Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

EPAC Technologies, Inc. v. Harpercollins Christian Publishing, Inc.

United States District Court, M.D. Tennessee, Nashville Division

July 1, 2019




         This case was tried before a jury from January 8-18, 2019. EPAC ultimately argued two claims against Thomas Nelson before the jury: (1) breach of the Master Services Agreement (“MSA”); and (2) fraudulent concealment. The jury returned a verdict in favor of EPAC on both claims. (Doc. No. 1061.) The jury awarded EPAC $3 million in compensatory damages for breach of the MSA and $60, 000 for compensatory damages and an additional $12 million for punitive damages for fraudulent concealment. (Id. at 1.) Currently pending before the Court is Thomas Nelson's Renewed Motion for Judgment as a Matter of Law and Motion for a New Trial (Doc. No. 1083) that has been fully briefed. (See also Doc. Nos. 1119, 1122.) For the reasons below, Thomas Nelson's motion will be granted in part and denied in part.

         I. Evidence at Trial[1]

         When Johann Gutenberg invented the printing press in 1440, it is doubtful he could have envisioned that many centuries later, sophisticated parties in the industry he birthed would be looking for a way to print less, rather than more. Yet, at heart, this case is about “less is more” revolutions in the printing industry, and the parties' ill-fated attempt to translate these revolutionary processes into profits.

         Thomas Nelson is a book publisher that traces its roots back to 1798. (Doc. No. 1102 at 7.) In the broadest terms, as a publisher, Thomas Nelson “curates” content, meaning that it takes raw content from authors or other sources and develops that content into consumable products such as print books, electronic books, and audiobooks. (Id. at 10.) In terms of its print business, Thomas Nelson contracts with multiple printers depending on its needs. (Id. at 14-15.) In December 2007, EPAC sought to become one of Thomas Nelson's printers. (Doc. No. 1098 at 94.)

         EPAC was a digital printing company that, through its proprietary EPAC2 system, could print small batches of books “on demand.” (Id. at 87-89.) The EPAC2 system “changed the game” because it represented a dynamic supply-chain solution to a problem that had plagued publishers. (Id. at 90-91.) The EPAC2 system allowed publishers, like Thomas Nelson, to order limited batches of books to satisfy limited demand, eliminating the need to store leftover product and thereby lowering inventory and warehousing costs. (Id. at 91.)

         In December 2007, Rob Cubelo, EPAC's Senior Vice President for Sales and Marketing, cold-called George Gower, a Thomas Nelson executive in charge of the company's printing solutions. (Id. at 95.) Cubelo pitched Gower on the EPAC2 system, which Gower was interested in because he had received a mandate from Thomas Nelson's Chief Financial Officer-Stuart Bitting-to reduce inventory costs. (Id.) After Gower and Cubelo met in person, Gower traveled to Edison, New Jersey, where EPAC had a plant, to see the EPAC2 system in operation. (Id. at 96.) Upon arriving, Gower met with EPAC's CEO, Sasha Dobrovolsky, executed a non-disclosure agreement (“NDA”) and toured the plant. (Id. at 95-97.) Gower was intrigued by the system, but stated that he would have to discuss it with his superiors because the system was so new and unfamiliar. (Id. at 100.) Later, in September 2008, EPAC formally pitched its EPAC2 system in a Powerpoint presentation to Thomas Nelson executives, touting the substantial savings Thomas Nelson could realize by partnering with EPAC. (Id. at 104.) Following this meeting, in January 2009, Michael Hyatt, Thomas Nelson's Chief Executive Officer, Bitting, and other high-level executives visited EPAC's Edison plant to observe the EPAC2 system. (Id. at 107-109.) The Thomas Nelson executives left EPAC “incredibly impressed” and eager to move the relationship forward. (Id.)

