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American Maplan Corp. v. Hebei Quanen High-Tech Piping Co., Ltd

United States District Court, D. Kansas

November 21, 2017

American Maplan Corp., doing busines as battenfeld-cincinnati USA, Plaintiff,
v.
Hebei Quanen High-Tech Piping Co., LTD, et al., Defendants.

          MEMORANDUM AND ORDER

          J. THOMAS MARTEN, JUDGE.

         Plaintiff American Maplan Corporation, doing business as battenfeld-cincinnati USA (Battenfeld US) entered into an agreement with Hebei Quanen High-Tech Piping Co. under which Battenfeld U.S. would manufacture extrusion equipment for Quanen to use at its plants in China for making plastic pipe. Quanen is a subsidiary of J-M Manufacturing Company, which has operated as JM-Eagle. Walter Wang is the President and CEO of Eagle.

         The plaintiff alleges Quanen failed to pay for equipment delivered pursuant to the agreement, and brings claims for breach of contract, breach of the implied covenant of good faith and fair dealing, conversion, unjust enrichment, and fraud. In addition, the plaintiff alleges that Wang and Eagle were directly involved in the negotiations leading to the transaction, with Quanen being formed as a corporation only after the nature of the transaction was shaped by Battenfeld and Eagle. Plaintiff alleges that Wang and Eagle intentionally interfered with their contractual relations with Quanen, and fraudulently induced them to enter into the contract by misrepresenting Quanen's ability to perform. The matter is before the court on defendants' motions to dismiss. Quanen argues that Maplan's allegations fail to state a claim for relief. In addition, it argues the fraud claim is time barred, and fails to allege fraud with particularity. Defendants Wang and Eagle seek dismissal for an asserted lack of personal jurisdiction. The court has reviewed the pleadings and other materials in the action, and finds that the motions to dismiss should be denied.

         Quanen's Motion to Dismiss

         A plaintiff satisfies the requirements of Fed.R.Civ.P. 8 by presenting a plausible claim for relief, something which goes beyond mere conclusions or the “formulaic recitation of the elements of a cause of action.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2009). In determining whether plaintiff has presented a plausible claim for relief, the court accepts as true all well-pleaded facts presented in the complaint. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). A plausible claim is one sets forth facts which create “the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678. Plausibility is “context-specific task that requires the court to draw on its judicial experience and common sense.” Id. at 679.

         A. Plaintiff's Allegations

         The viability of Maplan's contract and tort claims must take account of the allegations raised in its complaint. According to the plaintiff, Battenfeld U.S. has manufactured plastic extruders and extrusion lines, including extrusion systems for the production of PVC and PE pipe, since 1995. Battenfeld U.S. makes equipment for some of the world's largest pipe producers, including Eagle.

         In 2011, Walter Wang told Battenfeld U.S. he planned to expand Eagle's operation into the Chinese market by forming a new affiliated company in Langfang, China, and he wanted Battenfeld U.S. to supply extrusion equipment for the affiliate. Eagle gave Battenfeld U.S. information on the new affiliate (including the type of pipe it planned to manufacture, and output rates and efficiencies it desired for the requested extrusion equipment) to allow Battenfeld U.S. to formulate price quotations and equipment specifications.

         Battenfeld's CEO, Kurt Waldhauer, met with Wang on January 19, 2012. Wang said that the new affiliate would have the requisite infrastructure, capacity, and know-how to operate pipe extrusion equipment, and assured Battenfeld that Hebei Quanen would pay for the equipment. Wang and Eagle knew Battenfeld would have to incur millions of dollars in production and operating costs to make the equipment. Wang represented that he and Eagle would back Hebei Quanen. Battenfeld relied on these representations.

         On January 24, 2012, Waldhauer emailed a proposed delivery schedule to Wang. Because of the long lead time necessary to manufacture this equipment, in April 2012, Wang and Waldhauer agreed that Battenfeld should begin preparations to manufacture the equipment. Wang represented that Battenfeld US's delivery of the extrusion equipment to China on a tight schedule was critical for his China expansion.

         By June 19, 2012, Jürgen Arnold, a member of Battenfeld US's Board of Directors, alerted Wang that Battenfeld U.S. had already started investing the substantial costs, time, and effort needed to prepare to manufacture the equipment, including reserving time in Battenfeld US's production schedules and negotiating with suppliers.

         Eagle and Wang caused Hebei Quanen to be incorporated on or about July 23, 2012 as the Chinese affiliate of Eagle. Franco An has been the President of Hebei Quanen since it was formed.

         The complaint alleges that Hebei Quanen is the alter ego of Wang, that it operates under his direction and control, and that he incorporated the affiliate as a vehicle to carry out his personal business for his own personal advantage to such an extent that Hebei Quanen has no separate interests of its own. Plaintiff claims Hebei Quanen was grossly under-capitalized and was financed entirely by Wang or Eagle (of which Wang is the President and CEO). The complaint alleges that Hebei Quanen failed to observe corporate formalities and was used as a facade for Wang's own business activities. For all effective purposes, Wang and Hebei Quanen are one and the same because that is the perception that Wang seeks to create in the minds of third parties, including Battenfeld US. The complaint alleges that recognition of Hebei Quanen as a distinct legal entity would result in injustice to Battenfeld US.

