Engineered Floors, LLC v. Beaulieu of America, Inc.

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IT IS ORDERED as set forth below: bisraict

Date: April 11, 2023 Loh

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Barbara Ellis-Monro

U.S. Bankruptcy Court Judge

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF GEORGIA

ROME DIVISION

IN RE:

BEAULIEU GROUP, LLC et al., ! CASE NO. 17-41677-BEM

Debtors.

CHAPTER 11

ENGINEERED FLOORS, LLC, :

Plaintiff,

ADVERSARY PROCEEDING NO.

V. 18-403 1-BEM

BEAULIEU OF AMERICA, INC., et al., :

Defendants.

ORDER

This matter is before the Court on Plaintiff Engineered Floors, LLC’s (“EF”)

Motion for Contempt [Doc. 192] and Motion for Partial Summary Judgment (the “Summary

Judgment Motion”). [Doc. 213]. Defendant Lakeshore Equipment Company (“Lakeshore”) filed

a response to both Motions, and EF filed a reply relating to the Summary Judgment Motion. [Docs.

221, 222]. The Motions are now ripe for determination.

I. Background

Debtor Beaulieu Group, LLC was a manufacturer and seller of carpet. During the

bankruptcy case, EF purchased Beaulieu’s carpet inventory under an Asset Purchase Agreement

(“APA”), which was approved by this Court in an Order (A) Approving Asset Purchase Agreement

And Authorizing The Sale Of Assets Of The Debtors Outside The Ordinary Course Of Business,

(B) Authorizing The Sale Of Assets Free And Clear Of All Liens, Claims, Encumbrances And

Interests, (C) Authorizing The Assumption And Sale And Assignment Of Certain Executory

Contracts and Unexpired Leases And Establishing Cure Costs In Connection Therewith, And (D)

Granting Related Relief (the “Sale Order”). Lakeshore is a former customer of Beaulieu, who has

alleged that carpets it purchased from Beaulieu and later from EF are defective. At issue here are

carpets manufactured by Beaulieu and purchased from Beaulieu prior to the sale of assets (“Bucket

1” carpet) and carpets manufactured by Beaulieu and delivered by EF after the close of the sale of

assets (“Bucket 2” carpet).

In a prior summary judgment order in this proceeding, the Court determined that

EF is not liable for warranty and product liability claims relating to Bucket 1 carpet but that it was

liable for warranties it issued for the Bucket 2 carpet (the “Prior SJ Order”).1 [Doc. 136 at 27-28,

33-35]. EF seeks to hold Lakeshore in civil contempt for allegedly violating the APA and Sale

Order by claims Lakeshore has asserted against EF in this proceeding and in nonbankruptcy

proceedings.

1 The Prior SJ Order was appealed. The Court’s ruling as to Bucket 1 carpet was not challenged on appeal, and its

ruling as to Bucket 2 carpet was affirmed. [Doc. 170 at 5 n.2, 11-12; Doc. 209 at 10].

All claims and counterclaims in this proceeding have been resolved or dismissed

except for EF’s claim against Lakeshore for civil contempt, which is Count IX of the First

Amended and Restated Complaint for Injunction, Declaratory Judgment, Damages and Other

Relief [Doc. 79]. In the Motion for Summary Judgment, EF seeks partial summary judgment in the

form of a determination that Lakeshore is bound by the APA and Sale Order and that Lakeshore

violated the APA and Sale Order. In the Motion for Contempt, EF reasserts its civil contempt claim

against Lakeshore and asks the Court to sever and convert the contempt claim into a separate

contested matter.

II. The Motion for Contempt

Before considering the Motion for Summary Judgment, the Court will consider

EF’s request to convert this proceeding into a contested matter as the contempt claim is the only

remaining claim. “The court recognizes that pursuant to Federal Rule of Bankruptcy Procedure

9020 and 9014, the traditional way to bring an action for contempt is by motion. However, because

an adversary proceeding provides a defendant with more, not less procedural protection than in a

Rule 9014 contested matter brought by motion, ‘courts routinely hear contempt actions brought as

adversary proceedings.’” Daniels v. Howe Law Firm, P.C. (In re Daniels), 591 B.R. 814, 820

(Bankr. N.D. Ga. 2018) (Ritchey Craig, J.) (quoting Bennett v. Morton Bldgs., Inc. (In re Bennett),

2015 WL 8147588, at *2 (Bankr. N.D. Ohio Dec. 7, 2015) and citing Henriquez v. Green Tree

Serv., LLC (In re Henriquez), 536 B.R. 341, 343 n.2 (Bankr. N.D. Ga. 2015) (Sacca, J.)). There

has been substantial progress in this matter, including a previous motion for summary judgment,

appeals, and discovery, and there is nothing to be gained by converting the proceeding to a

contested matter at this point. Therefore, the request for conversion will be denied and the Motion

for Contempt will be denied as duplicative of Count IX.

III. The Summary Judgment Motion

A. Summary Judgment Standard

Summary judgment is appropriate when “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter

of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552 (1986); Fed. R. Civ.

P. 56(a), (c); Fed. R. Bankr. P. 7056. The Court will only grant summary judgment when the

evidence, viewed in the light most favorable to the nonmoving party shows no genuine dispute of

material fact. Tippens v. Celotex Corp., 805 F.2d 949, 953 (11th Cir. 1986). A fact is material if it

“might affect the outcome of the suit under the governing law ….” Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510 (1986). A dispute of material fact is genuine “if the

evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id.

