Northern Crossarm Co. v. Chemical Specialties
| Decision Date | 18 May 2004 |
| Docket Number | No. 03-C-415-C.,03-C-415-C. |
| Parties | NORTHERN CROSSARM CO., INC., Plaintiff, v. CHEMICAL SPECIALITIES, INC., Defendant. |
| Court | U.S. District Court — Western District of Wisconsin |
Gregory T. Everts, Madison, WI, for Plaintiff.
Jon G. Furlow, Michael Best & Freidrich, LLP, Madison, WI, for Defendant.
This is a civil action for monetary relief, in which plaintiff Northern Crossarm Co., Inc. contends that defendant Chemical Specialities, Inc. breached the parties' marketing support agreement, breached its implied duty of good faith and enriched itself unjustly. The case is before the court on two motions: plaintiff's motion to alter and amend a judgment entered earlier in the case and defendant's supplemental motion for summary judgment on plaintiff's good faith and unjust enrichment claims. Plaintiff's claims arise out of a dispute regarding defendant's obligation to make market support payments for certain regional sales made by a third party.
In an opinion and order entered March 16, 2004, I granted defendant's motion for summary judgment with respect to this claim, concluding that the language of the market support agreement was ambiguous and that there was no record evidence that either party had expressed an intent or understanding that the market support agreement would extend to third party sales. Plaintiff has filed a motion for reconsideration.1 In support of this motion plaintiff contends the court made three basic errors: (1) concluding that the contract was ambiguous instead of broad; (2) failing to consider certain arguments that plaintiff asserts it raised with respect to the effect of extrinsic evidence; and (3) imposing on plaintiff the burden of proving that the parties actually agreed that market support payments would be made by third parties. Because none of plaintiff's arguments convince me that the decision was in error, the motion will be denied.
With respect to defendant's supplemental motion for summary judgment, I conclude that it must be denied with respect to plaintiff's duty of good faith and fair dealing claim. Construing the evidence in the light most favorable to plaintiff, a reasonable jury could find that defendant used the sublicensing agreement as a subterfuge to avoid its market support obligations. Defendant's motion will be granted with respect to plaintiff's unjust enrichment claim. Unjust enrichment is a quasi-contractual remedy available only when the parties have not otherwise made contractual arrangements to compensate one party for a benefit it conferred on the other. Although the market support agreement does not govern all material elements of the parties' business relationship, it encompasses the aspect relevant to plaintiff's unjust enrichment claim. Because the parties have a binding contract compensating plaintiff for its marketing efforts, plaintiff cannot recover under unjust enrichment.
Plaintiff Northern Crossarm Co., Inc., is a Wisconsin corporation with its headquarters and principal place of business in Chippewa Falls, Wisconsin. It is a wood treating company that sells crossarms, treated wood, laminated columns and underdeck systems used in a variety of outdoor applications in the Midwest. Defendant Chemical Specialities, Inc., is a North Carolina corporation with its headquarters and principal place of business in Charlotte, North Carolina. It produces an Alkaline Copper Quaternary (AC Q) wood preservative and other wood preservative products and sells them to wood treaters nationwide.
Since the 1940's Chromated Copper Arsenate (CCA) has been the most widely used wood treatment product in the world although it contains arsenic and chromium, which are identified as hazardous substances by the Environmental Protection Agency. In 1990, defendant introduced ACQ, which does not contain any substances on the hazardous list. ACQ is a patented product of Domtar, Inc, a Canadian corporation, which granted defendant an exclusive license to manufacture, use, market and sublicense the product in North America in exchange for royalty payments. This exclusive license runs until the expiration of the patent in June 30, 2007.
When ACQ was first introduced as an alternative to CCA, both of the two other major CCA manufacturers, Osmose, Inc. and Arch, criticized the product openly. In response to this criticism, defendant promoted ACQ with marketing campaigns and lobbied at the state and federal level.
