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Crew Tile Distribution, Inc. v. Porcelanosa Los Angeles, Inc.

United States District Court, D. Colorado

November 2, 2017

CREW TILE DISTRIBUTION, INC., Plaintiff and CounterDefendant,
v.
PORCELANOSA LOS ANGELES, INC., PORCELANOSA NEW YORK, INC., PORCELANOSA TEXAS, CORP., and PORVEN, LTD., Defendants and CounterClaimants. and RYAN A. DAVIS, DARLYNE A. DAVIS, GLENN L. DAVIS, SHANA L. BASTEMEYER, PARADIGM TILE & STONE DISTRIBUTORS, LLC, and G&D DAVIS HOLDINGS, LLC, CounterDefendants,

          ORDER ENTERING FINDINGS OF FACT AND RULING ON EQUITABLE CLAIMS AND DEFENSES

          William J. Martinez, United States District Judge.

         This business dispute pending under 28 U.S.C. § 1332 proceeded to a jury trial from March 13-24, 2017, and a jury verdict entered on the parties' legal claims. (See ECF No. 355.)[1] At the Court's direction, the parties submitted proposed findings of fact and post-trial briefs on their equitable claims. (ECF Nos. 357, 370-82.) The Court now enters this Order setting out its findings of fact and rulings on the parties' equitable claims and defenses.

         I. PROCEDURAL BACKGROUND

         Plaintiff, Crew Tile Distribution, Inc. ("Crew Tile"), initiated this action on November 22, 2013, bringing a claim for breach of contract and related claims against Defendants Porcelanosa Los Angeles, Inc., Porcelanosa New York, Inc., Porcelanosa Texas, Corp., and Porven, Ltd. (together, "Porcelanosa" or "Defendants"). (ECF No. 1.)

         Porcelanosa in turn asserted counterclaims against Crew Tile and certain of its principals and employees, including Ryan A. Davis, Darlyne A. Davis, Glenn L. Davis, and Shana L. Bastemeyer, as well as against two related business entities, Paradigm Tile & Stone Distributors, LLC ("Paradigm"), and G&D Davis Holdings, LLC. (ECF No. 132 at 19-51 .)[2] In addition, in asserting counterclaims for declaratory judgment and for piercing the corporate veil, Porcelanosa described CounterDefendant G&D Davis Holdings, LLC and two additional entities, the Radicchio Domestic Trust and the Stardust Domestic Trust, as "Alter Ego Defendants." (Id. at 48-51.)

         Following the Court's rulings on the parties' motions for summary judgment (ECF No. 236) and mid-trial motions for judgment as a matter of law, only Crew Tile's claim for breach of contract and Porcelanosa's counterclaim for abuse of process were submitted to the jury, which returned a verdict in Porcelanosa's favor on both claims. The Court reserved ruling post-trial on the parties' equitable claims and defenses. These include Crew Tile's claim for unjust enrichment/gua/ifr/m meruit, and Porcelanosa's counterclaims for declaratory judgment and piercing the corporate veil/alter ego liability. Porcelanosa also now seeks an award of attorneys' fees as a sanction under the Court's inherent powers. (See ECF No. 375 at 10-11.)

         II. BACKGROUND AND FINDINGS OF FACT

         The Court has previously described in detail the underlying facts and the nature of this case, including in the Court's Summary Judgment Order. (ECF No. 236.) Only a brief summary is set out below to provide context for the present rulings. More detailed facts are not repeated, and familiarity with the case and the parties and witnesses is presumed. The Court sets out below those findings of disputed facts that are directly material to the present rulings.

         A. Summary of Dispute

         Porcelanosa is a family of companies based in Spain that manufactures and distributes tile products. Crew Tile was a Denver-area company that sold Porcelanosa's products from approximately 2009 through 2013, although the nature of that business relationship is centrally disputed here.

