Two definitions of the word “equity” can be found in the Merriam-Webster Dictionary. The first is, “justice according to natural law or right; specifically: freedom from bias or favoritism,” while the second reads, “the money value of a property or of an interest in a property in excess of claims or liens against it.”
A lawsuit filed by Neutral Posture against Knoll is based on Equity — both figuratively and literally. The Texas-based company that purchased Knoll's Equity systems furniture line in 2014 claims in a lawsuit filed in Pennsylvania that Knoll overstated its Equity sales and after the product line was transferred, its salespeople told customers Equity was no longer being made, directing them instead to other Knoll products, or told them Neutral Posture's Equity product wasn't as good.
In the lawsuit, Neutral Posture alleges breach of contract, unjust enrichment, fraud in the inducement, negligent misrepresentation, tortious interference with contractual and prospective contractual relations, common law unfair competition, commercial disparagement and civil conspiracy.
Knoll tried to have the lawsuit moved to federal court, but the federal court recently moved it back to the Court of Common Pleas of Philadelphia County.
Neutral Posture Chief Executive Officer Rebecca Boenigk says she is “delighted” the case can move forward. Though she says she could not comment on the specifics of the case, she does not regret purchasing the Equity line from Knoll. “I do regret not having the right information (from the state of the purchase process),” she says. “We have improved the product line dramatically, and it is beginning to do well for us. I don't regret that Equity is now ours.”
Knoll was contacted for this story but does not comment on pending litigation.
The lawsuit sheds light on Neutral Posture's purchase of the Knoll Equity systems furniture line. Neutral Posture paid $1 million for the product line, according to the lawsuit. The purchase was to be paid in three closings, plus a “Deferred Purchase Price” payable in 20 quarterly payments and consisting of a cash payment equal to 2.5 percent of the net sales of the products.
Neutral Posture claims Knoll misrepresented the size of its legacy customers for the Equity line. According to the lawsuit, numerous employees of Knoll, including officers of the company, represented to Neutral Posture that legacy customers of the Equity Line assured Neutral Posture of approximately $10 million of business each year.
“On or around June 23, 2014, Enrico Colzani, Knoll's Vice President, met with Rebecca Boenigk, Neutral Posture's CEO, and (Michelle) Warren, Neutral Posture's Vice President of Sales, at Knoll's showroom in Philadelphia,” according to the lawsuit. “Mr. Colzani represented to Ms. Boenigk and Ms. Warren that legacy customers of the Equity Line assured Neutral Posture of approximately $10 million of business every year. Mr. Colzani further represented to Ms. Boenigk and Ms. Warren that Knoll had spent five years trying to 'sunset' Equity Line but legacy customers would not stop buying it.”
After Neutral Posture purchased the Equity Line, the lawsuit alleges, it performed substantially lower than expectations. In 2015, the Equity Line only did $1 million in sales; in 2016, the Equity Line only did between $2 million and $3 million in sales; and in 2017, the Equity Line was projected to do only $4 million in sales, according to the court filing.
Yet on the last day Knoll accepted orders for the Equity Line, it booked $2.3 million worth of orders from legacy customers in a single day, according to the lawsuit.
In the court filing, Neutral Posture alleges that, “Knoll realized it could not build the products if it had to immediately turn over manufacturing equipment to Neutral Posture as required by the terms and conditions of the (agreement). Therefore, Defendant Knoll requested that Neutral Posture send employees to Knoll's plant in Michigan to help manufacture Equity Line products to fill the orders, which Knoll had taken in October 2014.
“Neutral Posture's employees did in fact travel to Knoll's plant in Michigan to build orders of the Equity Line for customers who had placed orders with Defendant Knoll. Defendant Knoll mischaracterized this activity as 'trainings' for Neutral Posture's employees, when in actuality, Neutral Posture's employees were building the Equity Line products for customers that would have ordered the products from Neutral Posture had Defendant not falsely told the customers that the Equity Line would no longer be manufactured.”
Prior to June 2015, before the third closing occurred, according to the court filings, sales representatives employed by Knoll told distributors and end users the Equity Line was no longer being manufactured, and Knoll representatives tried to steer the distributors and end users to a Knoll product line similar to the Equity Line. Some representatives also told customers they should not purchase products from Neutral Posture because Neutral Posture “was a small company that could not manufacture the Equity Line up to its previous quality or in a timely manner.”
Boenigk wrote a letter to Colzani demanding the disparaging comments and misrepresentations stop, but according to the lawsuit, they did not. “As a result of Defendant's sales representatives' false and misleading statements to distributors, very few distributors would do business with Neutral Posture,” the lawsuit alleges.
Neutral Posture also alleges in the lawsuit that Knoll has breached the terms and conditions of the purchase agreement by continuing to use the Equity trademark on its website in more than 1,000 places, despite the fact that Knoll sold all rights to the Equity trademark.
According to the court filings, a Google search for the word “Equity” on Knoll's website produces 1,210 results and when an Internet user clicks on a page of Knoll's website featuring an Equity Line product, “in at least one instance the Internet user is redirected to products manufactured by Defendant.”
Knoll has not responded in court to the allegations in the lawsuit, though it did try to move the matter to federal court, complaining in its filings that Neutral Posture was accusing it of “…the proverbial kitchen sink of claims arising from the parties' contract” and that the company had not been served properly.