SFEG CORP., Plаintiff / Counter-defendant, v. BLENDTEC, INC., d/b/a BLENDTEC, Defendant / Counter-claimant.
Case No. 3:15-cv-0466
IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF TENNESSEE NASHVILLE DIVISION
Judge Aleta A. Trauger
SFEG Corp. (“SFEG”) filed this action in the Williamson County Chancery Court in April 2015; Blendtec, Inc. (“Blendtec”) removed the matter to this court on the basis of diversity jurisdiction and brought counterclaims. Now pending are: (1) Blendtec’s Motion for Partial Summary Judgment Limiting SFEG’s Damages (Doc. No. 61); (2) Blendtec’s Partial Motion for Summary Judgment on SFEG’s 11th and 12th Affirmative Defenses, or, In the Alternative, That SFEG’s “Terms and Conditions of Sale” Are Not Part of the Contract (Doc. No. 65); and (3) SFEG’s Motion for Summary Judgment (Doc. No. 70).
The motions have been fully briefed and are ripe for review. No hearing is necessary. For the reasons set forth herein, the court will grant both of Blendtec’s motions and deny SFEG’s motion.
I. FAILURE TO COMPLY WITH LOCAL RULES
Local Rule 56.01(b) requires a party seeking summary judgment to provide a “separate, concise statement of material facts as to which the moving party contends there is no genuine issue for trial.” Local Rule 56.01(c) requires the party opposing the motion for summary judgment to respond to the statement of undisputed facts by “either (i) agreeing that the fact is
Here, in responding to its opponent’s statement of facts, Blendtec in particular took substantial liberty in presenting its case rather than simply disputing a statement and citing to the record, as required by the Local Rule. For example, Blendtec’s response to ¶ 6 of SFEG’s Statement of Undisputed Facts (“Northland’s parts were not defective in material, workmanship, or title.”) (Doc. No. 88, at 5) goes on for almost eight pages and consists of more argument than fact. (Id. at 5–12.) “Argument in responses to statements of material facts clouds issues and encumbers the court with motions-within-motions.” Maverick Grp. Mktg., Inc. v. Worx Envtl. Prods., Inc., 99 F. Supp. 3d 822, 827, (W.D. Tenn. 2015), aff‘d, 659 F. App’x 301 (6th Cir. 2016). Moreover, the appropriate means of introducing additional disputed facts into the record would have been by providing a separate statement of additional disputed facts. The difficulty posed by Blendtec’s responses to SFEG’s Statement of Undisputed Facts required the court to scour the record to piece together the relevant facts rather than relying on the parties’ summaries of the facts. In the future, the court will either accept the facts as undisputed or require correction and resubmission of such a response.
The court will nonetheless proceed to address the substance of the parties’ motions as submitted.
II. LEGAL STANDARD
At this stage, “‘the judge’s function is not . . . to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial.’” Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). But “[t]he mere existence of a scintilla of evidence in support of the [non-moving party’s] position will be insufficient,” and the party’s proof must be more than “merely colorable.” Anderson, 477 U.S. 242, at 252. An issue of fact is “genuine” only if a reasonable jury could find for the non-moving party. Moldowan, 578 F.3d at 374 (citing Anderson, 477 U.S. at 252).
“The standard of review for cross-motions for summary judgment does not differ from the standard applied when a motion is filed by only one party to the litigation.” Ferro Corp. v. Cookson Group, PLC, 585 F.3d 946, 949 (6th Cir. 2009). “[S]ummary judgment in favor of either party is not proper if disputes remain as to material facts. Rather, the court must evaluate each party’s motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration.” Taft Broad. Co. v. United States, 929 F.2d 240, 248 (6th Cir. 1991) (citations omitted).
III. FACTUAL AND PROCEDURAL OVERVIEW
This action is a dispute between a seller, SFEG,1 and a buyer, Blendtec, regarding the terms of their commercial transactions. There is no dispute that Blendtec, whose principal place of business is in Orem, Utah, manufactures and sells blending machines. SFEG is a Delaware corporation whose principal place of business is in Fairview, Tennessee. SFEG designs and manufactures electrical power products. In February 2011, SFEG agreed to begin manufacturing and supplying certain component parts for Blendtec’s use in its blender motors.
