A California jury has awarded nearly $9.4 million to a medical supply distributor after finding that a Wyoming-based logistics broker and its managing member made fraudulent representations that led to a failed $9.5 million shipment of medical gloves.
The Los Angeles County Superior Court jury found Oak Sourcing & Logistics LLC and Matthew John Sandvig liable for intentional misrepresentation in a dispute with Ashtel Studios Inc., a California company that imported nitrile examination gloves during the COVID-19 pandemic.
The Oct. 9 verdict awarded Ashtel $9.397 million in economic damages, including $6.43 million in out-of-pocket expenditures and nearly $2.97 million in other economic losses.
The dispute centered on Oak Sourcing’s representations about its financial resources, customer contracts and ability to purchase millions of boxes of medical gloves.
According to Ashtel’s original complaint, Sandvig told company executives in March 2021 that Oak Sourcing had an $800 million personal protective equipment contract, long-term supply commitments with hospitals and access to substantial financing.
Those representations helped persuade Ashtel to enter into two large glove transactions totaling $14.7 million, according to the complaint.
Two shipments, one unpaid order
The companies’ first transaction, dated July 2, 2021, involved 500,000 boxes of nitrile gloves valued at $5.2 million.
Ashtel imported the gloves from China through the Port of Long Beach in 14 shipping containers. The products were subsequently transported to the company’s warehouse in Ontario, California.
Oak Sourcing eventually paid for the first shipment in August 2021, approximately three weeks after its arrival, although Ashtel alleged that certain transportation and warehousing expenses remained unpaid.
A second purchase order, dated July 7, 2021, called for 1 million boxes of nitrile examination gloves at $9.50 per box, totaling $9.5 million.
The second shipment arrived in 27 containers, but Oak Sourcing allegedly failed to complete payment or take possession of the merchandise.
Ashtel alleged that the broker repeatedly delayed inspections, requested additional shipping documentation and indicated that payment would follow receipt of funds from its downstream customer.
The company later learned that Oak Sourcing’s purported end customer was another intermediary rather than a hospital or other direct purchaser, according to the complaint.
Ashtel said it incurred additional drayage, warehousing and storage expenses while attempting to resolve the transaction and eventually resold the gloves to reduce its losses.
The two purchase orders involved a combined 1.5 million boxes of gloves transported in 41 ocean shipping containers.
Jury finds intentional misrepresentation
The jury concluded that both Oak Sourcing and Sandvig made false representations, knew those statements were false or acted recklessly regarding their truth, and intended Ashtel to rely on them.
Jurors also found that Ashtel reasonably relied on those representations and suffered financial harm as a result.
In addition to the $9.397 million fraud award, the jury found that Oak Sourcing owed Ashtel $4,272,252 on an open book account claim.
That finding represents a separate legal claim, and the amount should not be added to the fraud award without determining how the court will address overlapping damages in its final judgment.
The jury also rejected Oak Sourcing’s counterclaims against Ashtel, including allegations of intentional and negligent misrepresentation, concealment and breach of the covenant of good faith and fair dealing.
Jurors further determined that Sandvig engaged in conduct involving malice, oppression or fraud, potentially exposing the defendants to punitive damages.
However, Ashtel agreed to forgo punitive damages in exchange for the defendants waiving their rights to challenge the judgment through post-trial motions, appeals or other proceedings, according to Eugene Rome, founding partner of Rome LLP, which represented Ashtel.
Rome clarified that the agreement was not an additional monetary settlement.
The jury’s findings underscore the distinction between a failed commercial transaction and fraud, Rome said.
“A fraud verdict is a finding that the representations about the company and the volume of business it had were knowingly false when they were made,” Rome said in an Oct. 13 statement. “That goes well beyond a breach of contract.”
Related-company proceedings remain unresolved
The litigation began in March 2022, when Ashtel filed a federal lawsuit against Sandvig, Oak Sourcing and Oak Insurance Group LLC in the U.S. District Court for the Central District of California.
The defendants moved to dismiss the federal action for lack of jurisdiction. Ashtel subsequently voluntarily dismissed the case without prejudice, and a federal judge closed the proceeding in May 2022 without ruling on the merits.
The dispute continued in Los Angeles County Superior Court, where Judge Nicole M. Heeseman presided over the jury trial.
Although the jury has returned its verdict, the case has not been fully resolved.
Rome told FreightWaves that Ashtel intends to submit a proposed judgment for the court’s approval.
A separate bench trial concerning alter ego allegations involving Oak Insurance Group will also proceed at a future date, he said.
Those allegations concern whether the related business entities should be treated as legally separate for purposes of liability. No finding against Oak Insurance Group is established by the jury verdict.
Rome said the case illustrates the risks of relying on a counterparty’s representations when entering large commercial transactions.
“While large transactions create the prospects of substantial profits, they equally entail traps for the unwary,” Rome told FreightWaves.
Oak Sourcing & Logistics is identified in the litigation as a Wyoming-based intermediary in medical supply transactions. The available court records do not establish that it operated as a federally licensed freight broker.
FreightWaves attorneys representing Oak Sourcing & Logistics. No responses had been received as of publication.
Why it matters: The verdict highlights the financial risks facing suppliers and logistics intermediaries when major transactions rely on misleading claims about customer contracts and purchasing capacity.
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