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Wai Feng Trading Co. Ltd. v. Quick Fitting, Inc.

United States District Court, District of Rhode Island

May 30, 2014

WAI FENG TRADING CO. LTD, and EFF MANUFACTORY CO., LTD., Plaintiffs,
v.
QUICK FITTING, INC., Defendant. QUICK FITTING, INC., Plaintiff,
v.
WAI FENG TRADING CO., INC., and EASTERN FOUNDRY & FITTINGS, INC. a/k/a EFF MANUFACTORY CO., LTD., Defendants.

REPORT AND RECOMMENDATION

Patricia A. Sullivan, United States Magistrate Judge Before me for report and recommendation in these consolidated cases is the motion of Wai Feng Trading Co. Ltd. (“Wai Feng”) and EFF Manufactory Co., Ltd. (“EFF”)[1] to vacate the Court’s order of consolidation and to sever their claim for declaratory relief from one case so that it can be asserted as a counterclaim in the other. Wai Feng and EFF are plaintiffs in the action designated as C.A. No. 13-033S (“13-033”) and defendants in the action designated as C.A. No. 13-056S (“13-056”). Quick Fitting, Inc. (“Quick Fitting”), is the defendant in 13-033 and the plaintiff in 13-056. It opposes the motion.

I. Background

The first of the two cases, 13-033, was initially filed in the Ontario Superior Court of Justice, Toronto, Canada, on August 2, 2012. 13-033 (ECF No. 52-10). It was then, and remains, a simple collection action. The Canadian case was dismissed after Quick Fitting’s Canadian counsel raised the forum selection clause mandating venue in Rhode Island. It was refiled in this Court on January 17, 2013. Grounded in this Court’s diversity jurisdiction, in thirteen short paragraphs and two brief Counts, the initial 13-033 Complaint alleges that Wai Feng and EFF are entitled to recover for goods sold and delivered and for breach of contract due to failure to pay for plumbing parts and components delivered to Quick Fitting, which neither returned the goods nor provided notice of any deficiencies. The Complaint seeks payment of $477, 661.47. 13-033 (ECF No. 1).

A little over a week later, on January 25, 2013, Quick Fitting filed 13-056. In terms of parties, the first iteration of 13-056 mirrors 13-033; the lead claims, however, are entirely different. Quick Fitting alleges that it is the inventor of patented, trademark-protected technology for manufacturing high-quality, push-to-connect plumbing fixtures. It licensed Wai Feng to manufacture them using Quick Fitting’s molds in compliance with quality standards and lead-content limitations; all such products were to be delivered to Quick Fitting for it to resell to its customers. To protect its intellectual property, it required Wai Feng to agree to confidentiality, non-disclosure and non-competition. This business relationship soured when Quick Fitting became dissatisfied with Wai Feng’s quality and service. Believing it to be a different company, Quick Fitting entered a similar relationship with EFF, which failed for the same reason – the plumbing fixtures were defective. Meanwhile, Quick Fitting charges, Wai Feng, EFF and their affiliates stole Quick Fitting’s intellectual property, using it to manufacture plumbing fixtures for sale to Quick Fitting’s customers. Based on these facts, Count I of 13-056 charges that Wai Feng and EFF misappropriated Quick Fitting’s trade secrets, while Count II alleges breach of the confidentiality, non-disclosure and non-compete clauses in the various agreements between Quick Fitting and Wai Feng, EFF and related entities. Count III charges business defamation, alleging that Wai Feng and EFF maliciously disparaged Quick Fitting as part of their illicit effort to sell plumbing fixtures directly to Quick Fitting’s customers. Count VIII seeks to enjoin Wai Feng and EFF from continuing this conduct. 13-056 (ECF No. 1).

In addition to these claims, 13-056 also has four unrelated Counts that arise from the sale of the goods for which payment is sought in 13-033. Focusing solely on the goods for which Wai Feng and EFF seek payment, Count IV alleges breach of the contract to deliver merchantable goods, Count V claims negligence for the same conduct and Count VI alleges breach of the implied duty of good faith as a result of the shipment of obviously-defective goods. Count VII claims that the goods did not comply with the “lead-free” specification in violation of the implied warranty of merchantability and fitness for a particular purpose.

Within two weeks of the filing of the 13-056 Complaint, and before either side filed an Answer in either case, Wai Feng and EFF filed a brief motion to consolidate 13-033 and 13-056, alleging that the cases “presumably involve identical questions of fact and law.” 13-033 (ECF No. 2 at 1); 13-056 (ECF No. 3 at 1). The motion to consolidate focuses only on the factual and legal identicality of the claims in 13-033 for payment for plumbing fixtures and the four Counts in 13-056 for breach of the agreement to supply merchantable goods; it makes no reference to the primary claims in 13-056 involving misappropriation of intellectual property. Quick Fitting did not respond to the motion to consolidate. Four days after it was filed, District Judge John J. McConnell, Jr., granted the motion by text order.

