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Wu v. Doucette

April 8, 2010


The opinion of the court was delivered by: Virginia A. Phillips United States District Judge


This case was tried to the Court on February 16 through 19, 2010; Plaintiff/Counterclaim-Defendant thereafter timely filed a post-trial brief in the form of Revised Proposed Findings of Fact and Conclusions of Law on February 23, 2010, as permitted by the Court, and the Court deemed the matter submitted. Having considered all the evidence presented by the parties, as well as the argument and briefing by counsel, the Court makes the following Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52.


1. Plaintiff and Counterclaim-defendant Julia Wu ("Wu") is a resident of Shanghai, China. [Final Pretrial Conference Order ("PTCO ") ¶ 2.]

2. Defendant and Counterclaimant Mary Ann Doucette ("Doucette") is a resident of Riverside County, California, in the Central District of California, Eastern Division. (PTCO ¶ 2.) Defendant Doucette Medical Supply, Ltd. ("Doucette Medical") is a Wisconsin corporation qualified to do business in California and which at all times relevant to this action has had its principal place of business in California. (PTCO ¶ 2.) Doucette is and always has been the sole shareholder and owner of Doucette Medical. (Defendants' Memorandum of Contentions of Fact and Law ("Defs.' Mem.") at 2.) Every act and omission of Doucette described in this Memorandum Opinion is also an act or omission on the part of Doucette Medical.


Breach of Contract Claims: Claim One, for Breach of Joint Venture Agreement; Claim Two, for Breach of Agency Agreement; and Claim Six, for Implied Indemnity

3. In late 2002 or early 2003, Wu and Doucette entered into an oral agreement to establish an export-import business venture together. The essential terms of the agreement called for Wu to obtain suppliers in China of certain medical equipment, including (but not limited to) vinyl gloves; for Doucette to obtain buyers of the goods in the United States; for Wu to obtain samples of the goods and negotiate prices with the Chinese suppliers; for Doucette to solicit orders and negotiate prices with the U.S. buyers; for Wu and Doucette to confer with one another and confirm the mutual agreeability of the suppliers' sales and buyers' purchase prices; for Wu to monitor the quality and shipment of the goods from the Chinese suppliers; for Doucette to prepare Purchase Orders reflecting the orders from U.S. buyers and transmit those Purchase Orders to Wu, who was to translate them accurately into Chinese and then transmit them to the Chinese suppliers; for Doucette Medical to obtain the payments directly from the U.S. buyers; for Doucette Medical to pay the Chinese suppliers (or their trading companies) directly once shipment had been received; and for Wu and Doucette to divide the profits from the transactions, i.e., the difference between the price paid by the U.S. buyer and the Chinese supplier.*fn1 Wu and Doucette each would be responsible for paying her own business expenses incurred in connection with her respective responsibilities.

4. The documents created by the parties during the regular course of their business dealings during the period between 2003 and August 2006 confirm they indeed transacted business as agreed upon and described above. (See Exs. 19-22 [Bills of Lading, Invoices, and Purchase Orders confirming transactions among Chinese suppliers, U.S. buyers, and Doucette Medical].)

5. Doucette, on behalf of Doucette Medical, and Wu agreed that Wu would be authorized to act on behalf of Doucette Medical when negotiating with Chinese suppliers and doing the other acts described above in furtherance of the agreement between the parties. For example, during the initial discussions about establishing an import-export business together, Doucette referred to the proposed relationship with Wu as a "partnership." Furthermore, throughout the course of the relationship, Doucette Medical and Doucette routinely referred to Wu as Doucette Medical's authorized representative and Wu's office as Doucette's "Shanghai office." (See Exs. 12, 13, 14 & 17 [Emails from Doucette to business contacts referring to Doucette Medical's "business office in Shanghai" and Julia Wu as Doucette's "partner", and referring to the "partnership"]; Ex. 27 [Email from Doucette to Wu (" you I felt this was a partnership with each of us in charge of our country's work.").]) During her trial testimony, Doucette acknowledged the significant business advantage that inured to Doucette Medical in having an authorized representative resident in China, fluent in Chinese, and familiar with Chinese business practices. At times, Wu used an email address indicating her affiliation with Doucette Medical ("") with Doucette Medical's knowledge and approval. (See Ex. 13.) Wu signed Purchase Orders on behalf of Doucette Medical with Chinese manufacturers for over three years, and Doucette admitted in her trial testimony that Wu had the authority to bind Doucette Medical when she did so. (Exs. 20-23, 53.)