Blendtec initially requested that SFEG manufacture two motor parts known as armatures and fields. The parties refer to these parts collectively as “part sets.” A commutator is a component of the armature, and the armature is placed inside of the field. (Mason Dep. excerpt, Doc. No. 86-5, at 2.) After six rounds of testing over the course of a year and a half, Blendtec gave SFEG approval to begin large-scale production of the part sets, and Blendtec began issuing purchase orders for the part sets.
In December 2012, Blendtec asked SFEG to supply brushes for its blenders. A brush is an electrical component part that conducts current between stationary wires and moving parts. Each brush fits into brackets within a field. (Doc. No. 86-5, at 3.) Each Blendtec blender motor incorporates two brushes. In April 2014, Blendtec began issuing purchase orders to SFEG for brushes.
By March 2015, the parties’ relationship had completely unraveled. SFEG filed suit against Blendtec on March 18, 2015 in state court; Blendtec removed the action to this court on the basis of diversity jurisdiction. SFEG filed an Amended Complaint (Doc. No. 14) on June 29,
Thereafter, Blendtec filed an Answer, denying liability, and a Counterclaim, alleging that SFEG’s part sets and brushes were defective. (Doc. No. 15.) As Affirmative Defense number 11 to Blendtec’s Counterclaim, SFEG asserts that Blendtec’s claim for consequential damages is barred by paragraph 11 of SFEG’s Terms & Conditions. (Answer to Countercl., Doc. No. 16, at 5.) As Affirmative Defense number 12, SFEG asserts that Blendtec’s claims generally are barred by the waiver of warranties contained in the Terms & Conditions. (Id.)
Now pending are Blendtec’s Motion for Partial Summary Judgment Limiting SFEG’s Damages (Doc. No. 61) (the “Damages Motion”); Blendtec’s Partial Motion for Summary Judgment on SFEG’s 11th and 12th Affirmative Defenses, or, In the Alternative, That SFEG’s “Terms and Conditions of Sale” Are Not Part of the Contract (Doc. No. 65) (the “Terms & Conditions Motion”); and (3) SFEG’s Motion for Summary Judgment (Doc. No. 70), which incorporates, among other matters, a discussion of the enforceability of its Terms & Conditions.
Many of the specific facts—or the inferences to be drawn from them—are disputed. To the extent practicable, the court will address each motion separately, in conjunction with the facts relevant to that motion.
IV. THE TERMS & CONDITIONS MOTION
A. Relevant Facts
Blendtec’s POs included the PO number, a description of the items being ordered, the quantity being ordered, the per unit and total price, and payment terms. (Id. ¶ 14.) After receiving a PO from Blendtec, SFEG’s practice was to email Blendtec an Order Acknowledgement confirming the terms of the PO. (Id. ¶ 7.) Among other things, SFEG’s Order Acknowledgments referenced Blendtec’s PO number and included a description of the items being ordered, the quantity ordered, the per unit and total price, and payment terms. (Id. ¶ 15.) SFEG usually, but not always, sent an Order Acknowledgement upon receipt of a PO from Blendtec. (Id. ¶ 9.)
In addition to the Order Acknowledgement, SFEG sometimes, but not always, sent its Terms and Conditions of Sale (“Terms & Conditions”) to Blendtec in response to its POs. (Id. ¶¶ 10–13.) Among other things, the Terms & Conditions include language specifying that SFEG’s acceptance of any purchase order was “expressly subject” to Blendtec’s assent to the conditions set forth in the Terms & Conditions:
1. Acceptance: The Seller’s acceptance of any order is expressly subject to Buyer’s assent to each and all of the terms and conditions set forth below. Any additional or different terms and conditions submitted by Buyer shall be deemed objected to by Seller and shall be of no effect nor in any circumstances binding upon Seller unless accepted by Seller in writing. If Buyer objects to any of the terms and conditions said objections must be specifically brought [sic] the attention of Seller by Buyer by a written instrument separate from any purchase order or other printed form of Buyer. Said objections shall be deemed proposals
for different terms and conditions and may be accepted only by a writing executed by an authorized representative of Seller at its offices in Fairview, TN, U.S.A.
(Id. ¶ 16; Doc. No. 64-7, at ¶ 1.) In addition, the Terms & Conditions provide for payment of a late fee (“finance charge”) by Buyer for any payments not made within 30 days of thе invoice date; an express warranty that the equipment manufactured by SFEG would be free from defects in material, workmanship and title as of the date of shipment; a disclaimer of all other implied or statutory warranties; and a disclaimer of liability for damages. (Doc. No. 64-7 ¶¶ 5, 10, 11, 22.)
