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Braintree Laboratories, Inc. v. Bedrock Logistics, LLC

United States District Court, D. Massachusetts

August 28, 2018

BEDROCK LOGISTICS, LLC, Defendant. BEDROCK LOGISTICS, LLC, Counterclaim Plaintiff & Third-Party Plaintiff,
JAMES SEARS and HENRY VILLALOBOS, Third-Party Defendants. JAMES SEARS, Third-Party Counterclaim Plaintiff,
BEDROCK LOGISTICS, LLC, Third-Party Counterclaim Defendant.


          Indira Talwani United States District Judge.

         Pharmaceutical companies Braintree Laboratories, Inc., and Affordable Pharmaceuticals, LLC (collectively, “Braintree”) filed this action against transportation logistics provider Bedrock Logistics, LLC (“Bedrock”), alleging that one of Bedrock's sales agents, James Sears, made kickback payments to one of Braintree's employees, Henry Villalobos, to secure Braintree's purchase of Bedrock's services. Bedrock filed counterclaims against Braintree to collect on unpaid invoices, and third-party claims against Sears and Villalobos. Sears filed third-party counterclaims against Bedrock. Six motions are currently pending. For the reasons set forth below, Bedrock's Motion for Summary Judgment on all of Plaintiffs' Claims [#128] is DENIED, Villalobos' Motion for Summary Judgment [#123] and Sears' Motion for Summary Judgment on Bedrock's Third-Party Claims [#132] are DENIED in part and ALLOWED in part, Bedrock's Motion for Summary Judgment on All of James Sears' Claims [#130] is ALLOWED, and Bedrock's Motion to Strike the Declaration of David M. Bovet [#155] and Motion to Strike Portions of the Declaration of Philip Rakhunov [#154] are DENIED as moot.

         I. Summary Judgment Standard

         Summary judgment is appropriate only “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “A dispute is genuine if the evidence about the fact is such that a reasonable jury could resolve the point in the favor of the non-moving party. A fact is material if it has the potential of determining the outcome of the litigation.” Patco Constr. Co. v. People's United Bank, 684 F.3d 197, 206-07 (1st Cir. 2012) (internal quotations and citations omitted). In resolving a motion for summary judgment, the court views all properly supported evidence in the light most favorable to the non-movant and draws all reasonable inferences in the non- movant's favor. Griggs-Ryan v. Smith, 904 F.2d 112, 115 (1st Cir. 1990).

         II. Background

         In light of the summary judgment standard, this background section outlines the relevant facts that are either undisputed as set forth in the parties' Local Rule 56.1 statements of undisputed material fact and responses or not properly disputed for purposes of summary judgment under Federal Rule of Civil Procedure 56(c) or (e)(2). Additionally, where genuine disputes of fact do arise, the court sets forth the properly supported evidence in the light most favorable to the non-movants on each of the pending motions.[1]

         a. The Parties

         Braintree develops, manufactures, and distributes various pharmaceutical products. Bedrock's Responses to Braintree's Additional Statements of Undisputed Material Facts (“Bedrock's Resps. to Braintree's Add'l SOF”) ¶ 1 [#158]. Braintree ships its products nationally from its facilities in Massachusetts. Id. ¶ 2.

         Bedrock, a shipping logistics provider, negotiates contracts with carriers and then sells these transportation services to customers. Rakhunov Decl. Ex. 15 (Schaetzl Dep.) 79:1-16 [#147-15]. Bedrock connects customers to Bedrock's Transportation Management System (“TMS”) software, which lists the shipping rates available to the customer for various carriers based on location, delivery time, and type of shipment. Bedrock's Resps. to Braintree's Add'l SOF ¶ 26 [#158]. Bedrock calculates its TMS rates by adding the rates carriers charge Bedrock to Bedrock's sales margins (neither of which Bedrock discloses to its customers). Rakhunov Decl. Ex. 15 (Schaetzl Dep.) 109:2-12 [#147-15]. Bedrock's sales margins vary customer-by-customer, and range from fifteen to forty percent of the carrier rate. Id. at 107:14-15.

         Starting in the early 1990s, James Sears acted as an outside agent who connected Braintree with logistics providers. Villalobos' Statement of Undisputed Material Fact (hereinafter “Villalobos' SOF”) Ex. A (Villalobos Dep.) 70:9-12 [#125-1]; id. Ex. B (Sears Dep.) 18:13-17 [#125-2]. Beginning in December 2007, Henry Villalobos served as Braintree's shipping manager. Villalobos' SOF ¶ 2 [#125]. In this role, Villalobos was responsible for deciding which shipping logistics services Braintree should use. Id.

         b. Beginning of the Braintree-Bedrock Relationship

         In early 2012, Sears was approached by Bedrock about taking on a role as one of Bedrock's sales agents. Rakhunov Decl. Ex. 10 (Sears Dep.) 16:1-9, 147:14-21. Sears agreed to serve as Bedrock's agent for Braintree's shipping needs, and Bedrock agreed to pay Sears a commission equal to forty-to-fifty percent of Bedrock's share of revenue for Braintree's shipments. Bedrock's Mot. Summ. J. on Sears' Claims Ex. 1 (Sears Dep.) 37:11-15 [#130-2].