         The parties held a number of meetings and negotiations ensued throughout 2009 and into 2010. (Doc. No. 1099 at 14-15.) Rob Cubelo led negotiations on behalf of EPAC, and Gower and Bitting were the leads for Thomas Nelson. (Id. at 15.) The resulting agreement-the MSA-was highly negotiated and went through more than ten versions before it was executed. (Doc. No. 1103 at 92.) Both sides were represented by counsel during the negotiation process. (Id. at 185.) On August 1, 2010, Jim Gentlicore, EPAC's then-CEO (replacing Dobrovolsky), and Bitting signed the MSA. (Doc. No. 499-1 at 12.) Essentially, the MSA obligated Thomas Nelson to purchase certain categories of books from EPAC. (Id. at 2.) Specifically, under the MSA, Thomas Nelson, as the “Customer, ” was required to order from EPAC:

all of Customer's requirements of 1-color softbound books that are in formats that EPAC supports and that are defined by Customer as either Print-on-Demand, Short-Run, and Mid-Run but specifically excluded Web Offset/IRON. For avoidance of doubt and to be clear, titles with quantities exceeding 1, 500 units are herein defined as Web/Offset/IRON. Print-on-Demand titles are defined to mean titles delivered with one (1) day turnaround in any quantity up to 499 units per title with a maximum of 4, 000 units per day during the first year of this Agreement . . . Short-Run titles are defined to mean titles delivered with four (4) days turnaround in quantities up to 499 units per title. Mid-Run titles are defined to mean titles delivered within seven (7) business days in quantities of 500 to 1, 500 units per title . . . In the event EPAC cannot provide product in strict accordance with Customer's orders, Customer shall have the right, but not the obligation, to utilize the services of third party suppliers.

(Id.) The MSA was a five-year deal and primary production of the books was to occur at EPAC's new EPAC2 facility in Fairfield, Ohio, which was built, in part, to service Thomas Nelson. (Id. at 4, 7.) Further, the MSA provided that the file formatting and book production processes arising from EPAC2 would be tested to the parties' “reasonable satisfaction” before volume production would commence. (Id. at 13.) Finally, the MSA had a 60-day cure period, allowing a breaching party to cure any material breaches within the cure period and continue performance under the agreement. (Id. at 7.)

         Thomas Nelson has contractual relationships with many different printers. Specifically, Thomas Nelson had a preexisting relationship with Lightning Source, Inc. (“LSI”), who partially handled the company's digital printing needs-the very line of business covered by the MSA. (Doc. No. 1102 at 510-51.) EPAC knew of Thomas Nelson's preexisting relationship with LSI, and, indeed, even knew of the prices Thomas Nelson was paying to LSI. (Id. at 164.) In June 2010, during the MSA negotiations with EPAC, Thomas Nelson reached out to LSI and informed it that some of the work covered by LSI would be shifted to EPAC per the MSA. (Id. at 166.)

         Upon learning that Thomas Nelson intended to shift a portion of its digital printing business to EPAC, LSI submitted an offer to reduce its existing pricing for print-on-demand and digital short-run printing (the very business Thomas Nelson was getting ready to send to EPAC) if Thomas Nelson would commit to purchase at least 1 million of such books each year. (Id. at 221-222.) Thomas Nelson rejected this proposal because: (1) they typically did not like to commit to such large volume requirements; and (2) the proposal directly implicated work that they were anticipating sending to EPAC through the MSA. (Doc. No. 1103 at 13-14.) However, LSI, undeterred, sent a new proposal, offering the same reduced pricing but removing the 1 million volume requirement. (Id. at 14-15.) At that point, Thomas Nelson had not signed the MSA, and, therefore, had several choices. (Id. at 16.) It could follow through with the MSA, accept LSI's new proposal, or do some combination of the two. (Id.) Thomas Nelson chose to “go with both providers because [they] wanted to have two vendors and two print suppliers.” (Id. at 18.) Thomas Nelson executed the MSA on August 1, 2010 (Doc. No. 499-1 at 12), and, in November 2010, entered into a contract with LSI, per the terms of the reduced-price proposal. (Doc. No. 1103 at 118-119.) EPAC was aware that Thomas Nelson was going to “keep LSI around” for at least a period of time after the MSA. (Doc. No. 1099 at 89.)

         After Thomas Nelson and EPAC executed the MSA, Thomas Nelson began to order books from EPAC. (Id. at 90-93.) However, from the outset, Thomas Nelson raised quality concerns regarding the books. (Id.) Among these “quality concerns” were scuffing, chipping, and out-of-square edges (i.e., the book cover was not aligned properly). (Id.) Thomas Nelson “raised pretty much every quality issue they could think of.” (Id. at 92.) On November 23, 2010, Gower emailed Cubelo summarizing Thomas Nelson's frustrations:

We have stayed the course and today I asked [my team] if on December 1st we would be compliant with what we contracted for in regards to quality. The answer was an absolute no. They said quality was a huge issue. I asked what advances were being made. They showed me the last samples that EPAC sent and they are way below our standards. They are now demoralized on what EPAC will provide to us and our retailers . . . Rob, we need to regain focus on the concept that you presented to me . . . [i]f we had dropped all other options to go with EPAC exclusive on August 1st we would have suffered enormous sales loss . . .

