Hemlock Semiconductor Operations, LLC v. SolarWorld Industries Sachsen GmbH
867 F.3d 692
6th Cir.2017Background
- Hemlock (U.S. seller) and SolarWorld Industries Sachsen GmbH (Sachsen, German buyer) entered multi‑year long‑term supply agreements (LTAs) under which Hemlock would supply set quantities of polysilicon at fixed prices through 2006–2019; LTAs included take‑or‑pay and resale‑restriction clauses and a liquidated‑damages provision allowing Hemlock to terminate and recover the remaining contract price if Sachsen failed to pay.
- Hemlock invested heavily in U.S. production expansion based on the LTAs; Sachsen made advance payments credited against contract price.
- After Chinese government subsidies caused global polysilicon prices to collapse, the parties temporarily reduced prices in 2011; that agreement expired in 2012 and price reverted, prompting Sachsen to decline deliveries and Hemlock to demand payment under take‑or‑pay.
- Hemlock sued in the Eastern District of Michigan; Sachsen asserted multiple affirmative defenses (including illegality under E.U./German antitrust law, commercial impracticability, and frustration of purpose).
- The district court struck Sachsen’s antitrust illegality defense in part, denied reconsideration, granted Hemlock summary judgment on breach, and awarded roughly $793.5 million (contract balance plus interest) under the LTAs’ liquidated‑damages clause.
- The Sixth Circuit affirmed: it upheld striking the antitrust defense, rejected Sachsen’s impracticability/frustration defenses, and enforced the contractual liquidated‑damages remedy.
Issues
| Issue | Plaintiff's Argument (Hemlock) | Defendant's Argument (Sachsen) | Held |
|---|---|---|---|
| Whether Sachsen could assert illegality under E.U./German antitrust law to avoid paying under the take‑or‑pay provision | The court should enforce the take‑or‑pay payment obligation; illegality defense fails because enforcement would not require courts to compel the allegedly unlawful conduct | LTAs combine take‑or‑pay and resale prohibition (and effectively tie >80% purchasing) making the contract illegal under E.U./German law | Affirmed: Illegality defense properly struck — enforcement of take‑or‑pay does not itself require the unlawful conduct and the alleged tie‑in would require complex market proof unrelated to the breach claim |
| Whether LTAs unlawfully tied Sachsen’s purchasing to Hemlock (anti‑tying under EU rules) | Contract does not facially obligate Sachsen to buy a percentage of its needs; any tying claim would require complex proof of market power | LTAs effectively tied Sachsen to Hemlock for >80% of its needs, violating EU vertical restraints | Affirmed: Defense struck — would require speculative, complex proof of market share and market power, inappropriate in simple breach suit |
| Whether market collapse (caused by alleged illegal foreign subsidies/espionage) renders performance commercially impracticable or frustrates purpose | A market price collapse (even if caused by third‑party illegal acts) does not excuse performance under Michigan law; fixed‑price contracts allocate that market risk | Chinese subsidies and alleged industrial espionage made performance impracticable and frustrated the contract’s purpose | Affirmed: Impracticability and frustration defenses fail — market shifts are ordinary business risk and not a basic, unforeseen assumption that excuses performance |
| Whether the liquidated‑damages clause (full remaining contract price) is an unenforceable penalty | The clause is a reasonable, agreed formula reflecting take‑or‑pay allocations, Hemlock’s expansion investments, and the difficulty of proving actual damages; parties bargained for this remedy | The award is unconscionable/penal because Hemlock saved production costs and Hemlock’s own expert estimates of lost profits are much lower than the liquidated amount | Affirmed: Liquidated damages enforceable — not unconscionable given earlier benefits to Sachsen, difficulty of measuring actual damages at formation, and contract language reflecting Hemlock’s capital commitments |
Key Cases Cited
- Kelly v. Kosuga, 358 U.S. 516 (1959) (court should refuse enforcement only when judgment would itself enforce the precise anticompetitive conduct)
- Kaiser Steel Corp. v. Mullins, 455 U.S. 72 (1982) (illegality defense available when enforcing the promise would command the unlawful conduct itself)
- National Souvenir Ctr., Inc. v. Historic Figures, Inc., 728 F.2d 503 (D.C. Cir. 1984) (disfavor allowing complex antitrust defenses to defeat straightforward breach claims where contract is facially lawful)
- Karl Wendt Farm Equip. Co. v. Int’l Harvester Co., 931 F.2d 1112 (6th Cir. 1991) (market collapse and resulting unprofitability do not support impracticability or frustration defenses)
- City of Memphis v. Ford Motor Co., 304 F.2d 845 (6th Cir. 1962) (enforcing minimum‑payment provisions due to plaintiff’s large expansion expenditures supports liquidated‑damages enforcement)