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Feralloy Corp. v. Spig Industry

November 4, 2009

FERALLOY CORPORATION, PLAINTIFF,
v.
SPIG INDUSTRY, INC. AND WADE COOK, DEFENDANTS.



The opinion of the court was delivered by: Judge Robert W. Gettleman

MEMORANDUM OPINION AND ORDER

Plaintiff, Feralloy Corporation ("Feralloy"), has filed a four count complaint against Spig Industry, Inc. ("Spig") and Wade Cook ("Cook") alleging breach of contract against Spig (Count I), unjust enrichment against Spig (Count II), account stated against Cook (Count III), and intentional misrepresentation against both defendants (Count IV). Defendants have moved to dismiss the complaint for lack of jurisdiction pursuant to 28 U.S.C. § 1332. Defendants have also moved to quash the return of service of the summons on the grounds that, (1) defendants are not subject to service of process within the Northern District of Illinois, and (2) defendants were not properly served with process. Alternatively, if these motions are denied, defendants have moved to transfer the instant case to the Western District of Virginia. As a final alternative, defendants have moved to dismiss Count III pursuant to Rule 12(b)(6) for failure to state a claim.*fn1 For the reasons set forth below, defendants' motion to dismiss for lack of personal jurisdiction is granted, and their remaining motions are denied as moot.

BACKGROUND

Feralloy, a steel processor, is a Delaware corporation with multiple offices nationwide, including an office in Charleston, South Carolina, a facility in Huber, South Carolina (collectively "Feralloy South Carolina" or "Feralloy Charleston"), and its headquarters in Chicago, Illinois. Spig, a manufacturer of steel highway guardrails, is a Virginia corporation with its principal place of business in Bristol, Virginia. Cook is a citizen of the State of Tennessee and the former general manager of Spig.

In the spring of 2008, the parties entered into an agreement to establish an open account whereby Spig would order rolled steel products from Feralloy using purchase orders. The parties dispute nearly all of the details of contract formation, including: how the parties first made contact; when and where the initial negotiating meeting took place; and to whom Spig sent its application for credit. In addition, Feralloy's various submissions conflict on some of these same issues.

The complaint is silent as to how the parties made initial contact. According to the affidavit of Michael Borzych ("Borzych"), Feralloy's Accounting Manager in Chicago, in the spring of 2008 Borzych had a telephone conversation with Cook in which Cook sought to arrange a meeting and establish a business relationship with Feralloy. In contrast, a document summarizing the Feralloy-Spig relationship attached to the affidavit of Jack Love ("Love"), Feralloy's Vice President of Finance and Chief Financial Officer, David Lippucci, Feralloy's Territory Sales Representative based in South Carolina, was the first to make contact with Cook and set up a location visit to Spig. Defendants, on the other hand, contend that Cook was the one who called Lippucci, and do not mention an early contact with Borzych.

Once initial contact was made, a series of discussions, meetings, and conversations followed. Although the parties disagree about the specifics of these events, they generally agree that Lippucci, Cook, and other Spig representatives met in the spring of 2008 to discuss Spig's steel needs and Spig's ability to finance its purchases. The parties also agree that in connection with the discussions, Cook executed a credit application in May 2008. A copy of the application is attached to the complaint. It was signed by Cook in Memphis, and the fax stamp at the top of the page indicates that it was sent to Lippucci at a North Carolina fax number. Feralloy claims that Cook submitted this application to Borzych in Chicago. Nevertheless, Borzych was responsible for reviewing and approving the credit application.

In the following months, Spig and Feralloy South Carolina negotiated the prices for the steel products. Lippucci sent Cook at least three detailed bids in June 2008, outlining the prices and specifications of the steel products Feralloy was prepared to offer Spig. The letterhead Lippucci used to send the bids states "Charleston Division" in large, bold type at the top of the page, and the bids indicate that the steel would be made available F.O.B. at Feralloy's facility in Huger, South Carolina.

Spig submitted to Feralloy Charleston its first of numerous purchase orders to Feralloy on June 10, 2008. The bills of lading accompanying each fulfilled order list the permanent post office address of the shipper as "Feralloy Charleston" located in Huger, South Carolina. Additionally, all of the invoices Feralloy sent in connection with the orders list "Feralloy South Carolina" as the sender and specify that Spig should remit payment to "Feralloy Charleston" to a Atlanta, Georgia P.O. Box. At the request of Feralloy, Spig sent its first four payments to Feralloy in Chicago. It sent five additional payments to Feralloy Charleston at the Atlanta P.O. Box.

On July 8, 2008, Lippucci, Borzych, and two other representatives from Feralloy Charleston visited Spig's Bristol facility to discuss the growth potential of the Spig-Feralloy business relationship. Feralloy claims that during this meeting Cook represented that Spig had the financial backing of its German parent company, SPIG Schultzplanken-Produktions-GmbH & Co. KG ("Spig Germany"). Following that meeting, Spig continued to order more product from Feralloy, and Feralloy continued to meet these orders.

Towards the end of August 2008, the relationship between the parties began to sour. Feralloy's version of the events is that after making the first nine payments, Spig continued to order and accept steel from Feralloy, but failed to make additional timely and regular payments on the parties' open account. Spig traces the parties' problems to Feralloy's failure to provide conforming product. Spig claims that on approximately August 26, 2008, the Virginia Department of Transportation ("DOT") visited Spig's Virginia location and tested the steel supplied by Feralloy. The steel failed to meet the DOT's safety specifications. Cook immediately called Lippucci in South Carolina to notify him of the test results and to cancel Spig's purchase orders. Spig claims that Cook had at least 15 communications via email and telephone with Lippucci at Feralloy Charleston in attempts to resolve the parties' dispute. Feralloy claims that Cook also initiated numerous calls to Borzych at this office in Chicago to discuss Spig's outstanding account.

On December 23, 2008, Borzych and Love met with Cook and outlined for him a proposed payment plan designed to return Spig's credit account to good standing. On January 2, 2009, Love sent Cook a letter detailing the payment plan, requesting a guarantee from Spig Germany, and warning of possible legal action in the event of non-compliance. On January 7, 2009, in a follow-up email, Cook told Borzych that Spig was not in a position to adhere to the proposed schedule, but that it would be willing to pay lump sums as it was able to and smaller sums in the interim.

In response, on January 19, 2009, Love sent a formal demand letter to Spig Germany. Spig Germany did not respond. Instead, Cook sent a letter to Love in Chicago on January 22, 2009, stating that he was in receipt of Love's letter to Spig Germany and that Spig was in no way associated with Spig Germany. In this same letter, Cook proposed two alternative options for resolving the parties' contract dispute: either (1) Spig would sell the Feralloy steel located at its Bristol facility on a consignment basis and make payments to Feralloy as it was able to sell the steel; or (2) Spig would declare force majeure, and all the steel not yet paid for would be made available for Feralloy to retrieve at its convenience.

A week later, Cook sent a follow-up email to Love to inquire which option Feralloy preferred. On February 6, 2009, after getting no response to his alternative proposals from Feralloy, Cook sent a letter to ...


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