6. In late 2003, Wu obtained price quotes for, and samples of, vinyl gloves from a manufacturer known as Zibo Borui Plastic & Rubber Products Co. ("Borui"*fn2 ), located in Zibo City, Shandong province, China. After reviewing the samples and the prices quoted for the gloves, Doucette and Wu decided to use Borui as a supplier for their U.S. customers.

7. On April 28, 2004, Doucette Medical entered into a Non-Circumvention Protection Agreement with Borui. (Ex. 25.) Doucette signed the Agreement on behalf of Doucette Medical; it provided that, as to all customers introduced to Borui by Doucette Medical, the excess of the price quoted or given to Doucette Medical to its customers above the price charged by Borui would be Doucette's "commission."

8. In March 2005, Doucette Medical entered into a Marketing and Sales Cooperation Agreement with Borui. (Ex. 26.) Doucette signed the Marketing and Sales Cooperation Agreement on behalf of Doucette Medical; it gave Doucette Medical exclusive sales rights in thirteen U.S. states for gloves manufactured by Borui, and established minimum order requirements beginning in March 2005. In her trial testimony, Doucette admitted she would not have entered into the Marketing and Sales Cooperation Agreement had she not been satisfied with Borui's prior performance.

9. Beginning in the late fall of 2005, Borui's shipments of products to Doucette Medical's customers began to lag. This caused tension between Wu and Doucette, and they discussed changing the form and nature of their business relationship. They did not do so, however. (See Ex. 27.)

10. Doucette and Wu visited the Borui factory together in late 2005, and Doucette discussed the delivery problems with Borui's General Manager. Nevertheless, the delays persisted. The incidence of untimely shipments from Borui increased during 2006, caused by a dispute between Borui's two main shareholders that eventually resulted in a split up of the business. Wu told Doucette about the causes of the Borui problems, and Wu inspected the Borui factory more often to ensure that Borui was complying with its supply obligations; she reported to Doucette her conclusion that Borui was shipping to Doucette Medical's customers more than 70% of its production of medical gloves.

11. On April 6, 2006, Doucette sent a letter to Borui on behalf of Doucette Medical setting forth the latter's claims against the former. (Ex. 40.) By this time, although it had received payments from its U.S customers on shipments from Borui, Doucette Medical had withheld payment of $49,376.80 from Borui as a set-off against claims Doucette believed Doucette Medical could assert against Borui because of problems with untimely shipping and the quality of its vinyl gloves. Included in that amount was $20,000 that Doucette Medical had to reimburse one of its customers, ProMed, for failure to deliver products timely which had been ordered but not delivered by Borui. As to the balance of the amount withheld from Borui for products delivered by it to Doucette Medical's customers, Doucette's testimony was too vague to form the basis for any set-off against amounts due and owing to Borui. When cross-examined about the basis for the amounts she withheld from payments owed to Borui under Purchase Orders admittedly fulfilled by the company, Doucette repeatedly testified only "Everyone was calling me and complaining!" or "I was getting complaints night and day" or similarly nonspecific statements. Repetition being no substitute for particularity, the Court found unconvincing Doucette's testimony regarding the lack of quality in the goods shipped by Borui. Doucette provided no evidence in the form of written complaints, electronic messages or testimony, from a single customer regarding the alleged shoddiness of Borui's goods.