Blendtec’s POs are silent on the terms found at paragraphs 1, 5, 10, 11, and 22 of SFEG’s Terms & Conditions. (Doc. No. 97 ¶ 17.) Blendtec apparently possessed a document that incorporated its own terms and conditions, but Blendtec never provided SFEG a copy of its terms and conditions.
It is undisputed that Blendtec never expressly objected or assented to SFEG’s Terms & Conditions. It accepted shipment of product from SFEG and continued to place orders with it, after having repeatedly received copies of the Terms & Conditions along with SFEG’s shipments.
B. Discussion
In its Terms & Conditions Motion, Blendtec asserts that it is entitled to summary judgment on SFEG’s Affirmative Defenses 11 and 12 on the basis that SFEG’s Terms & Conditions are not, as a matter of law, part of the parties’ contract. SFEG opposes that motion and asserts that, at a minimum, there are disputed issues of fact as to whether Blendtec’s “continued silence in the face of receiving [SFEG’s] Terms and Conditions constitutes assent” to them. (Doc. No. 78, at 2.)
SFEG also seeks summary judgment in its favor, in part, on the basis that all of the Purchase Orders are governed by SFEG’s Terms & Conditions, which bar Blendtec’s affirmative
1. Section 2-207 of the Uniform Commercial Code
This matter concerns the terms of a sales contract between merchants. Consequently, Article 2 of the Uniform Commercial Code (“UCC”), and specifically
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of chapters 1–9 of this title.
This provision of the UCC “recognizes that in current commercial transactions, the terms of the offer and those of the acceptance will seldom be identical.” Dorton v. Collins & Aikman Corp., 453 F.2d 1161, 1166 (6th Cir. 1972). Under the resulting “battle of the forms, each party typically has a printed form drafted by his attorney and containing as many terms as could be envisioned to favor that party in his sales transactions.” Id. In the usual scenario, the parties never discuss or agree to the new terms, but the seller ships the goods and buyer accepts them as if there were a contract. Id. Section 2-207 defines what terms govern when a dispute arises between the seller and buyer and the dueling forms suddenly become relevant.
Under the common law, changed or additional terms in an order acknowledgment would be construed as a counteroffer accepted by the original offeror when he proceeded to perform under the contract without objecting to the changed or additional terms. Dorton, 453 F.2d at 1166. Section 2-207(1) of the UCC effected a significant change to the common law. Under the UCC, “[a] definite and seasonable expression of acceptance or a written confirmation . . . operates as an acceptance,” rather than a counteroffer, even if it proposes terms that are additional to or different from those in the offer. However, Section 2-207(1) is subject to a “proviso”: if a definite and seasonable expression of acceptance expressly conditions acceptance on the offeror’s assent to additional or different terms contained therein, the parties’ differing
If the proviso is not implicated and a contract is formed under § 2-207(1), the additional terms are treated as “proposals for addition to the contract” under § 2-207(2). Dorton, 453 F.2d at 1166. If, on the other hand, no contract is recognized under § 2-207(1), typically because the offeree’s acceptance is expressly conditioned on the offeror’s assent to the additional or different terms and the offeror did not expressly assent, “the entire transaction aborts at this point.” Dorton, 453 F.2d at 1166. That is, the parties’ writings do not form a contract. If the parties’ conduct nonetheless recognizes the existence of a contract, § 2-207(3) comes into play; that subsection provides for the determination of the terms of that contract. “In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions” of the UCC. § 2-207(3).
2. Application of § 2-207(1) to the Facts
In this case, each of Blendtec’s Purchase Orders functioned as an offer. SFEG typically responded to such offers with an Order Acknowledgement, sometimes sent with its Terms & Conditions. Because the Terms & Conditions contain additional terms that are not in the Purchase Orders, the case presents a typical battle of the forms.3
The Terms & Conditions include language that essentially mirrors that of the § 2-207(1) proviso: “The Seller’s acceptance of any order is expressly subject to Buyer’s assent to each and
Undoubtedly anticipating that Blendtec would never expressly assent to the limitations of warranties and liability contained in its Terms & Conditions, SFEG drafted the Terms & Conditions to indicate that silence on the part of Blendtec signaled assent: “If Buyer objects to any of the terms and conditions said objections must be specifically brought [sic] the attention of Seller by Buyer by a written instrument separate from any purchase order or other printed form of Buyer.” (Doc. No. 64-7, at ¶ 1.) SFEG argues that Blendtec’s repeated acceptance of shipments, despite receiving SFEG’s Terms & Conditions at least seven times, gives rise to a jury question as to whether Blendtec assented. Blendtec insists that mere silence and acceptance of the goods shipped by SFEG could never signal assent.
