Mel Redmans $20 Million Lawsuit Moves Forward

Bentonville businessman Mel Redman, founder and CEO of Bentonville toy supplier Redman & Associates LLC, has amended his lawsuit against Chinese manufacturer Sales Chief Ent. (Hong Kong) Co Ltd, bringing more clarity to the financial damage suffered as a result of a lost partnership with the world’s largest retailer.

Redman’s attorney, Fayetteville lawyer Mark Henry, filed the 37-page amended suit in the U.S. District Court for the Western District of Arkansas in Fayetteville on Sunday. The original $20 million lawsuit was filed in September, after R&A alleged Sales Chief changed contract terms and improperly interfered with the company’s business contracts and relationships.

The amended suit revealed that just days after the original complaint was filed, Wal-Mart Stores Inc. formally canceled a signed purchase commitment with R&A, a contract valued at more than $70 million.

“Plaintiff believes it is now proper to amend its original claims to reflect actual scope of this loss,” Henry wrote.

Henry filed the amended complaint after Sales Chief entered its response Feb. 13 to the original lawsuit. In its response, its attorneys argued the lawsuit should be dismissed “for failure to state a claim.”

“No one should be able to complain what the extent of our damages are now that we have amended our lawsuit,” Henry told the Northwest Arkansas Business Journal on Wednesday. “Our hope in amending the lawsuit is to streamline the issues.”

Sales Chief has 21 days from the amended filing to respond. Redman is still seeking a jury trial.

“It is unfortunate that a lawsuit became necessary in an initiative that was intended to provide American-made products and jobs,” Redman said in a prepared statement. “Redman & Associates was a proud participant in the on-shoring initiative because we believe products need to be made in the USA, but clearly that transition is not going to be seamless. The actions by Sales Chief cost jobs for American manufacturing workers, and attempted to damage our business relationships with Walmart. We look forward to our day in court.”

The litigation stems from R&A’s announcement in October 2013 of an $8 million investment to open a 275,000-SF manufacturing and distribution facility in Rogers. The news conference — attended by then-Gov. Mike Beebe as well as officials with Walmart and the Arkansas Economic Development Commission — came just a few months after Walmart revealed plans to boost sourcing of its U.S. products by $50 billion over the next decade.

Redman, himself a former Walmart executive, said at the announcement his company had developed a three-year plan to eventually move all production of its popular Disney and Marvel ride-on toys, manufactured at Sales Chief and sold exclusively at Walmart, from China to the Rogers facility.

Walmart, according to the amended filing, had contracted to buy a minimum of 520,000 ride-on toys every year in 2014, 2015 and 2016. According to the contract, not all units had to be made in the U.S. in the first two years, so R&A developed a plan to continue working with SC to supplement its domestic production.

In May 2014, however, Sales Chief unexpectedly wanted up-front payment on a huge shipment of goods that already had  shipped to ports in California, with the threat that supply (during the holiday shopping season) would be disrupted if payment terms weren’t met.

The decision was made, R&A contends, to “deliberately cause maximum disruption” ahead of the holiday season, according to court documents, and to disrupt R&A’s supply chain and its ability to fill orders and generate revenue.

“Sales Chief knew that a major disruption to R&A’s supply chain would devastate R&A’s finances as well as its relations with Walmart, and Sales Chief knew that the month of May was the ideal time to surprise R&A with a knot in the vital supply line,” court documents state.

Sales Chief had built Redman’s Monster Trax, a popular, battery-operated ride-on toy since 2012, and hadn’t previously required payment for the toys until 60 days after they had shipped.

Sales Chief is being represented by David Lackowitz of Moses & Singer LLP in New York and Shannon Fant with Bassett Law Firm in Fayetteville.

In part because of the loss of the Walmart contract, R&A was forced to stop the ramp-up of its Monster Trax production line last September and had to lay off more than a dozen of its 24 employees at the Rogers facility.