Mulch Mfg. Inc. v. Advanced Polymer Solutions, LLC

• Citation: 947 F.Supp.2d 841
• Decision Date: 23 May 2013
• Docket Number: Case No. 2:11–CV–00325.
• Parties: MULCH MANUFACTURING INC., Plaintiff, v. ADVANCED POLYMER SOLUTIONS, LLC, et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

947 F.Supp.2d 841

MULCH MANUFACTURING INC., Plaintiff,

v.ADVANCED POLYMER SOLUTIONS, LLC, et al., Defendants.

Case No. 2:11–CV–00325.

United States District Court,

S.D. Ohio,

Eastern Division.

May 23, 2013.

David John Butler, Stephen Charles Fitch, Taft Stettinius & Hollister LLP, Columbus, OH, for Plaintiff.

Alexander Brittain Reich, Matthew Michael Mendoza, Jeffrey J. Lauderdale, Calfee, Halter & Griswold LLP, Cleveland, OH, N. Trevor Alexander, Calfee Halter & Griswold, Columbus, OH, for Defendants.

OPINION AND ORDER

EDMUND A. SARGUS, JR., District Judge.

Plaintiff, Mulch Manufacturing Inc. (“MMI”), brings this diversity action against Defendants, Advanced Polymer Solutions, LLC (“APS”), and John M. Ryan (“Ryan”) (collectively “Defendants”), for various claims including breach of contract and fraud. This matter is before the Court for consideration of APS's Motion for Summary Judgment (ECF No. 46) and MMI's Motion for Partial Summary Judgment (ECF No. 47). For the following reasons, APS's Motion for Summary Judgment is GRANTED in part and DENIED in part. MMI's Motion for Partial Summary Judgment is DENIED.

I. BACKGROUND

A. Relevant Facts

1. The Parties

MMI is an Ohio corporation, with its headquarters located in Reynoldsburg, Ohio. (J. Spencer Decl. ¶ 2, ECF No. 17–1.) MMI manufactures, sells, and distributes mulch and mulch-related products. (J. Spencer Dep. 7, ECF No. 35–2.) In addition, to its Ohio location, MMI has a plant located in Callahan, Florida. (J. Spencer Decl. ¶ 2, ECF No. 17–1.) Josh Spencer (“J. Spencer”) is the CEO of MMI, and his son, Ralph Spencer (“R. Spencer”) is the company's President. (J. Spencer Dep. 6; R. Spencer Dep. 4, ECF No. 35–3.) J. Spencer's office and MMI's accounting office are located in Ohio. (J. Spencer Decl. ¶ 2, ECF No. 17–1.) Jonathon Stott (“Stott”) was a production and sales employee of MMI during the relevant periods of this lawsuit. (Stout Dep. 6, ECF No. 35–7.) Wayne Jones (“Jones”) is a General Manager for MMI. (Jones Dep. 6, ECF No. 35–5.)

APS is a limited liability company located in Port Washington, Long Island, New York. (Ryan Aff. ¶ 5, ECF No. 13–1.) APS “custom tailor[s]” chemical formulations and also manufactures products. (Ryan Dep. 10, ECF No. 35–1.) APS uses a patented process, which it refers to as “grafting,” to chemically bond properties to a customers' product, resulting in “[a] better adhesion.” ( Id. at 11–12.) Defendant Ryan, who is a resident of New York, is the President of APS. ( Id. at 8–9.) Paul Thottathil, Ph.D. (“Dr. Thottathil”), is APS's Vice President of Research and Development. (Thottahil Dep. 7, ECF No. 35–4.)

2. The Agreement

In 2005, MMI began manufacturing a product called “Softscape,” a mulch product made from shredded fiber. (J. Spencer Dep. 7–8, 17, 34.) MMI initially sold Softscape without a flame retardant, until the company received several complaints from customers that Softscape was catching on fire. ( Id. at 17–19.) Accordingly, MMI began looking for a solution, such as a fire retardant that could be added to the mulch. ( Id. at 20.)

Shortly after it received complaints regarding Softscape, MMI reached out to APS to learn if APS could formulate a fire retardant for Softscape. ( See J. Spencer Dep. 20–21; Ryan Dep. 15–16, 19–20; Stout Dep. 8.) R. Spencer stated that, during discussions with APS, MMI stressed that it wanted APS to develop a formula so that MMI could choose between making the formula itself or having someone else make the formula. (R. Spencer Dep. 13.) Stout stated that during a meeting with APS employees, Ryan and Dr. Thottathil indicated that they were capable of developing a flame retardant that “would adhere to the fibers of the wood....” (Stout Dep. 35–36.)

In June 2006, Ryan emailed Stott indicating that the results of a project feasibility assessment were “very encouraging” and estimating a price of 25 to 30 cents per pound. (Dep. Ex. 6.¹) According to Stout, during this initial stage, APS employees indicated that they believed APS could fulfill price requirements that MMI had set. (Stott Dep. 36–37.) J. Spencer testified that, in negotiations building up to the contract, Ryan and he discussed MMI's various objectives, including that the formulation would prevent fires, adhere to the wood fibers, and be cost effective. (J. Spencer Dep. 26–27.)

