Qc Const. Products v. Cohill's Bldg. Specialties

• Decision Date: 21 March 2006
• Docket Number: No. 03 1997 PHX ROS.,03 1997 PHX ROS.
• Citation: 423 F.Supp.2d 1008
• Parties: QC CONSTRUCTION PRODUCTS, LLC, a Delaware limited liability company, Plaintiff, v. COHILL'S BUILDING SPECIALTIES, INC., and Michael Cohill, Defendants. And Related Counterclaims
• Court: U.S. District Court — District of Arizona

423 F.Supp.2d 1008

QC CONSTRUCTION PRODUCTS, LLC, a Delaware limited liability company, Plaintiff, v. COHILL'S BUILDING SPECIALTIES, INC., and Michael Cohill, Defendants And Related Counterclaims

No. 03 1997 PHX ROS.

United States District Court, D. Arizona.

March 21, 2006.

COPYRIGHT MATERIAL OMITTED

Russell K. Ryan, Motschiedler Michaelides & Wishon LLP, Fresno, CA, for Plaintiff.

Kent A. Lang, William George Klain, Lang & Baker PLC, Scottsdale, AZ, for Defendants.

OPINION AND ORDER

SILVER, District Judge.

This case stems from a dispute between Plaintiff QC Construction Products ("QC") and defendant Cohill's Building Specialties, Inc. ("Cohill's") regarding each parties' contractual obligations. Both parties filed a Motion for Summary Judgment. QC's Motion for Summary Judgment will be denied and Cohill's Motion will be granted in part.

BACKGROUND

The following facts are taken from the parties' statements of facts and are not disputed. Michael Cohill and Karen Cohill purchased Cohill's from a third party in 1983. Since that time, Cohill's sold decorative concrete materials and related products in Arizona. One of the products was an iron oxide pigment known as "Bayferrox." This product was originally purchased from Bayer Corporation and entities through which Bayer sold the product.

From 1991 to 1999, QC was doing business as a wholly-owned unincorporated division of non-party Bomanite Corporation. QC was organized as a limited liability company under the laws of Delaware on August 24, 1999. QC and Bomanite were also involved in the decorative concrete material market, producing a synthetic iron oxide product called QC Colorcrete. In 1998, Bomanite and Bayer entered into a strategic alliance that allowed Bomanite to distribute Bayferrox. Also in 1998, representatives from Bomanite and Bayer negotiated with representatives of Cohill's regarding a business venture. As a result of those negotiations, Cohill's entered into a "Letter of Agreement." That letter was signed by L. Russell Ingersoll on behalf of QC and Michael Cohill on behalf of Cohill's. At the time this agreement was signed, QC was still a division of Bomanite.

The agreement lies at the core of this dispute, and the first paragraph reads,

confirmation of [the] agreement for QC Construction Products to supply Bayferrox synthetic iron oxide pigment, BAFERROX by QC Construction Products and the QC Construction Products concrete coloring systems line of products exclusively to Cohills Building Specialties, Inc. ... beginning November 1, 1998 and continuing for a period of ten years.

The second paragraph recites that the territory for the agreement is the state of Arizona. The third paragraph, with a heading of "Master Distributorship," states QC's obligations.

QC Construction Products shall provide exclusive support and material sales to Cohills towards developing the market for Bayferrox synthetic iron oxides, BAYFERROX by QC Construction Products and the QC Construction Products concrete coloring systems line of products throughout the territory of the state of Arizona.

The fourth paragraph recites the parties' understanding regarding payment terms. The fifth paragraph was addressed to "Volume." According to that paragraph,

Cohills shall purchase from QC Construction Products 100% of their requirements for synthetic iron oxides and BAYFERROX by QC Construction Products. Within twelve (12) months of the execution of this agreement, every effort will be made by Cohills to purchase from QC Construction Products 100% of their requirements for the full line of QC Construction Products concrete coloring systems ... unless another competing product is specified and connot (sic) be switched over.