Plaintiff's president, Patrick Bischel, approached defendant in the early 1990's to purchase ACQ. Plaintiff was concerned about the low profit margins for CCA-treated wood caused by steep competition in the market and about the growing public pressure to prohibit the use of CCA because of its hazardous contents. Defendant agreed to sell to plaintiff and plaintiff started treating wood with ACQ in 1994. In order to do so, plaintiff invested approximately $600,000 in equipment and building costs for the construction of an ACQ wood treating facility. Eventually, defendant rebated some of the money plaintiff had spent on equipment. Plaintiff has always purchased and continues to purchase all of its ACQ products from defendant.
Initially, defendant pursued a nationwide marketing strategy for ACQ. After a short time, it determined that a regional approach would be more effective. In implementing its regional approach, defendant established relationships with selected wood treaters in different regions of the United States; plaintiff was one of those regional treaters. In 1994, plaintiff was the only wood treater using ACQ in Minnesota, Iowa, Wisconsin, South Dakota or the Upper Peninsula of Michigan and one of only six ACQ treaters in the country. Soon after plaintiff started using ACQ, it began making sales call to retail lumber dealers to explain the differences between ACQ and CCA and let them know that they would be able to purchase ACQ-treated lumber from plaintiff shortly. Also in 1994, plaintiff participated in a number of conventions, radio shows and trade shows, made formal presentations to 63 state, county and city specifiers, issued 105 news releases to newspapers, radio and television outlets and held an open house for regional lumber dealers to introduce ACQ-treated lumber.
In 1995, plaintiff continued its marketing efforts by promoting ACQ at the Madison Area Builders Home and Garden Show and participating in a variety of other home shows throughout the Midwest. Plaintiff secured commitments from 20 retail lumber dealers to market ACQ-treated products that year. In 1996, plaintiff sponsored a golf outing for existing and potential customers for ACQ products. The following year, it continued to promote ACQ products at trade shows, employee training programs and on radio shows. Plaintiff acquired two large new customers for ACQ-treated products in 1997.
Plaintiff continues to engage in similar marketing initiatives, such as providing tours of its facilities to potential clients, government officials and academics, assisting with lobbying efforts, conducting email campaigns, distributing auto decals, hosting golf outings, appearing on television programs and providing information about ACQ to a variety of newspapers and magazines with information about ACQ. Government agencies and defendant have recognized plaintiff for its contribution in promoting ACQ. In 2000, defendant's vice president of marketing and business development characterized plaintiff as "the horse th[at] got us where we are" to his colleagues.
During this time, defendant both aided plaintiff's marketing efforts and engaged in its own regional marketing. Defendant supplied plaintiff with brochures, banners, store signs and referrals to local architects who would be in position to purchase or recommend ACQ-treated lumber. It also made the initial contacts with many of the print and broadcast media sources and reimbursed plaintiff for some of its promotion efforts. By mid-1997, defendant had retained an advertising and public relations firm to assist it in preparing a market strategy that would establish ACQ as the preferred product to CCA. As part of this initiative, defendant targeted "big box" retailers such as Home Depot, Lowes, Menards, Hechinger/HQ and Home Base/Builder's Square.
In 1997, plaintiff began to treat its wood exclusively with ACQ. At the time plaintiff made this decision, sales of CCA-treated lumber made up approximately one-third of its total treated wood sales. In making this conversion, plaintiff spent between $25,000 and $35,000 expanding its plant.
Plaintiff began negotiating a supply agreement with defendant in early 1998. Bischel told defendant's representatives, Tom Fitzgerald and Steve Ainscough, that plaintiff did not want defendant to sell to any other wood treaters in Minnesota, Iowa, Wisconsin, South Dakota or the Upper Peninsula of Michigan. However, defendant refused to give plaintiff a long term exclusive right to purchase ACQ in this region. Bischel sought a price advantage over other regional treaters because he was concerned that its profit margins would erode as other treaters entered the market. After further negotiations, the parties reached an agreement in principle that defendant would make market support payments to compensate plaintiff for its past and future efforts in promoting ACQ in the region. Plaintiff and def...
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