Krivo Industrial Supply Company v. National Distillers and Chemical Corporation

John Bradford owned Brad’s Machine Products, Inc. (Brad’s), a profitable machine company. In addition, Bradford engaged in a diverse array of mostly unsuccessful investment activities. Although Brad’s secured a government contract to make fuses for munitions, Bradford’s other investments became a financial drain. Bradford entered into a financing-and-loan agreement with Bridgeport Brass Company, a supplier to whom he owed approximately $1 million. Bradford and other representatives of Brad’s then entered into an agreement with National Distillers and Chemical Corporation (National Distillers) (defendant) under which Bradford and Brad’s pledged various assets as collateral. In return, National Distillers agreed to provide Brad’s with internal financial management, lend more cash, defer repayment of accounts receivable to Bridgeport Brass, and intervene to protect the government contract. National Distillers also assigned an internal auditor, Leon Rudd, to oversee financial affairs at Brad’s. Under the new arrangement, all purchase orders or cash outlays from Brad’s accounts required approval from Rudd. However, Rudd had no real involvement in personnel or production decisions at Brad’s. The efforts to save Brad’s were ultimately unsuccessful, and the company ceased operations. Several creditors of Brad’s (plaintiffs) brought individual suits for unpaid debts. These suits were consolidated by the federal district court, which granted a verdict in favor of National Distillers. The creditors appealed. The United States Court of Appeals for the Fifth Circuit granted certiorari.