         Crew Tile initiated this lawsuit for breach of contract and related claims on November 22, 2013, alleging that the parties had entered into a contract in December 2009 (the "Distributor Agreement"), making Crew Tile the exclusive distributor of Porcelanosa products in most of Colorado (excluding Pitkin County) for at least five years. (See ECF No. 85 ¶¶ 12-14; ECF No. 250 at 2-3.) Crew Tile alleged that Porcelanosa purposefully breached that Distributor Agreement beginning in 2012 by selling products through other dealers, and later by directly taking over distribution of its products into Colorado (through a Texas subsidiary), beginning in 2013. In particular, Crew Tile claimed it was owed a $2.5 million termination or buyout payment under the terms of the Distributor Agreement. (ECF No. 250 at 3-4.)

         Porcelanosa acknowledged that Crew Tile had been one of many dealers of its products in Colorado, but denied that Crew Tile had ever been a distributor, or that Crew Tile ever held any exclusive rights regarding sale or distribution of Porcelanosa products. Further, Porcelanosa alleged that it never signed or entered into the 2009 Distributor Agreement, had never seen the document prior to this litigation, and that the document "is fraudulent" representing "a conspiracy to create a falsified agreement and seek payment under it." (ECF No. 250 at 5.) Porcelanosa therefore brought a counterclaim for abuse of process and related counterclaims. (Id. at 6-7.)

         As set out above, after a lengthy trial, the jury returned a general verdict in Porcelanosa's favor, finding Crew Tile had not proved its breach of contract claim, and finding in favor of Porcelanosa on its abuse of process claim against Crew Tile, Ryan Davis, and Darlyne Davis, and awarding Porcelanosa damages of $460, 000.[3] (ECF No. 355.)

         B. Findings of Fact

         The Court finds the following facts were proven by a preponderance of the evidence admitted at trial.[4]

         1. Falsification of Distribution Agreement

         1. A preponderance of the evidence shows that the alleged Distribution Agreement was not a legitimate or enforceable contract entered into by Porcelanosa.

         2. A preponderance of the evidence shows that Crew Tile, acting through its principals, including Ryan Davis and Darlyne Davis, falsified the Distribution Agreement or participated in doing so.

         3. As a corollary, a preponderance of the evidence shows that at the time Crew Tile filed this lawsuit, Crew Tile, Ryan Davis, and Darlyne Davis knew or should have known that the Distributor Agreement was not a valid or enforceable contract.

