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Cypress Engine Accessories, LLC v. HDMS Limited Co.

United States District Court, S.D. Texas, Houston Division

May 3, 2017

CYPRESS ENGINE ACCESSORIES, LLC, Plaintiff,
v.
HDMS LIMITED COMPANY, d/b/a PREMIUM POWER SOLUTIONS, et al., Defendants.

          MEMORANDUM AND ORDER

          Lee H Rosenthal Chief United States District Judge

         Cypress Engine Accessories, LLC, purchased prechambers, an engine part, from HDMS. These prechambers were allegedly manufactured by Powertech Marine.[1] A dispute arose when Cypress Engine contended that the prechambers it purchased from HDMS were defective. Cypress Engine and HDMS negotiated a settlement under which Cypress Engine would return the prechambers it had purchased on a set schedule, and HDMS would repay the purchase price less a restocking fee. The negotiations were through emails that resulted in a Dated:e-page document the writer described as the “outline” of the parties' settlement agreement.

         Cypress Engine had not paid past-due invoices on unrelated purchases from HDMS. HDMS deducted this past-due amount from the amount it owed under the settlement agreement for the prechambers that Cypress Engine returned. Cypress Engine sued HDMS, alleging that it had breached the settlement agreement by taking the offset. HDMS counterclaimed, alleging that Cypress Engine had materially breached the settlement agreement earlier. As part of the settlement, Cypress Engine agreed not to engage in business activities associated with prechambers during the time it was returning, and being reimbursed for, the prechambers it had purchased from HDMS. HDMS intended to refurbish the prechambers returned from Cypress Engine and resell them. Within days of signing the settlement agreement, however, Cypress Engine was selling refurbished prechambers. HDMS's counterclaim was for this alleged breach of the settlement agreement.

         Based on a careful review of the motions, responses, and replies; the record; the relevant law; and the arguments of counsel, the court grants HDMS's motion for summary judgment, (Docket Entry No. 53); denies Powertech Marine's motion for summary judgment without prejudice and with leave to reurge, (Docket Entry No. 54); denies Cypress Engine's cross-motion for summary judgment, (Docket Entry No. 55); denies Cypress Engine's motion for leave to amend its answer, (Docket Entry No. 59); and grants HDMS's motion to strike Cypress Engine's amended answer, (Docket Entry No. 52). A status conference is set for May 17, 2017 at 11:00 a.m. Counsel are ordered to attend and to bring a representative of their clients to the status conference.

         The reasons for these rulings are set out below.

         I. Background [2]

         Cypress Engine and HDMS entered into a Distributor Agreement on February 16, 2012. (Docket Entry No. 55, Ex. A). Under that Agreement, Cypress Engine bought engine parts and accessories from HDMS, and Cypress Engine resold them to its customers. (Id.). The parts included prechambers. In 2013, Cypress Engine claimed that the prechambers it purchased from HDMS were defective. (Docket Entry No. 53, Ex. E).

         HDMS and Cypress Engine engaged in settlement discussions through letters and emails. Shawn Bailes, a “financial representative of the owners of Cypress Engine” and its wholly owned subsidiary, Downin's Engines, acting as their designated representative, handled the negotiations on Cypress Engine's behalf. On February 25, 2014 and again on March 7, 2014, Bailes sent a letter to HDMS. In the letters, Bailes acknowledged the dispute, offered to settle if HDMS paid $300, 000, and threatened to refer the matter to legal counsel if no settlement was reached. (Id., Ex. A at 1-3; Ex. 10; Ex. B at 82, 107). During the next few weeks, the parties exchanged emails negotiating what became the settlement agreement. (Id., Ex. A). Among other things, the emails stated the parties' intent to have the settlement agreement resolve the “entire issue” between the parties. (Id., Ex. A at 8).

         The exchanges ended with an email attaching what was described as an outline of the offer and acceptance constituting the parties' agreement. Bailes wrote in a March 21, 2014 email: “The offer and acceptance outlined in this email string constitutes agreement between [HDMS] and Cypress Engine on the return quantities, prices, and timetable.” (Id., Ex. A at 14). Attached to that email was a one-page outline of the settlement agreement. The parties signed a hard copy of the outline the same day. (Id., Exs. A at 14, F).

         Under the agreement, Cypress Engine would return the 243 new prechambers it had purchased under a schedule that the parties negotiated, and the emails and letters proposed that HDMS would pay Cypress Engine the full purchase price less a restocking fee. (Id., Ex. A at 11-12). Cypress Engine also agreed that “[a]ny amounts due to [HDMS] related to other materials will be honored.” (Id., Ex. A at 12). HDMS included a requirement that Cypress Engine not “engage, partner, and or enter into any agreement associated with the prechamber, prechamber manufacturing, prechamber testing, and or prechamber design” during the scheduled period for returning the prechambers. (Id., Ex. A at 14).

