Brooklyn Bagel Boys v. Earthgrains

• Decision Date: 08 May 2000
• Docket Number: No. 99-3055,99-3055
• Citation: 212 F.3d 373
• Parties: (7th Cir. 2000) Brooklyn Bagel Boys, Inc., Plaintiff-Appellant, v. Earthgrains Refrigerated Dough Products, Inc., Defendant-Appellee
• Court: U.S. Court of Appeals — Seventh Circuit

Page 373

212 F.3d 373 (7th Cir. 2000)

Brooklyn Bagel Boys, Inc., Plaintiff-Appellant, v. Earthgrains Refrigerated Dough Products, Inc., Defendant-Appellee.

No. 99-3055

In the United States Court of Appeals For the Seventh Circuit

Argued February 22, 2000

Decided May 8, 2000

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 98 C 4421--James F. Holderman, Judge. [Copyrighted Material Omitted] Before Coffey, Easterbrook, and Williams, Circuit Judges.

Williams, Circuit Judge.

Plaintiff-Appellant Brooklyn Bagel Boys, Inc. ("Brooklyn Bagel"), brought this diversity action against Defendant- Appellee Earthgrains Refrigerated Dough Products, Inc. ("Earthgrains"), claiming that Earthgrains wrongfully terminated a contract for the supply of bagels. Thereafter, Earthgrains filed a motion for summary judgment, which the district court granted against Brooklyn Bagel. Prior to this determination, the district court also granted Earthgrains' motion to strike the certification of Gregory Stahl, the former president of Brooklyn Bagel. This appeal followed the district court's entry of summary judgment in Earthgrains' favor. For the reasons discussed below, we affirm the judgment of the district court.

I

Brooklyn Bagel produces bagels for third parties who sell them under their own brand name. Earthgrains manufactures, distributes, and sells refrigerated dough products. In April, 1994, Earthgrains began working on a project to develop its own proprietary formula for bagels. After nearly two years, Earthgrains developed a bagel formula and began to contract with different "co- packers" to manufacture bagels for distribution under Earthgrains' brand name. Earthgrains entered into these "co-packing" relationships in an effort to test the viability of its formula without having to incur the substantial capital expense of building its own bagel manufacturing facility.

In late 1994 or early 1995, Earthgrains approached Brooklyn Bagel about being a co-packer for the distribution of bagels out of Earthgrains' Fort Payne, Alabama facility. Contract negotiations began, and the parties eventually entered into a Contract Packaging Agreement ("Contract") on March 25, 1996. Under the Contract, Brooklyn Bagel agreed to process and package bagels for Earthgrains in packaging bearing Earthgrains' brand name or other trademarks owned or licensed by Earthgrains. Brooklyn Bagel also agreed to purchase all of the raw materials and packaging supplies necessary to produce the bagels at its Franklin Park, Illinois facility. Earthgrains, on the other hand, agreed to provide Brooklyn Bagel with all the racks and trays necessary for shipping the bagels. In connection with this obligation, Earthgrains was responsible for picking up the bagels for distribution to its facilities.

The Contract, among other terms, provided a price structure for the bagels. The Contract does not require Earthgrains to purchase a specific quantity of bagels from Brooklyn Bagel. Instead, the Contract stated that Brooklyn Bagel was to process and package the "ordered quantity" of bagels. The Contract required Earthgrains, however, to provide a non-binding forecast every three months, in a form as agreed by the parties, for its expected bagel orders. The parties agreed that the Contract would "continue in effect until either party terminates it upon ninety (90) days prior written notice to the other party of such termination or terminates it as otherwise provided in th[e] Agreement." (Contract para. 6.) Their relationship continued under the Contract until Earthgrains decided to begin manufacturing its own bagels.

In July, 1997, Earthgrains purchased the business of one of its other co-packers. That same month, Brooklyn Bagel's Customer Service Manager for the Earthgrains' account, Vicki Abrams, learned of Earthgrains' plans to install bagel manufacturing equipment in the Fort Payne facility. Abrams then contacted Earthgrains' Marketing Director, Phil Gruszka, concerning this development, and Gruszka indicated that the relationship between the parties would remain unchanged for now. Later that year, Abrams again contacted Gruszka, this time to ask whether Brooklyn Bagel could budget Earthgrains' business in 1998. Approximately 80 percent of the bagels sold by Brooklyn Bagel to Earthgrains during 1997 were shipped to and distributed out of the Fort Payne facility. Gruszka informed Abrams that "he didn't know what [Earthgrains'] long-term plans were, but [he] didn't think 1998 was an issue." At no point during his conversations with Abrams did Gruszka make any promises to her about Earthgrains' plans for 1998 bagel production, and Abrams had her doubts about whether Earthgrains would continue ordering bagels from Brooklyn Bagel in 1998.

