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Maxxsonics Usa, Inc v. Fengshun Peiying Electro Acoustic Company

March 21, 2012

MAXXSONICS USA, INC., PLAINTIFF AND COUNTER-DEFENDANT,
v.
FENGSHUN PEIYING ELECTRO ACOUSTIC COMPANY, LTD., DEFENDANT AND COUNTER-PLAINTIFF.



The opinion of the court was delivered by: Hon. Harry D. Leinenweber

MEMORANDUM OPINION AND ORDER

Before the Court are the Defendant's Motion for Partial Summary Judgment and Motion to Compel. For the reasons stated herein, the Court denies the Motion to Compel and the Motion for Summary Judgment on Count I of Defendant's Counterclaim. The Court grants Defendant's Motion for Summary Judgment on Plaintiff's First Affirmative Defense to the extent that Plaintiff seeks a set-off under purchase orders other than the six at issue in the Counterclaim. The Court denies Summary Judgment on Plaintiff's First Affirmative Defense to the extent that Plaintiff seeks a setoff for defective goods provided under the purchase orders at issue in the Counterclaim.

I. BACKGROUND

The facts of this case are largely undisputed. Plaintiff Maxxsonics USA, Inc. ("Maxxsonics") is an Illinois corporation that sells aftermarket audio equipment. Defendant Fengshun Peiying Electro Acoustic Company, Ltd. ("Fengshun") is a Chinese company that manufactures car amplifiers. Between roughly 2007 and 2009, Fengshun manufactured amplifiers for Maxxsonics. According to Plaintiff, a significant number of the amplifiers delivered by Fengshun during that period were defective, and were returned by consumers to retail distributors. The parties endeavored to resolve the issue, but those efforts broke down, resulting in this litigation.

Maxxsonics evidently paid the invoices for all of amplifiers, save the last six orders. It is undisputed that Maxxsonics paid $100,000 of the roughly $610,000 due under those invoices. Neither party appears to dispute that each purchase order constituted a separate contract. See Def.'s Mem. in Support of Summ. J., 1, 2; Pl.'s Resp. at 3, 4.

Fengshun seeks partial summary judgment on Count I of its counterclaim and on Maxxsonics' first affirmative defense. Count I of the counterclaim alleges breach of contract, on the theory that Fengshun performed under the last six purchase orders, but Maxxsonics breached by withholding payment in retaliation for allegedly defective goods that Fengshun had shipped under previous purchase orders. Fengshun also argues that is entitled to summary judgment on Maxxsonics' first affirmative defense of set-off, because a party may not receive a set-off for breaches of unrelated contracts.

Fengshun contends that Maxxsonics' officers admitted that the last six orders of amplifiers were not defective, and thus that Fengshun performed under the purchase order contracts. Fengshun argues that deposition testimony proves that Maxxsonics withheld payment for the final six purchase orders solely due to allegedly defective amplifiers in previous shipments. To that end, Fengshun emphasizes the testimony of Alden Stiefel ("Stiefel"), Maxxsonics' President, and Sherri Lynn Sawyer ("Sawyer"), its Vice President of Finance. (The parties spell Stiefel's name differently; the Court adopts the spelling from the deposition transcript.) Because of the extent to which this motion turns on that testimony, the Court takes the usual step of setting it out below. Stiefel testified as follows:

"Q. Was it your decision not to pay that amount to them on those invoices?

A. Yes.

Q. And what was the basis of your decision not to pay the balance due?

A. We had been trying to get them to repair product for almost 2 years with continued promises that they would take care of it. We were having bank issues. You know the banking situation in the U.S. at the time. We were using the inventory as collateral. The bank said you can no longer use defective product as collateral.

. . . Q. Did you have any belief at the time you made the decision not to pay Fengshun Peiying the $510,202.34 that was still owed on those contracts, that 100% of the goods supplied pursuant to those [purchase orders] was defective?

A. No.

Q. . . . Do you know whether the product that was in dispute in terms of being defective predated September 19, 2008?

A. Do I know if the defective product predated those dates?

Q. Correct.

A. Yes.

Q. Okay. It did predate those dates or you know it predated those dates?

A. I know it predated those dates. (Stiefel Dep. 41:17 -- 43:20.)

Sawyer testified that Maxxsonics stopped paying Fengshun near the end of 2008, and as follows:

Q. And what was the reason for [discontinuing payments]?

A. Their inability to provide a solution to defective ...


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