# United States Court of Appeals **For the Eighth Circuit**

___________________________ No. 12-1717

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Super Wings International, Ltd.

lllllllllllllllllllll Plaintiff - Appellee

v. J. Lloyd International, Inc.

lllllllllllllllllllllIntervenor below - Appellant Jody L. Keener

lllllllllllllllllllll Defendant - Appellant

____________ Appeal from United States District Court for the Northern District of Iowa - Cedar Rapids

____________ Submitted: November 15, 2012 Filed: December 17, 2012

____________ Before MURPHY, BENTON, and SHEPHERD, Circuit Judges.

____________ MURPHY, Circuit Judge.

Super Wings International, Ltd. (Supe r Wings) sued Jody Keener for failing to pay on a promissory note. Keener asserted that he did not have to pay because SuperWings had breached an agreement it ha d with Keener’s company, J. Lloyd International, Inc. (JLI). JLI intervened , and the case was tried to the court. The district court 1 ruled that Super Wings had fulfilled its contractual obligations to JLI, that Keener was liable for failing to pay on hi s note, and that JLI’s claim against Super Wings should be dismissed. Keener and JLI appeal. We affirm.

Super Wings is a trading and marketing company active in the toy industry. It is based in Hong Kong, and its owner Ti m Yip also owns other companies which manufacture toys and the mold and tooling equipment used to make them. Super Wings receives purchase orders from custom ers, and then contracts with Chinese factories to manufacture the requested items. It also markets other toys made in China. JLI is an Americanwholesaler and marketer of toys founded by Jody Keener. Keener met Yip in the mid 1990s when th e latter was associated with Toy Zone, another toy wholesale and marketing comp any. In 2006 JLI purchased a number of Toy Zone’s assets in China, including many of its molds and tools. Around that time Wai Har Yip, Tim Yip’s older sister, becam e a 50% owner of JLI. Wai Har Yip is also known as Dora Yip.

JLI began purchasing toys and equipmen t directly from Super Wings in 2006. After JLI submitted purchase orders to it, Super Wings contracted with Chinese factories to manufacture the requested items . JLI was the owner of the molds and tooling used in the Chinese factories maki ng its toys, but that equipment was stored by Super Wings when not in use. When the toys were finished, Super Wings transferred them to JLI which sold th em to retailers. From 2006 to 2008, JLI bought over $4 million worth of toys and equipmen t from Super Wings, but Tim Yip testified that he remembered JLI paying only $300,000 of the amount owed Super Wings.

1 The Honorable Jon Stuart Scoles, Un ited States Magistrate Judge for the Northern District of Iowa, sitting with the consent of the parties pursuant to 28 U.S.C. § 636(c).
-2-Keener testified that by 2008 he “wanted to get out of the relati onship” with Super Wings.

To resolve their differences Super Wings and JLI entered into an agreement on December 30, 2008. They agreed that JL I owed Super Wings approximately $4.5 million “for manufacturing various toys, mold s and other processe s” and that Super Wings would discharge JLI’s debt in exch ange for the execution of two promissory notes attached to the agreemen t. One of the notes was for $2 million plus interest and was to be signed by Keener, and the s econd note was for about $2.5 million plus interest and was to be signed by Dora Yi p. Keener and Dora Yip signed their respective notes, making them personally liable for the amounts due. The agreement between Super Wings and JLI also statedthat Super Wings was “in possession of certain molds and tooling” owned by JLI, that Super Wings would “complete all work in progress,” and that it would “release [JL I’s] molds and tooling to a party authorized by [JLI] to receive same.” The agreement did not define the term “release” or detail how JLI’s property would be released.

