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The American arm of a Chinese swimming pool products manufacturer has declared bankruptcy after being hit with a $16 million false advertising and unfair business practices judgment in North Carolina. Blueworks Corp. had previously warned that the hefty judgment would drive it out of business.

Chapter 11 Bankruptcy Filing

Blueworks Corp. filed for Chapter 11 protection on Tuesday, reporting assets between $500,000 and $1 million and liabilities between $10 million and $50 million. The company's largest creditors include Hayward Industries Inc., a rival pool supply company that secured a $16 million judgment against Blueworks in May after a weeklong jury trial.

"The four-year lawsuit was crippling for the debtor's financial operations and ability to focus on the day-to-day management of its business," Blueworks' chief restructuring officer, Michael Bowers, said in an affidavit submitted with the Chapter 11 petition.

Blueworks Corp files for bankruptcy : Financial Strain from Legal Battles

Blueworks, a distributor for Chinese manufacturer Ningbo C.F. Electronic Tech Co. Ltd., faced a $4.9 million verdict in March after a federal jury in Charlotte found it made false or misleading statements, violating the North Carolina Unfair and Deceptive Trade Practices Act (UDTPA) in its Amazon product listings. U.S. District Judge Max O. Cogburn Jr. tripled that award to $14.7 million and added $1.3 million in prejudgment interest, resulting in a total judgment of $16 million.

Hayward, which also manufactures swimming pool products, accused Blueworks of blurring the line between their products in replacement salt cells for a saltwater pool chlorination system. Hayward claimed Blueworks intentionally confused customers by making it appear that Hayward recommended Blueworks' products as substitutes, partly by using its trademarks on Amazon listings.

While the jury found Blueworks and Ningbo liable for false advertising and UDTPA violations, they were cleared of trademark infringement claims.

Request for Stay and Bankruptcy Proceedings

At the end of May, Blueworks urged Judge Cogburn to stay execution of the judgment while it appeals the verdict, stating that the business wouldn't survive if forced to pay the full $16 million. Bowers reiterated this sentiment in Tuesday's affidavit, highlighting the mounting legal and professional fees from battling Hayward's lawsuit. He noted that Blueworks had also fallen behind on inventory payments to Ningbo and struggled to pay its lone employee.

Bankruptcy is the only viable path to ensure Blueworks' debts are paid if the appeal fails, Bowers said, noting the proceedings will provide Blueworks a much-needed "breathing spell."

"Should Hayward execute on the judgment, Hayward would effectively close the business and receive a recovery of pennies on the dollar," Bowers said. Instead, he argued that the Chapter 11 proceedings will allow Blueworks to "maximize the value of the bankruptcy estate" and ensure customer warranty claims are fulfilled.

Blueworks Corp files for bankruptcy : Legal Fees and Representation

In addition to the bankruptcy filing, Blueworks requested $3.1 million in attorney fees for successfully defending against Hayward's trademark infringement claims. This motion opposes Hayward's request for $4.36 million in legal fees filed in April.

Counsel for Blueworks and Hayward did not immediately respond to requests for comment Wednesday.

Blueworks is represented in the bankruptcy case by Matthew L. Tomsic, Natalie E. Kutcher, and Ashley B. Oldfield of Rayburn Cooper & Durham PA. In the Hayward case, Blueworks is represented by Christina Davidson Trimmer and S. Alexander Long Jr. of Shumaker Loop & Kendrick LLP and Michelle C. Dunn of Platinum Intellectual Property LLP.

Hayward is represented by Erik Paul Belt, James H. Donoian, Anne E. Shannon, and Alexander L. Ried of McCarter & English LLP, and Russ Ferguson and Patrick G. Spaugh of Womble Bond Dickinson.