NCC Sunday Inserts, Inc. v. World Color Press, Inc.

• Decision Date: 12 March 1991
• Docket Number: No. 86 Civ. 9647 (GLG).,86 Civ. 9647 (GLG).
• Citation: 759 F. Supp. 1004
• Parties: NCC SUNDAY INSERTS, INC. and Marketing Corporation of America, Plaintiffs, v. WORLD COLOR PRESS, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

759 F. Supp. 1004

NCC SUNDAY INSERTS, INC. and Marketing Corporation of America, Plaintiffs, v. WORLD COLOR PRESS, INC., Defendant.

No. 86 Civ. 9647 (GLG).

United States District Court, S.D. New York.

March 12, 1991.

COPYRIGHT MATERIAL OMITTED

Levett, Rockwood & Sanders, Westport, Conn. (Madeline F. Grossman, Dorit S. Heimer, of counsel), Friedman, Wang & Blieberg, P.C., New York City, for plaintiffs and counterclaim defendant GV Investments GFV, Inc.

Gallop, Johnson & Neuman, St. Louis, Mo. (David W. Harlan, Thomas M. Newmark, Dorothy L. McMurtry, of counsel), Latham & Watkins, New York City (John D. Shyer, Jennifer L. Adams, of counsel), for World Color Press, Inc.

OPINION

GOETTEL, District Judge:

This action involves a contract dispute between the plaintiffs, publishers of free-standing color coupon advertising inserts seen in Sunday newspapers throughout the country, and the defendant, a printer hired on an exclusive basis by plaintiffs for these projects. Unfortunately, due to the extremely complex nature of the contracts at issue and the relationships among the parties, not to mention the free-standing insert industry itself, this is hardly a run-of-the-mill contract dispute. Discovery having finally been completed, we are now presented with extremely voluminous summary judgment motions by each of the parties, including a counterclaim defendant, GV Investments GFV, Inc., whose relationship to the underlying dispute will be explained shortly.¹

I. FACTS

Plaintiff NCC Sunday Inserts, Inc. ("NCC") was, until November 1986, in the business of publishing free-standing coupon inserts. Plaintiff Marketing Corporation of America ("MCA") indirectly owned all of NCC's stock.² Both plaintiffs are Connecticut corporations. On December 28, 1982, plaintiffs entered into a contract with defendant World Color Press, Inc. ("WCP"), an Illinois corporation maintaining a sales office in New York.³ Pursuant to the contract, which by its terms initially ran until December 31, 1985, WCP was to print all of plaintiffs' insert "requirements." Additionally, the contract mandated that WCP not print any inserts for plaintiffs' competitors. The contract also provided that successors and assigns of the parties would be bound by it. The contract was extended three times, the latest extension occurring on July 30, 1986 and running until December 31, 1994. In October 1986, however, plaintiffs notified defendant that they were interested in selling their insert operations. Plaintiffs allegedly had concluded that price-wars in the insert market rendered their continuation in the business economically unfeasible. Although WCP expressed an interest in acquiring the business and negotiations actually had ensued (the parties reached the point of making offers and counteroffers), NCC's assets ultimately were sold for $14.5 million in early November 1986 to GFV Communications, Inc., now known as GV Investments GFV, Inc. ("GFV").⁴ The sales agreement contained specific provisions whereby GFV assumed no liability or obligation for the requirements contract and NCC agreed to be held responsible for all liabilities and obligations GFV had not assumed. On November 20, 1986, plaintiffs wrote to defendant and terminated the contract. In December of that year, WCP printed its first and final issue of inserts for GFV since GFV had its own in-house printing capacity and had no need for an outside printer.

Thereafter, plaintiffs filed the instant action. The complaint, which has since been amended four times, now contains four counts. In the first count, plaintiffs seek a declaration that they did not violate the contract by reducing their requirements to zero through the sale of NCC to GFV and the subsequent cancellation of the contract. The second, third, and fourth counts seek damages due to alleged misrepresentations and omissions by defendant relating to: (1) a hidden recovery by WCP of its share of perforating and numbering equipment, the cost of which plaintiffs allege was to have been split between plaintiffs and defendant; (2) an overcharge by WCP for its paper costs by failing to adjust its initial estimates to reflect actual costs; (3) double billing by WCP for "makereadies";⁵ (4) double billing by WCP for "brownlines";⁶ (5) overcharges by WCP for collating; (6) overcharges by WCP for labor costs; and (7) a failure by WCP to adjust prices to reflect alleged agreements among the parties as to WCP's permissible profits. Not only do plaintiffs allege that the foregoing acts amounted to contract breaches, but also that they were unfair trade practices as defined by the Connecticut Unfair Trade Practices Act, Conn.Gen.Stat.Ann. § 42-110a et seq., and common law frauds.