The moving party has the burden of establishing its entitlement to summary

judgment. Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991). For issues on which

the moving party would bear the burden of proof at trial, it “must affirmatively show the absence

of a genuine issue of material fact, and support its motion with credible evidence demonstrating

that no reasonable jury could find for the non-moving party on all the essential elements of its

case.” Landolfi. v. City of Melbourne, Fla., 515 F. App’x 832, 834 (11th Cir. 2013). When “the

non-movant has the burden of proof at trial, the movant may carry the initial burden in one of two

ways—by either (1) negating an essential element of the non-movant’s case or (2) by showing that

there is no evidence to prove a fact necessary to the non-movant’s case.” Wynn v. Paragon Systems,

Inc., 301 F. Supp.2d 1343, 1349-50 (S.D. Ga. 2004) (citing Clark, 929 F.2d at 606-08); see also

Celotex, 477 U.S. at 323, 325, 106 S. Ct. at 2553, 2554 (stating that Rule 56 does not require “that

the moving party support its motion with affidavits or other similar materials negating the

opponent’s claim” but that the moving party may satisfy its burden by “pointing out to the district

court … that there is an absence of evidence to support the nonmoving party’s case.”) (emphasis

in original); see also Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115-16 (11th Cir. 1993). The

moving party must identify the pleadings, discovery materials, or affidavits that show the absence

of a genuine issue of material fact. Celotex, 477 U.S. at 323, 106 S. Ct. at 2553. Once this burden

is met, the nonmoving party cannot merely rely on allegations or denials in its own pleadings.

Hairston v. Gainesville Sun Publ’g. Co., 9 F.3d 913, 918 (11th Cir. 1993). Rather, the nonmoving

party must present specific facts supported by evidence that demonstrate there is a genuine material

dispute. Id.

When the material facts are not in dispute, the role of the Court is to determine

whether the law supports a judgment in favor of the moving party. Anderson, 477 U.S. at 250, 106

S. Ct. at 2511. “[W]hen the only question is what legal conclusions are to be drawn from an

established set of facts, the entry of a summary judgment usually should be directed.” Wright &

Miller, 10A Fed. Prac. & Proc. Civ. § 2725 (4th ed.).

B. Procedural Posture

EF filed a Statement of Material Facts as to Which It Contends No Genuine Issue

Exists to Be Tried in Support of Motion for Summary Judgment (the “EF SMF”) [Doc. 215].

Lakeshore filed a response to the EF SMF (the “Response”) [Doc. 219] as well as a Supplement to

the Statement of Material Facts to Which It Contends No Genuine Issue Exists to Be Tried in

Support of Motion for Summary Judgment (the “Supplement”). [Doc. 220]. In the Response,

Lakeshore denies several numbered facts as stated on the grounds that the portion of the record

cited by EF does not support the factual allegation [Doc. 219 ¶ 8, 10, 21, 23, 24, 43, 44, 46] and

denies other facts as stated with further elaboration. [Doc. 219 ¶ 25, 30, 37, 42, 48]. EF objects to

Lakeshore’s Supplement on the grounds that it is not provided for by BLR 7056-1, but nevertheless

responded to each asserted fact. [Doc. 223].

BLR 7056-1(a)(1) requires the movant to file a statement of material facts to which

it contends no genuine issue exists to be tried. The Local Rule requires the respondent to include

with its response

a separate and concise statement of material facts, numbered

separately, as to which the respondent contends a genuine issue

exists to be tried. Response should be made to each of the movant’s

numbered material facts. All material facts contained in the moving

party’s statement that are not specifically controverted in

respondent’s statement are deemed admitted.

BLR 7056-1(a)(2). Nothing in this language precludes a respondent from asserting additional facts

that it contends are material and cannot be disputed. Additionally, Fed. R. Civ. P. 56(c) and (d)

contemplate that the nonmovant may assert facts in opposition to the motion, and provide a remedy

if the nonmovant is unable to do so for specified reasons. Therefore, the Court will consider

Lakeshore’s Supplement and EF’s responses thereto.

On March 7, 2023 Lakeshore filed its Notice of Defendant Lakeshore Equipment

Company d/b/a Lakeshore Learning Materials’ Request for Judicial Notice [Doc. 224] in which it

asks this Court to take judicial notice of an order entered by the District Court for the Central

District of California on March 3, 2023 on EF’s summary judgment motion in a case captioned

Engineered Floors, LLC v. Lakeshore Equipment Company, Case No. 2:21-cv-02078-SPG-DFM

(the “California Order”). EF filed its Response to the Judicial Notice Request on March 9, 2023

[Doc. 225]. EF does not oppose the Court taking judicial notice of the California Order if the Court

does so subject to certain context and constraints.

The Court notes that “a court may take notice of another court's order only for the

limited purpose of recognizing the “judicial act” that the order represents or the subject matter of

the litigation.” United States v. Jones, 29 F.3d 1549, 1553 (11th Cir. 1994). The Court will take

judicial notice of the California Order for that limited purpose, and does not take any factual

determinations by the Court as true. The Court notes further that the determinations contained in

the California Order do not affect the Court’s analysis of the present motion.

C. Undisputed Material Facts

On July 16, 2017 (the “Petition Date”), Beaulieu Group, LLC (“Beaulieu” or

“Debtor”), Beaulieu Trucking, LLC, and Beaulieu of America, Inc. each filed voluntary petitions

for relief under Chapter 11 of the Bankruptcy Code, commencing the above-captioned jointly

administered bankruptcy case. [Docs. 215, 219 ¶ 1; Doc. 220 ¶ 2, 3; Doc. 223 at 7]. Beaulieu was

in the business of manufacturing and selling carpet and other flooring materials. [Doc. 220 ¶ 1;

Doc. 223 at 7]. Lakeshore was a customer who maintained an open account with Beaulieu both

before and after Beaulieu filed for bankruptcy. [Docs. 215, 219 ¶ 2]. Lakeshore was not listed as

a creditor or party in interest in the bankruptcy schedules. [Doc. 220 ¶ 4; Doc. 223 at 7]. Beaulieu

did not serve Lakeshore with a copy of the bankruptcy pleadings, the liquidation plan, orders,

notices of hearings, or deadline notices. [Doc. 220 ¶ 5; Doc. 223 at 7]. After the Petition Date,

Beaulieu continued to manufacture and sell its products in the ordinary course of business. [Doc.

220 ¶ 6; Doc. 223 at 7].

As of the Petition Date, Beaulieu had failed to produce and deliver carpet to

Lakeshore as required under two written purchase orders, numbers 196367 (dated May 10, 2017

and having a completion date of June 9, 2017) and 222870 (dated June 12, 2017 and having a

completion date of “AT ONCE”). [Docs. 215, 219 ¶ 3]. Lakeshore’s Director of Vendor Relations,

Jeff Champlin, recalled that “Lakeshore had been experiencing delays in production and shipment

prior to the bankruptcy filing.” [Id. ¶ 4, quoting Champlin Dep. p. 18 li. 2-92].

