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MAG Aerospace Industries, LLC v. Precise Aerospace Manufacturing, Inc.

United States District Court, C.D. California

July 23, 2019

MAG Aerospace Industries, LLC
v.
Precise Aerospace Manufacturing, Inc.

          Present: The Honorable R. GARY KLAUSNER, UNITED STATES DISTRICT JUDGE

          CIVIL MINUTES - GENERAL

         Proceedings: (IN CHAMBERS) Order and Judgment re: Court Trial

         I. INTRODUCTION

         MAG Aerospace Industries, LLC ("MAG"), which does business as Zodiac Water & Waste Aero Systems, filed the present lawsuit against Precise Aerospace Manufacturing, Inc. ("Precise") on May 23, 2018. MAG's Complaint alleges: (1) conversion; (2) breach of oral and written contract; (3) claim and delivery; (4) negligent interference with prospective economic relations; (5) fraudulent inducement; and (6) violation of California Business and Professions Code § 17200 ("§ 17200"). After pretrial motions, MAG's conversion, breach of contract, and negligent interference with prospective economic relations claims remained.

         The crux of MAG's remaining claims involves Precise's possession of MAG's "molds," which Precise used to injection-mold plastic component parts that MAG ordered from Precise.

         A bench trial was held on June 18 and 19, 2019. After reviewing the record and considering the arguments and evidence presented at trial, the Court took the case under submission. For the following reasons, the Court ENTERS JUDGMENT IN FAVOR of MAG on its conversion and breach of contract claims and DISMISSES MAG's negligent interference with prospective economic relations claim.

         II. FINDINGS OF FACT AND CONCLUSIONS OF LAW

         This opinion selves as the findings of fact and conclusions of law required by Federal Rule of Civil Procedure ("Rule") 52. Fed.R.Civ.P. 52. Any finding of fact that actually constitutes a conclusion of law is adopted as such, and vice versa.

         A. Findings of Fact

         MAG manufactures water-and-waste systems for commercial airplanes built by original equipment manufacturers ("OEMs"). MAG is organized under the laws of Delaware and has a principal place of business is in New Jersey. Precise is a California corporation that specializes in precision manufacturing of plastics for the aerospace and defense industries.

         1. Zodiac I

         This action arises out of the second of two disputes between MAG and Precise. (See Precise Aerospace Manufacturing, Inc. v. Zodiac Water & Waste Aero Systems, No. 2:17-cv-01239-RGK-JC) (“Zodiac I”.) In late 2012, MAG entered a subcontract with Precise whereby Precise agreed to manufacture injection-molded plastic component parts for MAG. Because the parts were specially designed, MAG supplied the unique "molds" that Precise would use to manufacture the parts. After Precise delivered the finished parts, MAG would assemble the parts into water-and-waste systems for OEMs.

         On January 17, 2017, Precise filed the Zodiac I suit against MAG, alleging that MAG had breached an oral "exclusive supplier" contract by hiring another company to manufacture injection-molded plastic component parts. MAG then filed a counter-complaint against Precise on May 8, 2017, alleging that Precise had made low-quality parts and failed to return two of MAG's molds in violation of several of the parties' contracts.

         Relevant here, MAG alleged in its counter-complaint that Precise breached a contract by manufacturing two defective parts (the "312 and 313 Parts") and by failing to return the molds used to make each part (the "312 and 313 Molds"). As a result, MAG alleged that it was forced to duplicate the 312 and 313 Molds. But the Court found on summary judgment that MAG failed to present admissible evidence raising a dispute of fact as to whether the 312 and 313 Parts were defective, and thus whether precise breached the contract. As a result, MAG was unable to recover breach of contract damages for the costs it incurred to duplicate the 312 and 313 Molds.

         In February 2018, the Court granted each party's respective motion for summary judgment. The case is now pending on appeal.

         2. The 2017 Interim Agreement

         Shortly before Precise's complaint was filed in Zodiac I, on January 13, 2017, MAG wrote Precise a letter requesting that Precise return the molds it was no longer using to fulfill outstanding purchase orders. Precise initiated Zodiac I on January 17, 2017. The next day. Precise responded to MAG's letter stating that it was unable to return the molds because they would be evidence in litigation.

         On February 2, 2017, MAG and Precise entered a written interim agreement (the "Interim Agreement") under which Precise and MAG agreed to temporarily continue their business relationship during the pendency of the Zodiac I litigation, hi relevant part, the Interim Agreement provided that MAG would continue to send Precise purchase orders for parts. To produce those parts. Precise would continue to use MAG's molds. It also specified: "While Precise is producing parts in response to the purchase orders, Precise will retain the molds." MAG agreed to order parts on a three-month basis and to give Precise sufficient lead time for delivery. The Interim Agreement was set to terminate on February 2, 2018, twelve months after its effective date.

         a. Mold Duplication Group 1: April 2017

         In March and April of 2017, however, MAG grew concerned with Precise's performance under the Interim Agreement. Specifically, MAG believed that Precise had manufactured two defective parts: the 312 and 313 Parts, discussed above. MAG's concerns eventually evolved into its Zodiac 1counter-complaint.

         Before filing its counter-complaint, on April 27, 2017, MAG demanded that Precise return the 312 and 313 Molds. Precise responded the next day that it would only return the molds if MAG first disclosed the results of an inspection of the 312 and 313 Parts. As discussed above, MAG believed that the 312 and 313 Parts were defective and hoped to use the 312 and 313 Molds to replicate those pails. Precise, however, disputed whether the parts were defective. It is not clear whether Precise received the information it requested.

