Mel Redman
A Rogers vendor has alleged that a Chinese toy manufacturer cost it a $70 million contract with Wal-Mart Stores Inc. of Bentonville.
Redman & Associates, through attorney Mark Henry of Fayetteville, filed an amended lawsuit in federal court Sunday against Sales Chief Ent. (Hong Kong) Co. Ltd. R&A is asking for $20 million in compensatory damages and $20 million in punitive damages in U.S. District Court for the Western District of Arkansas in Fayetteville.
The amended complaint follows Sales Chief’s motion to dismiss four of R&A’s five original claims against the manufacturer. R&A filed its original complaint Sept. 5 after the collapse of the relationship between Redman & Associates and Sales Chief.
“It’s a little bit of maneuvering, that’s all,” Henry said. “Why not explain the story even better? Their motion to dismiss has no legal effect now. It’s reasonable to streamline the issues by amending the complaint.”
In its partial motion to dismiss, Sales Chief said that “Wal-Mart never pledged to purchase even a single American-made good from R&A.” But R&A said in its amended lawsuit that Wal-Mart and R&A had such an agreement, showing documents from Wal-Mart that canceled an agreement with R&A on Sept. 15.
Sales Chief makes 6- and 12-volt battery-operated toy cars. R&A had acted as the company’s vendor with Wal-Mart since March 2012. R&A and Sales Chief had a “Net 60” agreement, whereby R&A had 60 days to pay Sales Chief for the cars it sold to Wal-Mart.
But in November 2013, Wal-Mart agreed to a three-year, $70 million contract with R&A to purchase toy cars made by R&A’s Nuvzn Technologies LLC in Arkansas. Under the contract, Nuvzn would produce at least 520,000 of the 6-volt cars in Rogers as part of Wal-Mart’s “Made in USA” initiative.
R&A said the plan was to produce 100,000 units on its own and get the rest from Sales Chief. R&A planned to gradually ramp up domestic production until it could fulfill the entire annual order.
R&A received a $2 million taxpayer investment from the state’s economic development commission to help with the plan, which was announced in October 2013 with then-Gov. Mike Beebe in attendance. R&A hired 24 employees and invested $8 million in a 275,000-SF facility for production, which was to be done by Bentonville Plastics.
In its lawsuit, R&A alleges that Sales Chief and its executive director, Ellen Liu, conspired to undermine the deal. In May, R&A said Sales Chief changed the “Net 60” terms and demanded upfront payment for all shipments and extra payment for outstanding debt, which it said topped $10 million.
R&A said such debts are common in business and that Sales Chief’s actions were meant to derail its manufacturing initiative by threatening the delivery of products for Wal-Mart’s holiday season. R&A also alleged that Sales Chief used a Canadian vendor, Pacific Cycle, to bypass R&A and move its manufactured toys into Wal-Mart’s stores.
In its motion to dismiss, Sales Chief called R&A CEO Mel Redman a failed businessman who didn’t uphold his contract with Sales Chief to pay for battery-operated toy cars.
“Confronted with a failed business, millions of dollars in debt and inevitable adverse publicity, Plaintiff and its Chief Executive Officer Mel Redman, a businessman with a rather remarkable history of failed businesses who has only recently emerged from personal bankruptcy, tried to blame an innocent third-party for Plaintiff’s collapse,” Sales Chief’s motion said. “Plaintiff’s jingoistic attack on Sales Chief is an insulting, desperate and obvious attempt to give cover to Mr. Redman’s poor business decisions, which ultimately resulted in the layoffs of numerous employees.”
R&A said it paid Sales Chief $62 million during their partnership and sold 1.1 million Chinese-manufactured toys in Wal-Mart stores in 2013.
In a statement, Mel Redman called the legal battle “unfortunate.”
“It is unfortunate that a lawsuit became necessary in an initiative that was intended to provide American-made products and jobs,” he said. “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 fourteen jobs for manufacturing workers, and attempted to threaten our business relationships. For now, we are continuing business as usual and look forward to our day in court,” he said.
The two parties agreed to a temporary truce in October to allow toys produced by Sales Chief to reach Wal-Mart shelves for the holidays.
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