Chinese, Arkansas firms’ rift detailed – NWAOnline (subscription)

Troubled dealings with a Chinese supplier cost Redman & Associates a $70 million contract with Wal-Mart Stores Inc., according to an amended complaint filed in U.S. District Court of the Western District of Arkansas.

Redman & Associates was to produce more than 500,000 ride-on toys annually as part of Wal-Mart’s commitment to buy an additional $50 billion worth of American-made products by 2023, according to the filing. Rogers-based Redman announced its deal with the retailer in October 2013 but less than a year later was forced to shutter its 270,000-square-foot plant in Rogers and layoff employees as a result of its soured relationship with Chinese supplier Sales Chief Enterprises, the lawsuit alleges.

Sales Chief is being sued by Redman & Associates for breach of contract and supplies, intentional interference with contractual agreements, misappropriation of trade secrets and breach of express and implied warranties of noninfringement. All of the claims against Sales Chief are the same as those outlined in the original complaint, filed by Redman & Associates on Sept. 5, but include additional detail of how the relationship deteriorated and of the cost of losing the Wal-Mart contract.

Wal-Mart, according to the amendment filed Sunday, terminated its contract with Redman & Associates on Sept. 15. A Wal-Mart spokesman referred questions “back to the parties involved in the lawsuit.”

“Now our claims and damages are more formalized,” Redman & Associates attorney Mark Henry said. “We had a signed contract [with Wal-Mart], not just a hope. They’d committed to buying more than half-a-million of these a year. It was in writing. They pulled it. That’s a big deal.”

Sales Chief, according to the lawsuit, changed credit terms that made it difficult for Redman & Associates to pay for materials produced by the Chinese company. Redman & Associates maintains that during its prior dealings with Sales Chief, dating back to 2009, no upfront payment was required. When the manufacturer began asking for payment before goods could be shipped to the United States, Redman & Associates couldn’t meet the new payment terms.

As Redman & Associates struggled to make payment, the lawsuit alleges, Sales Chief began angling for private meetings with Wal-Mart. Sales Chief also began working with a direct competitor of Redman & Associates, according to the filing.

Attorneys representing Sales Chief Enterprises could not be reached for comment.

The Chinese manufacturer filed a motion to dismiss the lawsuit Friday, contending that Redman CEO Mel Redman has “a rather remarkable history of failed business [and] has only recently emerged from personal bankruptcy, [and tries] to blame an innocent third party” for the collapse, The Chinese company also contends Redman was in default on millions of dollars in invoices and describes claims that it sought to sabotage Wal-Mart’s “Made in the USA” campaign as “utterly — and demonstrably — false.”

Production of the toy cars stalled, and Redman & Associates’ manufacturing arm, Nuvzn Technologies LLC, laid off 24 workers in September. As part of a deal with the Arkansas Economic Development Commission, the manufacturer and Redman & Associates were eligible for millions of dollars in incentives contingent on its fulfilling a promise to hire no fewer than 74 people by Oct. 11, 2015. Workers were slated to make at least $18 per hour.

Development commission spokesman Scott Hardin said there’s been no attempt to recoup the initial $1 million in Quick Action funding the company received. No determination had been made on the need for such “clawbacks” or what the amount would be.

“AEDC remains in close contact with Redman’s leadership,” Hardin said.

Redman & Associates continues to maintain a vendor number with Wal-Mart. Though it no longer produces toy cars, Redman & Associates is involved in warehousing and logistics work for the retailer and produces a toy called the Buzzle Ball, according to a Redman & Associates spokesman.

“It is unfortunate that a lawsuit became necessary in an initiative that was intended to provide American-made products and jobs,” CEO Redman said in a 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.”

Wal-Mart has alluded to potential head winds that its suppliers might experience as part of the Made in America campaign. During a manufacturing summit in Denver last year, executives and suppliers outlined some of the challenges, including the time it will take to re-establish manufacturing in the United States.

Redman & Associates was the first client of Made in USA Works LLC, a Bentonville-based consulting firm established to help companies “re-shore.” Publicity concerning Redman & Associate’s attempt to move manufacturing from China likely led to some of the challenges, Made in USA Works Executive Vice President Chris Neeley said during a November interview.

“This isn’t going to be widespread, but China isn’t going to go down without a fight,” Neeley said of the difficulties encountered by Redman & Associates. “They’ll do everything they can to keep manufacturing in their country. The problem is they have economic forces working against them.”

Business on 02/19/2015