At the time of this agr eement there was manufacturing work in progress on one particular type of toy, and production was completed on it by the end of July 2009. Super Wings shipped the finished toys and a ssociated molds and tooling to JLI in the United States, and JLI paid the shipping cost. At JLI’s direction its agent also picked up other molds and tooling in Super Wings ’ possession, first in March 2009 and then again in July of that year. Even afte r these transfers, Super Wings was still in possession of over 90% of JLI’s molds a nd tooling. Thousands of pieces of equipment were stored in warehouses owne d by Tim Yip. Since Super Wings had no interest in continuing to store JLI’s propert y, it repeatedly asked JLI to retrieve it. Keener made the first six monthly paymen ts on his promissory note from January to June 2009, but he did not make the one due in July 2009 or any thereafter.

-3-Super Wings sued Keener in August 2009 for failing to pay on his note. Keener’s defense to Super Wings’ claim was that Super Wings had breached their December 2008 agreement by not releasing JL I’s property and therefore he did not have to pay the amount due on his note. JLI moved to intervene as a third party plaintiff in January 2010, claiming that Super Wings had breached their December 2008 agreement by not releasing its property and seeking as damages the value of its property that remained in Super Wings’ po ssession. The district court granted JLI’s motion to intervene in February 2010. Ov er the next several months Super Wings’ correspondence with JLI repeated that it wa s not interested in holding JLI’s property and wanted it to be retrieved.

Keener testified at trial that he had requested JLI’s mo lds and tooling from Super Wings “since day 1.” Keener did not produce any email, phone record, letter, or other document from before January 2010 in support of this testimony, however. Keener also admitted that he had never given Super Wings a list of the specific property he demanded be released. The di strict court found that Super Wings had released JLI’s property within the mean ing of their December 2008 agreement since it had shipped the requested equipment and made the remainder available for pick up at JLI’s direction. The court then ente red judgment for Super Wings against Keener, concluding that he had not been justified in stopping payment on his note, and dismissed JLI’s claim against Super Wings. Keener and JLI appeal, arguing that the district court erred in finding that Super Wi ngs had released JLI’s property within the meaning of the December 2008 agreement.

The parties agree that Iowa law governs this diversity case. In a breach of contract action under Iowa law, we will uphold a district court’s fi ndings of fact if they are supported by substantial evidence. Jeanes v. Allied Life Ins. Co. , 300 F.3d 938, 940 (8th Cir. 2002); NevadaCare, Inc. v. Dep’t of Human Servs. , 783 N.W.2d 459, 465 (Iowa 2010). We view the evidence in the light most favorable to the district court’s judgment, and the “ultimate question is whether the evidence supports the

-4-court’s finding, not whether it would s upport a different finding.” NevadaCare , 783 N.W.2d at 468. We review de novo the district court’s interpretation of state law. Jeanes , 300 F.3d at 940.

Keener and JLI argue that Keener did not have to pay on his promissory note because Super Wings had not released JL I’s property as required by their December 2008 agreement. Under Iowa law a contr act becomes unenforceable due to a failure of consideration when “the performance bargained for has notbeen rendered.” Johnson v. Dodgen , 451 N.W.2d 168, 172 (Iowa 1990). Failure of consideration is a complete defense if the alleged failure is “total,” meaning one party “has failed or refused to perform a substantial part of what the party agreed to do.” Id.

We conclude that there was substantial evidence supporting the district court’s findings that Super Wings had released JL I’s property as requi red by their December 2008 agreement. Super Wings shipped some of JLI’s equipment back to it as requested and made other property available to be picked up at JLI’s direction. Trial testimony and correspondence be tween the parties show th at Super Wings wanted to rid itself of JLI’s property and urged JLI to retrieve it. Keener did not present any support for his testimony that he had requested the property “since day 1” or produce any documentation from before January 2010 ev idencing JLI’s efforts to retrieve its property. Keener also admitted that he had not produced a list of specific equipment in Super Wings’ possession even though such a list would have been necessary to transfer the items.

Since the district court did not err in entering judgment for Super Wings against Keener and in dismissing JLI’s claim, we affirm its judgment.

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