Lonesource, Inc. v. United Stationers Supply Co.

• Decision Date: 28 March 2013
• Docket Number: No. 5:11-CV-33-D,5:11-CV-33-D
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: LONESOURCE, INC., Plaintiff, v. UNITED STATIONERS SUPPLY CO., Defendant.

LONESOURCE, INC., Plaintiff,

v.UNITED STATIONERS SUPPLY CO., Defendant.

No. 5:11-CV-33-D

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA WESTERN DIVISION

SO ORDERED: March 28, 2013

ORDER

On December 20, 2010, Lonesource, Inc. ("Lonesource") sued United Stationers Supply Co. ("United") in Wake County Superior Court. Compl. [D.E. 1-2]. On January 20, 2011, United removed the case to this court pursuant to diversity jurisdiction [D.E. 1 ]. On March 14, 2012, United filed two motions for partial summary judgment on Lonesource's claims for declaratory judgment, breach of contract, anticipatory breach of contract, fraud, and unfair and deceptive trade practices, and filed supporting memoranda [D.E. 45-46,49-50]. On April 2, 2012, United filed a motion for partial summary judgment on its counterclaims for breach of contract and unjust enrichment, and filed a supporting memorandum [D.E. 62-63]. On April 27, 2012, Lonesource filed a motion to strike and a supporting memorandum [D.E. 81-82].

As discussed below, United's motions for summary judgment on Lonesource's claims for declaratory judgment, breach of contract, anticipatory breach of contract, fraud, and unfair and deceptive trade practices are granted. United's motion for partial summary judgment on its counterclaims for breach of contract and unjust enrichment is denied. Lonesource's motion to strikeis denied.¹

I.

Lonesource is a national supplier and reseller of office supplies, information technology, data supplies, paper, office furniture, and print and promotional products. United is a national wholesaler of office products. In June 2008, Lonesource acquired Sunbelt Office Products, LLC ("Sunbelt"). [D.E. 75-6], Sullivan Dep. 9. Before this acquisition, Sunbelt purchased most of its office products from United, while Lonesource purchased most of its office products from another wholesaler, S.P. Richards Company. [D.E. 75-5], 2d B. King Decl. ¶¶ 3-4.

In August 2008, Lonesource and United reached an agreement on a supply contract. [D.E. 29]. Under this contract, effective September 1, 2008, Lonesource agreed to use United as its "primary supplier" of products for 60 months, and United agreed to pay $3.32 million in conversion funds to Lonesource. Id.; [D.E. 46-6], Sossaman Dep. 66. Converting from one wholesaler to another is expensive and time-consuming. See Compl. ¶ 21; [D.E. 75-5], 2d B. King Decl. ¶ 4. Providing conversion funds is an industry practice to help induce a purchaser to change wholesalers.

Exhibit A to the contract included the agreement about United's payment of conversion funds to Lonesource and Lonesource's agreement to use United as its "primary supplier." Exhibit A stated:

On September 1, 2008, United will pay Lonesource $3,320,000 in conversion funds for extending United a 60 month agreement naming United as its primary supplier.

'Primary supplier' means that (i) Lonesource will purchase at least 70% of its total monthly office products purchases from United, and (ii) Lonesource will purchase at least 95% of its total monthly wholesale office products purchases from United.

'Total office products monthly purchases' means Lonesource's aggregate monthly purchases of office products merchandise for resale from all sources (including purchases from manufacturers and purchases from wholesalers). 'Total monthly office products wholesale purchases' means Lonesource's aggregate monthly purchases of office products merchandise for resale from all sources other than manufactures [sic] (such as purchases from wholesalers).

If Lonesource ceases to use United as its primary supplier for any reason (including an inability of United and Lonesource to agree on an issue covered by this agreement or any dispute arising from or related to this agreement), then:

Within thirty days Lonesource will reimburse United an amount equal to one-sixtieth (1/60) of the conversion funds amount noted above, multiplied by the number of months remaining in the agreement;

and

Lonesource's and United's obligations under this agreement will terminate.

[D.E. 29] 4.

Lonesource contends that it was impossible to comply with the primary-supplier requirement in September and October 2008 due to the conversion process from its previous supplier, and that United knew of this problem and did not object. See [D.E. 46-11], Dep. Ex. 96, Interrog. 7, 15. Moreover, soon after the contract went into effect, United was dissatisfied with the deal. See [D.E. 75-2], Miller Dep. 69; [D.E. 76-1], Dep. Ex. 12. In particular, United was very unhappy with the volume, pricing, and shipping terms of Lonesource's paper orders. See, e.g., [D.E.46-24], Dep. Ex. 34; [D.E. 46-11], Dep. Ex. 96, Ex. C; [D.E. 76-3], Dep. Ex. 166; [D.E. 76-4] Dep. Ex. 167. United was losing money on paper sales. [D.E. 46-9], Miller Decl. ¶ 10. United and Lonesource thereafter negotiated several modifications to the contract, and agreed to implement a number of these modifications. See [D.E. 46-9], Miller Decl. ¶¶ 11-13; [D.E. 46-5], Phipps Decl. ¶ 14; [D.E. 46-4],B. King Dep. 108-09, 120-22; [D.E. 46-10], Sullivan Dep. 30-35, 58-63; [D.E. 46-24], Dep. Ex. 34.

