Taylor Precision Products, Inc. v. Larimer Group, Inc.

Background

Taylor Precision Products, Inc. sued The Larimer Group, Inc., formerly known as Metrokane, Inc., Joel Grossman, and Riki Kane, individually and as executrix of Robert Larimer’s will. Taylor had purchased Metrokane’s assets under an Asset Purchase Agreement dated November 12, 2013. Taylor alleged that the defendants failed to disclose or misrepresented adverse information about Metrokane’s relationships with Target and Walmart during the negotiations.

The court held a bench trial from March 4 through March 14, 2019. The opinion states that Target reduced Metrokane’s products from 15 stock-keeping units for the prior program year to 10 for the 2014 product year. Walmart’s 2014 program-year commitment reduced the number of Metrokane products it would carry by eight and also reduced Walmart’s store count for Metrokane products. The defendants received the relevant retailer awards before closing but did not disclose the changes to Taylor. The parties knew that the retailer information itself was confidential, but the court found that the defendants still had to disclose the changes in some other form.

Claims and rulings

Breach of contract. The court found Metrokane liable for breach of contract. Section 5.24 of the Asset Purchase Agreement required disclosure of material changes to the relationships with Metrokane’s largest customers. The court concluded that Metrokane breached that obligation by failing to disclose the reductions in product counts and Walmart’s store count. Taylor proved that it suffered damage and paid an inflated purchase price, but the court found that Taylor had not provided a reasonable estimate of the amount of the overpayment.

Fraud. The court found that Metrokane made some false statements and omitted information about product counts and store counts, and that these matters were material. But the court concluded that Taylor did not prove reasonable reliance by the required clear and convincing evidence. Taylor had conducted extensive due diligence, knew about problems involving Walmart’s promotion and inventory, knew about Target’s product-line changes, and had access to substantial business information. The court therefore found Metrokane, Kane, and Grossman not liable for common-law fraud.

Willful misconduct and gross negligence. The court’s discussion found Metrokane, Kane, and Grossman liable for both willful misconduct and gross negligence. It concluded that they knowingly failed to disclose material changes reflected in the Target and Walmart awards and that this caused Taylor to overpay. The court also said it was reconsidering and vacating an earlier finding that the defendants were not liable for gross negligence.

However, the final count-by-count conclusion states that Metrokane, Grossman, and Kane were liable for willful misconduct but not liable for gross negligence. That final statement conflicts with the court’s detailed gross-negligence analysis and with the opinion’s earlier summary of its conclusions. The opinion does not explain the conflict.

Unjust enrichment

The court found that Kane and Grossman were unjustly enriched because they benefited from Taylor’s inflated purchase price. But it also held that the unjust-enrichment claim was duplicative because Taylor prevailed on the willful-misconduct claim. The final conclusion similarly states that Kane and Grossman were unjustly enriched but describes the claim as duplicative.

Damages and disposition

The court did not determine the precise amount of damages. It ordered the parties to submit supplemental briefs of no more than 25 pages addressing Taylor’s damages calculations in light of the court’s findings, by April 5, 2022.

The opinion’s final conclusion states: Count One, breach of contract, liability against Metrokane; Counts Two and Three, common-law fraud, no liability against Metrokane, Kane, and Grossman; Count Four, willful misconduct, liability against Metrokane, Grossman, and Kane; Count Five, gross negligence, no liability against Metrokane, Grossman, and Kane; and Count Six, unjust enrichment, a finding that Kane and Grossman were unjustly enriched but that the claim was duplicative.