OKNA WINDOWS v. DIVERSIFIED STRUCTURAL COMPOSITES
CIVIL ACTION NO. 18-2444
IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
August 8, 2019
Padova, J.
Plaintiff Okna Windows Corporation (“Okna”) commenced this breach of contract action against Defendant Diversified Structural Composites (“Diversified”) after Diversified stopped collaborating with Okna on a new line of fiberglass double-hung windows. Both parties have moved for summary judgment. For the following reasons, we deny Plaintiff’s Motion, grant Defendant’s Motion, and enter summary judgment in Defendant’s favor.
I. BACKGROUND
The undisputed facts in the summary judgment record are as follows. Since 1994, Plaintiff Okna has manufactured windows and doors for commercial and residential clients. (Def.’s Ex. C (“September 27, 2014 Email”).) Until 2014, Okna produced these windows and doors primarily using vinyl and composite components. (Id.) In the spring of 2014, Okna decided to enter into the fiberglass window market. (Id.; Pl.’s Mot., Ex. B (“Ostaniewicz Dep.”) at 18:22-19:4.) After Okna decided to enter the market, it was introduced to Diversified. (Ostaniewicz Dep. at 23:9-17.) Until that time, Diversified predominantly sold pultruded components,1 such as window components like lineals and profiles, but it had decided to branch
After being introduced, the parties discussed designing a new model of double-hung window that would use fiberglass components, and Okna visited Diversified’s offices in July 2014. (Ex. 6 to Pl.’s Ex. A.) Around the same time, a representative from OmniGlass, another pultrusion supplier, notified Okna of a September 2014 auction in Chicago where industrial equipment used to manufacture windows would be for sale. (Def.’s Ex. H.) In advance of the auction, Okna signed a demolition contract to destroy part of its existing factory space. (Ex. 4 to Pl.’s Ex. B.) Troy Osborne, one of Diversified’s engineers, travelled to the auction, “blessed” the equipment that Okna was considering, and said it “would be a good purchase.” (Ostaniewicz Dep. at 70:11-14; Def.’s Ex. G at 3.) Okna then purchased the equipment. (Ostaniewicz Dep. at 70:15-71:4.)
After purchasing the equipment at the auction and demolishing 50,000 square feet for the fiberglass line, Okna sent an email to Diversified stating that it was committed to moving forward with a fiberglass program and that it would prefer to do business with Diversified Lineal Systems (“DLS”).2 (Ostaniewicz Dep. at 71:5-11; September 27, 2014 Email.) Okna explained that it had budgeted $500,000 towards equipment and tooling for the project and that it had already committed over $400,000 for the purchase and installation of the equipment bought at auction. (September 27, 2014 Email.) Okna therefore sought for Diversified to finance the pultrusion
The parties eventually negotiated a two-page Memorandum of Agreement (“MoA”), which expressed the parties’ desire to enter into a business relationship for the supply of DLS fenestration materials. (Ex. 10 to Pl.’s Ex. A.) The MoA, which the parties signed on January 14, 2015, provided that the parties would finalize the design of the Series 3500 double-hung, double slider, and picture windows by January 16, 2015. (Id. at 1.) Okna agreed to contribute $80,000 to Diversified for the costs of customized tooling to produce the Series 3500 double-hung window and to issue a purchase order for at least one million dollars of unspecified DLS products. (Id.) In return, Diversified agreed to “accelerate the purchase of all tooling, corner keys, supplementals, testing and certification for the 3500 Series.” (Id.) The parties also agreed to execute non-disclosure agreements. (Id. at 2.) Crucially, the MoA contains in bold type a non-binding obligation (“NBO”) clause, which provides that:
This Memorandum of Agreement does not constitute or create, and shall not be deemed to constitute or create, any legally binding or enforceable obligation on the part of either party. No such obligation shall be created, except by the execution of separate written agreements and purchase orders with associated terms and conditions.
(Id.)