On July 18, 2006, MMI and APS ultimately entered into an agreement (hereinafter the “R & D Agreement” or “Agreement”) regarding the development of a formulation.² (Agreement, ECF No. 46–4.) The R & D Agreement specifically acknowledged that MMI was interested in a flame resistant property—“obviously improved over other items now on the market”—that it could graft to mulch. (Agreement I.) The R & D Agreement did not contain any express cost of the product APS would develop. (Agreement; see also R. Spencer Dep. 36.) The R & D Agreement stated, however, that APS would develop the chemical combinations “according to [MMI's] submitted specifications.” (Agreement IV.)

The R & D Agreement contained three general phases. ( See Agreement II, IV.) The first phase—set to last four weeks—stated that “APS chemists will vary different combinations of activator, monomers and catalysts according to [MMI's] submitted specifications. At the end of this phase, APS will send [MMI] preliminary samples for testing and evaluation.” ( Id. at IV (emphasis in original).) MMI owed APS $30,000 for the first phase. ( Id. at II.) At the end of this phase MMI had the right to terminate the R & D Agreement with no further fees. ( Id.)

With regard to second phase, the R & D Agreement provided:

Phase 2: (4 weeks) Based on [MMI's] test results and feedback on Phase 1 samples, the formulation will be optimized. Again, at the end of this phase, samples will be sent to [MMI] for evaluation and testing. All technical data (including formulations), safety data sheets and a report will be sent to [MMI].

( Id. at IV(emphasis in original).) MMI agreed to pay APS $50,000 at the start of the second phase. ( Id. at II.) The R & D Agreement also expressed APS's desire to manufacture the formulation for MMI on an ongoing basis either during or after the second phase. (Agreement IV.) R. Spencerstated that the parties removed language expressly requiring APS to manufacture any developed product. (R. Spencer Dep. 13.)

Finally, the R & D Agreement allowed MMI the option of a third phase, in which APS would fine tune a formulation, to the extent necessary, and transfer a patent application to MMI. ( Id.) The Agreement provided that any resulting patents would belong to MMI. ( Id. at III.) The Agreement further stated that MMI would owe APS an additional $40,000, upon transfer of a patent application, if MMI elected to patent the ultimate formulation. ( Id. at 11.)

3. Product Development, Formation 48, and Spartan FR–48

On July 19, 2006, MMI paid APS $30,000 for the first phase of research and development. (Ryan Dep. 37–38; Dep. Ex. 1.) APS worked from mulch samples that MMI sent. (Thottathil Dep. 8.) Dr. Thottathil stated that during the first phase he made different formulations and treated the mulch with the formulations. ( Id. at 8–10.) J. Spencer testified that during this general period MMI would periodically receive samples from APS of either fire retardant or mulch treated with fire retardant. (J. Spencer Dep. 40–41.) J. Spencer stated that at the end of the first phase MMI was satisfied that APS was making progress. (J. Spencer Dep. 39–40.) On August 15, 2006, MMI paid APS $50,000 for the second phase of the R & D Agreement. (Dep. Ex. 1.)

On August 9, 2006, APS sent MMI mulch samples treated with four different formulations—formulation numbers 28, 31, 33, and 34—for MMI's evaluation. (Thottathil Dep. 16; Dep. Ex. 9.) Of the formulations it received on August 9, 2006, MMI initially preferred formulation 28. ( See Thottathil Dep. 17.) On September 1, 2006, APS shipped MMI sixteen drums of formulation 28 for trial. (Dep. Ex. 10.) MMI paid $11,900 for this shipment. (Dep. Ex. 2, ECF No. 36–2.) J. Spencer stated that MMI was dissatisfied with formulation 28 because, according to MMI, the formulation wouldn't mix with water. (J. Spencer 48–49; see also Jones Dep. 13–14.) According to J. Spencer, MMI also felt that APS was ignoring parameters that MMI had set, including cost. (J. Spencer Dep. 48–49; Dep. Ex. 11.)

Dr. Thottathil averred that, in response to MMI's criticism of formulation 28, APS began making other formulations. (Thottathil Dep. 18.) Dr. Thottathil's testimony suggests that APS eventually sent MMI a price quote for formulation number 48 (“formulation 48”). ( See id. at 18–25.) Dr. Thottathil testified that formulation 48 was a multi-ingredient formulation. ( Id. at 21.) Dr. Thottathil further described that one of the ingredients for formulation 48 was “FR–48,” an additive material that Spartan Flame Retardants, Inc. (“Spartan”) manufactured. ( Id. at 19–21.) During his deposition testimony, Dr. Thottahil also referred to the Spartan material as “additive 48.” ( See, e.g., id. at 48.) According to Dr. Thottahil, the numbering of formulation 48 and FR–48 was coincidental. ( Id. at 59–60.) Dr. Thottathil testified that FR–48 is an ammonium polyphosphate and that there are other companies, besides Spartan, that make ammonium polyphosphate. ( Id. at 51–52, 66.)

J. Spencer stated that, in late October 2006, MMI was ready to use formulation 48 in production. (J. Spencer Dep. 91.) He asserted, however, that MMI still believed the price was too expensive, ( Id. at 92.) J. Spencer further averred that APS and Ryan represented that “APS had developed this formulation in-house.” (J. Spencer Decl. ¶ 6, ECF No. 17–1.) J. Spenser maintained that MMI's understandingat this time was that—even when it began using what it thought to be APS's formulation—APS was still working on creating a better formulation to meet MMI's requirements. (J. Spenser Dep. 80–81, 108–10, 137.) In other terms, J. Spencer...