SFEG relies for its position on Ralph Shrader, Inc. v. Diamond International Corp., 833 F.2d 1210, 1215 (6th Cir. 1987), and Aqua-Chem, Inc. v. D&H Machine Service, Inc., No.
In Ralph Shrader, the seller’s acceptance fell within the § 2-207(1) proviso, giving rise to the question of whether the buyer had assented to the additional terms in the acceptance. There, as here, the seller relied on language in the acceptance requiring the buyer to “advise . . . immediately” if it did not agree to the additional terms. The Sixth Circuit held that “failure to so advise obviously does not require a conclusion of assent.” Id. at 1215 (citing
Moreover, where there are competing forms and the § 2-207(1) proviso is implicated, nearly every court to consider the issue—including the Sixth Circuit—has found that silence and performance without express objection to the additional terms in the acceptance are not sufficient to signal assent to the additional terms. See, e.g., McJunkin Corp. v. Mechanicals, Inc., 888 F.2d 481, 488 (6th Cir. 1989) (where the buyer issued several purchase orders to the seller over the course of five months, and each shipment from the seller in response was accompanied by an order acknowledgment setting forth the seller’s additional terms, finding that the § 2-207(1) proviso applied but that the plaintiff “never explicitly accepted the terms of [seller’s] acknowledgment” and that “silence in the face of [the seller’s] acknowledgment” did not constitute assent); Diamond Fruit Growers, Inc. v. Krack Corp., 794 F.2d 1440, 1445 (9th Cir. 1986) (holding that the public policy reflected in the enactment of the UCC required “a specific аnd unequivocal expression of assent on the part of the offeror when the offeree conditions its acceptance on assent to additional or different terms”); C. Itoh & Co. (Am.) Inc. v. Jordan Int’l Co., 552 F.2d 1228, 1235 (7th Cir. 1977) (noting that the buyer must “expressly assent[] to the challenged . . . term” under § 2-207(1)).
In its Reply in support of its own motion for summary judgment, SFEG attempts to avoid the result dictated by the cases referenced above by clarifying that it is not arguing “that silence or inaction constitutes acceptance.” (Doc. No. 100, at 3.) Rather, SFEG’s “argument is that Blendtec’s repeated ordering, in the face of [SFEG]’s terms and conditions, and without validly sending [SFEG] any competing terms and conditions, is a course of dealing that constitutes
SFEG apparently conflates the issue of assent with that of ascertaining the terms of the parties’ agreement once it has been determined that the § 2-207(1) proviso applies and there was no express assent to the additional terms. In Dresser, upon which SFEG relies, the Seventh Circuit presumed without discussion that the § 2-207(1) proviso applied and that the offeror had not expressly assented to the offeree’s supplemental or different terms. The court therefore proceeded to determine what the terms of the parties’ contract were under § 2-207(3). See Dresser, 965 F.2d at 1451 (“We simply hold that, under Wisconsin law, all of the U.C.C.’s provisions should be used in discerning the terms of a contract under § 2-207(3), including those provisions that allow us to examine the parties’ performance.”).
Here, the court is still on the question of Blendtec’s assent to SFEG’s Terms & Conditions. Based on McJunkin and the other cases cited above, the court finds as a matter of law applied to the undisputed facts that Blendtec’s failure to objеct and continued performance did not constitute assent. Under Dorton, “when no contract is recognized under Subsection 2-207(1) . . . because the offeree’s acceptance is expressly conditioned on the offeror’s assent to the additional or different terms—the entire transaction aborts at this point.” 453 F.2d at 1166. Accordingly, no contract was created by the exchange of forms. However, because there is no dispute that the parties’ conduct establishes the existence of a contract, the court must resort to § 2-207(3) to ascertain its terms.
