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Converting Alternatives International, LLC v. Vac Pac, Inc.

United States District Court, E.D. Michigan, Southern Division

March 28, 2017

VAC PAC, INC., Defendant.



         This is a breach of contract case in which defendant Vac Pac, Inc. (“Vac Pac”) contracted with plaintiff Converting Alternatives International, LLC (“CAI”) to design and build an upgrade to one of Vac Pac's machines. Vac Pac is a Maryland corporation and CAI is a Michigan company. CAI filed its action invoking this court's diversity jurisdiction pursuant to 28 U.S.C. § 1332. The matter is before the court on Vac Pac's motion to dismiss for lack of personal jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2). The motion has been fully briefed and a hearing was held on March 13, 2017. Because exercising personal jurisdiction over Vac Pac would offend traditional notions of fair play and substantial justice, Vac Pac's motion is GRANTED as set forth below.


         CAI, a Michigan company located in Lake Orion, Michigan, is in the business of facilitating the design and fabrication to convert industrial machinery. Vac Pac, a Maryland corporation headquartered in Baltimore, is in the business of producing packaging for the food industry, particularly cooking bags. Vac Pac does not own property in Michigan, is not licensed to do business in Michigan, does not conduct any business activities in Michigan, and does have a registered agent for the service of process in Michigan. Vac Pac has no employees in Michigan and has never advertised in Michigan.

         According to CAI, in July 2014, Matt Tary, the President of Vac Pac, made an unsolicited telephone call to Tom Williams, President of CAI. Williams' Decl. ¶¶ 4-6, 35-36. Mr. Williams asserts that during this phone call, Mr. Tary inquired whether CAI would be interested in quoting the design and build of a machine to make cooking bags. Id. Mr. Tary contacted CAI on the recommendation of Ken Deneka of Deneka Printing Systems, Inc. Id. Mr. Deneka even called Mr. Williams in advance to let him know that Mr. Tary would be calling to see if CAI was interested in doing business with Vac Pac. Id.

         In its motion to dismiss, Vac Pac tells a contrasting version of the first contact between the parties. On July 19, 2014, Mr. Deneka emailed Mr. Williams with the details of the project at issue and Mr. Tary's contact information. Deneka Affidavit, ¶ 8. On July 21, 2014, Mr. Deneka suggested that Mr. Williams contact Mr. Tary, provided his phone number and stated, “this is the easiest way to reach him.” Deneka Affidavit, Exh. 1-A. Mr. Williams responded, “Ken, I'm in Florida on a sales call. I will not be back until Tuesday night. . . I will call that gentleman on Wednesday.” Id. Mr. Deneka emailed Mr. Tary on July 21, 2014 to inform him that Mr. Williams would be calling him. On Wednesday, July 23, 2014, Mr. Williams did call Mr. Tary. Tary Suppl. Affidavit, ¶ 4. Mr. Williams offered to fly to Maryland to meet Mr. Tary in person, and actually did so on the following Monday. Id., ¶ 6, Exh. B.

         While each side in this litigation accuses the other side of providing a false account regarding the first contact that took place, Vac Pac's account is supported by the affidavit of non-party Mr. Deneka and emails between the various parties.

         It is undisputed that CAI personnel visited Vac Pac's facility in Maryland in July, August and September of 2014 to observe Vac Pac's production lines and prepare a quote. On December 9, 2014, CAI delivered Quote #1658 to Vac Pac to design and build a bag delivery section and a printing section to modify existing equipment. The printing section upgrades required the use of existing Vac Pac equipment, which was in use at Vac Pac's Maryland location. Once CAI indicated the bag making section was complete, it would be shipped from Michigan to Maryland to be joined to the donor printing section, at which time the printing section upgrades could be performed.

         The total cost quoted by CAI was $818, 655. The terms of payment in the Quote were “30% upon receipt of order, 30% prior to shipment, 40% upon completion of start-up and customer acceptance.” Vac Pac financed the work and services to be performed under Quote #1658 through FSG Capital, Inc. (“FSG”), a lender based in Maryland. CAI entered into a Vendor Indemnification Agreement, where it agreed to indemnify, defend and hold FSG harmless against any losses, liabilities, damages, costs and expenses arising directly or indirectly out of any claim by CAI, Vac Pac or any other party for the cost of the equipment or the funds advanced by FSG. Vendor Indemnification Agreement, ¶ 3. The Vendor Indemnification Agreement provides that it was executed in Maryland, shall be governed by Maryland law, and shall be construed and enforced in accordance with Maryland law. Vendor Indemnification Agreement ¶ 6.

         On January 2, 2015, the first 30% payment in the amount of $245, 596.50 was delivered to CAI in Michigan. The structure of the press was built in Romeo, Michigan at the facilities of a CAI subcontractor. It was then moved to another CAI subcontractor in Oxford, Michigan on February 28, 2015. Representatives from Vac Pac travelled to Michigan on March 17, 2015 to inspect the press. They requested that several changes be made during this inspection, as well as requesting the addition of a stacker which was not part of the original quote. A second was done by Vac Pac representatives in Michigan on July 20, 2015. At that time, the Vac Pac representatives accepted the machine and instructed CAI to deliver it to Vac Pac's facilities in Maryland.

         On July 30, 2015 the second 30% payment in the amount of $245, 596.50 was delivered to CAI in Michigan. On September 10, 2015, the press was shipped from Michigan to Vac Pac's facility in Maryland. CAI installed the press and made various adjustments to optimize the operation of the press. This included providing additional components for the press after it was installed.

         In January 2016, the press had yet to produce any acceptable product at any reasonable speed, so Vac Pac instructed CAI to stop work on the press and denied CAI further access to the press. CAI brought this lawsuit seeking to recover the remaining balance due under the quote, plus $20, 000 for the stacker, asserting claims for breach of contract, quantum meruit and unjust enrichment.

         Vac Pac contends that in its efforts to work on the press in Maryland, CAI caused further harm and delay, breaking two critical bearing blocks in the sealing unit which required custom manufacture and reinstallation. Vac Pac claims to have suffered a loss of business due to the inability to produce products from the affected manufacturing line. In addition, Vac Pac has spent money and 1, 500 man hours of labor trying to put the machine into production. It has engaged multiple third party contractors, many located in Maryland, to diagnose and repair issues left unaddressed by CAI.

         FSG and Vac Pac filed a lawsuit against CAI in Maryland on December 21, 2016. In that suit, Vac Pac alleges claims for breach of contract, breach of warranty, misrepresentation and fraudulent inducement. FSG alleges a breach of the Vendor Indemnification Agreement. CAI did not object to personal jurisdiction over it in Maryland, but filed a motion ...

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