A federal judge recently refused to dismiss a claim brought by Honma Golf—makers of high-end, gold-accented golf clubs that sell for $50,000 a set—against a warehouse that, Honma contends, lost more than $1 million of its clubs and other products. The case highlights legal controversies that can arise with sports logistics contracts.
On Aug. 18, Judge Cathy Ann Bencivengo denied Saddle Creek Corporation’s motion to dismiss one of Honma’s three counts.
Honma, which also sells far less expensive clubs, sued Saddle Creek in June for breach of contract, conversion (i.e., depriving another of their property) and declaratory relief. Homna’s complaint details its reliance on other companies to warehouse and deliver products.
In 2019, Honma entered into a services agreement with Saddle Creek to receive, store and prepare products for shipment at a warehouse in San Diego. Honma agreed to pay $10,000 a month, along with other fees. According to its complaint, Honma believed Saddle Creek would provide “end-to-end inventory management,” including the tracking of inventory and receipts from shipments.
A year later, Honma expressed concerns to Saddle Creek about alleged “irregularities” in the inventory count. As portrayed in the complaint, there were problems with an undercounting of products stored and overcounting of products shipped.
The accounting firm Ernst & Young then conducted an audit, which according to the complaint found “discrepancies in inventory and other transactions in excess of $400,000.” The lost inventory consisted of 20,263 pieces of golf products, including 740 pieces of Honma’s “Beres” clubs, which feature 24K gold accents and trim pieces. Beres clubs are sold in 10-piece sets for $50,000.
A second audit, conducted by the accounting firm Grobstein Teeple, identified $490,852 of lost Honma products. In 2021, Honma performed its own review. It determined “there was additional missing equipment, which may be worth as much as $562,077.”
Honma argues it lost not only the market value of the missing inventory but also “the loss of customers’ goodwill when orders for products are not timely fulfilled.” Honma is seeking to terminate the contract, which runs until Jan. 31, 2022, on account of breach.
In court documents, Saddle Creek denies responsibility for any irregularities and lost inventory. It also asserts that Honma has misconstrued Saddle Creek’s contractual obligations. Further, Saddle Creek raises several affirmative defenses, including an assertion that Honma failed to mitigate its damages.
Most relevantly to the recent court ruling, Saddle Creek moved to dismiss Honma’s third claim, the one for declaratory relief, on grounds it is unnecessary or duplicative, given the breach and conversion claims. Saddle Creek insists that Honma already has adequate remedies—namely, monetary damages—should those two claims prevail.
Judge Bencivengo, who presides at the federal courthouse in San Diego, wasn’t convinced. She held that Honma’s demand for a declaration is “not redundant of its other claims” since it concerns the ability of Honma to terminate a contract rather than potential monetary damages.
The case continues in litigation, though it doesn’t appear the missing clubs have been found.