In late 1997, Earthgrains began installing equipment to manufacture bagels at the Fort Payne facility. Earthgrains completed the installation by March of 1998. Around this time, Earthgrains sent Brooklyn Bagel a letter expressing its intent to terminate the Contract. Earthgrains sent the letter in accordance with the Contract's ninety-day written notice of termination provision. Gruszka also verbally advised Abrams of the termination. Earthgrains then stopped ordering bagels from Brooklyn Bagel for its Fort Payne facility, but continued to order for its Des Moines, Iowa facility. Once Abrams realized that Earthgrains stopped ordering bagels for the Fort Payne facility, she wrote Earthgrains' President, William Opdyke, acknowledging receipt of the termination letter. In late March, 1998, Earthgrains sent Brooklyn Bagel a forecast for its expected orders of bagels for distribution out of the Des Moines facility over the remaining months of the Contract, which was to terminate in June, 1998.

In July, 1998, Brooklyn Bagel sued Earthgrains, asserting various state law claims for breach of contract, breach of an implied duty of good faith and fair dealing, promissory estoppel, and unjust enrichment. One year later, the district court granted Earthgrains summary judgment, finding that the terms of the Contract were unambiguous and did not obligate Earthgrains to purchase its bagel needs for the Fort Payne facility from Brooklyn Bagel. The district court ruled that Earthgrains did not breach the parties' Contract and concluded that summary judgment was appropriate with respect to Brooklyn Bagel's remaining claims. Prior to this determination, the district court also granted Earthgrains' motion to strike the certification of Gregory Stahl, the former president of Brooklyn Bagel and a signatory of the parties' Contract, because the certification was not based on Stahl's personal knowledge and did not affirmatively demonstrate his competency to testify on matters contained therein as required by Fed. R. Civ. P. 56(e). Brooklyn Bagel now appeals the district court's summary judgment decision with respect to the dismissal of the breach of contract and breach of the implied duty of good faith and fair dealing claims, as well as the district court's ruling on Earthgrains' motion to strike.

II

We review de novo the district court's decision to grant summary judgment to Earthgrains. See Johnson v. Zema Sys. Corp., 170 F.3d 734, 742 (7th Cir. 1999). In order to overcome a motion for summary judgment, Brooklyn Bagel must show specific facts sufficient to raise a genuine issue of material fact for trial. See Fed. R. Civ. P. 56(c). In determining whether a genuine issue of material fact exists, we construe the record and all reasonable inferences drawn therefrom in the light most favorable to Brooklyn Bagel, the non-movant. See Senner v. Northcentral Technical College, 113 F.3d 750, 754 (7th Cir. 1997). In reviewing the district court's decision to strike Stahl's certification, however, we look for an abuse of discretion. See Wollenburg v. Comtech Mfg. Co., 201 F.3d 973, 977 (7th Cir. 2000).

A. Breach of Contract

1. Did the Parties Enter a Requirements Contract?

Brooklyn Bagel argues that the parties' Contract is an exclusive "requirements contract" obligating Earthgrains to order all of its bagel requirements for the Fort Payne facility from Brooklyn Bagel. Brooklyn Bagel contends that the Contract is ambiguous and that extrinsic evidence demonstrates that the parties intended to enter a requirements contract. In many American jurisdictions, including Illinois (which the parties agree governs this dispute), "a requirements contract exists only when the contract (1) obligates the buyer to buy goods, (2) obligates the buyer to buy goods exclusively from the seller, and (3) obligates the buyer to buy all of its requirements for goods of a particular kind from the seller." Zemco Mfg., Inc. v. Navistar Int'l Transp. Corp., 186 F.3d 815, 817 (7th Cir. 1999) (citing James J. White & Robert S. Summers, Uniform Commercial Code sec. 3-9, at 154-55 (1995), and E. Allan Farnsworth, Farnsworth on Contracts sec. 2-15, at 135-37 (1990)); see Wald v. Chicago Shippers Ass'n, 529 N.E.2d 1138, 1146 (Ill. App. Ct. 1988).

While Brooklyn Bagel asserts that the Contract is ambiguous and therefore capable of being interpreted as a requirements contract, the district court determined that, as a matter of law, the Contract is not a requirements contract.¹ In examining whether the Contract is ambiguous,² we first look to the plain language of the Contract. See Atlantic Mut. Ins. Co. v. Metron Eng'g & Constr. Co., 83 F.3d 897, 898 (7th Cir. 1996); Metalex Corp. v. Uniden Corp. of Am., supra, 863 F.2d at 1333. Brooklyn Bagel argues that the plain language of the Contract is ambiguous as to whether it is a requirements contract since the Contract lacks a quantity term. However, we are bound to construe the Contract as a whole, see Echo, Inc. v. Whitson Co., Inc., 121 F.3d 1099, 1105 (7th Cir. 1997) (interpreting Illinois law), and the lack of a quantity term itself does not necessarily render a contract ambiguous.

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