         Gil Lenhard ("Lenhard"), MAG's Vice President of Procurement, testified that because Precise refused to return its molds, MAG "ended up having to duplicate the tools for [the 312 and 313] parts to protect [its] customer deliveries" on April 21, 2017. To that end, MAG ordered duplications of Mold Part Nos. 38100-312 and 38100-313 for $37, 192.50 and Mold Part No. 19600-020 for $19, 031.25, incurring a total cost of $56, 223.75. All orders were placed with Southern California Plastics.

         The Court notes that the April 21, 2017 duplication order was placed before the correspondence about the return of the molds, discussed above.

         b. Mold Duplication Group 2: December 2017 - January 2018

         Another dispute arose in September and October 2017. MAG sent Precise a set of purchase orders pursuant to the Interim Agreement, but Precise refused to accept the orders because the shipment date fell outside the Agreement's February 2, 2018 termination date. MAG believed that all orders placed within the one-year time frame of the Agreement would be fulfilled, while Precise believed that it only agreed to accept orders that would be shipped while the Agreement was in effect. Because Precise required a six-month lead time to produce the ordered parts, the orders placed in September or October of 2017 would necessarily be delivered after February of 2018. For that reason, Precise rejected MAG's September and October orders outright.

         MAG then grew concerned about procuring the parts it needed to meet its assembly demands. To resolve its concerns, MAG decided to hue another company to manufacture the parts. To do so, MAG needed the molds associated with each part, which Precise held. On October 2, 2017, MAG asked Precise to return several molds. On November 9, 2017, MAG emailed Precise again requesting that Precise return a narrowed list of molds. First, MAG stated that Precise was in wrongful possession of the molds associated with completed purchase orders under the Interim Agreement, hi the same email, MAG set deadlines for the return of the molds that Precise was still using to produce parts under existing purchase orders.

         Precise did not immediately return MAG's molds. On November 27, 2017, in the Zodiac I litigation, MAG applied for a writ of possession seeking the return of the molds that it had requested in its November 9, 2017 email. But on January 10, 2018, the Court denied MAG's application because the molds requested were not mentioned in MAG's counter-complaint against Precise. The only molds at issue in the pleadings of Zodiac I were the 312 and 313 Molds, which were not included in MAG's demand list. As a result, the Court was unable to grant MAG's application because the injury it claimed differed from the conduct asserted in its underlying counter-complaint.

         Before the Court denied MAG's request, however, MAG began duplicating the molds associated with parts that it felt it most needed to fulfill its outstanding contracts. MAG determined which molds to duplicate based on its internal "Materials Requirements Planning System" ("MRP System"), which forecasts the parts MAG needs to meet its customers' assembly demands.

         MAG ordered the duplication of eleven[1] molds on December 22, 2017 and one mold on January 18, 2018. Lenhard estimated the total cost of this group as $185, 000. The following molds were ordered from Southern California Plastics on December 22, 2017:

1. Mold Part No. 14330-253
2. Mold Part No. 15801-112
3. Mold Part No. 15801-113
4. Mold Part No. 14330-197
5. Mold Part No. 14320-223-1
6. Mold Part No. 14320-223-3
7. Mold Part No. 14320-148
8. Mold Part No. 14320-149
9. Mold Part No. 3800-183
10. Mold Part No. 15801-153
11. Mold Part No. 77000-505-506 The following additional mold was duplicated on January 18, 2018:
12. Mold Part No. 14320-231

         As discussed above, MAG demanded the return of several molds on November 9, 2017, prior to ordering the twelve duplicates. Specifically, MAG's November demand email requested the "immediate return" of the listed molds that were "past due," or that were not associated with open purchase orders, and the future return "by the date listed" of the molds for which Precise was "still competing work." For the molds that Precise was still using to produce parts, MAG provided the date of the final delivery associated with each mold and demanded that Precise return the corresponding mold "5-10 days prior to the PO delivery dates." Critically, the only mold that MAG asked Precise to return "immediately" and that MAG subsequently duplicated was Mold Part No. 77000-505-506. The other eleven molds that MAG duplicated, listed above, were either described in the email as still being used by Precise to complete open purchase orders or were not mentioned in the November 9, 2017 email at all.[2] For example, MAG asked Precise to deliver Mold Part No. 14330-253 by January 17, 2018. But MAG ordered the duplication of Mold Part No. 14330-253 on December 22, 2017, nearly a month before the date on which it expected its return.

         The total cost to duplicate Mold Part No. 77000-505-506 was $29, 879.88.

         3.The January 2018 Agreement

         While Zodiac I was still pending and before the Interim Agreement expired, on January 24, 2018, MAG and Precise met and orally agreed that MAG would place one final round of new purchase orders for $1.5 million worth of parts from Precise. Two individuals were present at the meeting. MAG was represented by Sebastien Weber ("Weber"), MAG's Chief Executive Officer ("CEO") for software passenger solutions. Precise was represented by its President and CEO, Roxanne Abdi ("Abdi"). Weber and Abdi agreed on the following terms: (1) MAG orders $1.5 million in new parts; (2) Precise manufactures the parts pursuant to MAG's written purchase orders; (3) the purchase orders are non-cancellable and not made under duress; (4) MAG pays 2016 pricing; (5) MAG provides Precise with raw materials; (6) Gil Lenhard "stay[s] away"; and (7) the parties end then relationship after the last orders are fulfilled.

         MAG then sent Precise 71 non-cancelable purchase orders. To manufacture the ...


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