Kaiser Trading Co. v. Associated Metals & Minerals Corp.
| Citation | 321 F. Supp. 923 |
| Decision Date | 14 December 1970 |
| Docket Number | No. C-70 2253.,C-70 2253. |
| Court | U.S. District Court — Northern District of California |
| Parties | The KAISER TRADING COMPANY, a corporation, Kaiser Aluminum & Chemical Corporation, a corporation, Plaintiffs, v. ASSOCIATED METALS & MINERALS CORPORATION, a corporation, Defendant. |
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Thelen, Marrin, Johnson & Bridges, by Max Thelen, Jr., Ira A. Brown, Peter Anderson, San Francisco, Cal., for plaintiffs.
Heller, Ehrman, White & McAuliffe, by Weyman I. Lundquist, Stephen V. Bomse, J. Roger Beers, San Francisco, Cal., for defendant.
This action was commenced in the Superior Court in Alameda County, California, by the Kaiser Aluminum & Chemical Corporation and its wholly owned subsidiary, The Kaiser Trading Company hereinafter referred to collectively as "Kaiser",1 against the Associated Metals & Minerals Corporation hereinafter referred to as "Associated" for breach of contract. Plaintiffs seek a preliminary injunction, specific performance, and money damages. The suit was removed to this court pursuant to 28 U.S.C. § 1441. The relevant facts are as follows:
The Kaiser Trading Company is in the business of buying and selling commodities throughout the world. Kaiser Aluminum & Chemical Corporation is a leading manufacturer of aluminum, with plants throughout the United States; through its associates and subsidiaries, it also has interests in aluminum throughout the world. Defendant Associated is in the business of buying and selling metals, minerals, chemicals, and related commodities. One such commodity, which is the subject matter of the contract giving rise to this action, is cryolite, an indispensable chemical compound used in the production of aluminum.2
In 1969, Kaiser and Associated entered into an agreement for the sale by Associated to Kaiser of 4,000 metric tons of cryolite produced in Italy by Industrie Chimiche Ing. Bonelli hereinafter referred to as "ICIB", from whom Associated has been purchasing cryolite for resale since 1951. This contract was similar to ones that had been entered into annually between Kaiser and Associated since 1964, all of which involved cryolite produced by ICIB. Under the terms of the 1969 contract,3 as modified in March,
1969,4 the cryolite was to be delivered in 500 ton installments, one installment during the spring of 1970, four installments in September, October, November, and December of 1970 respectively, and the remaining installments during the first quarter of 1971. To date, only the first 500 tons have been delivered.
In September, 1970, Associated informed Kaiser that it no longer considered itself obligated under the contract and that it did not intend to make any more deliveries of cryolite.5 Associated's alleged justification for repudiating the contract was that Kaiser had been surreptitiously negotiating with ICIB during 1969 and 1970 and had concluded a contract with them under which, commencing in 1971, ICIB would supply cryolite directly to Kaiser, thus eliminating Associated's future role as a middleman between Kaiser and ICIB.6 Associated alleges that the agreement between Kaiser and ICIB violated Associated's agreement with ICIB making Associated the exclusive purchaser of cryolite from ICIB for Kaiser.7 Associated claims that because Kaiser's dealings with ICIB amounted to tortious interference with Associated's contractual rights and were anticompetitive in effect, it was no longer obligated under its contract with Kaiser to deliver cryolite.
Presently before the court is Kaiser's motion for a preliminary injunction to restrain Associated from failing to perform under the contract. In opposition to such motion, Associated argues that (1) it was justified in repudiating the contract and thus is not in breach; (2) no showing of irreparable injury has been made; and (3) Kaiser is precluded from obtaining equitable relief because its activities with regard to ICIB tainted it with unclean hands.
Associated contends that it was relieved of its obligation to perform under the contract with Kaiser on two grounds: (1) Kaiser's secret negotiations and subsequent agreement with ICIB constituted a tortious interference with Associated's contractual rights with ICIB and therefore a breach by Kaiser of its contract with Associated, relieving Associated of its obligation to make further deliveries of cryolite; and (2) Kaiser's activities in regard to ICIB were anticompetitive and monopolistic, rendering its contract with Associated illegal, against public policy, and thus unenforceable.