Okna contributed the $80,000 tooling costs through Polstar, a company related to Okna, and attached to the MoA a $1,000,000 signed purchase order (the “Purchase Order”) for unspecified DLS materials. (Klawonn Dep. at 91:1-5; Ostaniewicz Dep. at 63:20-64:1.) The Purchase Order states that specific materials would be given in subsequent purchase orders. (Ex. 10 to Pl.’s Ex. A at 3.) There is no record evidence of the parties’ executing non-disclosure agreements. (Ostaniewicz Dep. at 54:15-56:7; 60:13-61:15.) Diversified used the MoA and the
The parties completed a prototype of the double-hung window on November 11, 2015. (Ostaniewicz Dep. 97:16-19.) Samples based on this model were submitted to the American Architectural Manufacturers Association (“AAMA”), and while the window received some AAMA certification, Okna was not happy with the results. (Id. at 62:15-18; 96:13-16.) Mike Clay, one of Diversified’s employees, went to Okna’s facilities and helped design and build other window specimens for testing. (Id. at 62:1-3; Klawonn Dep. at 101:8-12.) After developing the double-hung window, the parties discussed developing a casement window together and produced a draft agreement. (Exs. 12-13 to Pl.’s Ex. A; Ostaniewicz Dep. at 65:11-21.) This agreement, however, was not signed by either party, and Okna did not tender the $150,000 for tooling that the new casement window agreement would have required.3 (Klawonn Dep. at 63:3-5; Ostaniewicz Dep. at 67:18-20; 68:3-11.)
Sometime in late 2015, Diversified’s parent company gave Robert Klawonn, then-President of Diversified, a short period of time to prove definitively that Diversified’s fenestration business was viable. (Klawonn Dep. at 76:22-77:7.) In early 2016, Diversified’s parent company decided to withdraw from the Series 3500 project. (Id. at 77:7-9; 82:2-4.) Robert Klawonn informed Okna on March 11, 2016 that Diversified would be withdrawing from the project. (Id. at 85:25-86:6.) Diversified refunded Okna the $80,000 contribution that Okna had made toward retooling, and the parties unsuccessfully attempted to resolve their differences without resorting to litigation. (Klawonn Dep. at 90:23-25; Exs. 21-22 to Pl.’s Ex. A.)
II. LEGAL STANDARD
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.”
“[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the nonmoving party bears the burden of proof on a particular
III. DISCUSSION
A. Count I: Breach of Express Contract
In Count I, Okna claims that Diversified breached the MoA by deciding not to proceed with the Series 3500 project to produce double-hung windows with fiberglass profiles. Okna argues that its submission of the Purchase Order made the MoA a binding contract that Diversified subsequently breached. Diversified argues, in contrast, that the plain language of the MoA states that it is non-binding and therefore the MoA cannot form the basis of Okna’s breach of contract claim.
“It is well-established that three elements are necessary to plead a cause of action for breach of contract: (1) the existence of a contract, including its essential terms, (2) a breach of the
“‘Under Pennsylvania law where the facts are in dispute, the question of whether a contract was formed is for the jury to decide.’” Ecore Int’l, Inc., 343 F. Supp. 3d at 487 (quoting Quandry Sols. Inc. v. Verifone Inc., Civ. A. No. 07-97, 2009 WL 997041, at *5 (E.D. Pa. Apr. 13, 2009)). “‘However, [t]he question of whether an undisputed set of facts establishes a contract is a matter of law.’” Id. (alteration in original) (quoting Quandry Sols. Inc., 2009 WL 997041, at *5). Here, the parties do not dispute the relevant facts; instead, they simply argue whether those facts give rise to an enforceable contract.