Lakeshore learned of Beaulieu’s bankruptcy on Monday July 17, 2017, by a press

release from a news feed service Mr. Champlin received via email. [Id. ¶ 5]. Mr. Champlin also

received separate notice from Beaulieu through a phone call and a letter (dated July 17, 2017)

notifying Lakeshore of the bankruptcy case. [Id. ¶ 6]. Notice of the bankruptcy was also published

in Floor Covering Weekly, a national trade publication. [Id. ¶ 7]. Two days after learning of the

bankruptcy, Lakeshore issued a new purchase order to Beaulieu dated July 19, 2017. [Id. ¶ 9].

Beaulieu made public EF’s intention to purchase Beaulieu’s assets in its motion to

approve the sale filed October 6, 2017 (the “Sale Motion”; Case No. 17-41677 Doc. 297). [Id. ¶

11]. On or about November 1, 2017, the Court entered the Sale Order. [Id. ¶ 12; Doc. 220 ¶ 7;

Doc. 223 at 7]. Under the Sale Order and the APA approved by it, EF did not assume Debtor’s

liabilities and obligations to Lakeshore. [Docs. 215, 219 ¶ 13]. Under the Sale Order and APA, EF

did not assume any executory contracts between Debtor and Lakeshore. [Id. ¶ 14].

The sale closed effective as of 12:01 a.m. on November 6, 2017 (the “Closing

Date”). [Id. ¶ 15]. Under the APA and Sale Order, any obligations of Beaulieu to Lakeshore arising

out of operation of Beaulieu’s business, if any, were extinguished as against EF. [Id. ¶ 16]. This

Court retained exclusive jurisdiction in the Sale Order over determination and enforcement of

disputes concerning the APA and Sale Order. [Id. ¶ 17].

Jeff Champlin admits that he knew of Engineered Floors’ purchase of Beaulieu’s

assets by “early November.” [Id. ¶ 18]. Lakeshore received a letter via email from Engineered

Floors on November 10, 2017, informing it of the purchase. [Id. ¶ 19].

2 [Doc. 216-1 at 6].

In emails between Lakeshore and Beaulieu in early November, just a few days

before the asset purchase closed, Lakeshore confirmed it had adequate stocks of Beaulieu carpet

on hand in most styles and colors except for navy. [Id. ¶ 20].

Lakeshore began taking delivery of carpet from Shaw Industries to replace the

Beaulieu carpet in late 2017 to early 2018, and began offering it to customers in February 2018.

[Id. ¶ 22].

Attorney John K. Flock was retained by Lakeshore to assert certain claims and

causes of action against EF, arising from and relating to the non-conforming and defective

carpeting and flooring products Lakeshore purchased and received from EF. [Doc. 220 ¶ 16; Doc.

223 at 8]. On May 18, 2018, Mr. Flock sent a letter to EF titled “Confidential Settlement Demand.”

[Docs. 215, 219 ¶ 25 & Doc. 36 at 6-10]. The letter asserted damages totaling $1,417,262.40,

resulting from non-conforming and defective carpeting and flooring products. [Doc. 220 ¶ 20;

Doc. 223 at 8]. The letter stated, among other things: “As you know, Beaulieu was later acquired

by EF, and EF merged with, and continued the business of, Beaulieu. … Following the merger of

the companies, EF then assumed Beaulieu’s responsibilities. … As a consequence of having

merged the companies and continuing Beaulieu’s business, EF remains liable for Beaulieu’s

liabilities.” [Doc. 36 at 6, 8, 9]. The letter cited a Pricing Agreement executed by Beulieu on

February 10, 2017 and a Pricing Agreement with the same terms executed by Beaulieu Territory

Manager Steve Cvitanovich on August 28, 2017, as well as purchase orders issued by Lakeshore

on May 9, 2017, July 5, 2017, and June 12, 2017. [Id. at 6-7]. The letter stated “EF has provided

non-conforming and defective products to Lakeshore. In so doing, EF, as Beaulieu’s successor,

has committed breach of contract by violating both the Pricing Agreement and Purchase Orders.”

[Id. at 8]. The letter also argued that EF by its conduct had tacitly accepted the terms of the Pricing

Agreement and Purchase Orders resulting in an implied-in-fact contract. [Id. at 9]. Counsel for EF

responded with a letter to Mr. Flock on June 5, 2018, informing Lakeshore that the successor

liability claims it was asserting were barred by the APA and Sale Order. [Docs. 215, 219 ¶ 26].

EF’s response letter disputed liability for the damages relating to non-conforming and defective

carpeting and flooring products Lakeshore received from EF. [Doc. 220 ¶ 21; Doc. 223 at 8]. EF’s

response letter stated that copies of the APA and Sale Order were enclosed and quoted excerpts

from the Sale Order that EF contended precluded Lakeshore’s claims. [Doc. 79-6].

Lakeshore first sued EF in California in 2018, for successor-liability claims. [Docs.

215, 219 ¶ 27]. On or about August 3, 2018, Mr. Flock filed a Complaint for Breach of Implied-

in-Fact Contract, Breach of Contract, Breach of Implied Warranty of Merchantability, Breach of

Implied Warranty of Fitness, Breach of Express Warranty, Fraud, Negligent Misrepresentation,

Breach of Implied Warranty of Good Faith and Fair Dealing, and Declaratory Relief (the “2018

Complaint”) in the Superior Court of the State of California, County of Los Angeles – South

Central District, thereby initiating Case No. TC029234 (the “2018 Action”). [Doc. 220 ¶ 17; Doc.

224 at 8]. The defendants in the 2018 Action included EF but did not include either of the Debtors.

[Doc. 220 ¶ 18; Doc. 224 at 8]. EF removed that case and moved to dismiss. [Docs 215, 219 ¶ 27].

