Federal Judge Denies Motion to Dismiss Redman Suit

A federal court case between Bentonville businessman Mel Redman and a Chinese toy manufacturer will continue to move toward a trial, a judge said Tuesday.

U.S. District Judge Tim Brooks in Fayetteville denied a request to dismiss a lawsuit filed by Redman and his family-owned company, Redman & Associates LLC, against Sales Chief Ent. (Hong Kong) Co. Ltd.

There are no settlement proposals on the table, according to court documents, and Fayetteville attorney Mark Henry, who is representing Redman in the case, said Judge Brooks has set a trial date for May 2016.

Sales Chief has until April 2 to file its answer to Judge Brooks’ order denying that the case be dismissed.

The federal lawsuit was filed last September in the U.S. District Court for the Western District of Arkansas. Redman claimed Sales Chief changed contract terms and improperly interfered with his company’s business contracts and relationships, resulting in layoffs and significant financial loss for the company.

Redman, a Bentonville businessman with more than 25 years of merchandising experience, including setting up and running Walmart’s Canadian division, later amended the lawsuit to add updated information on the specific financial loss.

The 37-page amended complaint filed in February revealed that on Sept. 15, just 10 days after the original lawsuit was filed, Anne Marie Kehoe, vice president of toys at Walmart U.S., notified Redman that the retailer was canceling a signed purchase commitment with his company, a contract valued at more than $70 million.

Attorneys for the manufacturer — David Lackowitz of Moses & Singer LLP in New York and Vincent Chadwick with Bassett Law Firm in Fayetteville —argued in a filing March 6 that Redman’s business failures and failure to pay for goods were reasons why the lawsuit should be dismissed. 

It was the second time Sales Chief had asked the court to dismiss the case, arguing that the lawsuit was not plausible or that it failed to state a claim.

The court disagreed and entered a three-page order Tuesday allowing the case to continue forward without further delay.

“The Court has examined the 37-page Amended Complaint and finds its factual allegations to be sufficiently detailed so as to state claims on all Counts and put Sales Chief on notice of the claims alleged,” Brooks wrote. “… The Court further finds that, to the extent factual disputes exist between the parties as to the nature and validity of any of the claims, such disputes are more properly addressed at the summary judgment phase of the proceedings after some discovery has taken place.”

The lawsuit 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 came just a few months after Walmart revealed plans to boost sourcing of its U.S. products by $50 billion over the next decade. The plan was labeled by Walmart as the “Made in the USA” initiative.

Redman 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 Sales Chief to supplement its domestic production.

In May 2014, however, Sales Chief unexpectedly wanted up-front payment on a substantial 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 terms weren’t met, according to court documents.

Sales Chief claimed that as of Aug. 15, 2014, R&A owed $10.2 million. The two companies began working together in 2012 and supplied more than $62 million worth of children’s ride-on toys to Walmart, according to court filings.

Because of the shift in payment terms, R&A was forced to stop the ramp-up of a dedicated production line last September and lay off two dozen employees at the new Rogers manufacturing facility.

After the layoffs occurred, Walmart canceled its $70 million purchase agreement.

There are no settlement proposals on the table, according to court documents.