“The first element in the test for enforceability of a contract is whether both parties have manifested an intention to be bound.” Teva Pharm. Indus., Ltd. v. United Healthcare Servs., Inc., Civ. A. No. 16-4870, 2018 WL 1898911, at *6 (E.D. Pa. Apr. 20, 2018) (citing Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 582 (3d Cir. 2009)). “The strongest objective
In the NBO provision of the MoA, the parties clearly state that the MoA does not give rise to any binding obligations unless separate written agreements and purchase orders are executed. (Ex. 10 to Pl.’s Ex. A at 2.) When parties express that a writing is not binding unless certain conditions are met, courts honor their intent not to be bound unless those conditions are met. See Fetter v. N. Am. Alcohols, Inc., Civ. A. No. 06-4088, 2008 WL 5187877, at *5 (E.D. Pa. Dec. 10, 2008) (finding “an intent not to be bound” in a letter that explicitly stated that it was only an outline of terms and conditions that would need to “be formalized in a contract”); CKSJB Holdings, LLC v. EPAM Sys., Inc., 379 F. Supp. 3d 388, 395-96 (E.D. Pa. 2019), appeal docketed No. 19-1951 (3d Cir. Apr. 25, 2019) (finding no obligation to negotiate in good faith where the Indication of Interest expressly stated that it did not give rise to any legally binding obligation). Here, the record contains no evidence of a separate written agreement as is required to make the MoA binding.4 (Klawonn Dep. at 63:3-5.) Likewise, the record contains no evidence of a separate
We conclude that the parties have not expressed an intent to be bound and thus, there is no enforceable written contract. Okna contends that the execution of the Purchase Order sufficed to create obligations under the MoA, but this Purchase Order was explicitly contemplated by the MoA. (See MoA ¶ 3.) If, in fact, the attached Purchase Order satisfied the MoA’s requirements for the creation of a binding agreement, then the NBO clause would be almost meaningless because it would have lost effect immediately upon the attachment of the Purchase Order, which the MoA required, to the signed MoA. Moreover, because the language of the NBO clause envisions separate written agreements, which would necessarily entail further negotiations, we can only conclude that the parties did not intend to be bound by the MoA immediately upon its execution. Quandry Sols. Inc., 2009 WL 997041, at *12 (“[C]ontemplation of future negotiations prior to the execution of a formal contract is strong evidence that the parties did not intend to be bound by any preliminary agreement.”). Additionally, Okna’s and Diversified’s agreement in the MoA to execute non-disclosure agreements (MoA ¶ 5) further suggests that the MoA was
Okna urges us to construe any ambiguities in the NBO clause against Diversified, the drafter of the MoA, and to conclude that the MoA is binding. See Kiewit E. Co. v. L & R Const. Co., 44 F.3d 1194, 1202-03 (3d Cir. 1995) (stating that an ambiguous contract must be construed against the party that drafted it). However, we do not find the MoA to be ambiguous and therefore confine our analysis to the parties’ intent evinced in the plain language of the MoA and the course of their performance. See Norfolk S. Ry. Co., 870 F.3d at 253. Okna also argues that because the parties referred to the MoA as “an earlier agreement,” the parties understood that the MoA was an enforceable contract. (Ex. 12 to Pl.’s Ex. A; Klawonn Dep. at 62:17-20.) However, not all agreements are binding and enforceable, such as agreements to agree or agreements without consideration. See, e.g., Blair, 283 F.3d at 603 (stating that “[w]ithout consideration, a contract is unenforceable” (quoting Channel Home Centers, Div. of Grace Retail Corp. v. Grossman, 795 F.2d 291, 298-99 (3d Cir. 1986))); Harmon v. Thomas, No. 1958 EDA 2018, 2019 WL 1968231, at *2-3 (Pa. Super. Ct. May 1, 2019) (finding agreement to make indeterminate contributions to child’s college tuition fund to be an “agreement to agree” and therefore unenforceable). Okna additionally argues that Diversified relied on the MoA and Purchase Order in order to obtain funding from its Japanese parent. But the mere fact that Diversified told its parent about the MoA and Purchase Order in order to obtain funding does not support a conclusion that Diversified intended to enter into a binding contract or that the Japanese parent only provided funding because it thought that the MoA was binding.
B. Count II: Breach of Implied Contract
In Count II of the Complaint, Okna asserts, in the alternative to its claim in Count I, that the parties’ course of dealings over nearly two years resulted in an implied contract that Diversified breached by withdrawing its support for the Series 3500 project. Diversified counters that Okna cannot maintain a claim for breach of implied contract when there is an express contract, and it adds that even if Okna could, there is no evidence of actions or a course of dealing that would support a conclusion that the parties entered into an implied contract.6
“The distinction between express and implied contracts rests on alternative methods of contract formation. Contracts are ‘express’ when the parties state their terms and ‘implied’ when the parties do not state their terms.” Baer v. Chase, 392 F.3d 609, 616 (3d Cir. 2004). “‘An implied-in-fact contract is a true contract arising from mutual agreement and intent to promise, but where the agreement and promise have not been verbally expressed. The agreement is inferred from the conduct of the parties.’” Aspen Specialty Ins. Co. v. Hosp. Supportive Sys., LLC, Civ. A. No. 16-1133, 2018 WL 3970434, at *6 (E.D. Pa. Aug. 20, 2018) (quoting Matter of Penn Cent. Transp. Co., 831 F.2d 1221, 1228 (3d Cir. 1987)). “‘The essential elements of breach of implied
Okna’s implied contract claim, like the express contract claim, suffers from several infirmities. First, there is no record evidence that shows that the parties intended to be bound by the alleged implied agreement. The parties do not have an extensive course of dealing that would suggest an implied contract or an intent to be bound. See, e.g., Domico v. Downey, Civ. A. No. 06-2474, 2007 WL 2108243, at *3 (E.D. Pa. July 19, 2007) (finding an implied contract where broker continued procuring potential buyers for seller’s restaurant past the expiration date of the written listing agreement); Liss & Marion, P.C. v. Recordex Acquisition Corp., 983 A.2d 652, 659 (Pa. 2009) (concluding that the record evidence supported the existence of an implied service contract where plaintiffs’ firms routinely requested and paid for medical records and medical record copying service routinely copied and sent medical records to the plaintiffs’ firms). There is no record evidence of the purchase or sale of specific items or the delivery of any goods.7 Okna recounts that it and Diversified worked together in designing the 3500 series window. (Pl.’s
We conclude that the parties’ conduct does not demonstrate an intent to be bound by an implied contract, and we further conclude that there is no meaningful course of dealing from which we could deduce an implied contract. We therefore grant Diversified’s Motion for Summary Judgment as to Count II of the Complaint.