EF sued Lakeshore and Beaulieu in this Court, seeking to enforce the APA and Sale Order and to

recover attorneys’ fees as damages for Lakeshore’s violations. [Id. ¶ 28]. After EF filed this

adversary proceeding, Lakeshore eventually dismissed the 2018 Action without prejudice. [Id. ¶

29]. Lakeshore asserted successor liability counterclaims in this proceeding. [Id. ¶ 30].

Before this adversary proceeding, Mr. Flock never represented Lakeshore in any

bankruptcy-related matter anywhere in the country. [Doc. 220 ¶ 19; Doc. 223 at 8]. Mr. Flock was

never contacted by any of the Debtors or their bankruptcy counsel prior to the filing of this

proceeding and was never served by Debtors’ counsel with any pleadings of any kind relating to

the bankruptcy cases before the filing of this proceeding. [Doc. 220 ¶ 22, 23; Doc. 223 at 8].

Lakeshore is a California corporation doing business in the state of Georgia, among other places.

[Doc. 220 ¶ 24; Doc. 223 at 8]. Lakeshore’s designated registered agent for service in Georgia is

Lakeshore Learning Center. [Id.]. Lakeshore was never served with any bankruptcy documents

through its registered agent other than the pleadings filed in this proceeding. [Id.].

Lakeshore initially argued that because it did not receive formal notice of

Beaulieu’s bankruptcy and sale of assets, it was not bound by the APA and Sale Order. [Docs. 215,

219 ¶ 31]. Lakeshore admitted that the APA and Sale Order protected EF: “It is clear from the

above provisions [of the Sale Order] that EF cannot be held responsible for the Debtor Entities’

pre-closing liabilities.” [Id. ¶ 32 (quoting Doc. 33 at 11)]. Lakeshore eventually withdrew and

abandoned its claims of insufficient notice, by amending its counterclaims and saying it was

waiving its claims of insufficient notice. [Id. ¶ 33]. On appeal, when the Liquidating Trustee

informed the district court and court of appeals that Lakeshore had waived its claims of insufficient

notice, Lakeshore agreed by joining and ratifying without reservation the Liquidating Trustee’s

briefs in which is asserted Lakeshore’s waiver of notice. [Id. ¶ 34]. Most recently, Lakeshore

continued to deny that it is bound or constrained by the APA and Sale Order, but not because of

lack of notice; Lakeshore instead asserts that it is not bound because it was not a creditor of

Beaulieu. [Id. ¶ 35].

Lakeshore and Beaulieu agreed to a settlement of Lakeshore’s late-filed $1.4

million administrative expense claim for $102,500, while allowing Lakeshore to continue with all

claims against EF, except claims for allegedly defective Bucket 1 carpet. [Id. ¶ 36].

This Court held on summary judgment that it had jurisdiction to interpret and

enforce the APA and Sale Order. [Id. ¶ 38]. This Court held that EF’s sales of carpet to Lakeshore

were not based on Beaulieu’s contracts with Lakeshore, “but rather from a separate post-Closing

Date contract....” [Id. ¶ 39 (quoting Doc. 136 at 25)]. This Court also held that under the APA and

Sale Order Beaulieu’s bankruptcy estate, not EF, was liable for Lakeshore’s claims on Bucket 1

carpet. [Id. ¶ 40].

Lakeshore designated its Director of Vendor Relations, Jeffrey Champlin as its

representative under Fed. R. Civ. P. 30(b)(6) to testify as to Lakeshore’s calculations of its

damages, including the specific damages on which those calculations are based. [Id. ¶ 41].

Lakeshore included in its damages claimed against EF in its initial demand and in the 2018 Action

and in counterclaims in this proceeding claims based on Bucket 1 carpet. [Id. ¶ 45]. When asked

whether as much as half of the carpet on which Lakeshore has continued to base its damages

calculations was Bucket 1 carpet, Mr. Champlin said “I don’t know.” [Id. ¶ 47].

D. Applicable Law

Count IX of the amended complaint asks the Court to hold Lakeshore and its

counsel in willful civil contempt for knowingly and intentionally violating the Sale Order.

Bankruptcy Courts have authority to enforce their own orders through their inherent contempt

powers and through 11 U.S.C. § 105(a).3 In re Ocean Warrior, Inc., 835 F.3d 1310, 1316 (11th

Cir. 2016).

To establish civil contempt based on violation of a court order, the plaintiff must

demonstrate by clear and convincing evidence that an order was violated and that “1) the allegedly

violated order was valid and lawful; 2) the order was clear, definite and unambiguous; and 3) the

alleged violator had the ability to comply with the order.” Jordon v. Wilson, 851 F.2d 1290, 1292

n.2 (11th Cir. 1988) (citing United States v. Koblitz, 803 F.2d 1523, 1527 (11th Cir. 1986)); S.E.C.

v. Pension Fund of Am., L.C., 396 F. App’x 577, 180 (11th Cir. 2010). Additionally, the plaintiff

must demonstrate that the defendant had knowledge of the order it allegedly violated. Fidelity

3 “The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of

this title.” 11 U.S.C. § 105(a).

Mortg. Inv. v. Camelia Builders, Inc., 550 F.2d 47, 52 (2nd Cir. 1976) (“a person is in contempt

of court if he knowingly violates a court order, whether or not he received a formal notice.”); see

also Taggart v. Lorenzen, 139 S. Ct. 1795, 1802 (2019) (quoting Schmidt v. Lessard, 414 U.S.

473, 476, 94 S. Ct. 713, 715 (1974) (“[P]rinciples of ‘basic fairness requir[e] that those enjoined

receive explicit notice’ of ‘what conduct is outlawed’ before being held in civil contempt[.]”).

Once the plaintiff establishes its prima facie case, the burden shifts to the defendant “to produce

evidence explaining [its] noncompliance ….” Peery v. City of Miami, 977 F.3d 1061, 1076–77

(11th Cir. 2020).

If the defendant is found in contempt, the Court may award sanctions to

“compensate the complainant for losses and expenses incurred because of the contemptuous act”

or to “coerce the contemnor into complying with the court order.” Jove Eng'g, Inc. v. I.R.S., 92

F.3d 1539, 1557 (11th Cir. 1996); see United States v. Mine Workers of Am., 67 S. Ct. 677, 701

(1947) (remedies for civil contempt may be coercive, compensatory, or both).