12. Doucette and Wu discussed the April 6, 2006 letter before Doucette sent it to Borui, and Wu stated she agreed with some but not all of the statements contained in it. For example, Wu testified she disagreed with the statement in Exhibit 40 that Doucette Medical was entitled to withhold payment due Borui for damage Doucette Medical claimed had been caused by the loss of potential orders that might have been placed but for Borui's tardiness in shipping. Wu did agree with the payment of $20,000.00 to ProMed, for ProMed's claims arising out of delayed shipments of Borui's products to it. Despite Wu's disagreement with Doucette's stated intent to withhold monies owed to Borui, Doucette sent the letter to Borui.

13. Wu was concerned that Borui might sue her as a result of the monies withheld from it for shipments made to Doucette Medical's customers. Wu consulted counsel, who told her she needed to obtain explicit written authorization confirming she was Doucette Medical's agent and had been acting for the company in connection with the Borui transactions. Neither Doucette nor Wu could recall whether or not such written authorization previously had been provided to Wu at the outset of their working relationship, but Doucette repeatedly promised Wu that Doucette would provide Wu with a written Authorization Letter. Doucette also assured Wu that Borui would not sue Wu, and repeatedly represented that if Borui did sue, Doucette would countersue Borui "for more," and in any event, Doucette and Doucette Medical would "take total responsibility" for withholding payments to Borui. (See Exs. 39, 41, 55, 56, 57.)

14. Borui responded to Doucette Medical's demand letter by writing to Wu, who forwarded this response to Doucette and again asked for an Authorization Letter. (Ex. 44.) Doucette acknowledged that Doucette Medical had a direct contractual obligation to Borui, and admitted Wu had no liability if Borui sued her because Wu "never paid them[.] [T]he money came out of my account and I bought the product." (Ex. 45 (emphasis added).)

15. Doucette continued to promise Wu that Doucette Medical would provide her an Authorization Letter confirming her status as an authorized agent of Doucette Medical for purposes of the Borui transactions. Doucette instructed her assistant, Sue Johnson, to draft such a letter and sign it for Doucette and send it to Wu. [Ex. 52.] After the signed Authorization Letter was sent to Wu, however, Doucette told Wu not to use it, as Doucette wanted to make changes to it and consult a lawyer about it. Although Doucette continued to send assurances to Wu that she and Doucette Medical would take responsibility for the Borui dispute, Doucette did not send another Authorization Letter nor did she consent to Wu's use of the Letter earlier sent.

16. Borui sued Wu in Shandong Province, Zibo Zhangdian District People's Court ("the Chinese court") for the failure to pay Borui for the goods delivered to Doucette Medical's customers as set forth in the Purchase Orders negotiated and signed by Wu on behalf of Doucette Medical. (Ex. 106.) Borui served Wu with the lawsuit on June 20, 2006, along with notice that the Chinese court had frozen her access to the cash in her bank accounts and had placed a lien on her ownership interest in her apartment in Shanghai.

17. Wu notified Doucette immediately of the lawsuit; Doucette at first reiterated her promises to assist in Wu's defense and to provide her with necessary documents to that end, including an Authorization Letter. Doucette Medical's lawyer, Michael Chen, provided similar assurances to Wu. (Exs. 83, 88, 89, 90.)

18. On July 29, 2006, Chen advised Doucette that Doucette Medical should not provide a defense to Wu and should not give her an Authorization Letter. (Ex. 96.) Doucette notified Wu of this by forwarding to her Chen's letter. (Ex. 96-1.) The only assistance Doucette or Doucette Medical gave Wu in defending the Borui lawsuit was to provide her with the original Sales and Marketing Cooperation Agreement and a copy of a single wire transfer receipt showing one payment made by Doucette Medical to Borui.

19. The Borui case was tried (on very short notice) on October 8, 2006 in Zibo City. After presentation of evidence and hearing from counsel, the Chinese court took the matter under submission, and on November 5, 2006, issued judgment in favor of Borui and against Wu. (Ex. 109 [(Certified translation of Judgment].) The Court awarded judgment to Borui in the amount of $126,878.40 plus fees and expenses of 13,199 and interest (in an unstated amount),*fn3 against Wu.

