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Normerica International Corp. v. Litterpurrfect, L.P.

United States District Court, S.D. California

May 4, 2018

NORMERICA INTERNATIONAL CORPORATION, a Barbados corporation; and NORMERICA INC., an Ontario corporation, Plaintiffs,
v.
LITTERPURRFECT, L.P., a California limited partnership; and IN BOCCA AL LUPO, INC., a California corporation, Defendants.

          ORDER ON APPLICATION FOR WRIT OF ATTACHMENT [Doc. No. 8.]

          Hon. Cathy Ann Bencivengo United States District Judge

         This matter came before the court on May 3, 2018 for a hearing on Plaintiffs' application for writ of attachment. [Doc. No. 19.] Adam Manna, Thor Urness and John Vaughn appeared for Plaintiffs. Robert Hocker and Ayad Michael Nalu appeared for Defendants.

         BACKGROUND

         Plaintiffs Normerica International Corporation and Normerica Inc. (collectively “Normerica”) filed their operative complaint on March 22, 2018. [Doc. No. 6.] Defendants filed their answers, with LitterPurrfect filing a counterclaim. [Doc. Nos. 11, 12.] On April 30, 2018, Plaintiffs moved to dismiss the counterclaims. [Doc. No. 18.]

         For a number of years, Normerica supplied Costco with all the cat litter products that LitterPurrfect had sold to Costco. At the hearing, the parties represented that prior to the period involved in this dispute, the parties long-standing arrangement had been that Costco would send purchase orders to LitterPurrfect which LitterPurrfect would then forward to Normerica. Upon receipt of the purchase order, Normerica would fulfill and deliver the goods to Costco and, within 30 to 60 days of receiving the goods, Costco would pay LitterPurrfect for the goods received. LitterPurrfect would then, in turn, pay Normerica.

         During 2016 and 2017, Normerica began negotiations to purchase LitterPurrfect. As a result of the Ms. Scarvaci's refusal to consent to the sale to Normerica, Messrs. Katz & Wilson sued Ms. Scarvaci claiming that her refusal was unreasonably and, in the alternative, seeking the dissolution of LitterPurrfect.[1] The litigation amongst the partners proceeded before JAMS mediator, the Honorable Irma Gonzalez (ret). [Doc. No. 13-3, 6-116.[2]

         While the litigation between the partners continued, Normerica withdrew its letter of intent to purchase on January 31, 2018. [Doc. No. 16-2.] Along with the withdrawal, Normerica notified LitterPurrfect that, effective February 6, 2018, “all shipments would be COD [cash-on-delivery] and FOB [freight-on-board]” thereby making LitterPurrfect responsible for transportation costs up front. [Doc. No. 13 at 3; Doc. No. 13-3 at 39; Doc. No 16-2.] Wilson informed Judge Gonzalez that it was not financially viable for LitterPurrfect to accept these new shipping terms and that they were “effectively putting it out of business effective February 6, 2018.” [Doc. No. 13-3 at 39, 106.]

         On February 9, 2018, Ms. Scarvaci gave notice that she was appointing In Bocca Al Lupo, Inc, (“IBAL”), a company wholly owned by her, as the new general partner of LitterPurrfect. [Id. 39, 112.] On February 28, 2018, Judge Gonzales, confirmed IBAL as the sole general partner of LitterPurrfect.[3] [Id. at 49]

         Notwithstanding the internal struggles amongst the LitterPurrfect partners and the failed buyout, Wilson and Normerica executed a “Management Agreement” on February 13, 2018. [Doc. No. 13-2 at 6-9; Doc. No. 16-4.] It allowed the two companies to continue to do business with each other, until at least March 15, 2018 and provided Costco:

will invoice Manager [Normerica] directly for all good shipped to Costco. Manager will guarantee Company [LitterPurrfect] a net margin of nine percent (9%) based off Manager's current selling prices to Company and Company's selling prices to Costco…. The nine percent (9%) will be inclusive of freight (but not of any allowances or commission. Manager will not charge a fee for this service as Manager already processes the invoices and receives orders directly from Costco.

[Doc. No. 13-2 at 7, ¶ 6; Doc. No. 16-4 at ¶ 6. ]

         According to the operative complaint, on March 6 and March 8, 2018, Normerica sent two demand letters to LitterPurrfect for immediate payment of $520, 431.17 in invoices and $197, 092.61 in freight charges. [Doc. No. 6 at 12 ¶¶ 50-52.] On March 12, 2018, Normerica notified LitterPurrfect that it had stopped all shipments effective immediately. [Doc. No. 13-3 at 3, ¶ 8.] In March 2018, LitterPurrfect issued nine checks to Normerica as payment for invoices that have subsequently been returned by the bank. [Doc. No. 16-13.] Keith Wilson appears as the signatory on the checks. [Id.]

         On April 9, 2018, Plaintiffs filed the pending application for a writ of attachment. [Doc. No. 8.] Plaintiffs seek the writ to secure their claim against Defendants for breach of contract, quantum meruit, and open book account in connection with LitterPurrfect's failure “to pay Plaintiffs for goods delivered in accordance with agreements between the parties.” [Doc. No. 8-2 at 6.] Normerica seeks to attach the deposit account of LitterPurrfect and LitterPurrfect's accounts receivable with Costco, in addition to any other property that it is entitled to attach pursuant to § 487.010(b). [Doc. No. 8.2 at 10.] Plaintiff's assert that there was an informal agreement (“the Agreement”) between Normerica and LitterPurrfect, whereby LitterPurrfect would forward purchase orders from third party, Costco, to Normerica; Normerica would fulfill the orders by shipping product to Costco and invoicing LitterPurrfect for the costs of the product, packaging, and transportation; and LitterPurrfect would pay Normerica for the goods and services. [Id. at 7.] Plaintiffs concede that the Agreement was not memorialized in writing, but contend that “each purchase order created a separate, stand-alone contract between Normerica and LitterPurrfect.” [Id. at 7.] According to Plaintiffs, based on the purchase orders Normerica has accepted and fulfilled, the invoices it has sent to LitterPurrfect, and the record of transactions between the companies, LitterPurrfect owed Normerica $1, 685, 064.50[4] as of April 6, 2018. [Doc. No. 8-1 at ¶ 8.]

         Defendants' opposition did not make any substantive arguments in opposition to the writ, rather it focused on making evidentiary objections to the declaration of Ms. Sur Sri, filed in support of the Application. To the extent that there were any deficiencies in the evidence provided in the initial application, the statements made in the declaration of Ms. Sri have since been supported by the documentary evidence attached to the reply. See Doc. Nos. 16-1- 16-13. At the hearing Defendants' addressed the necessity of the writ, countering that they never agreed to the informal agreement and asserting that the relationship between the parties is governed by the Management Agreement. Defense counsel argued that, as a result, Normerica in fact owes Defendants money in accordance with the provision of the Management Agreement which provides Normerica will pay LitterPurrfect “a net margin of 9%” and is “inclusive of freight.” [Doc. No. 13 at 4.] Plaintiffs' ...


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