3. Application of § 2-207(3)
SFEG essentially argues that, if the parties failed to create a contract under § 2-207(1), the parties’ conduct after the exchange of the forms was nonetheless sufficient under § 2-207(3)
As set forth above, § 2-207(3) states that, in a situation where the parties’ conduct establishes the existence of a contract even though the writings themselves do not, “the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of chapters 1–9 of this title.” SFEG argues that the reference to “supplementary terms incorporated under any other provisions of chapters 1–9 of this title” encompasses those terms arrived at through the parties’ course of performance and course of dealing. (Doc. No. 100, at 3–4 (citing Dresser Indus., 965 F.2d at 1449).)
SFEG argues that the UCC defines the term “agreement” as “the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade as provided in § 47-1-303.”
The fact that Blendtec repeatedly accepted SFEG’s performance has no bearing on whether Blendtec assented to SFEG’s Terms & Conditions. The court has already determined that silence or inaction, even over the course of repeated transactions, does not constitute “assent” for purposes of § 2-207(1). The actual issues presented by SFEG’s argument are (1) whether the parties’ course of dealing is encompassed within the supplementary terms of the UCC that may be considered in determining the terms of a contract formed under § 2-207(3); and
In Dresser,6 the Seventh Circuit recognized that courts and commentators had differed on the issue of whether parties’ course of performance could be considered under § 2-207(3). See Dresser, 965 F.2d at 1451 (citing C. Itoh & Co. v. Jordan Int’l Co., 552 F.2d 1228, 1237 (7th Cir. 1977) (“[W]e find that the ‘supplementary terms’ contemplated by Section 2–207(3) are limited to those supplied by the standardized “gap-filler” provisions of Article Two.”); Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1579 (10th Cir. 1984) (interpreting § 2-207(3)’s reference to “supplementary terms” as encompassing terms arrived at through the parties’ course of performance, course of dealing, оr usage of trade, as well as the UCC’s stock gap-fillers); 2 W. Hawkland, Uniform Commercial Code Series, § 2-207:04, at 109–10 (1990) (discussing warranties, opining that the parties’ course of conduct should be considered in cases involving § 2-207(3)); 1 White & Summers, Uniform Commercial Code, § 1–3, at 45 (3d ed. 1988) (recommending that “supplementary terms” be limited to those expressly provided for in the UCC’s gap-fillers)). The Dresser court ultimately held, however, that Wisconsin’s version of the UCC, which is very similar to Tennessee’s, permitted courts to consider the parties’ course of performance, course of dealing, and usage of trade, as well as the UCC’s gap-fillers, in determining the terms of the parties’ agreement under § 2-207(3):
We believe that Wisconsin’s version of § 2-207(3) is most amenable to the approach taken by Professor Hawkland and the Tenth Circuit in Daitom. That section directs us to fill out a “battle of the forms” contract with “supplementary terms incorporated under any other provisions of chs. 401 to 409.” Wis. Stat. § 402.207(3) (emphasis added). Thus, a court is not limited to the standardized gap-fillers of Article 2, but may utilize any terms arising under the entire U.C.C. The
statute’s reference to “any other provisions,” therefore, necessarily encompasses those sections relating to course of performance (§ 402.208) and course of dealing and usage of trade (§ 401.205). This is the most natural reading of the statute. There is no reason to suppose that the legislature would have used the word “any” if it really meant only the usual gap-fillers. This is not to say that the gap-fillers are unimportant; in cases where the parties’ performance gives no indication of their understanding of a particular term, the gap-fillers will supply it. We simply hold that, under Wisсonsin law, all of the U.C.C.’s provisions should be used in discerning the terms of a contract under § 2-207(3), including those provisions that allow us to examine the parties’ performance.
The Dresser court’s analysis remains, to this court’s knowledge, the only comprehensive discussion of the topic. Based on the similarity between Tennessee’s and Wisconsin’s versions of the UCC, this court believes that Tennessee courts and the Sixth Circuit, if directly confronted with the question, would reach the same conclusion—that all of the UCC’s provisions should be used to determine the terms of a contract under § 2-207(3), including those provisions that allow consideration of the parties’ course of dealing.
The parties’ course of dealing in this case, however, does not permit a conclusion that they have adopted SFEG’s Terms & Conditions or that there is even a disputed question of fact in that regard. The term “course of dealing” is defined in the UCC as “a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.”
