BRC Rubber & Plastics, Inc. v. Cont'l Carbon Co.

• Decision Date: 16 August 2018
• Docket Number: No. 17-2783,17-2783
• Parties: BRC RUBBER & PLASTICS, INCORPORATED, an Indiana corporation, Plaintiff-Appellant, v. CONTINENTAL CARBON COMPANY, a Delaware corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

900 F.3d 529

BRC RUBBER & PLASTICS, INCORPORATED, an Indiana corporation, Plaintiff-Appellant,

v.CONTINENTAL CARBON COMPANY, a Delaware corporation, Defendant-Appellee.

No. 17-2783

United States Court of Appeals, Seventh Circuit.

Argued February 21, 2018

Decided August 16, 2018

Jeremy N. Gayed, Attorney, Barrett & McNagny LLP, Fort Wayne, IN, for Plaintiff-Appellant.

Stephen M. Ryan, Attorney, Orrick, Herrington & Sutcliffe LLP, Houston, TX, for Defendant-Appellee.

Before Ripple, Kanne, and Hamilton, Circuit Judges.

Ripple, Circuit Judge.

This case involves a contract dispute over the sale and purchase of carbon black, an important ingredient in rubber products. BRC Rubber & Plastics, Inc. ("BRC") seeks to recover from Continental Carbon Co. ("Continental") costs that it incurred in purchasing carbon black from another supplier following Continental’s alleged repudiation of the parties’ supply agreement.

Initially, BRC claimed that the agreement was a requirements contract, i.e. , a supply agreement in which Continental promised to provide all of the carbon black that BRC required. Because Continental failed to do so, the district court awarded summary judgment to BRC.

In a prior appeal, we rejected the characterization of the agreement as a requirements contract and, therefore, vacated the judgment. In remanded proceedings, BRC, without amending its complaint, pursued the alternative theory that the agreement is for the supply of a fixed amount of carbon black. The district court granted summary judgment to Continental for two reasons: BRC’s complaint failed to state a claim for relief under any theory of the agreement other than as a requirements contract; in the alternative, the agreement is unenforceable for a lack of mutuality and consideration.

BRC now appeals. For the reasons set forth in this opinion, we conclude that the parties’ agreement is enforceable and that BRC can proceed on its alternative characterization of the contract as an agreement for a fixed amount of carbon black. We, therefore, reverse and remand the case for proceedings consistent with this opinion.

IBACKGROUND

A.

BRC produces rubber-based products for the automotive industry. Continental is a supplier of carbon black, a raw material that is a key ingredient in rubber products. On January 1, 2010, BRC and Continental entered into a five-year agreement (the "Agreement"). Under its terms, Continental "agree[d] to sell to [BRC] approximately 1.8 million pounds of prime [carbon] black annually ... to be taken in approximately equal monthly quantities."¹ The Agreement set out baseline prices for three different grades of carbon black (N339, N550, and N762) and stated that those prices were "to remain firm throughout the term."² In return, Continental obtained the right to review and meet any better offers that BRC received during the term.³

In 2010, Continental shipped 2.6 million pounds of carbon black to BRC. Shipments continued regularly into mid-2011, with Continental providing more than one million pounds by the spring of 2011. However, in March 2011, demand for carbon black began to exceed Continental’s ability to produce it. In April 2011, Continental notified all of its buyers that the N762 grade of carbon black would be unavailable in May due to plant outages and lack of inventory. BRC nonetheless placed an order for 360,000 pounds of carbon black, including N762, for delivery in the coming weeks.

The parties dispute the nature of their communications during this period. In mid-April 2011, a Continental sales representative emailed BRC’s Vice President of Purchasing seeking to increase the baseline prices of carbon black by $.02 per pound. BRC rejected this request, citing the "firm" prices set out in the Agreement. In late April, the same Continental representative informed BRC that Continental might withhold shipments from BRC. Continental does not deny that this communication occurred but maintains that the representative, who was about to be terminated from the company, delivered a false message.

Given Continental’s limited inventory and obligations to other customers, it neither confirmed BRC’s last order nor shipped the requested carbon black. BRC’s counsel then sent a letter to Continental, dated May 16, 2011, demanding immediate shipment of the unfulfilled order and immediate assurance that Continental would uphold its end of the bargain in the future. Continental responded that it did "not have N762 available at the moment."⁴ As a result, on May 18, 2011, BRC purchased one railcar’s worth of N762 from another supplier at a higher price than set forth in the Agreement.