As soon as the cases were consolidated, Quick Fitting promptly filed its Answer in 13-033, denying all material allegations. Instead of clearly pleading as counterclaims the claims already pled as Counts IV through VII in 13-056, its Answer includes a short final section somewhat confusingly headed “Affirmative Defenses and Counterclaim;” nothing in the list of numbered assertions that follow sounds like a counterclaim.[2] The list includes not only the affirmative defenses of payment, unclean hands, failure to state a claim and “set-off, ” but also, echoing Counts IV-VII in 13-056, that “[h]undreds of thousands of dollars of the goods . . . were defective and have caused significant damage to Quick Fitting.” The final numbered paragraph of “Affirmative Defenses and Counterclaim” states:

Quick Fitting commenced an action against Wai Feng Trading Co. Ltd. and Eastern Foundry & Fittings, Inc. in this Court on January 25, 2013, by filing a Verified Complaint (CA No. 12-056-S), which fully details the facts and circumstance of the dealings between Quick Fitting, EFF, and Wai Feng, and recites claims against EFF and Wai Feng including misappropriation of trade secrets, breach of contract, breach of warranty, negligence, and product mislabeling. That action has been consolidated with this action. Quick Fitting hereby incorporates by reference all allegations contained in its Verified Complaint in C.A. No. 13-056-S, and relies on those allegations as defenses to the claim herein.

13-033 (ECF No. 3). Three weeks later, Wai Feng and EFF answered in 13-056, [3]denying all of the material allegations and stating a short list of affirmative defenses, including failure to state a claim, negligence, assumption of the risk, estoppel, waiver, statute of limitations and laches. 13-056 (ECF No. 8).

With the pleadings closed, for almost a year, the parties engaged in consolidated discovery and continued to investigate their respective claims, at least one focus of which was the relationship between Wai Feng, EFF and other related entities. For Wai Feng and EFF, this investigation culminated in a somewhat shamefaced motion to amend its pleading to substitute EFF Manufactory Co., Ltd. for Eastern Foundry & Fittings, Inc. as the proper plaintiff in 13-033. 13-033 (ECF No. 24). This amendment was allowed and the Second Amended Complaint in 13-033 was filed on January 23, 2014. In addition to the alteration in parties, a new Count III was added to 13-033 – responding to the 13-056 allegations of misappropriation of intellectual property and violation of duties of non-disclosure and non-competition, EFF asked this Court to declare void and unenforceable the provisions of the operative agreements that prohibited any communication or the conduct of any business with Quick Fitting’s customers or potential customers. This Count was not pled as a counterclaim in 13-056; Wai Feng and EFF asserted it only in 13-033. 13-033 (ECF No. 40).

At argument on the motion to amend the Complaint in 13-033, Quick Fitting made clear to the Court that it also had an amendment in the works, one that would significantly expand the list of defendants in 13-056. As promised, it moved on March 14, 2014, to add six new entity defendants, three new individual defendants (all members of the Yung family, which Quick Fitting alleges owns and operates Wai Feng, EFF and their affiliates) and a new Count VIII alleging civil conspiracy against the named defendants and “other known and unknown Yung entities, ” claiming that they are using Quick Fitting’s proprietary molds, tooling, designs and specifications to manufacture and sell plumbing fixtures in North America; the amendment was granted and the new Complaint filed on April 17, 2014. It is studded with specific factual allegations, swelling it to 230 paragraphs, more than double the size of the original 13-056 Complaint. 13-056 (ECF No. 59).

As of this writing, Wai Feng and EFF (both EFF Manufactory Co., Ltd. and Eastern Foundry & Fittings, Inc. are defendants in 13-056) have not yet answered the new Complaint in 13-056. None of the new defendants have appeared. Wai Feng and EFF represent that some of the new defendants will raise the defense of lack of personal jurisdiction and that at least one, not related to Wai Feng and EFF, will engage its own counsel, might contest personal jurisdiction, and, if ultimately joined, may demand to redo discovery completed prior to its joinder, particularly depositions that have already occurred. Until the joinder of this entity is clarified, Wai Feng and EFF, understandably, do not want any depositions to go forward in 13-056, in light of the likelihood that this new party will insist on reopening them. Quick Fitting has represented that it might drop this entity, but thus far has not done so. Finally, Wai Feng and EFF have suggested that other “Yung entities” identified in the Amended Complaint but not named as defendants might be indispensable parties.

At argument on Quick Fitting’s motion to amend 13-056, Wai Feng’s principal objection was prejudice to its simple collection action in 13-033, tied to 13-056 by the consolidation order, which will be significantly delayed and bogged down by what 13-056 will grow into if the amendment is allowed. At the same time, Quick Fitting pointed out that its amendment motion was made promptly following its discovery of the complexity of the Wai Feng/EFF corporate family and that the amendment is necessitated by the challenge of proving that the defendants (new and old) are really a monolithic entity that uses many names and faces causing confusion and facilitating a cover-up of its misconduct in stealing Quick Fitting’s intellectual property. To break this logjam, during the argument, the Court asked the parties to consider whether justice would best be served by allowing the amendment to 13-056, but deconsolidating the two cases, and realigning the claims by severing (pursuant to Fed.R.Civ.P. 21) the claims in each case that are more properly compulsory counterclaims in ...


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