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

United States District Court, D. Rhode Island

December 17, 2018

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., LTD., EASTERN FOUNDRY & FITTINGS, INC., EASTERN FOUNDRY AND FITTINGS, LLC, NINGO EFF MANUFACTORY CO, LTD., f/k/a/ NINGO W&F MANUFACTORY CO., LTD WAI MAO COMPANY, LTD., CIXI CITY WAI FENG BALL VALVE COMPANY, LTD., W&F MANUFACTURING, and CHI YAM “ANDREW” YUNG, Defendants.

          REPORT AND RECOMMENDATION

          PATRICIA A. SULLIVAN, UNITED STATES MAGISTRATE JUDGE.

         This report and recommendation incorporates by reference[1] a report and recommendation (“R I”) issued earlier today, which addressed three and most of a fourth of six motions for summary judgment filed by the parties in these consolidated cases. ECF No. 230.[2] In this second report and recommendation (“R II”), the Court addresses the remainder of the pending summary judgment motions.

         The motions addressed here are principally focused on the claims in the 13-33 complaint, which is an action to collect unpaid invoices. The Wai Feng parties[3] seek to recover $432, 611.47 for plumbing push-fit products that were undisputedly sold to, delivered to and accepted by Quick Fitting. These motions also focus on Quick Fitting's many affirmative defenses in 13-33, as well as its counterclaims in 13-33 and claims in 13-56 alleging that it received unmerchantable and defective goods that were negligently manufactured in breach of the parties' agreement, the implied warranties of merchantability and fitness for a particular purpose and the implied duty of good faith. The first of the summary judgment motions (ECF No. 180) addressed here seeks judgment on behalf of the Wai Feng parties for the full amount of the unpaid invoices. A portion of the second motion (13-56 ECF No. 254)[4] is the Wai Feng parties' challenge to the sufficiency of Quick Fitting's claims and counterclaims that the push-fit products were defective and unmerchantable. Finally, R II addresses Quick Fitting's motion seeking judgment in its favor in 13-33 (13-56 ECF No. 259), claiming that neither of the Wai Feng parties has standing to recover for the unpaid invoices and that this deficit vitiates Quick Fitting's duty to pay.

         In reliance on section 607(1) of the Rhode Island Uniform Commercial Code (“UCC”), R.I. Gen. Laws § 6A-2-607(1), as interpreted in J.L. Clark Mfg. Co. v. Gold Bond Pharm. Corp., 669 F.Supp. 40, 42-43 (D.R.I. 1987), as well as the Rhode Island common law, I recommend that the Court grant summary judgment in favor of Wai Feng Trading for $432, 611.47 based on Quick Fitting's breach of its duty to pay the invoices for the price of goods sold, delivered and accepted, but deny summary judgment on EFF Manufactory's claim for the same sum. I also recommend that the Court deny Quick Fitting's motion for summary judgment with respect to the claims of Wai Feng Trading, but grant it with respect to the claims of EFF Manufactory. Finally, I recommend that the Court deny summary judgment on Quick Fitting's counterclaims based on defective products because factual disputes permeate its claims that some of the goods were defective and did not conform to express and implied warranties - these issues should proceed to trial; but summary judgment should enter against Quick Fitting on its negligence claim.

         I. BACKGROUND[5]

         Andrew and Jacky Yung are brothers who, together with their father, own and operate a network of companies in China, Canada and the United States (Massachusetts) that are engaged in the business of manufacturing, selling and distributing plumbing parts and components made from both copper and polyvinyl chloride (“PVC”). QF SUF # 1 ¶¶ 7-8. In addition to the Wai Feng parties (Wai Feng Trading and EFF Manufactory), their affiliates are Wai Mao, EFF Inc. and EFF LLC. As relevant here, it is undisputed that manufacturing was done at a factory in China, while Wai Feng Trading and Wai Mao are Canadian companies that served respectively as the seller/distributor and importer of plumbing parts sold in North America, including the push-fit products sold to Quick Fitting. WF SUF # 1 ¶ 4.