C. Count III: Breach of Requirements Contract
In Count III of the Complaint, Okna alleges that Diversified breached a requirements contract pursuant to which Diversified was to produce pultrusions to supply all of Okna’s requirements. Okna seeks summary judgment on this Count but does not present any argument or evidence in support of that request. Diversified also moves for summary judgment on this Count, arguing, inter alia, that there is no record evidence that the parties agreed that Diversified would supply all of Okna’s requirements.
D. Count IV: Promissory Estoppel
In connection with Count IV of the Complaint, Okna alleges that Diversified made representations concerning the parties’ joint project on which Okna relied and asserts that it would be inequitable for Diversified’s promises to go unenforced. Diversified moves for summary judgment on this Count, arguing, among other things, that it made no promise that was explicit or certain enough to support a promissory estoppel claim and that many of the actions that Okna
Promissory estoppel is a doctrine that “makes otherwise unenforceable agreements binding.” Crouse v. Cyclops Indus., 745 A.2d 606, 610 (Pa. 2000). To establish promissory estoppel under Pennsylvania law, the plaintiff must prove that “1) the promisor made a promise that he should have reasonably expected to induce action or forbearance on the part of the promisee; 2) the promisee actually took action or refrained from taking action in reliance on the promise; and 3) injustice can be avoided only by enforcing the promise.” Edwards v. Wyatt, 335 F.3d 261, 277 (3d Cir. 2003) (quoting Crouse, 745 A.2d at 610). “There must be an express promise between the promisor and the promisee; a ‘broad or vague implied promise’ will be deemed insufficient.” MRO Corp. v. Humana Inc., Civ. A. No. 16-2881, 2019 WL 2389507, at *3 (E.D. Pa. June 5, 2019) (citations omitted). “Moreover, in order to qualify as an express promise, ‘[t]he promise must be certain and explicit enough so that the full intention of the parties may be ascertained to a reasonable certainty.’” KSM Assocs., Inc. v. ACS State Healthcare, LLC, Civ. A. No. 05-4118, 2006 WL 1308267, at *2 (E.D. Pa. May 10, 2006) (alteration in original) (quoting Ankerstjerne v. Schlumberger Ltd., Civ. A. No. 03-3607, 2004 WL 1068806, at *5 (E.D. Pa. May 12, 2004)). “‘A party asserting a claim of [promissory] estoppel has the burden of establishing all the essential elements.’” Ndubizu v. Drexel Univ., 768 F. Supp. 2d 796, 801 (E.D. Pa. 2011) (quoting Thatcher’s Drug Store of W. Goshen, Inc. v. Consol. Supermarkets, Inc., 636 A.2d 156, 160 (Pa. 1994)).
Plaintiff cites no evidence of an express promise, and we find no express promise by Diversified in the record that is definite and certain enough for Okna to rely upon. The parties
For the foregoing reasons, we deny Plaintiff’s Motion for Partial Summary Judgment, grant Defendant’s Motion for Summary Judgment, and enter judgment in favor of Defendant on all Counts of the Complaint. An appropriate Order follows.
BY THE COURT:
/s/ John R. Padova
John R. Padova, J.