By Thomas Franz
BridgeTower Media Newswires
DETROIT — A Genesee County Circuit Court judge has ruled in favor of a bingo tablet manufacturer in a breach-of-contract case after a gaming company failed to sell its contractually agreed-upon number of bingo games.
Two questions emerged as the key issues of Aeon Gaming, LLC v. Fraternal Enterprises, Inc. and Blue Bay South, which went on for more than six years. The judge first had to decide if there was a breach of contract, and secondly, if a third company would also be involved in the case.
Judge Richard B. Yuille awarded nearly $2.35 million in favor of the plaintiff, but the defense has already stated its intention to take the case to the Michigan Court of Appeals.
Aeon Gaming entered a contract with Fraternal Enterprises in 2007, and amended the contract in 2008 to reflect that Fraternal was required to purchase a number of gaming units from Aeon. In between those agreements, a competitor of Aeon, Blue Bay South, bought all of the stock of Fraternal to essentially gain control of the business.
Blue Bay later instructed Fraternal’s salesperson to no longer try to sell any of Aeon’s handheld bingo units because they claimed the units were defective.
Aeon attorney Timothy H. Knecht of Cline, Cline, & Griffin PC in Flint said Aeon repaired the units and Fraternal never rejected them.
“Fraternal raised issues about batteries and screens. Those issues were addressed by Aeon,” Knecht said. “The court also made a bunch of findings of facts that the battery and screen issues didn’t amount to a breach of agreement or addendum.”
Knecht added that for the units that were defective, Aeon was able to repair them by replacing defective batteries with new lithium batteries.
Throughout the case, Knecht pointed to two specific turning points that helped Aeon’s cause.
The first key moment came from testimony of a salesperson from Fraternal.
“Fraternal had one salesperson. Fraternal terminated this salesperson in 2012 after she was issued a directive by the owner of Blue Bay South to no longer demonstrate or sell Aeon products to customers,” Knecht said. “She testified that had she not received that instruction, she would’ve been able to sell enough units to meet the terms of the contract.”
That led to a judgment against Fraternal and Blue Bay South, Knecht said, because Blue Bay had directed Fraternal to not honor the contract for Blue Bay’s benefit.
“Blue Bay kept Fraternal as a separate legal entity, but Blue Bay controlled Fraternal. That’s how this concept happens. If Fraternal functioned on its own, then only Fraternal would’ve been liable,” Knecht said. “Because Blue Bay exerted elements of control of Fraternal, Blue Bay became liable for the actions of Fraternal.”
Knecht said Fraternal sold 990 of 2,000 Aeon units that it was contractually obligated to sell. He added that the Fraternal salesperson testified she would’ve been able to sell the remaining 1,010 units.
Each unit was priced at $2,750, so the judgment represented the cost of the 1,010 units that were not purchased.
Aeon is no longer in business, Knecht said, because the lost revenue from this contract. Defense attorney Craig W. Horn of Braun Kendrick in Saginaw said he intends to take this case to the Michigan Court of Appeals.
Horn said Aeon failed to fix the defective devices and that caused Fraternal and Blue Bay to breach the contract.
“The question wasn’t really was there a breach of contract, it’s whether that breach of contract was justified, given the substandard nature of the devices,” Horn said.
Horn said a key issue on appeal will also be if both companies can be held liable since they remain separate corporations.
“In terms of the jurisprudence of the state of Michigan, if that gets upheld, that’s going to turn the whole law of corporations on its head. Blue Bay has the same ownership as Fraternal, but they’re two separate corporations,” Horn said. “If a breach of contract by one corporation can be enforced against a different corporation, that would be a big deal.”
––––––––––––––––––––
Subscribe to the Legal News!
http://legalnews.com/Home/Subscription
Full access to public notices, articles, columns, archives, statistics, calendar and more
Day Pass Only $4.95!
One-County $80/year
Three-County & Full Pass also available