The penultimate paragraph was titled a "Best Efforts Provision" and stated that "Cohills shall use its best efforts as the master distributor to develop the marketplace throughout the territory of the state of Arizona" for all of QC's products. The final paragraph asked for a signature by Michael Cohill accepting the terms. The agreement was signed by L. Russell Ingersoll, President of Bomanite, and Michael Cohill, part-owner of Cohill's.

The parties' do not agree about the events that transpired after the agreement was signed. QC contends that Cohill's eventually stopped ordering its products and gave misleading reasons why it stopped. Cohill's contends that immediately after the parties entered into their agreement QC sold its products to other businesses entities in Arizona. Cohill's also believes that QC was unable to deliver products as required by the contract.

QC filed suit in October 2003. That suit contained five claims against Cohill's: 1) breach of contract; 2) interference with business relationships and prospective economic advantage; 3) fraud and deceit; 4) unfair competition; and 5) accounting. (Doc. 1). In its answer, Cohill's asserted a counterclaim for breach of contract. QC has moved for summary judgment on its breach of contract claim. Cohill's has moved for summary judgment on all of QC's claims as well as its own breach of contract claim.

ANALYSIS

I. Jurisdiction

QC is a limited liability company organized under the laws of Delaware with its primary place of business in California. Cohill's is a corporation organized under the laws of Arizona with its principal place of business in Arizona. The amount in controversy is over one million dollars. (Doc. 1) Therefore, this Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332.

II. Applicable Law

A federal court sitting in diversity must look to the forum state's choice of law rules to determine the controlling substantive law. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Arizona courts apply the Restatement to determine the applicable law in a contract action. Swanson v. The Image Bank, Inc., 206 Ariz. 264, 77 P.3d 439, 441 (2003). The parties' contract does not contain an explicit choice of law provision, so the contractual rights and duties of the parties are governed by the law of the state having "the most significant relationship to the parties and the transaction." Cardon v. Cotton Lane Holdings, Inc., 173 Ariz. 203, 841 P.2d 198, 202 (1992) (citing Restatement (Second) Conflict of Laws § 188 (1971)). Cohill's is located in Arizona and conducts business in Arizona. The contract was accepted and signed by Cohill's in Arizona and it contemplated performance taking place in Arizona. See Restatement (Second) Conflict of Laws § 188 (stating that "place of contracting" is relevant factor and "the place of contracting is the place where occurred the last act necessary ... to give the contract binding effect"). Therefore, the Court finds that Arizona has the most significant relationship to the parties and the contract and that Arizona law applies.¹

III. Summary Judgment Standard

A court must grant summary judgment if the pleadings and supporting documents viewed in the light most favorable to the non-moving party, "show that 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); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Substantive law determines which facts are material, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In addition, the dispute must be genuine, that is, "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505.

Furthermore, the party opposing summary judgment "may not rest upon the mere allegations or denials of [the party's] pleading, but ... must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); see Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). There is no issue for trial unless there is sufficient evidence favoring the non-moving party; "[i]f the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505 (citations omitted). However, "[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge." Id. at 255, 106 S.Ct. 2505. Therefore, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor" at the summary judgment stage. Id.

IV. Breach of Contract

QC and Cohill's have both moved for summary judgment on the issue of breach of contract. QC contends that Cohill's breached the parties' contract when it stopped purchasing products from QC in January 2003. Cohill's responds that QC lacked the capacity to contract with Cohill's and that if a valid contract ever existed a prior breach by QC excused Cohill's from performing. The Court concludes that a valid contract existed between the parties and there is uncontroverted evidence that QC breached that contract. Therefore, summary judgment will be granted in favor of Cohill's.

A. Existence of Contract

It is undisputed that QC was not formally incorporated when L. Russell Ingersoll, on behalf of QC, and Michael Cohill, on behalf of Cohill's, signed the agreement in October 1998. QC was not organized as a distinct entity until August 24, 1999. Cohill's argues that this lack of formal existence prevents a finding that an enforceable contract exists. This is not a correct interpretation of Arizona law.

L. Russel Ingersoll, then the President of Bomanite Corporation, signed the contract on behalf of QC. At that time QC was a division of Bomanite. Ingersoll remained President of Bomanite through the...