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Howard Industries, Inc. v. BADW Group, LLC

United States District Court, E.D. Tennessee, Greeneville Division

May 9, 2018

BADW GROUP, LLC, and BRANDON WALDROP, Individually, Defendants.


          Leon Jordan United States District Judge

         This matter is before the Court on Plaintiff's Motion for Summary Judgment [doc. 43], Plaintiff's Brief Supporting the Motion [doc. 44], Plaintiff's Statement of Material Facts [doc. 45], Defendant's Responses [docs. 47 & 49], and Plaintiff's Reply [doc. 51]. For the reasons herein, the Court will deny Plaintiff's motion.

         I. Background

         After acquiring approximately ten years of experience in the commercial lighting industry, Defendant Brandon Waldrop “decided to pursue a dream” of his and established his own lighting business, Defendant BADW Group, LLC, in 2014. [Waldrop Aff., doc. 47-2, ¶¶ 2-3]. Mr. Waldrop managed BADW from his home as an ecommerce business- that is, a business that operates electronically on the internet. [Waldrop Dep., doc. 52-1, at 20:13-14; Waldrop Resp., doc. 47-1, at 3; Waldrop Aff. ¶ 10].[1] He was BADW's sole member. [BADW Interrog. Resp., doc. 44-2, at 2]. To finance BADW's start-up, he borrowed $20, 000 from two erstwhile business associates, whom he eventually paid back in full. [Waldrop Dep. at 20:15-25; 21:1-5; 21:23-24].

         He began promoting BADW with Google AdWords, an online marketing service. [Waldrop Aff. ¶ 7; Waldrop Dep. at 73:5-10; 88:19-24]. According to BADW, Google bills its advertisers on a “cost-per-click basis, ” which means that it charges them for each time someone clicks an advertisement, whether that person does or does not purchase the product. [Waldrop Aff. ¶ 7]. Mr. Waldrop relied on merchant cash advances-a type of loan for which BADW's receivables served as collateral-to pay for this service, as an investment in BADW's long-term growth. [Waldrop Dep. at 24:8-13; 26:1-7; Waldrop Resp. at 3, 7, 8; Waldrop Aff. ¶ 10].

         In 2014, BADW entered into a contractual relationship with Plaintiff Howard Industries, Inc. [Waldrop Aff. ¶ 4]. BADW did not maintain its own inventory of lighting products, so once it received a customer's order and payment, it arranged for Howard Industries to ship the product to the customer. [Id.; Waldrop Dep. at 18:11-25; 19:1-23; 95:9-25]. In 2014, BADW amassed $127, 903 in gross sales, and it shared a portion of those proceeds with Howard Industries. [BADW Interrog. Resp. at 2; Waldrop Aff. ¶ 5]. In 2015 and 2016, BADW's gross sales were higher, totaling $1, 837, 089 and $1, 635, 090, respectively. [BADW Interrog. Resp. at 2]. BADW also shared this revenue with Howard Industries. [Waldrop Aff. ¶ 5].

         Throughout BADW's existence, Mr. Waldrop paid some of his personal expenses by using funds from BADW's bank account, [Waldrop Dep. at 74:16-19; Waldrop Resp. at 2, 5; Waldrop Aff. ¶ 10], and at times he compensated himself with BADW's funds for the labor he put into building the company, [Waldrop Dep. at 69:1-16]. For instance, he paid himself with a portion of BADW's $20, 000 start-up loan, as compensation for the time he devoted to setting up BADW's website. [Id.; Waldrop Resp. at 3; Waldrop Aff. ¶ 10]. He also periodically spent BADW's funds on gasoline and meals, used them to pay his phone bills and make purchases at retail stores, and expended them on his mortgage, lawn-care service, and funerary expenses for his pet. [BADW Account Statement, doc. 55-1, at 22-23, 27; Waldrop Dep. at 51:17-25; 52:1-6; 54:2-5; 75:19-23; 80:16-21].

         Although BADW's sales exceeded a million dollars in 2015 and in 2016, BADW began to experience serious financial distress behind the scenes, which caused it to endure net losses in those years and soured its relationship with Howard Industries. [Waldrop Resp. at 4; Waldrop Aff. ¶¶ 6-8, 10]. In 2015, BADW began receiving complaints of undelivered orders from its customers. [Waldrop Aff. ¶ 6]. Howard Industries proceeded to mail a letter to BADW, stating that “unforeseen issues and product shortage” were resulting in “delays in shipping [BADW's] purchase orders.” [Delay Letter, doc. 47-3, at 1]. In addition to complaining to BADW, unhappy customers posted negative online reviews, which hurt BADW's reputation. [Waldrop Aff. ¶ 6]. Mr. Waldrop even received threats from some customers. [Waldrop Dep. at 81:12-14]. The unfilled orders became so numerous that Shopify-an ecommerce platform that BADW used to track sales-froze its online account. [Waldrop Aff. ¶ 6]. In an effort to refund BADW's customers for the unfilled orders, Mr. Waldrop withdrew sums of money from BADW's bank account and mailed cashier's checks to them. [Waldrop Dep. at 72:6-18; 81:11-14].