         On August 24, 2012, Battenfeld U.S. and representatives of Eagle and Hebei Quanen, including Wang, Kaider Liao (Eagle's Director of Engineering), and Franco An met to negotiate the terms of Battenfeld US's sale of extrusion equipment to Hebei Quanen. During the meeting Wang, Liao, and An told Battenfeld U.S. that Hebei Quanen could operate the equipment and that it would have the clients to generate the money to pay Battenfeld US.

         Wang and Liao referenced the history between Battenfeld U.S. and Eagle to make Battenfeld U.S. comfortable with the large outlay of time, resources, and financial risk needed to enter into a significant contract with a new foreign company like Hebei Quanen. As a further inducement, Wang, Liao, and An promised that Hebei Quanen would place very significant orders with Battenfeld US.

         Based on these representations, Battenfeld U.S. agreed to provide a 40% discount from the list price on Hebei Quanen's purchase of equipment, in return for Hebei Quanen ordering at least $75 million (list price) worth of equipment from Battenfeld U.S. and from Battenfeld US's affiliate in China.

         On January 15, 2013, Battenfeld U.S. confirmed a Framework Agreement with Hebei Quanen and Eagle, which provided various price increases above the 40% discount if the volume of sales did not reach $75 million by December 31, 2015.

         Battenfeld US, Eagle, and Hebei Quanen continued to discuss the needed equipment through the Fall of 2012, including, in some instances, during on-site meetings in China. Throughout these meetings, An, Liao, and Wang reiterated that Hebei Quanen, although a new company, had the backing of Eagle and Wang, and, therefore, would have the infrastructure, capacity, and know-how to use the equipment and Hebei Quanen would have the ability to pay Battenfeld US.

         Wang and Eagle effectively sought to have Battenfeld U.S. underwrite their China expansion because the large discounts on extrusion equipment furthered Wang's own interest in using Battenfeld U.S. to help capitalize his planned China expansion at vastly reduced cost. As a result, Hebei Quanen received equipment with relatively little capital investment by Wang.

         On September 27, 2012, Battenfeld U.S. provided the Terms and Conditions that would govern the sales of the equipment. The Terms and Conditions, which were substantially the same as those agreed to by Wang and Eagle for years, were to govern “all sales, ” and provided for interest at the rate of 1.5% monthly (18% per annum) on all amounts not paid by Hebei Quanen.

         The Terms and Conditions provided that all objects delivered by Battenfeld U.S. would remain its property until it was paid all sums due for any legal reason, even if the payments for particularly designated items have been made, and that the reservation of ownership would count as security for the balance due. The January 15 Framework Agreement contained a similar provision.

         Between November 2012 and March 2013, Hebei Quanen submitted more than fifty Purchase Orders to Battenfeld U.S. for the delivery and installation of pipe extrusion equipment. These Purchase Orders totaled approximately $22 million, after applying the 40% volume discount off the list price. These Purchase Orders were subject to the Terms and Conditions.

         The Purchase Orders and the January 15 Framework Agreement generally required a 30% down payment at the time a Purchase Order was placed, 50% payment upon delivery of the products to Hebei Quanen, and the final 20% payment after acceptance.

         The complaint alleges that Hebei Quanen has made partial payments under the Purchase Agreements for the extrusion equipment, but has refused to pay millions of dollars still outstanding under the Purchase Agreements.

         On March 31, 2013, Battenfeld U.S. (through its affiliate Battenfeld U.S. China) began delivering and installing equipment at the Langfang City plant. However, according to the complaint, Hebei Quanen did not have the capacity, infrastructure, or know-how to receive, install, or operate the equipment.

         According to the complaint, the plant was too small to operate the equipment. That is, while the equipment itself was installed in the plant, the facility could not process the hot, uncured pipe as it exited the extrusion line so that it could be sufficiently cooled or cut. Hebei Quanen erected a tent to cover the extruded pipe, but the tent could-and did-brush against the hot, uncured pipe, damaging the pipe.

         Hebei Quanen, Eagle, and Wang then entered into a plan to withhold payments or otherwise cause Hebei Quanen to avoid its good faith obligations to perform under the Purchase Agreements and allow Wang to avoid further capital contributions at Battenfeld US's expense.

         Thus, Hebei Quanen refused to provide a proper commissioning plan for acceptance of the PE and PVC lines and, as a result, Battenfeld U.S. could not start the commissioning process for delivered extrusion lines until June 2015. In addition, Hebei Quanen and Eagle repeatedly cancelled or rescheduled commissioning visits (often at the last minute) to avoid Hebei Quanen's payment obligations. This refusal, at Wang's and Eagle's direction, to commission many of the delivered extrusion lines, wrongfully delayed payment of the final 20% balance due.