E. Analysis

The Summary Judgment Motion seeks a determination (1) that Lakeshore is bound

by the APA and Sale Order and (2) that it violated the APA and Sale Order. Lakeshore argues that

the only issue properly before the Court is whether Lakeshore is bound by the APA and Sale Order

and that an evidentiary hearing is required to determine whether Lakeshore violated an order and

should be held in contempt. The Court can consider on summary judgment whether the undisputed

facts establish that Lakeshore violated an order, and that issue is properly before the Court. But, a

ruling in EF’s favor would not by itself be sufficient to find Lakeshore in contempt, as it merely

goes to the threshold basis for contempt (violation of an order) without establishing the validity of

the order4, its clarity, or Lakeshore’s ability to comply, all of which will require further evidence.

Lakeshore also argues that the Summary Judgment Motion is premature because

the parties have stipulated that Lakeshore may conduct its deposition of EF after the close of the

discovery period and that summary judgment should not be granted until the non-moving party

has had an adequate opportunity to conduct discovery. Under Rule 56(d) “[i]f a nonmovant shows

by affidavit or declaration that, for specified reasons, it cannot present facts essential to justify its

opposition, the court may (1) defer considering the motion or deny it; (2) allow time to obtain

affidavits or declarations or to take discovery; or (3) issue any other appropriate order.” A motion

under Rule 56(d) may be granted when the nonmovant “specifically demonstrate[s] how

postponement of a ruling on the motion will enable [it], by discovery or other means, to rebut the

movant's showing of the absence of a genuine issue of fact.” Wallace v. Brownell Pontiac-GMC

Co., Inc., 703 F.2d 525, 527 (11th Cir. 1983) (internal quotation marks and citations omitted).

“[V]ague assertions that additional discovery will produce needed, but unspecified facts” is not

sufficient. Reflectone, Inc. v. Farrand Optical Co., Inc., 862 F.2d 841, 843 (11th Cir. 1989) (citing

Wallace, 703 F.2d at 527). Lakeshore has neither filed a Rule 56(d) motion supported by an

affidavit nor identified “with particularity the facts [it] expects to discover and how those facts

would create a genuine issue of material fact precluding summary judgment.” Harbert Int’l, Inc.

v. James, 157 F.3d 1271, 1280 (11th Cir. 1998). Therefore, there is no basis to delay ruling on the

Summary Judgment Motion.

The first issue for summary judgment is whether Lakeshore is bound by the APA

and Sale Order. EF argues that Lakeshore is bound because it has admitted being bound and is

4 The motion presently before the Court does not seek a determination of the validity of the order. The Court

acknowledges that this has arguably been decided previously in this proceeding.

now estopped from denying same and because this Court has implicitly found Lakeshore is bound

in its Prior SJ Order. Lakeshore denies admitting it is bound by the APA and Sale Order or waiving

any arguments regarding whether it is bound. Lakeshore argues that the Court should interpret its

own order to determine if Lakeshore is bound. Lakeshore contends it was not a creditor on the

Petition Date, so the question is whether the Court intended to bind non-creditor customers of

Beaulieu. EF argues that Lakeshore was a creditor of Beaulieu on the Petition Date by virtue of

two prepetition purchase orders that remained unfilled on the Petition Date.

With respect to Lakeshore’s argument that it was not a creditor of Beaulieu, EF has

provided with its Reply a copy of Lakeshore Equipment Company d/b/a/ Lakeshore Learning

Materials’ Objections and Responses to Plaintiff Engineered Floors, LLC’s Third Requests for

Admission (“RFA”). [Doc. 222-1]. The first RFA and response are as follows:

As of July 16, 2017, Lakeshore held a claim or claims against Beaulieu for

Beaulieu’s failure to produce and deliver carpet to Lakeshore as and when required

under agreements between Lakeshore and Beaulieu.

RESPONSE: Lakeshore objects to Request No. 1 on the grounds that the same is

vague, overly broad, and seeks a legal conclusion. Subject to the foregoing

objections, and without waiving same, the allegation set forth in Request No. 1 is

admitted.

[Id. at 4]. Given the objection, the Court cannot merely accept this admission as an undisputed

fact. Because “claim” is a defined term under the Bankruptcy Code, 11 U.S.C. § 101(5), the Court

agrees that the request seeks a legal conclusion and would sustain the objection on that basis.

Even without the admission, the undisputed facts show that Lakeshore was a

creditor of Beaulieu. A creditor is defined by the Bankruptcy Code as an “entity that has a claim

against the debtor that arose at the time of or before the order for relief concerning the debtor[.]”

11 U.S.C. § 101(10)(A). In a voluntary bankruptcy case, the date of the order for relief is the date

of the filing of the petition. Id. § 301. Lakeshore issued two purchase orders to Beaulieu that were

due to be filled prepetition but had not been filled as of the Petition Date. [Docs. 215, 219 ¶ 3].

Thus, Lakeshore had a claim consisting of either a right to payment or a right to an equitable

remedy, 11 U.S.C. § 101(5), which made it a creditor. As a result, the APA and Sale Order are

binding on Lakeshore by the terms of the Sale Order, which provides: “This Order and the

Agreement [APA] shall be binding upon and govern the acts of all Persons including, without

limitation … all creditors of the Debtors (whether known or unknown) ….” [Case No. 17-41677,

Doc. 345 at 31 ¶ 47]. But even if Lakeshore were not a creditor of Beaulieu but a mere customer,

this provision of the Sale Order is broad enough to bind Lakeshore to the APA and Sale Order as

it applies to “all Persons[.]” While an argument may be made that strangers to Beaulieu should be

excluded from “all Persons,” Lakeshore is not a stranger to Beaulieu. It was a customer who did

business with Beaulieu both prepetition and postpetition and was a customer of EF after the sale

of assets.

Additionally, there is no dispute that Lakeshore had actual, if informal, notice of

the bankruptcy case not later than July 17, 2017 and of the sale of assets by early November 10,

2017, and had been provided copies of the APA and Sale Order not later than June 5, 2018. [Docs.

