trim pieces by using a “black anodized” process. BMW, however, preferred a black painted finish and was willing to pay more for painted parts. WKW was not equipped to paint the pieces; so, in January 2016, WKW contracted with Ontario-based Butcher to receive WKW's unfinished trim pieces, paint them black, and then return them to WKW for ultimate shipping to BMW (“the Supply Agreement”). Relevant here, the Supply Agreement required Butcher to (a) ensure that it could timely produce the agreed-upon capacities of painted parts (see Supply Agreement §8.1), and (b) give WKW six months-notice before terminating the Agreement. See Supply Agreement §10.1.

         In December 2016, Butcher assigned its accounts receivable to RPG, meaning that RPG collected the monies owed Butcher under the Supply Agreement.

         On March 8, 2017-without the requisite six-month notice-Butcher informed WKW that it was shutting down its operation. Butcher invoiced WKW in the amount of $468, 991.99 for the work it had performed up to point.

         As Butcher's assignee, RPG filed the present case to recover the $468, 991.99 that Butcher invoiced WKW. In defense, WKW claims that it lost more than $1.4 million due to Butcher's abrupt closure and that the Supply Agreement allows WKW to “set off” its losses from the amount it was invoiced-meaning that WKW owes Butcher nothing. Both parties have moved for summary judgment.

         STANDARD OF REVIEW

         Alabama state law governs the Court's review of the Supply Agreement. See Supply Agreement § 12.1 (choice of law provision).

         Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). A dispute is genuine only “if the evidence is such that a reasonable jury could return a verdict for the non-moving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         Analysis

         Three key points are undisputed: (1) WKW owed Butcher $468, 991.99 for work done before the shutdown; (2) against that amount, the Supply Agreement allows WKW to set-off the amount of monies WKW validly claims against Butcher; and, (3) the Supply Agreement's terms apply to RPG, as Butcher's assignee. See Doc. 36-1 at 30, §16(d) (“Buyer may set-off against amounts payable to Seller any indebtedness or claim which Buyer or its affiliates may have against Seller or its affiliates”); Ala. Code § 7-9A-404(a)(1) (“the rights of an assignee are subject to all terms of the agreement between the account debtor and assignor”).

         As a result, this case boils down to how much WKW may set off against RPG's claim for $468, 991.99. WKW claims that the undisputed facts establish a set-off that exceeds $1.4 million. RPG disagrees. Because the parties' motions seek summary judgment, the pertinent question is therefore: Is there a genuine issue of material fact whether WKW is entitled to set off more than $468, 991.99?

         In its motion for summary judgment, WKW claims that it presented undisputed evidence regarding the following claims against Butcher:

Replacement-related “cover costs”
Lost profit (i.e. monies lost during the period that WKW reverted to the black anodized process) $1,059,814.88
Tooling Costs (i.e. monies WKW spent to fabricate tooling for use with Butcher’s replacement) $99,450.00
Research and Development Costs (i.e. monies spent to ensure that parts finished by Butcher’s replacement met BMW’s standards) $27,782.63
Travel costs (i.e. cost of travel to Butcher’s replacement’s facility) $21,500.88
Claims predating Shutdown
Defective parts (i.e. monies BMW deducted from payments to WKW due to defective parts) $79,571.42
Open chargebacks (i.e. parts that WKW received from Butcher that did not meet WKW specifications) $14,407.08
Shutdown-related costs
Unpaid shipping costs (i.e. WKW’s settlement of shipping costs Butcher failed to pay a third-party shipper) $40,000.00
Unfinished parts (i.e. parts left at the Butcher plant that could not be sold to BMW) $58,654.15
Shipping of usable parts (i.e. parts left at the Butcher plant that could be anodized and sold to BMW) $3,370.03
Total $1,404,551.07

See Doc. 35 at 7-12 (citing Doc. 36-1 at 33 (Kroell Declaration, Attachment C)). RPG counters that each of these amounts is disputed, see Doc. 37 at 5-10, and that trial is necessarily to determine the proper amounts.

         Accordingly, the Court must determine whether RPG's arguments against a set-off present a genuine issue of material fact. As previously stated, a dispute is genuine only “if the evidence is such that a reasonable jury could return a verdict for the non-moving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         The Court begins and ends its inquiry with the largest category of WKW's set-off claims: $1.059 million of profits lost due to WKW's temporary reversion to anodizing parts. As detailed below, if a reasonable jury viewed the evidence, that jury could not return a verdict in favor of RPG because-even considering RPG's arguments/disputes-the amount of monies that WKW lost as a result of Butcher's breach far exceeds the $468, 991.99 that WKW owed Butcher.

         I. There is no genuine issue of material fact that WKW is entitled to a set-off that exceeds $468, 991.99.

         It is undisputed that when Butcher terminated the Agreement in March 2017, WKW had to find a replacement supplier to paint its trim pieces, so that WKW could meet its contractual obligations with BMW. It is also undisputed that, while WKW searched for a new paint supplier, BMW agreed to allow WKW to revert to the less-desirable “black anodized” process, which WKW could perform at its own facility, but BMW would pay WKW less for each anodized part than BMW had been paying WKW for each painted part.

         Alabama law allows WKW to set off the difference between (a) what WKW would have made if Butcher had continued painting WKW's trim pieces and (b) what WKW actually made under its post-termination agreement with BMW to produce black anodized pieces. See Ala. Code § 7-2-712. WKW has produced testimonial and documentary evidence from its controller, Thomas Kroell, that this difference-which RPG labels “lost profits” and WKW calls actual, direct “cover costs”-equals $1, 059, 814.88. See Doc. 36-1 (Exhibit A and attachments).

         RPG disputes WKW's lost profit number for various reasons, which the Court addresses below.

         A. There is no genuine issue of material fact whether WKW materially breached its agreement with Butcher before Butcher's shutdown.

         RPG first argues that Alabama law bars WKW from claiming a set-off because WKW materially breached the Supply Agreement in two ways before Butcher breached the Agreement by shutting down operations. See Doc. 37 at 15-16 (citing Blake v. Bank of Am., N.A., 845 F.Supp.2d ...


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