During the contract period, Lonesource purchased some paper from other suppliers, and United was aware that Lonesource was doing so. See, e.g., [D.E. 46-9], Miller Decl. ¶ 21; [D.E. 75-24], Sullivan Decl. ¶¶ 15-20. Despite these outside purchases, Lonesource asserts that it did not violate the contract's primary-supplier requirement in and after November 2008. See [D.E. 46-11], Dep. Ex. 96, Interrog. 7, 15. Lonesource also contends that United waived its contractual rights as to the primary-supplier requirement from November 2008 to December 2010.

On September 1, 2010, Jeffrey Howard, a senior vice president at United, wrote to Bradley King, Lonesource's president and CEO, to request an audit of Lonesource's compliance with the primary-supplier requirement. [D.E. 46-16], Dep. Ex. 92. United's letter stated that if at any point Lonesource had failed to comply with the primary-supplier requirement, the obligations under the contract would have automatically terminated. Id However, in that event, the letter also described United's willingness to "work with Lonesource to either negotiate a new supply contract or transition Lonesource to a new supplier." Id. In December 2010, Lonesource ceased ordering supplies from United, obtained another supplier, and filed suit.

II.

United seeks summary judgment on Lonesource's claims for declaratory judgment, breach of contract, anticipatory breach of contract, fraud, and unfair and deceptive trade practices, as well as United's counterclaims for breach of contract and unjust enrichment.² In considering thesemotions for partial summary judgment, the court views the evidence in the light most favorable to Lonesource and applies well-established principles under Federal Rule of Civil Procedure 56. See, e.g., Fed. R. Civ. P. 56; Scott v. Harris, 550 U.S. 372,378 (2007); Celotex Corp. v. Catrett. 477 U.S. 317, 325-26 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-52 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87 (1986). Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see Anderson, 477 U.S. at 247-48.

The party seeking summary judgment must initially come forward and demonstrate an absence of a genuine issue of material fact. See Celotex, 477 U.S. at 325. Once the moving party has met its burden, the nonmoving party then must affirmatively demonstrate that there exists a genuine issue of material fact for trial. See Matsushita, 475 U.S. at 586-87. "[T]here is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson, 477 U.S. at 249. It is insufficient to show a "mere . . . scintilla of evidence in support of the [nonmoving party's] position . . . ; there must be evidence on which the [fact finder] could reasonably find for the [nonmoving party]." Id. at 252.

Because the court is exercising diversity jurisdiction, it applies state substantive law. The parties agree that the substantive law of North Carolina applies.

At its core, this case involves an alleged breach of contract. Accordingly, the court first addresses United's motion for summary judgment on Lonesource's claims for breach of contract and anticipatory breach of contract.

Lonesource concedes that it left United to use S.P. Richards Company as its new supplier in December 2010. See [D.E. 46-4], B. King. Dep. 176, 183. Lonesource also concedes that United continued to perform according to the terms of the contract (as modified) until December 20, 2010. See id. 121-22, 176-77. Lonesource argues, however, that it was entitled to change suppliers in December 2010 because United had repudiated its contract with Lonesource. In support, Lonesource cites United's requests to modify the contract and United's alleged threats to cut off Lonesource's supply, which Lonesource construes as indicating that United would not continue to perform. See, e.g., Pl.'s Mem. Opp'n [D.E. 69] 29-30; [D.E. 75-5], 2d B. King Decl. ¶¶ 17-18; [D.E. 75-3], B. King Dep. 66-67; [D.E. 77-24], Dep. Ex. 186; [D.E. 77-25], Dep. Ex. 243. As further evidence of United's alleged anticipatory breach, Lonesource also cites the September 1, 2010 letter from Jeffrey Howard to Bradley King. [D.E. 46-16], Dep. Ex. 92. The letter expresses United's belief that Lonesource had breached the primary-supplier requirement in the contract and asks to audit Lonesource's compliance with the primary-supplier requirement. Id. The letter also states:

Assuming the audit confirms the 2008 Agreement has terminated, we understand it will take time for Lonesource and United to negotiate a new agreement or, failing that, for Lonesource to transition to alternate

...