         In February 2010, Quick Fitting, a Rhode Island designer/seller of highly engineered push-fit plumbing parts, and a “Licensee, ” using the trade name W&F Manufacturing that consisted of Wai Feng Trading and Wai Mao, ostensibly together with Andrew Yung, who signed for an unrelated entity called CCWFBV, [6] entered into a license and supply agreement called the 2010 License/Supply Agreement. WF Ex. 4. Following the execution of this License/Supply Agreement, from October 2010 until July 2012, Quick Fitting issued purchase orders to “W&F” and later to EFF Manufactory.[7] Wai Mao, as importer, sent these to the Chinese manufacturer. WF SUF # 1 ¶ 58; QF SDF # 1 ¶ 58 & # 2 ¶ 58. Push-fit products manufactured[8] to Quick Fitting's specifications were shipped for delivery to Quick Fitting for resale to its customers. WF SUF # 1 ¶ 59. Each shipment to Quick Fitting was accompanied by invoice(s) and shipping documents. Crompton Aff. # 2 ¶ 58. Eight of the invoices (QF Ex. # 3 SSS) were issued by EFF Manufactory; nevertheless, these invoices were transmitted by Wai Feng Trading, with a packing list issued by Wai Feng Trading. The balance of the invoices, including all of the invoices in issue[9] based on Quick Fitting's refusal to pay, were issued by Wai Feng Trading. WF SUF # 1 ¶ 61; QF SUF # 3 ¶ 134. Except for the invoices it refused to pay, Quick Fitting wired its payments of the invoices as directed for the benefit of Wai Feng Trading. WF SUF # 2 ¶ 16 & Ex. 10; QF SUF # 3 ¶ 67.[10] During the period in issue (from October 2011 until June 2012), there were eighteen such wires totaling more than $500, 000 paid. WF SUF # 2 ¶ 16 & Ex. 10.

         The portion of the 2010 License/Supply Agreement that addresses the supply relationship contemplates that the “Licensee” will manufacture, and Quick Fitting “will purchase, ” certain “Finished Products, ” which are listed on Schedule 1 as consisting of “[a]ll sizes and variations” of push-fit fittings, valves, controls, supply line, retail packaged products and accessories, as well as “PEX barb fittings.” WF Ex. 4 at 1, 8 (Schedule 1). The 2010 License/Supply Agreement addresses neither the price of the Finished Products nor the payment and delivery terms. It does require that the Finished Products must comply with applicable laws, regulations, specified testing standards and certifications, as well as that they must be free of defects, dirt spring and discoloration. Id. ¶ 4(b, d). The “Licensee” is obliged to replace non-compliant products within ten days of notification by Quick Fitting. Id. ¶ 4(d).

         The parties dispute when and how the 2010 License/Supply Agreement was terminated.[11]The Wai Feng parties contend that they terminated it for cause (based on Quick Fitting's breach) through notice given by their Canadian solicitor on December 7, 2012, so that Quick Fitting's obligation to pay Wai Feng Trading pursuant to the 2010 License/Supply Agreement persisted throughout the relevant period. ECF No. 223 at 5; ECF No. 223-1, at 1. Quick Fitting challenges the effectiveness of the Wai Feng parties' letter, claiming that it was not written by the right entities. ECF No. 228 at 7-8.

         For its part, Quick Fitting now argues that the 2010 License/Supply Agreement was terminated by operation of law in May 2011, when the parties entered into two new agreements, namely the 2011 NDA and the 2011 License Agreement. It is undisputed that Wai Feng Trading is not a party to either of the 2011 Agreements. However, unlike the 2010 License/Supply Agreement, neither of the 2011 Agreements actually established a supply relationship, and neither states that it was intended to replace the 2010 License/Supply Agreement.[12] Rather, one - the 2011 NDA - through mutual mistake names EFF LLC and addresses only confidentiality, while the other - the 2011 License Agreement - grants a license to and imposes various restrictive covenants on EFF Manufactory. After the 2011 Agreements were executed, consistent with the 2010 License/Supply Agreement, Wai Feng Trading continued to act as the “seller” in that it issued most of the invoices and transmitted those that it did not issue with its packing list; similarly, Quick Fitting continued to pay the invoices by wiring funds to an account for the benefit of Wai Feng Trading, as it had been directed to do since the beginning of the relationship.