20. On October 26, 2006, Doucette, acting on behalf of Doucette Medical, authorized Chen to place a legal notice in a Beijing newspaper, the Legal Daily ("the Legal Daily notice" or "the notice". (Ex. 107.) The notice stated:

Doucette Medical Supply LLC of the United States solemnly declares that [Julia Wu] (Identification No.: 440505196902201441) has never been employed by this company, is not a sales representative of this company, and has no right to represent or act as an agent for this company in any action which is legally binding. We request that our customers and the companies we do business with make their own careful investigations in the course of their business.


21. Doucette placed the Legal Daily notice after a meeting between Chen and the General Manager of Borui. The Court finds Doucette, acting through her lawyer, colluded with Borui to increase the latter's chances of succeeding in its litigation against Wu, and Doucette Medical published the Legal Daily notice as a result of this collusion.

22. As Doucette admitted in her trial testimony, the notice was published for the purpose of contradicting the evidence Wu had presented to the Chinese court during the first trial in early October 2006, that she was an authorized representative of Doucette Medical. In publishing the notice Doucette intended to, and did, act to further only her own interests and those of her company, Doucette Medical, rather than the interest of the joint business enterprise. In fact, Doucette testified that she caused the notice to be published because she did not want to be "on the hook financially for the claims Borui was making" in the Chinese court against Wu.

23. Wu sought review of the November 5, 2006 Judgment in a higher court, and obtained a new trial which was conducted on January 25, 2007. Again, the Chinese court heard from counsel and admitted documentary evidence, including new evidence in the form of the Legal Daily notice. (Ex. 107). On February 6, 2007, the court issued its Judgment in favor of Borui and against Wu, expressly citing the notice published in the Legal Daily as evidence of Wu's responsibility for the monies withheld from Borui for the goods shipped to Doucette Medical's U.S. customers.

(Ex. 110 [Certified translation of Judgment].) The Chinese court awarded Borui the original Judgment amount ($126,878.40 plus fees and expenses of 13,199 and interest) plus a "litigation fee" of 12,749 against Wu.

24. Wu filed an appeal of the February 6, 2007 Judgment to a higher court, but the appeal was not accepted for hearing, and the February 6, 2007 judgment is now final.

25. Wu incurred reasonable expenses in connection with defending the Borui lawsuit, including travel expenses to meet with her defense lawyers, legal fees, and court costs. These expenses totaled 162,919.30; as of February 16, 2010 that amount converts to $23,897.92.

26. Neither Doucette nor Doucette Medical has reimbursed Wu for any expenses incurred in defending the Borui lawsuit in the Chinese courts.

27. On May 22, 2007, May 23, 2007 and November 11, 2008, the Chinese court garnished the following amounts from bank accounts of Wu in partial satisfaction of the Borui judgment: 154,473.99; 287,385.48; and 48,000.00, respectively. Converted at the prevailing exchange rate on those dates, the dollar amounts of the garnishments are $20,219.64; $37,624.76; and $7,047.01, respectively. Neither Doucette nor Doucette Medical has reimbursed Wu for any of these amounts, nor for the balance remaining on the judgment rendered in the Chinese court. That balance amount is 560,140.53 as of February 16, 2010 (the first day of trial in this case), or $82,164.57.

Claim Three: Breach of Fiduciary Duty

28. Throughout the course of their joint business enterprise, i.e., from late 2002 or early 2003 through August 15, 2006, Wu and Doucette Medical shared a business relationship requiring mutual trust and confidence. Each relied on the other to carry out her respective obligations as agreed upon at the outset of their joint enterprise, as set forth in Finding of Fact Nos. 3, 4, and 5, above. Each relied on the other to place the success of the joint enterprise above her or its own personal interests.

29. Doucette Medical, acting through and by its sole shareholder and owner, Doucette, breached that required trust and confidence, and failed to act with ...

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