Gunboat International, a North Carolina builder of high-end carbon fiber sailing catamarans, is suing a yard in China it had contracted to build its largest models, saying some work was never done and that the yard refused to pay warranty claims on other poorly constructed yachts.
Hudson Yacht and Marine Industries denies the allegations and has countersued Gunboat, saying design flaws, not builder error, led to a slew of warranty claims and unhappy customers and that it was not contractually obligated to fix mistakes the design caused.
Gunboat maintains in its complaint in U.S. District Court in Rhode Island that HYM used “unauthorized and undisclosed substitutions of inferior materials in deviation from design specifications.” The complaint also says HYM refused to perform warranty work, so Gunboat did it at its own expense at its North Carolina plant, allegedly costing the company about $10 million.
After shoddy or incomplete work, Gunboat sought to terminate the contract with HYM, but the builder refused to return molds and tooling, says Gunboat founder Peter Johnstone.
The complaint accuses HYM of breach of contract, fraudulent inducement, interference with contractual relations, unjust enrichment, breach of a non-compete agreement and misappropriation of trade secrets. Court documents accuse the company and its owner, Hudson Wang, of launching a “knockoff brand” of carbon fiber catamarans despite signing a non-compete contract.
Not having the molds and tooling has left Gunboat unable to manufacture one of its models, causing the company to lose contracts and profits in excess of $4 million, say documents filed in court. However, HYM’s counterclaim contends that Gunboat “interfered with and inserted itself into the warranty process and prevented HYM from being able to manage the warranty process.”
The lawsuit sparked some online comments about products built overseas, with some saying it’s impossible to achieve quality at such a distance, particularly with cultural and language divides, and with others pointing the finger at Gunboat for not maintaining enough oversight to ensure quality control.
The stereotype that Asian companies build subpar boats also prompted a countersuit from HYM. In addition to a breach-of-contract counterclaim, HYM filed a defamation counterclaim, alleging that Johnstone made a Facebook post and sent an email newsletter criticizing the skills and staff turnover at HYM, “indicating that only boats built in the United States or Europe can meet a certain standard of quality.”
“In this email newsletter, Gunboat further criticized the quality of the materials used and boats produced by HYM, stated that HYM failed to handle any warranty work associated with the boats it built, and accused HYM of intellectual property infringement,” the countersuit says. “Gunboat also utilized derogatory stereotypes about Chinese people to defame HYM.”
“False and defamatory statements about HYM were published in various media, including an email newsletter to thousands of recipients, in an online article and a public Facebook post that can be viewed by anyone online, and at the Newport International Boat Show,” court documents say.
“The Gunboat 60 specification … includes a unique element, namely, use of a centerboard as opposed to a daggerboard,” says the counterclaim, which was filed Sept. 30 and made available Oct. 1. “Upon information and belief, there are no other boats of this size that utilize a centerboard design.”
That specification “was proven to be defective by multiple independent engineers, as well as Gunboat’s own engineers,” attorneys for HYM say in the counterclaim. “Based on the recommendations of its own engineers, Gunboat modified the centerboard design in later models of the Gunboat 60 boat. Gunboat improperly requested HYM to pay damages resulting from the defective centerboard design, as well as damages related to the redesign of the defective centerboard.”
Additionally, a unique hydraulic propeller system on the Gunboat 60 known as the “skeg system” also failed because of design flaws, the counterclaim alleges. The owner of Gunboat 60 03 asked HYM to redesign and install a new skeg system in the boat, which HYM did as part of an independent agreement with the owner, court documents say.
“Subsequently, Gunboat improperly requested HYM to install the redesigned skeg system in the second Gunboat 60 (GB6002), built at HYM’s cost,” the countersuit says. “Gunboat’s request was improper, as these were damages resulting from a defective design, which is not part of HYM’s warranty responsibility.”
Gunboat’s insertion into the warranty process prevented HYM from managing it, the claim says. “By way of example, HYM reached an agreement with a customer regarding the customer’s warranty claims and additional requested changes to the customer’s boat, which included a payment from the customer to HYM,” say court documents filed by HYM.
“As a courtesy and to increase transparency between the parties, HYM included Gunboat in the correspondence with the customer. Gunboat objected and insisted the boat be transferred to its facility in North Carolina to complete the warranty work and customer-requested changes,” HYM alleges.
The counterclaim also says Gunboat took orders without consulting HYM beforehand and allowed customers to make changes after a contract was signed, violating the procedure set forth for variation orders.
“Gunboat did not properly invoice customers for variation orders in accordance with the contract, including failure to include HYM’s price for the variation order calculated pursuant to the contract,” the countersuit says.
It also says Gunboat collected money from the buyers instead of putting it in escrow, as the contract called for.
Gunboat says Hudson “deliberately, willfully and maliciously obtained Gunboat’s trade secrets with the intention of utilizing said trade secrets in connection with, and incorporating them into, the competing HH Catamaran 55 and 66 series, and HYM and Wang did, in fact, appropriate and utilize said trade secrets for their own benefit and profit.”
As of April 2014 HYM had finished building five of eight vessels for Gunboat, court documents say. Two boats were in process, and one had not been started.
“Almost immediately after delivery of each of the completed vessels to Gunboat’s customers, Gunboat began receiving complaints from said customers regarding the integrity of the vessels and/or components manufactured by HYM,” says the amended complaint, which was filed in August.
“They sent out boats knowingly with a lot of items incomplete, with issues, and wouldn’t stand behind them, fix them, visit them, inspect them,” Johnstone says. “They wouldn’t engage with us in any way to sort out the boat and were demanding payments in full.”
“The HH Catamaran 55 and 66 series designed and manufactured by HYM and Wang includes many features, elements and infusion technology that are identical and/or indistinguishable from Gunboat’s confidential and proprietary design specifications, which were disclosed to HYM and Wang in confidence,” Gunboat’s complaint says.
Gunboat’s complaint says HYM’s executive vice president of operations, William Jelbert, visited the Gunboat facility in Wanchese, N.C., at the direction of Wang, “ostensibly to learn about Gunboat’s best practices in order to apply them at HYM’s facility in China in furtherance of HYM’s performance of the contract. Gunboat disclosed said trade secrets to Jelbert under conditions of confidentiality, and subject to and in reliance on HYM’s covenant not to compete with Gunboat.”
“Unbeknownst to Gunboat, at the same time Jelbert was receiving Gunboat’s trade secrets, HYM was secretly developing and preparing to manufacture in China, and ultimately did manufacture in China, an unauthorized Gunboat knockoff — i.e., the HH Catamaran 55 and 66 series, in direct violation of HYM’s covenant not to compete contained in the contract,” the complaint says.
In its response, HYM admits sending Jelbert to the North Carolina facility but denies that he stole trade secrets while there to apply to a competing brand. Wang also has companies that make products ranging from grills to protective sports equipment, Johnstone says.
“He’s trying to sell boats here, and he’s got his 25 other companies in primary markets all over the United States,” Johnstone says. “I think if publicity on the federal complaint gets out, it will have to have some impact on other business. What they’ve done to us would scare the hell out of any American customer. They’re not standing behind the warranty and [are ignoring] the real cost there and real issues that need to get sorted out.”
This article originally appeared in the November 2015 issue.