         Sears promptly contacted Villalobos to introduce Braintree to Bedrock's services. Rakhunov Decl. Ex. 6 (Villalobos Dep.) 76:10-11 [#147-6]. A February 9, 2012, email from Sears to Villalobos, which also copied Bedrock's President, Charles McCabe, stated, “Henry, We would like to meet this afternoon at some point. Chuck [McCabe] would ideally like to take you out after work. We need to address some concerns of yours and more importantly dispel[] some concerns not based on fact.” Villalobos' SOF Ex. D (February 2012 Sears Email) [#125-4]. Sears and McCabe met with Villalobos soon thereafter to discuss how Braintree could benefit from using Bedrock's services. Rakhunov Decl. Ex. 6 (Villalobos Dep.) 76:13-25 [#147-6].

         In the early weeks of the relationship between Braintree and Bedrock, McCabe and Sears provided entertainment to Villalobos, including multiple expensive dinners. Rakhunov Decl. Ex. 10 (Sears Dep.) 78:1-11, 114:5-11 [#147-10]. For example, McCabe, Sears, Villalobos, and Villalobos' wife went for “a thousand dollar night out.” Id. at 78:1-11. According to Sears, Villalobos quipped the day after that dinner that he would “rather have the money.” Id. McCabe, Sears, and Villalobos went out for roughly five or six such dinners. Id. at 114:6-7. Subsequently, Sears and Villalobos formed an arrangement whereby Sears would pay Villalobos for each shipment Braintree made using Bedrock's services, so long as Villalobos used Bedrock for a certain number of shipments each month. Villalobos' SOF Ex. A (Villalobos Dep.) 151:8-15 [#125-1]. McCabe instructed Sears to make the payments to Villalobos from Sears' personal accounts rather than from any Bedrock-associated accounts. Rakhunov Decl. Ex. 10 (Sears Dep.) 123:16-124:3 [#147-10].[2]

         c. Braintree Uses Bedrock's TMS

         Villalobos made the decision that Braintree would begin purchasing Bedrock's transportation logistics services, including use of its TMS. Bedrock's Mot. Summ. J. on Braintree's Claims Ex. 1 (Villalobos Dep.) 79:2-7 [#128-2]. When asked how he reached this decision, Villalobos testified that, in his view, “[a]t the time what they proposed was pretty attractive . . . . ” Id. Further, Villalobos testified that Bedrock's TMS was easy to use. Id. at 79:11-17. Villalobos also testified that he decided Braintree should use Bedrock as its transportation broker before Bedrock proposed any pricing, and therefore before Villalobos could determine whether Bedrock was providing better pricing than its competitors. Id. at 79:18-23. Ultimately, Bedrock provided its proposed pricing, and Villalobos determined that it was “competitive.” Id. at 80:3.

         To use Bedrock's TMS software, Villalobos inputted the destination zip code of a shipment, the weight, and the number of pieces or pallets, and then clicked next on the screen. Bedrock's Mot. Summ. J. on Braintree's Claims Ex. 1 (Villalobos Dep.) 18:3-8 [#128-2]. The TMS then provided a list of rates from the carriers with whom Bedrock had contracted. Id. at 18:9-11. Villalobos selected from this list which carrier Braintree would use for a specific shipment. Id. at 18:12-14. Villalobos was the only Braintree employee who used the TMS software. Bedrock's Resps. to Braintree's Add'l SOF ¶ 23 [#158].

         At times, Villalobos selected carriers other than those in Bedrock's TMS. Bedrock's Mot. Summ. J. on Braintree's Claims Ex. 1 (Villalobos Dep.) 58:15-18 [#128-2]. Villalobos did so based on factors including service, pricing, customer preference, and location. Id. at 143:11-17, 144:6-11.

         Part of Villalobos' job required him to verify freight invoices sent to Braintree after completion of a shipment. As Villalobos explained, each week he compared rates listed on freight invoices to the prices displayed on the TMS. Rakhunov Decl. Ex. 6 (Villalobos Dep.) 93:3-7, 146:6-7 [#147-6]; Bedrock's Mot. Summ. J. on Braintree's Claims Ex. 1 (Villalobos Dep.) 45:2-3 [#128-2]. If the TMS displayed a rate different than that appearing on a particular invoice, Villalobos disputed that invoice. Id. at 46:16. Sometimes Bedrock assisted Braintree in such disputes. Id. at 46:17-20. Braintree General Counsel Robert Raleigh testified that freight invoices went through multiple layers of review by both Villalobos and other shipping department employees. Bedrock's Mot. Summ. J. on Braintree's Claims Ex. 5 (Raleigh Dep.) 37:10-23 [#128-6]. If approved, invoices were sent to accounts payable. Id.