         Around this same time, Mr. Waldrop also learned from his bank that Google had recently been billing BADW tens of thousands of dollars-and sometimes hundreds of thousands of dollars-per month for its AdWords service. [Waldrop ¶ 8]. On some days, the charges eclipsed $13, 000. [Waldrop Dep. at 73:5-8]. Mr. Waldrop concluded that a possible competitor had tried to sabotage BADW by continually clicking on BADW's ads to cause the charges to skyrocket. [Waldrop Aff. ¶ 8]. As BADW's operating costs multiplied, sales revenue dropped, and customers clamored for refunds, Mr. Waldrop borrowed over a hundred thousand dollars in merchant cash advances. [Waldrop Dep. at 85:3:1-18; 85:24-25; 86:1-11]. Although he notified Howard Industries of BADW's problem with Google and requested the relaxation of their contract while he attempted to resolve this problem, Howard Industries declined his request. [Waldrop Aff. ¶ 8]. He ultimately determined that BADW could not recover financially, and he decided to shutter the company. [Id. ¶ 9].

         Howard Industries has now brought suit in this Court against Mr. Waldrop and BADW, alleging claims for (1) an unpaid sworn account of $384, 314.88 in lighting products, (2) breach of contract, and (3) misconduct on Mr. Waldrop's part that entitles it to pierce BADW's corporate veil, [Am. Compl, doc. 25, at 3-4]. Howard Industries now moves for summary judgment only on the third claim, piercing the corporate veil. [Pl.'s Mot. Summ. J. at 1, 3]. Howard Industries asserts that this claim is the only remaining matter that requires resolution in this case, [id. at 1], and it bases this assertion on an order in which Magistrate Judge Corker recognized that “it appears the only remaining issue in this case is whether piercing the corporate veil is appropriate, ” [Order, doc. 24, at 3]. But in the Pretrial Order [doc. 57]-which, by the parties' own terms, amends and supplants the pleadings-Mr. Waldrop disputes Howard Industries' right to hold him personally liable. [Id. ¶ D.12]. The Pretrial Order governs the parties' positions at this stage in the litigation-not the original Complaint [doc. 1], which was the active pleading of record at the time Judge Corker issued his order. See Permasteelisa CS Corp. v. Airolite Co., No. 2:06-cv-569, 2008 WL 2491747, at *3 (S.D. Ohio June 18, 2008) (observing that “[t]he purpose of a Final Pretrial Order is to conclusively fix the issues that remain to be litigated”). Besides, the Court has neither granted any dispositive motion nor received a notice of settlement concerning any of the claims. If this case does progress to trial, the parties will therefore litigate the range of issues relevant to all the claims, not merely the lone issue of whether the corporate veil is pregnable, which the Court will now address in relation to summary judgment.

         II. Legal Standard

         Summary judgment is proper when the moving party shows, or “point[s] out to the district court, ” Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986), that the record-the admissions, affidavits, answers to interrogatories, declarations, depositions, or other materials-is without a genuine issue of material fact and that the moving party is entitled to judgment as a matter of law, Fed.R.Civ.P. 56(a), (c). The moving party has the initial burden of identifying the basis for summary judgment and the portions of the record that lack genuine issues of material fact. Celotex, 477 U.S. at 323. The moving party discharges that burden by showing “an absence of evidence to support the nonmoving party's” claim or defense, id. at 325, at which point the nonmoving party, to survive summary judgment, must identify facts in the record that create a genuine issue of material fact, id. at 324.

         Not just any factual dispute will defeat a motion for summary judgment-the requirement is “that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is “material” if it may affect the outcome of the case under the applicable substantive law, id., and an issue is “genuine” if the evidence is “such that a reasonable jury could return a verdict for the nonmoving party.” Id. In short, the inquiry is whether the record contains evidence that “presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law.” Id. at 251-52. When ruling on a motion for summary judgment, a court must view the facts and draw all reasonable inferences in the light most favorable to the nonmoving party. Scott v. Harris, 550 U.S. 372, 378 (2007). “[T]he judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Anderson, 477 U.S. at 249. A court may also resolve pure questions of law on a motion for summary judgment. See Hill v. Homeward Residential, Inc., 799 F.3d 544, 550 (6th Cir. 2015).

         III. ...

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