         4. A non-exhaustive summary of evidence supporting the above findings includes:

a. Although Crew Tile alleged the Distributor Agreement was prepared by Porcelanosa, it includes terms that are nonsensical in the context of Porcelanosa's tile products. For example, the Distributor Agreement contemplates return of tiles for repair at Porcelanosa's factory (Ex. 46, ECF No. 85-1 at 4, ¶ V.1), seeks to void warranty terms "if. . . [Crew Tile] attempts to make any internal changes to" the tiles, or if "the serial number plate is removed" (id. at 6, ¶ V.2). It includes a clause covering "Patent indemnity, " although no patents were at issue. (Id. at 4, ¶ IV.2.) This clause addressed remedies related to altering the "compatibility with the hardware or firmware comprising the Product or the software utilized thereon, " although Porcelanosa's tiles do use or comprise firmware or software. (Id. at 4, ¶ IV.2.)[5]
b. Given such obviously irrelevant terms, the Court agrees with Porcelanosa's business practices expert, Mr. M. Kent McSparran (see generally Tr. at 1980-81), who testified that the Distributor Agreement was "clearly drafted for some sort of technical product, " not for Porcelanosa's tile products (Tr. at 1993).
c. The Distributor Agreement also included spelling, typographical, and similar errors inconsistent with Crew Tile's claim that it had been prepared by Porcelanosa. For instance, the agreement purports to be entered on behalf of "Porcelanosa USA, " which is a trade name but not the name of any legal entity. (Ex. 46 at 1.) The agreement mis-spelled the names of product lines it supposedly covered and included at least one product line that did not exist in December 2009. (Id.; Tr. 781-83.)[6] Mr. Francisco "Paco" Montilla Soto ("Mr. Montilla"), then General Manager of Porcelanosa-Los Angeles, testified there was no way he would have signed the agreement, or authorized any one else to do so, given such errors. (Tr. at 1216.)
d. These errors make Crew Tile's claim that the document was prepared and executed by Porcelanosa's employees in 2009 not credible.
e. Likewise, given Ryan Davis's previous employment for Porcelanosa and knowledge of their products, it is not credible that he would have executed the Distributor Agreement while believing in good faith that it had been prepared by Porcelanosa or represented a valid contract.
f. The fact that the Distributor Agreement contains a $2.5 million minimum buyout or termination clause in favor of Crew Tile (Ex. 46. at 5, ¶ VI (2.)(c)) underscores the non-credibility of Crew Tile's claim that it was negotiated, prepared, and executed by Porcelanosa. More likely than not, business parties would not enter such a high stakes agreement without carefully negotiating and reviewing its terms and removing obvious errors. This finding is supported by Mr. McSparran's testimony (see, e.g., Tr. at 1981, 1992 (an "exclusive distribution arrangement is ... a pretty rare thing, " typically negotiated with advice of counsel)), by evidence that neither Mr. Montilla nor Mr. Handley was authorized to bind Porcelanosa on a contract of such magnitude (see Tr. at 1217), and by common sense and experience.
g. Mr. McSparran explained that using an Internet search he found a template agreement reflecting that the Distributor Agreement had been obviously but clumsily derived from the online template. (Tr. at 1986-88.)
h. Mr. McSparran testified that many substantive terms of the Distributor Agreement were highly unusual or made no sense in the context of the commercial relationship between Crew Tile and Porcelanosa. (See Tr. at 1990-96.) In particular, he characterized the $2.5 million termination clause payable to Crew Tile as "unbelievable" and "completely irrational from a business perspective, " given the "very slanted" benefits conferred on Crew Tile without corresponding value conveyed to Porcelanosa, and that this is "[u]nusual because typically, if anything, a contract slants the other way because they're typically drafted by the manufacturer." (Tr. at 1993, 2032-33.)
i. Mr. McSparran's testimony regarding the highly unusual terms of the Distributor Agreement was credible and consistent with common sense and the evidentiary record as a whole.
j. Given the evidence summarized above, it is more likely than not that the person or persons who drafted the Distributor Agreement did so with the purpose of attempting to confer unusual benefits upon Crew Tile.
k. Jack Handley, who Crew Tile alleges signed the Distributor Agreement, testified unequivocally that he did not do so, and that had never seen it before 2013. (Tr. at 783:11-13.)
I. No persuasive explanation was offered for why Mr. Handley allegedly signed the Distributor Agreement, rather than Mr. Montilla, who was the general manager of Porcelanosa-Los Angles and Mr. Handley's superior, given the Davises' allegation that although Mr. Montilla was present at the time of the alleged execution of the Distributor Agreement, he directed a subordinate employee, Mr. Handley, to sign the multi-million dollar agreement. (Tr. at 335.) In the Court's view, Crew Tile's version of this event is not credible, and defies both commonly accepted business practices as well as common sense.
m. Mr. Montilla testified that he did not remember Mr. Handley signing the Distributor Agreement, and that he was certain he had not directed Jack Handley to sign it and had not watched this occur, contrary to Crew Tile's allegations. (Tr. at 1200.)
n. Mr. Montilla further testified that he had no knowledge of Crew Tile acting as a Porcelanosa Distributor. (Tr. at 1143.) To the contrary, he testified that Crew Tile had been a dealer like other dealers. (Tr. at 1144.) He testified that "[i]n the U.S. we [Porcelanosa] just don't work with distributors, " and that it would have been inconsistent with Porcelanosa policy to enter into such an agreement, because "[w]e simply don't work with distributors, and we wouldn't have given exclusive rights to a distributor." (Tr. at 1197, 1201.) The comparatively little evidence arguably contradicting this testimony was not probative overall, in that it related to distributors outside the United States or constituted use of the term "distributor" in informal or non-binding contexts.
o. During the relevant timeframe after December 2009, Mr. Handley, as Porcelanosa's sales representative for Colorado, [7] repeatedly directed Crew Tile's employees to remove the language from e-mail signatures representing that Crew Tile was the "exclusive" provider of Porcelanosa products in Colorado. (ECF No. 382-10 at 4-5 (M. Sudovich testifying that Mr. Handley directed her to remove language describing Crew Tile from her e-mails "[m]aybe a dozen times, " but that Ryan Davis directed her to ignore this direction and "keep it on there"); ECF No. 382-9 at 4-5.)
p. No current or former Porcelanosa employee who testified had seen the Distributor Agreement or was aware of its existence prior to the communications leading up to this lawsuit. (See, e.g., ECF No. 380-10 at 154:14-24; Tr. at 871-72, Tr. at 1195; Tr. at 1523.)
q. Similarly, Adela Stransky testified (via deposition) that when she worked for Crew Tile in late 2010 and early 2011, Ryan Davis claimed he was then negotiating for the exclusive right to sell Porcelanosa products, but that no such rights were in place at the time. (ECF No. 380-11 at 6.)
r. The testimony of the witnesses who denied that Porcelanosa had entered into the Distributor Agreement, including Mr. Handley and Mr. Montilla, was supported by the substantial weight of the documentary, circumstantial, and directly supporting evidence. The contrary testimony by the Davises found far less support in the evidentiary record as a whole.