         Nevertheless, Quick Fitting contends that the 2010 License/Supply Agreement became a nullity with the execution of the 2011 Agreements, that Wai Feng Trading was not named as a party in either of the 2011 Agreements, so that Wai Feng Trading ceased to be a party to a supply relationship with Quick Fitting. This proposition is squarely contradicted by the Chief Executive Officer of Quick Fitting, David Crompton, whose Fed.R.Civ.P. 30(b)(6) testimony establishes that the two 2011 Agreements were signed to add the name of EFF Manufactory, which had become the manufacturing arm of the Wai Feng parties (ostensibly replacing CCWFBV), and that, otherwise, the 2010 Agreement continued: “So the manufacturing arm's name had changed while everything else hadn't. So everything else stayed in place, and we created a new agreement surrounding the new manufacturing name.” ECF No. 206-5 at 12; Crompton Aff. # 2 ¶ 12 (“I informed Andrew that Quick Fitting would need new agreements signed concerning confidentiality, non-disclosure, non-competition, and other licensing terms to add [EFF Manufactory].”).

         Quick Fitting also points out that, in August 2011, Wai Feng Trading stopped operations and, in February 2012, as part of a name-shift from “Wai Feng” to “EFF, ” the Wai Feng parties announced that EFF Inc. would take over the business of Wai Feng Trading, and Quick Fitting highlights that it once questioned why its invoices continued to be issued by Wai Feng Trading. QF SUF # 3 ¶¶ 8-9; QF Exs. # 3 CC, DD. However, it is undisputed that, as to the Quick Fitting business, the switch to EFF Inc. did not occur. Instead, Wai Feng Trading ceased all other business operations but continued as the operative entity that issued invoices to Quick Fitting and collected payment from Quick Fitting. WF Exs. 1 ¶¶ 4, 6 & 2 ¶ 13. It is also undisputed that, after the shift to EFF Inc. of all other operations, Wai Feng Trading's only business involved the circumstances that have morphed into this litigation, as well as that all invoices that Quick Fitting received were issued by Wai Feng Trading and such payments as Quick Fitting made were wired as directed to the benefit of Wai Feng Trading. QF SUF # 3 ¶¶ 8, 11; WF SUF # 2 ¶ 18. After the switch of other operations to EFF Inc., it is undisputed that Wai Feng Trading continued its existence as a Canadian entity in good standing and continued to maintain financial books and records and a bank account to receive Quick Fitting's payments. QF Ex. # 3 C at 6-7; WF Ex. 1 ¶¶ 5-6.

         It is undisputed that, as the entity with the import license, Wai Mao placed orders with EFF Manufactory in China, but it has no claim because it has assigned to Wai Feng Trading any rights it might have had to collect money owed by Quick Fitting for products manufactured by EFF Manufactory. WF Ex. 1 ¶¶ 13-14. Further, Wai Fang Trading has “reimbursed” EFF Manufactory for the products it made and shipped to Quick Fitting. Id. ¶ 18. As a result, EFF Manufactory has admitted that Quick Fitting does not owe it any money. QF SUF # 2 ¶ 80. Rather, the Wai Feng parties relied on Wai Feng Trading to issue the invoices to and receive the payment from Quick Fitting for accounting reasons. Id. ¶ 60 (“This is all accounting, like, matters.”). Apart from once questioning why the invoices were not issued by “EFF, ” QF Ex. # 3 DD at 2, Quick Fitting consistently acquiesced in that course of dealing.