         The plaintiff also alleges that Hebei Quanen lacked the client base and cash flow to meet the payment schedule. Thus, Hebei Quanen (allegedly at the direction of Wang and Eagle) refused to accept equipment delivery by refusing access to its plant, causing Battenfeld U.S. to incur improper storage costs. Hebei Quanen also made numerous meritless reports of defective equipment. The complaint alleges that all equipment was within industry standards. To the extent Hebei Quanen identified any issues with the extrusion equipment, Battenfeld U.S. worked diligently, professionally, and successfully to rectify all such issues.

         Although Hebei Quanen has refused to make full payment for the extrusion lines, it has been using at least some of the equipment to produce PVC and PE pipe, operating the still-uncommissioned extrusion lines in excess of 4, 600 hours to date. Under the Purchase Agreements, that equipment is owned by Battenfeld US, and Battenfeld U.S. has not authorized Hebei Quanen to use it for commercial purposes.

         For the extrusion equipment that Hebei Quanen did not commission or otherwise begin using, it improperly stored such equipment over the last several years, which completely destroyed its value, thus making return of the equipment impossible because Battenfeld U.S. can no longer sell it for any value.

         Hebei Quanen's actions have caused substantial injury to Battenfeld U.S. and other members of the battenfeld-cincinnati corporate family. This strain led the CEO of BC Extrusion Holding GmbH ("BC Extrusion Holding"), the company responsible for managing the financial risk for the corporate family, to plead with Wang to direct Hebei Quanen to make its required payments because the situation was threatening their covenants with creditors.

         Battenfeld U.S. was jointly liable for default under the credit support agreements with its affiliated companies. Thus, a default by any of the battenfeld-cincinnati group of companies exposed Battenfeld U.S. to liability. Nonetheless, Hebei Quanen, at the direction of Wang, continued to withhold payment, notwithstanding repeated written promises to remit payment for the extrusion equipment.

         After all of these efforts to obtain payment failed, but still relying on the good faith of defendants, representatives from Battenfeld US, BC Extrusion Holding, Hebei Quanen, and Wang agreed on a written global business resolution and go-forward plan on May 27, 2015.

         In this Agreement, Hebei Quanen recommitted to the original payment terms whereby Battenfeld U.S. would provide a 40% list price discount to Hebei Quanen in exchange for $75 million worth of extrusion equipment orders. The parties also agreed on a framework to resolve any technical complaints and set extrusion equipment commissioning schedules in the Langfang City plant.

         The complaint alleges that, by leveraging the financial distress caused by the defendants' bad faith conduct, Wang was able to extract additional commitments from Battenfeld U.S. to agree on a new 40% list price discount and “a special ONE TIME only discount of an additional 30%” on orders for plants Eagle owned and operated in the United States.

         The complaint alleges that defendants had no intention of performing their obligations under the May 27 Agreement. Despite its promises, Hebei Quanen still cancelled, obstructed, and delayed technical delivery and commissioning of the extrusion equipment. Battenfeld U.S. delivered or offered to deliver to Hebei Quanen's Langfang City plant on all of its obligations under the original Purchase Orders and the May 27 Agreement. Nevertheless, Hebei Quanen-at the direction of Eagle and Wang-still refused to pay Battenfeld US.

         During the following months, Battenfeld U.S. and BC Extrusion Holding repeatedly followed up with Hebei Quanen and Eagle in an effort to secure Hebei Quanen's overdue payments. In response to those efforts, Hebei Quanen and Eagle personnel repeatedly advised Battenfeld U.S. and BC Extrusion Holding that Wang would not authorize payment by Hebei Quanen.

         The complaint alleges that Wang refused in bad faith to allow Hebei Quanen to satisfy its obligations to Battenfeld U.S. because he wanted to ruin Battenfeld U.S. and the entire battenfeld-cincinnati corporate family's credit rating and business value for his own benefit.

         On March 7, 2007, the battenfeld-cincinnati corporate family had entered into a contractual relationship with West LB, Germany, as lead arranger of a credit consortium, which included Battenfeld U.S. as a guarantor with joint liability. These Bank Covenants included EBITDA, cash flow, capital expenditure, and EBITDA/interest ratios as key performance indicators.

         The Bank Covenants were structured such that Battenfeld US's default would adversely impact the entire battenfeld-cincinnati corporate family. In other words, the cross default provisions of the Bank Covenants provided that the insolvency of any entity within the battenfeld-cincinnati corporate family would cause the entire credit facility to default and give the credit consortium the right to credit the Bank Covenants.

         Wang and Eagle knew how consequential the Langfang City project was for Battenfeld US. Indeed, the approximately $22 million worth of equipment (after a 40% discount from the list price) ordered by Hebei Quanen represented a significant percentage of Battenfeld US's overall business during 2013 and 2014. Wang and Eagle leveraged the payment obligations under this very large contract to ruin the value of Battenfeld U.S. and the entire battenfeld-cincinnati corporate family.

         In addition, according to the complaint, Wang knew of this, and purposefully instructed Hebei Quanen to withhold payments or otherwise not comply with ...


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