486 F.3d 866 (6th Cir. 2007), 06-3177, Micrel, Inc. v. TRW, Inc.

Docket Nº:06-3177.
Citation:486 F.3d 866
Party Name:MICREL, INC., Plaintiff/Counter-Defendant/Appellant, v. TRW, INC., doing business as TRW Automotive Electronics Group, Defendant/Counter-Claimant/Appellee.
Case Date:May 04, 2007
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

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486 F.3d 866 (6th Cir. 2007)

MICREL, INC., Plaintiff/Counter-Defendant/Appellant,


TRW, INC., doing business as TRW Automotive Electronics Group, Defendant/Counter-Claimant/Appellee.

No. 06-3177.

United States Court of Appeals, Sixth Circuit.

May 4, 2007

Argued: April 24, 2007.

Appeal from the United States District Court for the Northern District of Ohio at Cleveland. No. 02-02539—Dan A. Polster, District Judge.

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Irene C. Keyse-Walker, TUCKER, ELLIS & WEST, Cleveland, Ohio, for Appellant.

Damond R. Mace, SQUIRE, SANDERS & DEMPSEY, Cleveland, Ohio, for Appellee.


Irene C. Keyse-Walker, TUCKER, ELLIS & WEST, Cleveland, Ohio, Maria S. Bellafronto, Stephen J. Kottmeier, HOPKINS & CARLEY, San Jose, California, for Appellant.

Damond R. Mace, Mark J. Savage, SQUIRE, SANDERS & DEMPSEY, Cleveland, Ohio, for Appellee.

Before: GUY, COLE, and McKEAGUE, Circuit Judges.


RALPH B. GUY, JR., Circuit Judge.

Micrel, Inc., and TRW, Inc., d/b/a Automotive Electronics Group, entered into agreements for Micrel to design and supply electronic circuits to be used in airbag passive restraint systems. After trial on their competing claims and counterclaims for breach of contract, the jury returned its verdict in favor of TRW and awarded damages in the amount of $9,282,188. Judgment was entered accordingly, and Micrel's motion for new trial was denied. Micrel appeals from the verdict, arguing that the district court erred by (1) allowing TRW's claim for "cover" or "expectancy" damages; (2) failing to properly instruct the jury concerning the contract claims or the proper measure of damages; and (3) refusing to give the jury interrogatories it requested. Micrel also appeals from the district court's pretrial order granting summary judgment to TRW on Micrel's claim of fraudulent inducement. After review of the record and the arguments presented on appeal, we affirm.


TRW's automotive electronics business included assembling and selling components for airbag passive restraint systems to car manufacturers, including Toyota, Honda, and Daimler-Chrysler. The airbag modules required three application--specific integrated circuits (ASICs)--the dual, the quad, and the power supply squibs--which supply, monitor, and send

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electrical signals that fire the initiators that deploy the airbags. The dual squib is capable of triggering two airbags, the quad can trigger four, and the power supply provides power to all of the circuitry within the airbag control module. TRW's ASICs were being supplied by National Semiconductor Corporation, but TRW wanted to find a new supplier to provide lower cost "drop-in" replacements for the ASICs supplied by National. The search led TRW to Micrel.

In January 1998, TRW and Micrel executed the ASIC Development/Purchase Agreement (1998 Agreement). They agreed that Micrel would design the three ASICs to TRW's specifications and, if they conformed, TRW would purchase 100% of its ASIC requirements from Micrel through at least 2002. In February 2000, development had not been completed and the relationship broke down. TRW claimed that Micrel had failed to perform timely and terminated the agreement, while Micrel claimed that TRW had failed to give written notice of the deficiencies and an opportunity to cure. TRW and Micrel claimed to have incurred damages of $18 and $24 million, respectively. Mediation followed, but it was unsuccessful.

TRW and Micrel had a meeting in March 2001 to discuss a possible business solution to their dispute that would involve TRW's purchase of other products from Micrel. During those discussions, Micrel commented that it was a shame that the project had ended so close to completion, and TRW indicated that it wanted the potential lawsuit "off the books" because it had become a possible acquisition target. TRW suggested they consider resuming work on the ASIC project, and discussions followed over several months. Micrel insists that restarting the program depended on its ability to recoup the $3.9 million expended and many millions in profits lost under the 1998 Agreement.