215, 219 ¶ 5-6, 28-19; Doc. 79-6]. Therefore, the Court concludes that pursuant to the provisions

of the Sale Order, Lakeshore is bound by both the APA and the Sale Order, and it need not consider

EF’s arguments about estoppel and waiver. EF is entitled to summary judgment on this issue.

The second issue for summary judgment is whether Lakeshore violated the APA

and Sale Order. EF argues that Lakeshore violated the Sale Order by (1) suing EF in California in

the 2018 Action for successor liability and other claims barred by the APA and Sale Order; (2)

suing EF by counterclaims in this proceeding for successor liability and other claims that are

identical to the claims first brought in California; (3) moving for partial summary judgment in this

proceeding and asking this Court to declare EF liable for Beaulieu’s liabilities as its successor

under doctrines of “mere continuation” and de factor merger; and (4) suing EF for a second time

in California for carpet sold by Beaulieu prior to November 6, 2017 and based on Beaulieu’s

warranties. More specifically, EF contends that by the foregoing conduct Lakeshore violated

paragraphs 17, 32, 33, 34, 36, 38, and 51 of the Sale Order and sections 2.2 and 2.4 of the APA.

Lakeshore argues that the APA is not part of an order of this Court as it was never

clearly and unambiguously incorporated in its entirety into the Sale Order and that Lakeshore

cannot be held in contempt of the APA to the extent it stands alone. Lakeshore acknowledges that

the provision of the Sale Order cited by EF references that assets purchased by EF in the APA

were purchased free and clear of any liens or burdens and that as of November 1, 2017, EF acquired

none of the liabilities possessed by Debtor for Debtor’s business operations or the assets purchased

in the Sale Order. However, Lakeshore contends that EF has failed to show that Lakeshore violated

these provisions by clear and convincing evidence.

With respect to Lakeshore’s argument that the APA is not part of an order of this

Court, the Court disagrees. As noted above, paragraph 47 of the Sale Order provides that “[t]his

Order and the Agreement [APA] shall be binding upon and govern the acts of all Persons ….”

“Person” is defined by the APA to include corporations, and that definition is incorporated into

the Sale Order. [Case No. 17-41677, Doc. 297 at 65; Doc. 345 at 2 n.2]. Thus, Lakeshore is bound

to the APA by the terms of the Sale Order such that any violation of the APA would run afoul of

¶ 47 of the Sale Order.

The Sale Order standing alone contains various provisions prohibiting successor

liability claims against EF:

17. Except as expressly provided in the Agreement, the Purchaser [EF] is not

assuming nor shall … be in any way liable or responsible, as a successor or

otherwise, for any liabilities, debts, or obligations of the Debtors in any way

whatsoever relating to or arising from the Debtors’ ownership or use of the

Purchased Property or operation of the Business prior to the consummation of the

transactions contemplated by the Agreement, … all of which liabilities, debts, and

obligations are hereby extinguished insofar as they may give rise to liability,

successor or otherwise, against the Purchaser or any affiliate of the Purchaser.

…

32. The Purchaser has not assumed or is otherwise not obligated for any of the

Debtors’ liabilities other than the Assumed Liabilities as set forth in the Agreement

…. Consequently, all Persons … are hereby enjoined from taking any action

against the Purchaser or the Purchased Property to recover any Liens5 or on

account of any liabilities of the Debtors other than Assumed Liabilities pursuant to

the Agreement. …

33. The Purchaser is not a “successor” to the Debtors or their estates by reason of

any theory of law or equity, and the Purchaser shall not assume, nor be deemed to

assume, or in any way be responsible for any liability or obligation of the Debtors

and/or their estates including, but not limited to, any bulk sales law, successor

liability, or similar liability except for the assumption of the Assumed Liabilities as

expressly provided in the Agreement. ….

34. Further, except as provided in the Agreement, transfer of title and possession of

the Purchased Property shall be free and clear of any Claims pursuant to any

successor or successor-in-interest liability theory, including the following: … any

and all theories of successor liability, including any theories on successor products

liability grounds or otherwise.

…

36. Except to the extent expressly included in the Assumed Liabilities, and except

for any breach under the Agreement, pursuant to Bankruptcy Code §§ 105 and 363,

all Persons … asserting or holding a Lien of any kind or nature whatsoever against,

in, or with respect to the Debtors or the Purchased Property (other than the

Permitted Liens), arising under or out of, in connection with, or in any way relating

to the Debtors, the Purchased Property, the operation of the Debtors’ Business prior

to the Closing Date, or the transfer of the Purchased Property to the Purchaser, shall

be forever barred, estopped, and permanently enjoined from asserting, prosecuting,

or otherwise pursuing such Lien ….

…

51. This Court shall retain exclusive jurisdiction to enforce the terms and provisions

of this Order, and the Agreement in all respects and to decide any disputes

concerning this Order, the Agreement, or the rights and duties of the parties

hereunder or thereunder or any issues relating to the Agreement and this Order

including, but not limited to, the interpretation of the terms, conditions and

provisions hereof and thereof, the status, nature and extent of the Purchased

Property and any Assigned Contracts, and all issues and disputes arising in

5 The Sale Order defines “Liens” to include a wide variety of encumbrances and rights, including “Claims, … Claims

for … products liability, … any Claim based on any theory that the Purchaser is a successor or a continuation of the

Debtors or the Debtor’s business[,] … [and] Claims otherwise arising under doctrines of successor liability[.]” [Doc.

345 at 8-9 ¶ R]. The Court notes that although the Sale Order provides that capitalized terms not defined in the Sale

Order will have the meaning given to them by the APA or the Sale Motion, the term “Claim” is not defined any of

those documents. [Id. at 2 n.2].

connection with the relief authorized herein, inclusive of those concerning the

transfer of the Purchased Property free and clear of all Liens (except Permitted

Liens and Assumed Liabilities).

[Case No. 17-41677, Doc. 345 (footnote omitted) (emphasis added)].