         Between March 21 and May 2014, HDMS sent Cypress Engine two reminder invoices for past-due amounts it owed for purchases unrelated to the prechambers. (Id., Exs. K, L). In May 2014, when it was time for HDMS to pay what it owed under the settlement agreement prechamber return-and-reimbursement schedule, HDMS deducted the amount that Cypress Engine owed on the unrelated purchases from the amount that HDMS owed under the settlement agreement. (Id., Ex. M). After receiving the payment, with the reduction for the offset, HDMS and Cypress Engine continued to perform under the settlement agreement. Cypress Engine sent prechambers back on schedule. HDMS sent the money it owed for the returned prechambers on schedule as well.

         HDMS did not know that six days after the parties signed the settlement agreement in March 2014, Cypress Engine was back in the business of selling prechambers. Cypress Engine used a different supplier-not HDMS-to provide it refurbished prechambers, which it sold to its own customers. (Id., Ex. 62; Ex. C at 101-102). Between March 21, 2014 and August 31, 2014, Cypress Engine sold 46 refurbished prechambers, for a total of $72, 900, and it sold six prechamber seal kits for a total of $783. (Id., Ex. 68; Ex. C at 176-82). Cypress Engine's wholly owned subsidiary, Downin's Engines, sold 4 prechambers for a total of $6, 400. (Id., Ex. 75; Ex. C at 185-86, 234-37). During this period, Cypress Engine actively marketed and quoted prechambers and prechamber parts to its customers and potential customers. (Id., Exs. 58, 59, 71, 72, 73, 74; Ex. C at 188, 205-207, 220-22).

         In August 2014, HDMS learned that Cypress Engine had continued to sell prechambers after the parties signed the settlement agreement. HDMS sent Cypress Engine a letter stating that its prechamber sales during the period covered by the settlement agreement violated the agreement, and that as a result, the agreement was no longer in effect. (Id., Ex. 34). Cypress Engine responded by complaining for the first time about the May 2014 offset. Cypress Engine also denied that it was selling refurbished prechambers, asserting that Downin's Engines was the only entity doing so. (Id., Ex. 37). This argument was curious, given Cypress Engine's stipulation that, for the purposes of the settlement agreement, its actions and the actions of Downin's Engine, its wholly owned subsidiary, “are the same.” (Docket Entry No. 53, Ex. D).

         Cypress Engine sued, alleging that HDMS had breached the settlement agreement by taking the offset, and had breached warranties and violated the DTPA by selling defective prechambers. (Docket Entry No. 20). Cypress Engine also asserted claims against the alleged prechamber manufacturer, Powertech Marine. (Id.). HDMS counterclaimed for, among other things, breach of the settlement agreement's provisions preventing Cypress Engine from selling prechambers during the return-and-reimbursement period. (Docket Entry No. 35). These motions followed discovery conducted by both Cypress Engine and HDMS. Each motion is analyzed below.

         1. The Legal Standards

         a. The Summary Judgment Standard

         “Summary judgment is required when ‘the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.'” Trent v. Wade, 776 F.3d 368, 376 (5th Cir. 2015) (quoting Fed.R.Civ.P. 56(a)). “A genuine dispute of material fact exists when the ‘evidence is such that a reasonable jury could return a verdict for the nonmoving party.'” Nola Spice Designs, LLC v. Haydel Enters., Inc., 783 F.3d 527, 536 (5th Cir. 2015) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986)). “The moving party ‘bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.'” Id. (quoting EEOC v. LHC Grp., Inc., 773 F.3d 688, 694 (5th Cir. 2014)); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

         “Where the non-movant bears the burden of proof at trial, the movant may merely point to the absence of evidence and thereby shift to the non-movant the burden of demonstrating by competent summary judgment proof that there is an issue of material fact warranting trial.” Id. (quotation marks omitted); see also Celotex, 477 U.S. at 325. Although the party moving for summary judgment must demonstrate the absence of a genuine issue of material fact, it does not need to negate the elements of the nonmovant's case. Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir. 2005). “A fact is ‘material' if its resolution in favor of one party might affect the outcome of the lawsuit under governing law.” Sossamon v. Lone Star State of Texas, 560 F.3d 316, 326 (5th Cir. 2009) (quotation omitted). “If the moving party fails to meet [its] initial burden, the motion [for summary judgment] must be denied, regardless of the nonmovant's response.” United States v. $92, 203.00 in U.S. Currency, 537 F.3d 504, 507 (5th Cir. 2008) (quoting Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc)).

         “Once the moving party [meets its initial burden], the non-moving party must ‘go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial.'” Nola Spice, 783 F.3d at 536 (quoting EEOC, 773 F.3d at 694). The nonmovant must identify specific evidence in the record and articulate how that evidence supports that party's claim. Baranowski v. Hart, 486 F.3d 112, 119 (5th Cir. 2007). “This burden will not be satisfied by ‘some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by only a scintilla of evidence.'” Boudreaux, 402 F.3d at 540 (quoting Little, 37 F.3d at 1075). In ...


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