SFEG does not argue otherwise. Rather, the only course of dealing to which it points is Blendtec’s continued performance after repeatedly reсeiving SFEG’s Terms & Conditions. Regardless of how many times Blendtec received SFEG’s Terms & Conditions, the court, again, has already concluded that Blendtec’s silence and continued performance did not manifest assent to those Terms & Conditions for purposes of § 2-207(1). It would be illogical to conclude that silence and continued performance, standing alone, may nonetheless constitute a course of dealing under § 2-207(3), thus bringing in through the back door the same terms rejected at the front door.
In Dresser, the Seventh Circuit indeed held that the district court properly permitted the jury to consider the parties’ course of dealing and affirmed the verdict in favor of the plaintiff-seller based on the application of its warranties. There, however, the parties’ course of dealing included “some activity relating to the terms in question.” Dresser, 965 F.2d at 1451. The evidence showed that the buyer was actually aware of the contents of the seller’s warranty and, in fact, had passed the warranty along to its own customers, who had repairs done in accordance with the warranty’s terms. In addition, there was evidence that “the custom in the industry was for the manufacturer of a finished product (here, [the buyer]) to adopt the warranties of the companies who sold them parts (here, [the seller]).” Id. at 1451 n.2.
In sum, the court finds that the parties’ course of dealing may be considered in determining the terms of their agreement under § 2-207(3), but in this case there is no evidence in the record that would permit the finder of fact to conclude that SFEG’s Terms & Conditions were adopted by the parties’ course of dealing.
C. Conclusion – Terms & Conditions Motion
The court will grant Blendtec’s Motion for Partial Summary Judgment on the question of whether Blendtec’s counterclaims are barred by SFEG’s Terms & Conditions, as the Terms & Conditions are not part of the parties’ agreement. The court will deny SFEG’s Motion for Summary Judgment to the extent that it seeks judgment in its favor as a matter of law on Blendtec’s counterclaims.
A. Relevant Facts
The parties began discussing the possibility of a supplier relationship in early 2010 and began actively negotiating in late 2010. At that time, Blendtec’s exclusive provider of part sets was Ametek, Inc., a competitor of SFEG’s. (Rogers Aff. ¶ 7, Doc. No. 73-14.) In February 2011, Blendtec sent SFEG four test motors. (Doc. No. 86-3, at 3.) On March 11, 2011, Shawn Elgaaen, Blendtec’s Manager of Product Engineering (Def.’s Interrog. Answers, Doc. No. 73-17, at 3), wrote to Geordie Mason, then Director of Sales and Marketing and now General Manager of SFEG (Mason Decl. ¶ 2, Doc. No. 73-13), asking if SFEG “could build a motor that matched or exceeded the performance” of the test motors Blendtec had sent. (Def.’s Interrog. Answers, Doc. No. 73-17, at 12.)
By late March 2011, after a period of exchanging emails discussing Blendtec’s requirements and SFEG’s procedures, SFEG had completed the initial design and drawing process. (March 23, 2011 email from Elgaaen to Mason, Doc. No. 73-10, at 1.) Over the next few months, the parties continued to discuss the development and testing process. Blendtec repeatedly communicated to SFEG that it wanted the parts manufactured by SFEG to meet or exceed those manufactured by Ametek, but it was vague about how to measure performance. It indicated that it expected motors built with SFEG parts to match the “speed/torque test of the motor samples” Blendtec had provided to SFEG, made with Ametek parts. (April 26, 2011 email from Elgaaen to Smith, Doc. No.73-11, at 1.) SFEG indicated that it was attempting to match the testing that Blendtec would ultimately put the prototype samples through in order to compare them to Ametek’s product. (April 26, 2011 email from Smith to Elgaaen, Doc. No. 73-11, at 1.)