Even assuming in arguendo that Kaiser induced ICIB to breach its exclusive sales agreement with Associated and thereby committed actionable interference with Associated's contractual rights,8 Associated was not justified in its repudiation of the contract in suit. No case could be found, and no commentator has suggested, that a tort committed by one party to a contract against the other, independent of the contract itself, is a defense to a breach of contract action by the tortfeasor. In fact, only one case could be found in which an unrelated tort of any kind has been raised as a defense to breach of contract by the tortiously wronged party. Sheriff v. Weimer, 88 Ga.App. 80, 76 S.E.2d 33 (1953). In Sheriff, the court stated:
Where * * * the petition alleges an indebtedness owing to the plaintiff by the defendant, and the creation of that indebtedness by specific transactions and express promises of the defendant to repay the plaintiff the sums paid, the fact that the petition shows incidentally that a meretricious relationship also existed between the parties at the time the contracts were made, or that the plaintiff had or was perpetrating a fraud on the defendant in connection with some other matter, does not affect the right of the plaintiff to recover on an otherwise valid promise of the defendant.
76 S.E.2d at 34; cf. Fibreboard Paper Prods. Corp. v. East Bay Union of Machinists, 227 Cal.App.2d 675, 39 Cal.Rptr. 64 (1964), discussed infra.
In other situations, the courts also have rejected defenses that are unrelated to the contract in suit. In Automatic Radio Mfg. Co. v. Hazeltine Research, Inc., 176 F.2d 799 (1st Cir. 1949), aff'd on other grounds, 339 U.S. 827, 70 S.Ct. 894, 94 L.Ed. 1312 (1950),9 in which a suit was brought to recover royalties due under a patent licensing agreement and a defense was interposed that plaintiff had used duress and threats of patent infringement suits to acquire other licensing agreements with third parties, the court held:
Such wrongful conduct in respect to third persons would constitute no defense * * *. A promisee's cause of action on one contract cannot be defeated merely by a showing that the promisee had improperly coerced third parties into entering into similar contracts with him.
Id. at 805. Furthermore, courts have held that breach of a contract independent of the contract in suit is not a defense to breach of the latter. See Hal Roach Studios, Inc. v. Film Classics, Inc., 156 F.2d 596, 599 (2d Cir. 1946); Levi v. L. A. Thompson Scenic Ry. Co., 128 Misc. 465, 218 N.Y.S. 666 (App.T. 1926); William J. Dixon & Co. v. Bronston Bros. & Co., Inc., 171 App.Div. 552, 157 N.Y.S. 335 (App.Div.1916). See generally 17A C.J.S. Contracts § 525(1) at 1016-1017.
Associated also alleges that by secretly negotiating with ICIB, inducing ICIB to breach its agreement with Associated, and eliminating Associated as a future purchaser of cryolite from ICIB for Kaiser, Kaiser breached the implied covenant of good faith and fair dealing in its contract with Associated. Thus, Associated argues, Kaiser was in breach of the instant contract and Associated was not obligated to perform by delivering the cryolite.
It is of course true that if one party is in material breach of contract, the other party need not perform,10 but in the case at bar Kaiser is not in breach of its contract with Associated. The implied covenant of good faith and fair dealing is "that neither party will do anything which will injure the right of the other party to receive the benefits of the agreement." Merritt v. J. A. Stafford Co., 68 Cal.2d 619, 626, 68 Cal.Rptr. 447, 451, 440 P.2d 927, 931 (1968); see Crisci v. Security Ins. Co., 66 Cal.2d 425, 429, 58 Cal.Rptr. 13, 16, 426 P.2d 173, 176 (1967). In the instant case, however, Kaiser is not impairing Associated's rights under its contract with Kaiser; on the contrary, it is attempting to effectuate the contract as written, with all its attendant rights and benefits. Even if all of Associated's allegations are true, Kaiser, at worst, injured Associated's contractual rights with ICIB, not with Kaiser. Cases cited by Associated in support of its contention11 are readily distinguishable.
In sum, Associated was not justified in repudiating its contract with Kaiser because of Kaiser's alleged activities in regard to ICIB.
Associated also argues that it was not obligated to perform under the contract because it constitutes an illegal restraint on trade and therefore is unenforceable. Although the courts will not enforce a contract that is an illegal restraint on trade,12 it is the contract being sued upon which must give rise to the illegal or anticompetitive effect; it is not enough that the plaintiff's general activities are anticompetitive. See Kelly v. Kosuga, 358 U.S. 516, 520-521, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959); Bruce's Juices, Inc. v. American Can Co., 330 U.S. 743, 754-756, 67 S.Ct. 1015, 91 L.Ed. 1219 (1947). As the court stated in Automatic Radio Mfg. Co. v. Hazeltine Research, Inc., 176 F.2d 799, 805 (1st Cir. 1949), aff'd on other grounds, 339 U.S. 827, 70 S.Ct. 894, 94 L.Ed. 1312 (1950):13
The district court correctly ruled that, even assuming arguendo that Hazeltine was engaged in...
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