Turning to the specific alleged violations: First, EF contends Lakeshore’s 2018

Complaint against EF violated the APA and Sale Order because its damages calculation included

Bucket 1 carpet and because it included successor liability claims that amounted to a dispute

concerning the APA and Sale Order which is within the exclusive jurisdiction of the Bankruptcy

Court. It is undisputed that Lakeshore sued EF in California in August 2018 for successor-liability

claims. [Doc. 219 ¶ 27]. A copy of the 2018 Complaint was filed with the initial complaint in this

proceeding. [Doc. 1-3]. The EF SMF cites to ¶¶ 14, 26-33 and 46-54 of the 2018 Complaint as

asserting successor liability claims.

The 2018 Complaint alleges that Lakeshore issued purchase orders to Beaulieu on

May 9, 2017, July 5, 2017, and June 12, 2017, and that the purchase orders provided:

If any of the goods supplied under this purchase order do not comply with Seller’s

representations or sample, or fail to comply with governmental standards or

regulations or fails to be merchantable or fit for their intended use, or if Seller fails

to exactly comply with the purchase order, Seller shall be liable to Lakeshore for

all resulting damages, losses, expenses, and injury. Under any of those

circumstances, Lakeshores shall also have the right to reject the goods and return

them at the Seller’s expense.

[Doc. 1-3 ¶ 14]. The 2018 Complaint further alleges that Beaulieu failed to keep carpet in stock,

had quality control and defective manufacturing issues, and was unable to satisfy outstanding

orders. [Id. ¶ 26-28]. The problems continued into November 2017 after EF “acquired the business

and assets of Beaulieu[.]” [Id. ¶ 29]. EF delivered carpet to Lakeshore because “EF had assumed

responsibility for Lakeshore’s Purchase Orders[.]” [Id. ¶ 30]. Lakeshore subsequently notified EF

that it had learned that carpet backing was failing, and a representative of EF inspected the carpet

and confirmed it was defectively manufactured. [Id. ¶ 31-32]. Lakeshore replaced defective carpet

for its customers. [Id. ¶ 33]. The second count of the 2018 Complaint is a claim for breach of

contract that alleges Beaulieu executed a pricing agreement by which it agreed that certain products

would be continuously available during 2018 and 2019, that Lakeshore issued the above-

mentioned purchase orders, that Lakeshore performed its obligations under the contracts, that EF

sold non-conforming and defective flooring materials in violation of the contracts, and that

Lakeshore was damaged. [Id. ¶ 46-54]. The 2018 Complaint also lists the damages Lakeshore

alleged it incurred as a result of the non-conforming and defective products. [Id. ¶ 45]. EF did not

identify any other portions of the 2018 Complaint as violating the APA and Sale Order.

Lakeshore has admitted that the 2018 Complaint included claims for successor

liability, that the damages claimed against EF included claims based on Bucket 1 carpet, and that

this Court has held EF is not liable to Lakeshore for Bucket 1 carpet. [Doc. 219 ¶ 27, 40, 45].

These admissions as well as allegations in the 2018 Complaint that seek to hold EF liable for

Bucket 2 carpet on the basis of successor liability are sufficient to establish that by filing the 2018

Complaint Lakeshore violated paragraphs 32 and 36 of Sale Order, which enjoin the assertion of

such claims.

Second, EF contends Lakeshore’s counterclaims against EF in this proceeding for

successor liability and other claims that are identical to the claims first brought in California

violated the APA and Sale Order. Lakeshore filed its answer and counterclaims in this proceeding

on October 26, 2018 (the “Counterclaims”). [Doc. 15].6 The 2018 Complaint and the

Counterclaims are substantially similar, asserting the same allegations and claims except that the

Counterclaims also included a count to transfer the claims to California, and the 2018 Complaint

included a count for fraud, which was not part of the Counterclaims. Additionally, in the

6 EF filed an amended complaint in this proceeding on June 12, 2020. [Doc. 79]. Lakeshore filed an answer to the

amended complaint on July 2, 2020, which did not affect its Counterclaims. [Doc. 84].

calculation of damages, the Counterclaims include a footnote absent from the 2018 Complaint,

which states:

Lakeshore is currently analyzing the order/production timeline and delivery dates

of the products in order to make a final determination of what product was (1)

manufactured and sold by Debtor, (2) manufactured by Debtor but sold by

Engineered Floors, and (3) manufactured and sold by Engineered Floors. This

analysis will liquidate the final amount Lakeshore asserts as its administrative claim

and the claim amount will be adjusted accordingly.

[Id. ¶ 39 n.2].

Lakeshore admitted that it asserted successor liability counterclaims in this AP and

that its calculation of damages includes Bucket 1 carpet. [Doc. 219 ¶ 30, 45]. The difference

between the Counterclaims and the 2018 Complaint is that the Counterclaims were asserted in the

Court that issued the Sale Order. The Court cannot say that it violates the APA and Sale Order to

bring claims in the Bankruptcy Court, the validity of which are dependent on this Court’s

interpretation of the APA and Sale Order, especially when, as EF points out, this Court retained

exclusive jurisdiction over the APA and Sale Order. To rule otherwise would leave Lakeshore with

no forum to determine whether its claims are barred by the APA and Sale Order.

Third, EF contends that by moving for partial summary judgment and asking this

Court to declare EF liable for Beaulieu’s liabilities as its successor under doctrines of “mere

continuation” and de facto merger Lakeshore violated the APA and Sale Order.

Lakeshore filed a motion for partial summary judgment on February 25, 2019 [Doc.

32], a first amended motion for partial summary judgment on April 3, 2019 [Doc. 47], and a second

amended motion for partial summary judgment on June 30, 2020 (collectively, the “Lakeshore

Motion”). [Doc. 83]. In the Lakeshore Motion, Lakeshore sought a determination that the Sale

Order did not grant EF “immunity from liability for defective products that were either (i)

manufactured by [Beaulieu] and shipped by EF; or (ii) manufactured and shipped by EF[.]” [Doc.

32 at 1]. Lakeshore stated that pursuant to a settlement approved by the Court (a settlement

between Lakeshore and the Liquidating Trustee, to which EF was not a party), the claims relating

to Bucket 1 carpet had been satisfied, and “[t]o be clear, the Bucket 1 Claims are released not only

as to the BLT Defendants but also as to EF. Therefore, EF has no potential liability to Lakeshore

or the BLT Defendants on the Bucket 1 Claims, including no type of subrogation, contribution, or

administrative claim.” [Doc. 83 at 6].

