Legal_Analysis_Scenario_1

ScenarioEntertainment Action (EA) is a privately owned playground equipment designer, manufacturer and distributor based in Cambridge Ontario. They have been in business for over 50 years, and for the last 25 years have specialized in selling Canadian made playground equipment for personal/family use. They sell and distribute their products to a variety of retailers throughout Canada.Until 2005 EA successfully manufactured and already assembled backyard playground equipment as part of its product line. However, as margins decreased EA sought out different options for continuing this product area. In 2006, after investigating a variety of options, they decided to move solely to designing and distribution backyard playground equipment that can be assembled by the purchaser and to discontinue the manufacturing of assembled units.Producing ready to assemble backyard playground equipment involves three steps. First, is the design phase where the final product or a sample thereof is created and refined. EA would remain involved with this process. Second is the engineering phase. The final design is disassembled and the production facility is “engineered” to produce the final product. Finally, the delivery phase involves creating and ordering appropriate boxes to ship the product. EA had decided to …contract out‟ the last two phases. That is, EA would find a component who could build and package the component parts to EA‟s specifications. EA would then use its existing distribution contacts to distribute the ready to assemble product. Consumers could buy the package and then assemble the component parts in their backyard to obtain a finished playground structure In sum, the product would be somewhat like what a consumer might buy at IKEA, where you buy a box with everything you need, but it is your job to put it together.In October 2006, after meeting with a variety of manufacturers, EA identified Component Quality Parts (Quality) as a good potential partner. Quality had over 10 years experience in the manufacture of component parts for playground equipment. However, working with EA would allow Quality to produce at volume levels it had never reached before. A number of initial meetings between EA and Quality representatives were very positive as were the subsequently developed prototypes which took about 6 weeks to complete. EA made the internal business decision to order units from Quality in November 2007 (although no specific orders were actually placed at that time) and communicated their intention to source from Quality on an ongoing basis. EA discontinued their existing product line.The parties never reduced the relationship to writing beyond an exchange of letters and e-mails. However, EA did submit purchases orders from time to time. EA took the prototypes to a trade show in the second week of January 2007, and had favourable feedback from retailers. On January 16, 2007 they ordered 400 units for approximately $400,000. The shipping date was to be March 1, 2007. Along with the first order EA requested certain design modifications. The original prototypes shown at the tradeshow were only delivered back to EA on February 1, 2007.Even before delivery of the first installment, on February 15, 2007 EA ordered 50 more units for approximately $50,000 for April 1, 2007 delivery. Two more orders (totaling approximately 500 units for $500,000) were made over the next two months with delivery of 250 units each due May 1 and June 1.From the outset, Quality had trouble meeting delivery deadlines. Time is important in the playground retail industry where seasonal demand spikes drive sales. Retailers rely on their suppliers to deliver product in a timely fashion. EA began to receive significant complaints from retailers for failing to meet its own delivery obligations.Quality delivered the following units to EA on the following dates:a)180 units- March 1, 2007b)100 units- March15, 2007c)80 units- April 1, 2007d)40 units- May 1, 2007e)70 units- June 1, 2007f)35 units- July 1, 2007The deliveries never had any notation specifically stating what purchase order a delivery was in relation to. After much correspondence between the parties EQ wrote to Quality stating that it was terminating its business relationship effective July 10, 2007. EA had been able to distribute most of the units it received, but at an average discount of 5% per unit price (and EA‟s profit margin was 10% per unit purchase price). EA still had 65 units in storage its sales reps did not think they would be able to distribute. This was due to the fact there were many minor quality complaints about the products that had been delivered and then sold to customers (missing screws, poor instructions, etc.).EA had expected to be able to order up 5,000 units per year from Quality for at least a 5-6 year period. At the present time, although they are searching for an alternative supplier they have not found one that can do the work on a basis that is remotely comparable to what Quality was going to try to do. On June 15, 2007 the CEO‟s of EA and Quality held a meeting where both parties expressed frustration with the state of the relationship. The meeting ended with EA indicating its desire to pursue other options and Quality indicating it would not produce anymore units although it would, in good faith, ship out any units remaining on its premises.EA is now trying to determine what possible legal action it may take against Quality. Present a full analysis, identifying and explaining the legal issues involved and the arguments that would be made to prove the claims, as well as the arguments (and/or alternate issues with arguments) that would be made by each party should it proceed to trial. Please provide what you think is a likely conclusion if it went to trial. Note that you will be assessed for organization as well as for content so ensure that you strive to present the analysis as set out in class (in terms of being well organized and structured). Make sure you include what damages you think should be claimed as well as the dollarvalue of the claim, and if you think Quality might be prepared to concede anything, what that amount might be.Finally provide one paragraph in terms of a settlement offer that EA could make to Quality and your rationale for it.。