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

• Decision Date: 27 June 2012
• Docket Number: Cause No. 1:11–CV–190.
• Citation: 876 F.Supp.2d 1042
• Court: U.S. District Court — Northern District of Indiana
• Parties: BRC RUBBER & PLASTICS, INC., Plaintiff, v. CONTINENTAL CARBON COMPANY, Defendant.

876 F.Supp.2d 1042

BRC RUBBER & PLASTICS, INC., Plaintiff,

v.CONTINENTAL CARBON COMPANY, Defendant.

Cause No. 1:11–CV–190.

United States District Court,

N.D. Indiana,

Fort Wayne Division.

June 27, 2012.

Daniel N. Sharkey, Brooks Wilkins Sharkey & Turco PLLC, Birmingham, MI, Karen T. Moses, Shannon K. Reed, Faegre Baker Daniels LLP, Fort Wayne, IN, for Plaintiff.

Matthew J. Elliott, Beckman Lawson LLP, Fort Wayne, IN, Stephen M. Ryan, DLA Piper U.S. LLP, Houston, TX, for Defendant.

OPINION AND ORDER

ROGER B. COSBEY, United States Magistrate Judge.

Plaintiff BRC Rubber & Plastics, Inc., and Defendant Continental Carbon Company entered into a Supply Agreement as of January 1, 2010, concerning the supply of carbon black by Continental to BRC (the “Agreement”). On June 2, 2011, BRC terminated that Agreement and filed this lawsuit against Continental, advancing claims of breach of contact and anticipatory repudiation and seeking declaratory relief.¹

The crux of BRC's claims is that the Agreement is a requirements contract and Continental breached its terms when it missed sending a scheduled shipment of carbon black material to BRC, limited the annual quantity of carbon black it would sell, demanded higher prices for the material, and attempted to accelerate BRC's payment terms.

Continental, however, argues that it could not possibly have breached the Agreement because it is merely an open offer for orders, not a binding contract; alternatively, Continental contends that even if the Agreement is a binding contract, it is not a requirements contract, but rather an agreement to sell a specific quantity of carbon black.

The parties have filed cross-motions for summary judgment, which are now ripe for ruling. (Docket # 31, 32, 35, 39, 41, 42.) Continental's summary judgment motion asserts that the Agreement is not a requirements contract and, accordingly, all of BRC's claims fail as a matter of law. BRC, however, contends just the opposite—that the Agreement is a requirements contract and therefore it, not Continental, is entitled to summary judgment. Also pending is Continental's fully-briefed motion to strike the Declarations of Thomas Nunley and Michael Cornwell. (Docket # 40, 43, 44.)

For the following reasons, the Court concludes that the Supply Agreement is a requirements contract. Accordingly, Continental's summary judgment motion will be DENIED and its motion to strike will be DENIED in part and DENIED AS MOOT in part. BRC's summary judgment motion will be GRANTED to the extent that the Court concludes that the Supply Agreement is a requirements contract, but the Motion will otherwise be DENIED.

I. FACTUAL BACKGROUND²

Continental manufactures furnace-grade carbon black, a raw material filler used in tires and other rubber and plastic products.(Moccia Decl. ¶ 2.) BRC was a longtime customer of Continental, purchasing three grades of carbon black for incorporation into the numerous rubber products it supplies to customers. (BRC's Mem. of Law 3; Nunley Decl. ¶ 4.)

Thomas Nunley worked for Continental from 1997 to May 2011, serving as its Regional Manager of Materials during the relevant period. (Nunley Decl. ¶ 3.) In late 2009, Continental's President, Kim Pan, told Nunley that his number one goal should be to secure long-term agreements with customers. (Nunley Decl. ¶ 6.) Accordingly, Nunley visited many customers for the purpose of securing a long-term contract, including BRC, whom he regularly called on. (Nunley Decl. ¶¶ 6, 9.)

Nunley drafted a supply agreement with a term of five years and presented it to Michael Cornwell, Vice–President of Materials for BRC, who made a few changes to it. (Nunley Decl. ¶¶ 12–13; Cornwell Decl. ¶¶ 4–5.) Nunley then presented the draft agreement to Pan, who approved it. (Nunley Decl. ¶ 14.) No one else from Continental or BRC was active in negotiating the agreement. (Nunley Decl. ¶ 13; Cornwell Decl. ¶ 5.)

BRC and Continental executed the Supply Agreement as of January 1, 2010, and the Agreement “sets forth the terms and conditions for sale of furnace grade carbon black” from that date through December 31, 2014. (Moccia Decl. ¶ 3, Ex. A–1; BRC's Mem. of Law Ex. 1.) The terms of the two-page Agreement relevant to this dispute are: ³

Meet or Release

If during the term of this agreement BRC receives an offer that they believe is better tha[n] the terms offered in this agreement[,] Continental Carbon will have the right to meet this agreement or release BRC from any further obligation. Continental Carbon has the right to review the actual written offer. Only offers made in writing will be considered.