During the discussions, TRW provided Micrel with estimates of the production volumes it anticipated for the years 2002, 2003, and 2004. TRW did not provide estimates beyond 2004, and disclosed that the ASICs would be replaced with a "next generation" ASIC already in development with another supplier. Micrel was unable to get TRW to commit to any minimum production quantities or provide estimates beyond 2004, but was assured that the volume of sales would decline slowly and not "fall off a cliff' after 2004. Micrel made its own projections of somewhat reduced quantities for 2005 and 2006, and was orally assured that those quantities were reasonable conservative estimates. Micrel was also concerned about whether there were "windows" by which it would have to deliver the ASICs, and was told that there were none.

On October 10, 2001, Micrel and TRW executed three agreements--(1) the Settlement and Mutual Release Agreement, (2) the ASIC Development Agreement, and (3) the ASIC Supply Agreement. Through these agreements, TRW and Micrel mutually released their respective claims under the 1998 Agreement and agreed to resume their plans to develop and produce the ASICs to replace the higher-cost units TRW was still purchasing from National. The Settlement recited that consideration for the releases specifically included the concurrent execution of the Development and Supply Agreements. All three agreements specified that Ohio law would govern, and each contained an integration clause. 1

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In the Development Agreement, Micrel committed to developing and testing ASICs that would meet TRW's specifications; and TRW agreed that, if the ASICs met the acceptance criteria, TRW would purchase production level quantities as provided for in the Supply Agreement. The Development Agreement incorporated a development schedule that provided for a production release date of the third week of June 2002; declared that "time was of the essence" in Micrel's performance; and allowed for modification of the schedule to accommodate the design process upon the written approval of both parties. Micrel was to do internal testing and produce up to 1500 units for TRW to test, and TRW agreed to promptly conduct its testing and to use commercially reasonable efforts to qualify Micrel's ASICs for use in TRW's customer applications. TRW agreed to pay $250,000 upon execution of both the Development and the Supply Agreements; $125,000 on successful completion of Micrel's internal qualification of the ASICs; and, finally, $125,000 on successful completion of TRW's qualification. Failure of either party to complete their obligations would be cause for termination, but termination would not become effective unless the breaching party failed to correct the deficiencies within a mutually agreed upon period not to exceed three months. If either party terminated the Agreement for cause, then the ASIC Supply Agreement would also be deemed terminated for cause.

In the Supply Agreement, TRW committed to purchasing 100% of its requirements for the ASICs from Micrel, "if [Micrel] completes all development obligations under the ASIC Development Agreement," and "if [TRW] has orders from its customers for air bag modules that incorporate [Micrel]'s Products." TRW's schedule of estimated production requirements for 2002, 2003, and 2004, totaling roughly 16 million parts, was attached to and incorporated into the Supply Agreement. The Supply Agreement made clear, however, that these quantities were just that--estimates. The Supply Agreement also provided that "this obligation is not, and will not be construed as a proscription against [TRW] purchasing next generation ASICs, or ASICs for other applications, from another supplier." In fact, the same paragraph provided, in part, that:

Upon successful completion of [Micrel's] internal qualification, [TRW] will discuss with [Micrel] commitments regarding production introduction of the Products and will provide production forecasts which are based on [TRW]'s customer forecasts at that time. [TRW] cannot guarantee that customers will accept airbag modules that incorporate the Products, or that customers will order airbag modules from [TRW] consistent with historic levels. However, [TRW] will use reasonable commercial efforts in connection with [Micrel], to cause [TRW]'s customers to approve the use of airbag modules that incorporate [Micrel]'s Product.... [Micrel] recognizes that it will take time for [TRW] to qualify air bag modules manufactured for [TRW]'s customers using [Micrel]'s Product. [Micrel] recognizes that time is of the essence in meeting delivery deadlines, since [TRW]'s customers have no obligation to approve the ASICs without adequate lead time. [Micrel] and [TRW] will use reasonable commercial efforts to cause [TRW]'s customers

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to approve the use of [Micrel]'s Product in [TRW]'s air bag modules.

Lest this be unclear, this paragraph closed by stating that: "Notwithstanding anything in this Agreement to the contrary, [TRW] will only be obligated to purchase Product if it has orders from its customers for air bag modules that incorporate [Micrel]'s Products. [Micrel] recognizes that the ultimate decision whether to purchase airbag modules that incorporate the Products lies with [TRW]'s customers." TRW also reserved the right to make changes to the specifications by written agreement. If any change caused an increase or decrease in development or production costs or the time required for production or delivery of the ASICs, Micrel was required to promptly notify TRW in writing. In such event, an equitable adjustment would be made and the agreement modified by written amendment to reflect...

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