(Doc. No. 1103 at 60-62.) Cubelo, on behalf of EPAC, assured Gower that they would “get the quality where it needs to be.” (Id. at 64.) In Thomas Nelson's view, this did not happen.

         On February 3, 2011, Thomas Nelson sent a formal notice of breach to EPAC, describing the ongoing quality issues and invoking the MSA's 60-day cure period. (Id. at 185; Doc. No. 499-1 at 7.) The parties continued the same line of communications throughout the cure period, i.e., Thomas Nelson continued to complain about perceived quality issues and EPAC continued to assure Thomas Nelson that the issues would be addressed. (Id. at 185-192.) Eventually, a “come-to-Jesus” meeting was held on March 11, 2011 between Stuart Bitting, George Gower, Sasha Dobrovolsky and other high-level EPAC and Thomas Nelson executives. (Id. at 190.) During this meeting, Dobrovolsky informed Thomas Nelson that Gentilcore, EPAC's CEO, and Dennis Morgan, EPAC's CFO, were leaving the company, his (Dobrovolsky's) role at the company was uncertain, and EPAC had “lost its vision.” (Id. at 190-91.) Bitting and other Thomas Nelson executives were surprised and concerned by these developments. (Id. at 192.) Nonetheless, they continued to send orders to EPAC. (Id.) Subsequently, right before the end of the cure period, Thomas Nelson indicated that “the quality seemed good.” (Id. at 195.) EPAC stated it would be best for the parties to revisit the contract and “revise, ” specifically in terms of volume. (Id.) The parties never revised the MSA, and, in early April 2011, Thomas Nelson terminated the MSA. (Id. at 202.)

         EPAC filed suit against Thomas Nelson in May 2012. (Doc. No. 1.) EPAC brought four claims: (1) breach of the Confidentiality and Non-Disclosure Agreement (“CNDA”); (2) breach of a sperate Non-Disclosure Agreement (“NDA”); (3) breach of the MSA; and (4) fraudulent concealment. (Doc. No. 894 at 4.) Essentially, EPAC's theory was that Thomas Nelson used EPAC, including EPAC's confidential pricing and the resulting MSA, to extract reduced prices from LSI. (Id. at 2.) Once the reduced pricing from LSI was secured, Thomas Nelson then fabricated the “quality issues” with EPAC's books in an attempt to renege on the MSA. (Id.) In EPAC's words, “Thomas Nelson used EPAC to secure the lower pricing from LSI, had no intent to perform under the MSA's terms, misrepresented its intentions to EPAC, concealed its true intentions and wrongfully terminated the MSA.” (Id.)

         Eventually, this matter went to trial on all four claims. At the close of EPAC's case-in-chief, Thomas Nelson moved under Federal Rule of Civil Procedure 50(a) for judgment as a matter of law on all of the claims. (Doc. No. 1101 at 150.) Ultimately, the Court: (1) granted Thomas Nelson's motion as to the breach of CNDA and breach of NDA claims; (2) took under advisement the motion with respect to the fraudulent concealment claim; and (3) denied the motion as to EPAC's breach of the MSA claim. (Id. at 193.) After considering the matter, the Court also denied Thomas Nelson's motion with regard to EPAC's fraudulent concealment claim. (Id. at 195.) Thomas Nelson renewed its motion at the close of its own proof, but the Court declined to revisit the issue and both the fraudulent concealment and breach of MSA claims went to the jury. (Doc. No. 1104 at 148.) As noted above, the jury returned a verdict for EPAC on the breach of MSA claim, awarding $3 million in compensatory damages. (Doc. No. 1055 at 1.) Similarly, the jury also returned a verdict for EPAC on the fraudulent concealment claim, awarding EPAC $60, 000 in compensatory damages and $12 million in punitive damages. (Id.)