         In October 2011, Quick Fitting partially paid a pending Wai Feng Trading invoice, then resumed paying Wai Feng Trading's invoices by wiring funds to an account for the benefit of Wai Feng Trading; the last wire was sent on June 15, 2012. QF SUF # 3 ¶¶ 138-40; WF Ex. 1 ¶ 7 & Ex. B; WF SUF # 2 ¶ 16 & Ex. 10. However, for a set of nine invoices from Wai Feng Trading issued in April through June 2012, based on product manufactured and delivered by EFF Manufactory in reliance on Quick Fitting's purchase orders, Quick Fitting refused to pay. QF SUF # 3 ¶¶ 140-41. It is undisputed that Quick Fitting ordered and accepted delivery of push-fit products from EFF Manufactory for which Wai Feng Trading invoiced it a total of $432, 611.47, but for which it did not pay. WF SUF # 1 ¶ 72. It is undisputed that Quick Fitting resold most of this product to its customers. Quick Fitting alleges some of the product for which it refused to pay had to be repaired or cleaned before it could be resold and some had to be redirected for sale in geographic regions that had not yet mandated that all plumbing parts must be lead-free; it claims that a portion (20, 669 items) was quarantined because the items were unsalvageable. Id. ¶¶ 70, 71, 73; WF Ex. 1.

         II. STANDARD OF REVIEW

         Under Fed.R.Civ.P. 56, summary judgment is appropriate if the pleadings, the discovery, disclosure materials and any affidavits show that there is “no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Taylor v. Am. Chemistry Council, 576 F.3d 16, 24 (1st Cir. 2009); Commercial Union Ins. Co. v. Pesante, 459 F.3d 34, 37 (1st Cir. 2006) (quoting Fed.R.Civ.P. 56(c)). A fact is material only if it possesses the capacity to sway the outcome of the litigation; a dispute is genuine if the evidence about the fact is such that a reasonable jury could resolve the point in favor of the non-moving party. Estrada v. Rhode Island, 594 F.3d 56, 62 (1st Cir. 2010). The evidence must be in a form that permits the court to conclude that it will be admissible at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986); see also Rivera-Rivera v. Medina & Medina, Inc., 898 F.3d 77, 89 (1st Cir. 2018) (“Hearsay evidence, inadmissible at trial, cannot be considered on a motion for summary judgment.”) (alteration omitted). There are no trial-worthy issues unless there is competent evidence to enable a finding favorable to the nonmoving party. Goldman v. First Nat'l Bank of Bos., 985 F.2d 1113, 1116 (1st Cir. 1993). The party seeking summary judgment must make a preliminary showing that no genuine issue of material facts exists. Nat'l Amusements, Inc. v. Town of Dedham, 43 F.3d 731, 735 (1st Cir. 1995).

         In ruling on a motion for summary judgment, the court must examine the record evidence in the light most favorable to, and drawing all reasonable inferences in favor of, the nonmoving party. Mu v. Omni Hotels Mgmt. Corp., 882 F.3d 1, 5-6 (1st Cir. 2018), review denied, 885 F.3d 52 (1st Cir. 2018). The court must examine “whether the evidence presents a sufficient disagreement to require submission to a jury . . . or whether it is so one-sided that one party must prevail as a matter of law.” Nortel Networks Inc. v. Foundry Networks, Inc., Civil Action No. 01-CV-10442-DPW, 2003 WL 26476584, at *5 (D. Mass. Mar. 24, 2003) (quoting Paragon Podiatry Lab. v. KLM Labs., 984 F.2d 1182, 1185 (Fed. Cir. 1993)). The court may not weigh the evidence. Casas Office Machs., Inc. v. Mita Copystar Am., Inc., 42 F.3d 668, 684 (1st Cir. 1994). However, if the non-movant is the party with the burden of proof and relies on pyramids of inferences upon inferences, summary judgment is appropriate. See Tyrell v. Dobbs Inv. Co., 337 F.2d 761, 765 (10th Cir. 1964); see also Bendis v. Alexander & Alexander, Inc., 67 F.3d 312 (10th Cir. 1995) (citing Tyrell); Jones v. Bales, 58 F.R.D. 453, 465 (N.D.Ga. 1972), aff'd, 480 F.2d 805 (5th Cir. 1973) (same).

         Because these are diversity cases, Rhode Island law provides the substantive rules of decision. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).

         III. APPLICABLE ...


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