For the same reasons that the Counterclaims do not violate the APA and Sale Order,

the motion for partial summary judgment does not violate the APA and Sale Order. Whether these

are valid claims depends on this Court’s interpretation of its own orders.

Finally, EF contends that Lakeshore violated the APA and Sale Order by suing EF

for a second time in California for carpet sold by Beaulieu prior to November 6, 2017 and based

on Beaulieu’s warranties (the “2020 Lawsuit”). EF has not cited to any portion of this Court’s

record that includes a copy of this second lawsuit. The record indicates that EF sued Lakeshore in

the Superior Court of Whitfield County, Georgia, on June 12, 2020, that the proceeding was

removed by Lakeshore to the District Court for the Northern District of Georgia, that the

proceeding has been transferred to the District Court for the Central District of California, and that

Lakeshore has asserted counterclaims in the proceeding. [Doc. 214 at 10; Doc. 185 at 12-13; Doc.

120 at 13 n.8 & 28]. While the complaint for that proceeding is in the record [Doc. 120 at 28], any

counterclaims asserted by EF are not. EF has cited to the case number and a docket entry for the

2020 Lawsuit, without also filing copies of that document in this proceeding or asking the Court

to take judicial notice of the counterclaims.7 While it may be possible to take judicial notice of

7 By contrast, as previously noted, Lakeshore formally asked the Court to take judicial notice of the California Order

entered in the 2020 Lawsuit and has provided the Court with a copy of that order. [Doc. 224]. EF contends that the

order confirms that Lakeshore continues to improperly seek damages that include claims on Bucket 1 carpet. Even if

the Court could take the breakdown of damages contained in the California Order as an accurate reflection of the

damages claimed by Lakeshore in the 2020 Lawsuit, they differ in some respects from the amounts claimed in the

publicly available records of other courts even if they are not in this Court’s record,8 it is the

movant’s obligation on summary judgment to cite to materials “in the record”. Fed. R. Civ. P.

56(c)(1)(A). The Court will not go outside the record to determine whether Lakeshore’s

counterclaims in the 2020 Lawsuit violate the APA and Sale Order.

The only other support for this violation offered by EF is the Champlin deposition.

In its Reply, EF states that “[w]hen presented on cross-examination with a copy of paragraph 53

from Lakeshore’s counterclaim in the California litigation (tabulating the damages Lakeshore

claims against Engineered Floors), its designated representative, Mr. Champlin, admitted ‘both the

$623,468.21 figure and the freight cost … [$488,160.60] … include … carpet sold by Beaulieu

prior to November 6, 2017 ….’” [Doc. 222 at 9-10 (emphasis and alteration in original)]. Without

a copy of the counterclaims, this testimony is not sufficient for the Court to determine whether

counterclaims by Lakeshore in the 2020 Lawsuit violate the APA and Sale Order. Therefore, EF

is not entitled to summary judgment for this alleged violation.

IV. Conclusion

Based on the foregoing, the Court finds that Lakeshore is bound by the APA and

Sale Order. The Court further finds that Lakeshore violated the APA and Sale Order by filing the

2018 Complaint in California in which it asserted successor liability claims for Bucket 2 carpet

and included Bucket 1 carpet in the calculation of damages. The Court further finds that Lakeshore

did not violate the APA and Sale Order by filing the Counterclaim or the Lakeshore Motion in this

2018 Lawsuit creating a question of fact about whether the amounts include amounts for Bucket 1 carpet. EF argues

further that by asserting counterclaims for fraud, negligent misrepresentation, and breach of contract that Lakeshore

was claiming EF assumed Beaulieu’s warranties. The Court cannot evaluate this argument without seeing the actual

allegations made in the counterclaims.

8 See Paez v. Secretary, Fla. Dept. of Corrections, 947 F.3d 649, 651-52 & n.3 (11th Cir. 2020) (magistrate court did

not err in taking judicial notice of the dates certain motions were filed and orders were entered from an electronic state

court docket that was never made part of the magistrate court’s record).

Court. The Court further finds that factual issues preclude a determination on summary judgment

as to whether Lakeshore violated the APA and Sale Order in the 2020 Lawsuit. Accordingly, it is

ORDERED that the Motion for Contempt is DENIED as duplicative of Count IX

of the amended complaint; it is further

ORDERED that the Motion for Summary Judgment is GRANTED in part; it is

further

ORDERED that Lakeshore is bound by the APA and Sale Order; it is further

ORDERED that Lakeshore violated the APA and Sale Order by filing the 2018

Complaint.

The Court will set an evidentiary hearing by separate order to consider any further

violations of the APA and Sale Order by Lakeshore, whether Lakeshore is in contempt and, if so,

the appropriate sanctions if any, as well as to consider EF’s pending request for attorney fees in its

Motion to Determine Sufficiency of Answers and Objections to Requests for Admission and for

Attorneys’ Fees. [Docs. 197, 207].

END OF ORDER

Distribution List

William A. DuPre, IV

Miller & Martin, PLLC

Suite 2100

1180 West Peachtree Street, N.W.

Atlanta, GA 30309

Michael P. Kohler

Miller & Martin PLLC

Suite 2100

1180 W. Peachtree St., N.W.

Atlanta, GA 30309-3407

Matthew W. Levin

Scroggins & Williamson P.C.

One Riverside, Suite 450

4401 Northside Parkway

Atlanta, GA 30327

J. Robert Williamson

Scroggins & Williamson, P.C.

One Riverside, Suite 450

4401 Northside Parkway

Atlanta, GA 30327

John F. Isbell

Thompson Hine LLP

Suite 1600 - Two Alliance Center

3560 Lenox Road

Atlanta, GA 30326

John K. Flock

500 N. Brand Blvd., Suite 2200

Glendale, CA 91203

Albert F. Nasuti

Thompson, O'Brien, Kappler & Nasuti, P.C.

Suite 400

2 Sun Court

Peachtree Corners, GA 30092