A couple days ago, we did a post, entitled, Your Mold Done Gone To China And It Ain’t Never Coming Back, stressing how those doing China OEM Agreements need good contracts to protect their production molds and tooling. Earlier today, we did a post, entitled, China Consultant: Protect Thyself, focusing on how China consultants without good contracts with their clients are setting themselves up for legal problems.

I never expected to be proven so right. So soon. And certainly not in the same lawsuit.

The Bowling Green (Kentucky) Daily News just ran a story, entitled, Holley in Midst of Legal Struggle Over China Deal, that goes a long way in proving the importance of having good contracts when doing business in China, particularly when that business involves molds or consultants.

According to the article, about two years ago, Holley Performance Products began securing materials from China. Holley’s website describes itself as “the undisputed leader in fuel systems for over 100 years. Holley carburetors power every NASCAR team and every NHRA Pro’Stock champion. The Holley line also includes performance fuel pumps, fuel injection, intake manifolds, cylinder heads & engine dress’up products for street performance, race and marine applications.”

Seems that in February of this year, Holley was sued by Doug Smith, “an Ohio-based consultant who helped the company [Holley] secure a supplier in China.” Smith sued Holley for allegedly circumventing Smith by “using his supplier in China without his authorization.” Smith claims to be “on the losing end of the deal after spending more than 185 days in China helping Holley.”

Apparently angered about the alleged circumvention by Holley (see our consultant post to avoid this happening to you), Smith decided to”repossess” Holley’s tooling.  Holley did not take too kindly to Smith’s actions and sued for the return of its tooling:

‘In my last trip to China, I went to all the suppliers and repossessed their tooling,’ Smith said. ‘We had a counterproposal on the table on a Thursday night, but by Friday morning, I had a FedEx package on my front porch with a lawsuit to get their tooling back that they didn’t pay for.’

On November 9, 2006, United States District Court Judge Joseph McKinley issued an injunction ordering Smith return the tooling:

‘The judge gave them a temporary restraining order to give the tools back that Holley hasn’t paid for,’ Smith said. ‘And they’re trying to put me in jail right now. It’s absolutely amazing, they’re trying to put me out of business. It’s like legal stealing.’

Attorney Todd Olhms, who represents Holley, said that Judge McKinley issued a contempt order against Smith for not returning the equipment. The judgment ordered Smith pay Holley $10,000 per day until Smith complies with the court’s order to return the equipment.

Oh, and one more bit of advice for consultants and EVERYONE else: when a Federal Court judge issues an order requiring you to do something, you do it, and you do it even if you do not really want to do it and even if you do not think it is fair. Failing to obey a court order constitutes contempt of court and, as Mr. Smith has learned, the penalties for that can be quite severe.