Quantity of Material

It is the intent of this Agreement that Continental Carbon Company agrees to sell to BRC Rubber and Plastics approximately 1.8 million pounds of prime furnace black annually. These volumes are to be taken in approximately equal monthly quantities. BRC Rubber and Plastics, to the best of their ability, will provide accurate forecasts of the future usage of their manufacturing sites which will assist Continental Carbon Company in meeting these and additional requirements.

Carbon Black Pricing

The following baseline prices for all rubber grade carbon blacks purchased by BRC Rubber & Plastics as of January 1, 2010 are as follows and are to remain firm throughout the term of this agreement.

....

Additional Volume Rebate/Penalty

An additional rebate or penalty will be applied according to the following schedule:

+-----------------------------------------------------------------------------+
                ¦Lower Limit           ¦Upper Limit           ¦Amount Applied                 ¦
                +----------------------+----------------------+-------------------------------¦
                ¦1,500,000             ¦2,100,000             ¦$.005/lb                       ¦
                +----------------------+----------------------+-------------------------------¦
                ¦1,400,000             ¦2,200,000             ¦An additional $.005/lb for a   ¦
                ¦                      ¦                      ¦total of $.01/lb               ¦
                +-----------------------------------------------------------------------------+
                

Rebates or penalty are applied to all pounds purchased during a calendar year. Rebates will be credit or invoice will be issued to make the appropriate adjustment.

Should the normal annual volume for BRC shift significantly BRC and Continental Carbon agree to establish new upper and lower limits.

(Moccia Decl. Ex. A–1; BRC's Mem. of Law Ex. 1.)

From January 1, 2010, until approximately mid-May 2011, the parties performed under the Agreement without dispute. (Moccia Decl. ¶ 4.) Whenever BRC needed carbon black from Continental, it would fax or email a written purchase order to Continental's customer service representative requesting the type, quantity, and shipment date needed. (Nelson Decl. ¶ 1.) If it could supply the requested type and quantity of material on the requested date, Continental would confirm this with BRC by telephone, fax, or email and then enter the information into Continental's order system. (Nelson Decl. ¶ 2.) In 2010, BRC bought 2.6 million pounds of carbon black from Continental and, accordingly, received a rebate under the terms of the Agreement. (Nunley Decl. ¶ 19; Cornwell Decl. ¶ ¶ 11, 12.)

Beginning in March 2011, market demand for carbon black began to exceed Continental's capacity to produce it. (Moccia Decl. ¶ 4.) Thomas Moccia, who joined Continental in 2010 as its Director of Marketing, told Nunley that Continental was losing money based on higher than anticipated manufacturing costs and inefficiencies and instructed him to approach the Continental customers that he called on to try to obtain accelerated payment terms and increased prices. (Nunley Decl. ¶¶ 21, 23.) Accordingly, Nunley approached BRC about these issues and was successful in obtaining the accelerated payment terms, but not the increased prices. (Nunley Decl. ¶ 3 1; Cornwell Decl. ¶¶ 14, 15.) BRC reminded Nunley that the Agreement required the base prices to “remain firm” and that BRC expected Continental to “hold up its end of the bargain.” ⁴ (Cornwell Decl. ¶ 15.)

By May 2011, Continental could no longer keep up with the demand for carbon black. (Moccia Decl. ¶ 4.) Continental's lead time for supplying its customers lengthened, and a large percentage of shipments to its customers were delayed. (Moccia Decl. ¶ 4.) That month, Continental failed to make one of its scheduled shipments of carbon black to BRC. (Cornwell Decl. ¶ 16.)

As a result of the missed shipment, BRC's counsel sent a letter to Continental on May 16, 2011, demanding adequate assurance of Continental's continued performance under the Agreement. (Moccia Decl. ¶ 4, Ex. A–2; Cornwell Decl. ¶ 16.) On May 20, 2011, Continental's counsel sent an email to BRC's counsel, assuring BRC that Continental would continue to produce and ship carbon black at the prices stated in the Agreement. (Moccia Dec. ¶ 5, Exs. A–3, A–4; Cornwell Decl. ¶ 20.) BRC acknowledged its receipt of Continental's assurance and inquired when the next shipments of carbon black would be scheduled. (Moccia Decl. ¶ 6, Ex. A–4.) Continental replied that it would ship one railcar of carbon black the next week and that it would “do the best we can re[garding] future orders on our intent to supply 1.8 million pounds.” (Moccia Decl. ¶ 6, Ex. A–4.)

But later that same day, Continental's customer service representative stated in an email to BRC that it would only ship at higher prices. (Cornwell Decl. ¶ 20.) Cornwell responded via email that BRC refused the demand for higher prices because it was not in accordance with the Agreement. (Cornwell Decl. ¶ 21.) Moccia of Continental then replied to Cornwell: “I suggest you call another supplier Mike....” (Cornwell Decl. ¶ 22.)

Three days later, on May 23, 2011, BRC asked Continental when the next three rail shipments of carbon black would ship. (Moccia Decl. ¶ 7, Ex. A–5.) Continental informed BRC that it could only ship one car at the moment, that it would not “sh...