One day after this action was filed, WCP filed its own complaint against plaintiffs and GFV in the Southern District of Illinois charging breach of contract, promissory estoppel, and tortious interference with contract. That action was stayed, and ultimately voluntarily dismissed, in order to avoid duplicative litigation in light of WCP's assertion of counterclaims in the action before us that virtually mirrored those claims asserted in Illinois. WCP's Fourth Amended Counterclaim, which contains six counts, first alleges that plaintiffs violated the contract by terminating it, notwithstanding the sale of NCC to GFV. The second count seeks damages against GFV for breach of contract because of its failure to continue the contract. WCP's third count asserts a claim of promissory estoppel against plaintiffs herein, while the next count suggests that plaintiffs and GFV tortiously interfered with WCP's contract. Finally, the fifth and sixth counts contend that plaintiffs and GFV failed to pay for services rendered by WCP prior to plaintiffs' attempt to terminate the contract.

The parties now move for partial summary judgment on many of the claims and counterclaims.

II. DISCUSSION

The standards for resolving motions for summary judgment are well settled. Federal Rule of Civil Procedure 56(c) provides that summary judgment is appropriate if "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R. Civ.P. 56(c). The burden is on the moving party to demonstrate the absence of a material, factual dispute. Fed.R.Civ.P. 56(e). If that burden is met, the non-moving party cannot simply contend that its complaint sets forth a valid cause of action. Id. It "must set forth specific facts showing that there is a genuine need for trial," id., and there must be more than merely "some metaphysical doubt as to those material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). In determining whether this burden is met, however, the court must draw all reasonable inferences and resolve all ambiguities in favor of the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962) (per curiam). Against this backdrop of summary judgment jurisprudence, we turn to the instant motions.

A. Plaintiffs' Motion for Partial Summary Judgment

Plaintiffs move for judgment dismissing counts one, three, and four of WCP's Fourth Amended Counterclaim, which allege a breach of contract, promissory estoppel, and tortious interference with contract, respectively. With respect to the breach of contract counterclaim, plaintiffs' argument is straightforward. They contend that since the contract was a requirements contract requiring WCP to print only their insert requirements, see 12/28/82 Contract ¶ I, they had the right to terminate the contract prior to the date specified in the contract if in "good faith" they had no further requirements. Consequently, plaintiffs argue that they acted in good faith by terminating the contract because they faced impending financial disaster if they had remained in the insert business. In turn, defendant first argues that Illinois law, which the parties agree governs this issue pursuant to the express terms of the contract, see 12/28/82 Contract ¶ XVIII sic, XXVIII, does not follow the good faith standard employed by the majority of jurisdictions, but rather, implies a duty upon a requirements buyer to remain in business until the expiration of the contract. In addition, WCP argues that the parties' course of dealing, as well as the contract itself, created an obligation for plaintiffs to remain in business. Finally, defendant argues that even if the good faith doctrine applies, such that plaintiffs could have eliminated their requirements absent bad faith motivations, this burden has not been satisfied because plaintiff was not facing dire financial straits, but instead, was simply attempting to avoid the terms of what it perceived as an unfavorable contract.

The general rule with respect to requirements contracts is that "`the seller assumes the risk of all good faith variations in the buyer's requirements even to the extent of a determination to liquidate or discontinue the business.'" Empire Gas Corp. v. American Bakeries Co., 840 F.2d 1333, 1337-38 (7th Cir.1988) (quoting HML Corp. v. General Foods Corp., 365 F.2d 77, 81 (3d Cir.1966)).⁷ In this respect, a buyer's ability to reduce its requirements differs significantly from its ability to increase its requirements where "unreasonably disproportionate" demands to those estimated or previously required are not permissible. Id. at 1337. In resolving the question of good faith, there is no established standard, see id. at 1339 ("the term has no settled meaning in law generally; it is a chameleon"), but it is clear that one need not adduce evidence sufficient to implicate a contract's force majeure clause or to establish the affirmative defenses of impossibility, impracticability, or frustration of purpose. Id. at 1340. The proper inquiry requires an analysis of the buyer's subjective motives to determine if it had a legitimate business...