Geordie Mason knew that Blendtec could not perform the speed/torque test in-house,
In August 2011, Mason sent Elgaaen an engineering report and test data for the “ongoing motor program” on which the parties had embarked. Along with this report, SFEG sent four samples of each model of the part sets it had developed. (Aug. 22, 2011 email from Mason to Elgaaen, Doc. No. 73-8, at 1.) The engineering report, titled Universal Motor Verification Testing, was drafted by two SFEG engineers, Chris Smith and Faizul Momen. (Doc. No. 73-8, at 2–19.) It stated that SFEG‘s purpose was to “[d]esign four motor sets that exceed the current motor sets being purchased by Blendtec.” (Id. at 3.) The report summarizes the results of various tests SFEG had performed on its part sets, compared with the “Competitor Motor” from Ametek, and purports to show that SFEG‘s part sets out-performed Ametek‘s in virtually every category. The report concluded: “The proposed development of the motor part sets for Blendtec has been successfully completed. The Northland motor sets exceed the competitors’ motor sets in performance, and Northland is ready to supply Blendtec production ready samples.” (Id. at 19.)
According to Elgaaen, Blendtec, like SFEG, put the component parts, as installed in blender motors, through a carrot and water or heat rise test, as well as a “torture chamber” or life cycle test. (Elgaaen Dep. excerpt, Doc. No. 75-3, at 5.) He also confirmed that, once it was determined thаt the new components functioned well enough in these tests, Blendtec‘s normal procedure was then to go through beta testing, sending approximately fifty blenders with the
Elgaaen testified that SFEG‘s part sets passed its preliminary laboratory tests, though not with “flying colors” (Elgaaen Dep. excerpt, Doc. No. 75-3, at 15), and moved on to beta and then pilot testing. On December 29, 2011, Blendtec sent SFEG purchase orders (“POs“) for the first and second pilot lots, in quantities of 500 for each part The second PO was expressly contingent on Blendtec‘s acceptance of the parts ordered in the first. (Dec. 29, 2011 email from Turner to Mason, Doc. No. 89-10; POs 2007387, 2007388, Doc. No. 89-10, at 2–4.) Email exchanges between the parties indicate that issues continued to arise during the first and second pilot lоts, but the parties addressed and worked through them. (See, e.g., Doc. Nos. 89-11, 89-12 (documenting changes made between first and second pilot lots).) According to Elgaaen, the first and second pilot lots failed, and the third pilot lot was ordered on April 11, 2012. (Elgaaen Dep. excerpt, Doc. No. 75-3, at 31.) Although a pilot test typically takes three to six months, Blendtec went ahead and ordered a production run (15,000 of each unit) on May 24, 2012, well before the
Issues with SFEG‘s parts continued to arise thereafter, but the parties’ communications from that time period indicate that they intended to, and did, continue to work together to resolve them. (See, e.g., Aug. 3, 2012 email from Elgaaen to Mason, Doc. No. 89-14 (concluding, “Again, this is just to give you a heads up of what is happening. Hopefully we will be able to zero in on these challenges and eliminate them soon.“), and Aug. 3, 2012 email from Mason to Elgaaen, Doc. No. 89-14 (responding: “I will get the word out that there are some issues[.] Do we need to come in to assist in analyzing the issues? I can have people in ASAP[.]“).) The parties worked together through the fall of 2012 to resolve the issues. (See Sept.–Oct. 2012 email exchange, Doc. Nos. 89-15, 89-16.) SFEG engineers went to Utah to “rework some of the existing inventory that was suspected of having . . . this fault” that had now arisen. (Rogers Dep. excerpt, Doc. No. 102-7, at 10.)
Other problems appeared toward the end of 2012 and early 2013, but the parties apparently believed they could work through these as well, and Blendtec placed substantial orders with SFEG. The email exchanges between Mason and Elgaaen indicate that both sides were baffled by the problems and trying to determine their source. (Doc. Nos. 89-19, 89-20.) At
In February 2013, Mason assured Elgaaen that SFEG‘s motor was “more efficient than the Ametek design.” (Pl.‘s Interrog. Answers, Doc. No. 73-17, at 13.) Consumers were still experiencing problems, however, and both SFEG and Blendtec were having difficulty determining why. In March 2013, SFEG employed an outside engineering firm to determine the cause of failure of the “SFG Universal Blender Motor” by comparing it to the Ametek motor and making recommendations for improvement. (Doc. No. 90-1.) SFEG shared the results of the analysis as well as the changes that it intended to implement as a result of the recommendations. (G. Mason Dep. excerpt, Doc. No. 90-2, at 11.)