Two days later, Continental offered to ship BRC multiple railcars of carbon black at price increases up to $.06 per pound. Continental claims that this offer mistakenly quoted higher prices than the Agreement. When BRC refused to pay higher prices, a Continental Director suggested that BRC "call another supplier."⁵ Continental maintains that this response was based on a misunderstanding. Indeed, within hours, counsel for both parties conferred and Continental’s attorney sent an email to BRC stating that Continental would "continue producing and shipping timely at the contract prices, and would not cut off supply to BRC."⁶

Later that same day, BRC sought further confirmation as to when Continental would fulfill BRC’s outstanding order. Continental responded, "we will ship one car next week and do the best we can re future orders based on our intent to supply 1.8 million lbs."⁷ BRC requested a status update three days later, and Continental gave a similar response.

On the next business day, BRC again inquired about the status of its order, and Continental said that it would ship one railcar of carbon black the following day. At this point, Continental emphasized that the Agreement required it to supply only 1.8 million pounds per year—or approximately 150,000 pounds per month—and that it already had shipped 1.2 million pounds that year—or approximately 300,000 pounds per month. Continental shipped one railcar of carbon black to BRC the next day. Within a week, Continental emailed BRC seeking to increase the baseline prices again and to accelerate the payment terms in the Agreement. On June 2, 2011, BRC filed this lawsuit.⁸

B.

BRC’s complaint sets out three counts. It alleges: (1) that Continental breached the Agreement by refusing to supply BRC with its requirements of carbon black at the prices and terms set forth in the Agreement; (2) that BRC is entitled to a declaration that Continental is obligated to provide BRC with its requirements of carbon black pursuant to the terms of the Agreement; and (3) that Continental anticipatorily repudiated the Agreement by failing to provide assurances about its future performance.⁹ In the third and final count, BRC relies upon sections 26-1-2-610 and 26-1-2-712 of the Indiana Code, which govern, respectively, "[a]nticipatory [r]epudiation" and "[c]over" for a "buyer’s procurement of substitute goods." Ind. Code §§ 26-1-2-610, 26-1-2-712. The complaint refers to the Agreement as a "requirements contract" multiple times.¹⁰

Prior to discovery, the parties filed cross-motions for summary judgment based on competing interpretations of the Agreement. Continental contended that the Agreement is merely an open offer for orders—not a binding contract—and that Continental, therefore, could not have breached it by repudiation or otherwise. In the alternative, Continental argued that the Agreement is a contract to sell a specific quantity of carbon black rather than a requirements contract. BRC maintained that the Agreement is a requirements contract, or an agreement by which Continental promised to supply all of BRC’s requirements for carbon black during the term. According to BRC, Continental had repudiated the Agreement by failing to satisfy BRC’s order, as well as by sending equivocal messages about the satisfaction of future orders and by demanding higher prices and accelerated payment terms.

The district court applied Indiana law and concluded that the Agreement is a requirements contract.¹¹ Although it granted partial summary judgment to BRC on that ground, the court denied summary judgment on the questions of breach and anticipatory repudiation. The parties continued with discovery, and BRC later moved for summary judgment on the question of liability. The court again ruled in BRC’s favor; it found that Continental had repudiated the Agreement by refusing to supply all of BRC’s requirements and by failing to provide assurances of continued performance. After granting summary judgment on liability, the court conducted a bench trial on damages. It awarded BRC $982,643.11 based on the "cover" that BRC had purchased from other suppliers through June 30, 2013.¹²

Continental appealed the final judgment to this court.¹³ It challenged the district court’s interpretation of the Agreement as a requirements contract, emphasizing that the Agreement does not obligate BRC to buy any amount of carbon black, let alone all of its required carbon black, from Continental. We agreed with this reasoning and vacated the district court’s judgment. See BRC Rubber & Plastics, Inc. v. Cont’l Carbon Co. , 804 F.3d 1229, 1233 (7th Cir. 2015). We did not address the questions of breach or repudiation. Rather, given that the prior "judgment against Continental was premised on the agreement being a requirements contract," we remanded the case for further proceedings. Id.

On remand, the district court ordered the parties to submit new cross-motions for summary judgment in light of our decision. Continental argued that BRC’s claims now fail as a matter of law because if the Agreement is not a requirements contract, it must be an unenforceable "buyer’s option" that lacks mutuality and consideration.¹⁴ Continental also claimed that the Agreement is unenforceable because it lacks essential terms, particularly a precise quantity of total carbon black and of each grade of...