         5. Additional evidence undercutting Crew Tile's and the Davises' explanation of the origins of the Distributor Agreement includes the following:

a. Although the Distributor Agreement is dated December 8, 2009, the Davises allege that it was executed on December 14, 2009, without notation or correction. (Compare Ex. 46 at 1 with Tr. at 337, 915.) Ryan Davis's "speculation" that this discrepancy was because of a desire to use the date on Crew Tile's showroom lease (Tr. at 337), and the inconsistent explanation that the parties had planned to meet on December 8 but that "plans changed" (id.; Tr. at 915), did not provide a credible explanation for why such a high stakes agreement would be backdated, with no correction, annotation or acknowledgment that this was being done. (ECF No. 343 at 8, ¶ 10.)
b. Despite the allegation that the Distributor Agreement was executed in December 2009, no contemporaneous evidence reflected preceding negotiations or exchange of drafts was admitted. The lack of any contemporaneous documentary record cast significant doubt on Ryan Davis's explanation that despite "dozens and dozens" of phone conversations in which he negotiated for the Distributor Agreement, he "had never seen a full draft" before it was allegedly executed, when it was allegedly provided by Mr. Handley for the first time, and only in hardcopy. (See Tr. at 338.)
c. No copies of the Distributor Agreement were located or produced during discovery other than the single purportedly original (i.e., ink-signed) copy relied upon by Crew Tile and copies transmitted in 2013 at the time of the communications precipitating this lawsuit.
d. Although Crew Tile alleged that the Distributor Agreement was originally executed in triplicate, only one copy was ever located or produced. The Davises' testimony that they had retained a second copy for potential investors (which was lost) and that Porcelanosa retained a copy (which was never located or produced) lacked corroboration in the documentary record. (See Tr. at 335
e. After Ryan Davis protested to Porcelanosa's regional sales representative, Jeffrey Schnepp, in spring 2013 that Crew Tile held an exclusive distribution agreement, Mr. Schnepp asked Mr. Davis to provide a copy of the Agreement to attempt to resolve the parties' disagreements. Mr. Davis did not provide a copy of the agreement until the later communications precipitating this litigation. (ECF No. 377-7 at 4.)
f. The earliest documentary evidence in the record of an agreement resembling the Distributor Agreement (other than the disputed document itself) is an editable and unexecuted copy of a similar agreement, drafted as an agreement between Crew Tile and non-party Sark Tile, Inc., that was transmitted by Darlyne Davis to CounterDefendant Shana Bastemeyer on April 14, 2013. (Ex. B22.) Crew Tile's possession of this template agreement in editable format in 2013, and the existence of a similar executed agreement with Sark Tile dated 2012 (Ex. A78) significantly undercut the credibility of Crew Tile's allegation that the Distributor Agreement was prepared exclusively by Porcelanosa in 2009.
g. On April 19, 2013, five days after Darlyne Davis circulated the editable Sark Tile agreement, Ms. Bastemeyer transmitted a scanned copy of the 2009 Distributor Agreement to other CounterDefendants. (Ex. B26.) No documents produced in discovery other than the purportedly original copy of the Distributor Agreement produced by Crew Tile (and disputed by Porcelanosa) corroborated its existence before this date.[8]

         6. In addition, the parties' conduct during the relevant period was inconsistent with the terms of the claimed Distributor Agreement, providing contemporaneous evidence that makes ...


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