         Villalobos was also responsible for reviewing Bedrock's pricing to ensure it was competitive. Bedrock's Mot. Summ. J. on Braintree's Claims Ex. 5 (Raleigh Dep.) 198:4-9 [#128-6]. An employee who worked under Villalobos' direction assisted him for a time. Id. at 198:10-14. However, Villalobos testified that during the period that Braintree used Bedrock as its “house carrier, ” Villalobos did not price other logistics providers to see whether they could offer a better deal to Braintree. Rakhunov Decl. Ex. 6 (Villalobos Dep.) 83:21-25 [#147-6]. At the time, Villalobos explained, he “thought that the pricing in place was very competitive, ” id. at 84:2-6, but he also acknowledged that, in continuing to use Bedrock, the payments he received from Sears were “part of” his decisionmaking. Id. at 184:16.

         d. Sears' Payments to Villalobos Continued Through Summer 2016

         Sears made payments to Villalobos monthly with personal checks or cash, using the money he made from the commissions Bedrock paid him on each Braintree order. Bedrock's Resps. to Braintree's Add's SOF Ex. 3 (Sears Dep.) 81:5-11 [#158-3].

         William Schaetzl worked as Bedrock's controller[3] and was responsible for commissions and accounts receivables for Bedrock's outside sales representatives. Sears' SOF in Support of Mot. Summ. J. on Bedrock's Claims (hereinafter “Sears' SOF”) Ex. F (Schaetzl Dep.) 128:14- 23, 193:17-19 [#134-6]. On June 26, 2012, Sears emailed Schaetzl that “Henry, Braintree [L]abs, would like to get paid for all the invoices that he has paid thus far, basically thru June. I am leaving on vac. for 2 weeks [S]unday. Can we meet thursday/fri for commissions due? If not, let me know how many bills he has paid and I will front it for now.” Sears' SOF Ex. A (June 2012 Emails) [#134-1].

         On October 1, 2013, Villalobos emailed Sears the following message: “Please see email below for Bedrock payments for the month of September. As you can see we've been paying Bedrock on a consistent basis for the month of September. Is there any way I can get paid possibly Thursday or Friday of this week or on Monday of next week?” Sears' SOF Ex. B (October 2013 Emails) [#134-2]. Sears forwarded this email to Schaetzl. Id.

         Bedrock terminated McCabe in February 2014. Rakhunov Decl. Ex. 9 (Sears Aff.) ¶ 2 [#147-9]. After his termination, McCabe called Sears and relayed certain information, recounted here not for its truth but as the statements that Sears subsequently sought to confirm. Sears reports that McCabe stated that he wanted to discuss “keeping the ‘team' together.” Id. McCabe told Sears that McCabe had met with Bedrock Vice President of Sales William Luckett and Bedrock Truckload Division Manager Mitch Getchell in Florida. Id. ¶ 3. McCabe also told Sears that McCabe was going to try to recruit Luckett to work for another logistics provider called Pursuit Logistics. Rakhunov Decl. Ex. 10 (Sears Dep.) 125:2-6 [#147-10]. McCabe told Sears that McCabe had told Luckett and Getchell that he was going to take all of Bedrock's business and tell Braintree about the payments, id., and that McCabe would move the Braintree account from Bedrock to Pursuit Logistics. Rakhunov Decl. Ex. 9 (Sears Aff.) ¶ 4 [#147-9]. McCabe said Luckett “threatened that he would expose the payment arrangements between [Sears] and Villalobos if the Braintree business was moved to Pursuit Logistics.” Id.

         Sears called Getchell to confirm McCabe's account. Id. ¶ 5. Getchell told Sears that McCabe and Luckett “got in a fight over accounts at dinner. [McCabe] informed Luckett he would be taking all Bedrock accounts with him to Pursuit Logistics. Luckett responded with, I will go to Braintree Labs and expose Jim and Henry's payment arrangement.” Id. Sears also testified that he called Schaetzl, who confirmed that he knew of the dispute between McCabe and Luckett during the Florida meeting. Id. ¶ 8. Schaetzl told Sears that he believed Luckett would follow through on his threat to expose Sears' payment scheme. Id.

         After Sears spoke with McCabe, Getchell, and Schaetzl, Sears called Luckett. Bedrock's Opp'n to Villalobos' Mot. Summ. J. Ex. 5 (Sears Dep.) 226:12-24 [#142-5]. Sears asked Luckett whether McCabe said anything to Luckett about Sears and Villalobos' relationship. Id. at 227:2-8. ...

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