         II. Standard of Review

         The Court may grant a Federal Rule of Civil Procedure 50(b) motion for judgment as a matter of law only if, “when viewing the evidence in a light most favorable to the non-moving party, giving that party the benefit of all reasonable inferences, there is no genuine issue of material fact for the jury, and reasonable minds could come to but one conclusion in favor of the moving party.” Rhinehimer v. U.S. Bancorp Invs., Inc., 787 F.3d 797, 804 (6th Cir. 2015) (quoting Barnes v. City of Cincinnati, 401 F.3d 729, 736 (6th Cir. 2005)). “The evidence should not be weighed, and the credibility of the witnesses should not be questioned. The judgment of [the] court should not be substituted for that of the jury.” Id. (quoting Balsley v. LFP, Inc., 691 F.3d 747, 757 (6th Cir. 2012)). “In other words, the decision to grant judgment as a matter of law . . . is appropriate whenever there is a complete absence of pleading or proof on an issue material to the cause of action or when no disputed issues of fact exist such that reasonable minds would not differ.” Jackson v. FedEx Corp. Servs., 518 F.3d 388, 392 (6th Cir. 2008) (citation omitted). In ruling on a Rule 50(b) motion, the Court may allow the verdict to stand, order a new trial, or direct entry of judgment as a matter of law. Fed.R.Civ.P. 50(b).

         Rule 59(a)(1)(A) provides that “[t]he court may, on motion, grant a new trial on all or some of the issues-and to any party . . . for any reason for which a new trial has heretofore been granted in an action at law in federal court.” “The language of Rule 59(a) has been interpreted to mean that a new trial is warranted when a jury has reached a seriously erroneous result as evidenced by: (1) the verdict being against the weight of the evidence; (2) the damages being excessive; or (3) the trial being unfair to the moving party in some fashion, i.e., the proceedings being influenced by prejudice or bias.” E.E.O.C. v. New Breed Logistics, 783 F.3d 1057, 1066 (6th Cir. 2015) (internal quotation marks and citations omitted).

         III. EPAC's Fraudulent Concealment Claim

         A. Thomas Nelson's Rule 50(b) Motion and EPAC's Response

         Thomas Nelson first argues that the Court should grant judgment as a matter of law on EPAC's fraudulent concealment claim because no legal duty to disclose arose from the parties' arm's-length transaction. (Doc. No. 1112 at 14.) Thomas Nelson explains that, for EPAC to prove its fraudulent concealment claim, it was required to show that: (1) Thomas Nelson concealed or suppressed a material fact; (2) Thomas Nelson had a duty to disclose that fact to EPAC; (3) Thomas Nelson intentionally concealed or suppressed the fact with the intent to deceive EPAC; (4) EPAC was not aware of the fact and would have acted differently it if had known of the concealed or suppressed fact; and (5) as a result of the concealment or suppression of the fact, EPAC sustained damage. (Id.) Thomas Nelson asserts that it and EPAC were sophisticated business entities, represented by counsel, negotiating in an arm's-length transaction, and, therefore, no duty to disclose arose. (Id. at 14-15.) Thomas Nelson notes that a duty to disclose can only arise where there is a fiduciary or confidential relationship. (Id.) Given that the arm's-length transaction constituted the entirety of EPAC and Thomas Nelson's relationship, no such fiduciary or confidential relationship arose. (Id. at 16-17.) Further, Thomas Nelson contends that EPAC failed to prove that: (1) the fact allegedly concealed (the ongoing discussions with LSI and the reduced price proposal) was material; (2) Thomas Nelson intended to deceive EPAC through the alleged concealment; (3) EPAC would have acted differently had it known of LSI's reduced pricing offer; or (4) EPAC suffered damage as a result of the concealment. (Id. at 17-20.) Finally, Thomas Nelson argues that, if the Court does not outright dismiss EPAC's fraudulent concealment claim, it should grant a new trial on the claim. (Id. at 20-21.)

         EPAC filed a response in opposition, first arguing that Thomas Nelson's original Rule 50(a) motion at trial only sought to dismiss the fraudulent concealment claim on two grounds: (1) there was no duty to disclose; and (2) there were no damages. (Doc. No. 1119 at 13.) Therefore, it contends that Thomas Nelson's other arguments couched in terms of its Rule 50(b) motion are waived. (Id.) Moreover, EPAC argues that whether a confidential or fiduciary relationship existed between the parties is a factual question that the jury answered in the affirmative. (Id. at 14-16.) EPAC notes that the parties exchanged confidential information and engaged in discussions for over two years before entering the MSA, and these interactions demonstrate that a confidential relationship existed between them. (Id. at 16-17.) EPAC also maintains that the jury reasonably concluded that Thomas Nelson concealed a ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.