Meanwhile, in May 2012, Geordie Mason wrote to Blendtec proposing that Blendtec begin using SFEG‘s electro-graphite brushes in its motor assembly, stating that the material used was “conducive to longer life and superior commutation.” (Pl.‘s Interrog. Answers, Doc. No. 73-17, at 13.) Mason worked hard for months at trying to sell Blendtec on SFEG‘s brushes. (Mason Dep. excerpt, Doc. No. 90-2, at 12.) In December 2012, Blendtec asked SFEG to begin working on providing brushes for Blendtec‘s motors as well. In October 23, 2013, Mason described to Elgaaen the testing that SFEG had conducted on its brushes, emphasizing that its parts could withstand heavy use and were better than Blendtec‘s current brush. (Pl.‘s Interrog. Answers, Doc. No. 73-17, at 13; Oct. 23, 2013 email from Mason to Elgaaen, Doc. No. 92-4, at 1.)
David Throckmorton, Blendtec‘s Research and Development Manager (see Def.‘s Answers to Interrog. No. 1, Doc. No. 73-17, at 3), concedes that testing was not done on the SFEG brush in Stealth, but, he stated, “we believed that we had done initial testing and it worked and we expected it to work in all our products.” (Throckmorton Dep. excerpt, Doc. No. 92-13, at 4.) “I expected the product to perform as intended in all of our applications. I expected an equivalent product that would perform the same.” (Id.)
In April 2014, Blendtec began using SFEG‘s resin bonded brush in its residential blenders (Rogers Aff. ¶ 14, Doc. No. 73-14.) Blendtec began placing production-quantity purchase orders for SFEG brushes about that time. (Mason Dep. excerpt, Doc. No. 90-2, at 13.) Blendtec began using SFEG‘s brushes for the Stealth shortly thereafter and started shipping test units in June 2014. (Rogers Aff. ¶¶ 16–17, Doc. No. 73-14.) Mason got word around October 2014 that the one of Blendtec‘s biggest commercial customers, Jamba Juice, was having major
Although it appears that Blendtec stopped ordering brushes from SFEG in late 2014, the parties continued trying to determine why the brushes were failing, resulting in an unusual number of returns. In January 2015, Blendtec notified SFEG that it had received reports of commutators exploding during testing with the new brushes. (Jan. 15, 2015 email from Seegmiller to Mason and Elgaaen, Doc. No. 90-11; see also email exchanges, Doc. Nos. 90-12, 90-13 (dating from Jan. 15, 2015 through Feb. 11, 2015).) Blendtec was unable to replicate the problems, and SFEG suggested running a “locked rotor test,” which Blendtec had never done before. (Def.‘s Answers to Interrogs., Doc. No. 73-17, at 10.) Blendtec first performed this test on February 11, 2015 and was “finally able to replicate the problems.” (Id. at 11.)
In February 2015, the parties were still communicating about the locked rotor problem. Brandon had sent back to SFEG six motors that had failed, and an engineer at SFEG performed an “autopsy” on them to determine the cause of failure. Four of the six had had a locked rotor condition. Brandon Rogers wrote to Mason that Blendtec‘s software allowed the rotor to be locked for two seconds before cutting power, and that length of time was sufficient to raise the temperature enough to destroy the commutator and, thus, the motor itself. (Mason Dep. excerpt, Doc. No. 90-2, at 15.) Rogers’ conclusion was that SFEG‘s commutator played a big part in the problem. (Mason Dep. excerpt, Doc. No. 90-2, at 15 (citing email exchange).)
Marcus Kwong, a Blendtec engineer, testified that he examined over 100 blenders that had been returned because of an overheating problem. He determined that the problem was related to machines that had both an SFEG armature, which includes a commutator, and an SFEG brush. He determined that the Ametek commutator, unlike the SFEG commutator, was reinforced with a steel retaining ring that held the commutator bars in place. When the device
Q. So it‘s a combination of . . . [t]hree things: Locked rotor or something like it[,] . . . the single reinforced commutator, and this particular resin-bonded brush.
A. Yes.
Q. So is it fair to say then that the commutators and brushes by themselves are not defective. It‘s when they are coupled – well, when they are assembled into a motor and then coupled with this other condition?
A. Yes. We did testing where you could have this commutator with Ametek brushes, it was – it was okay. Or you could have the Northland brushes with the single reinforced commutator, it was okay. It was just when those three things combined that you would have a high chance of failure.
(Rogers Dep. excerpt, Doc. No. 102-7, at 16.)
Meanwhile, it is undisputed that Blendtec was having cash flow diffiсulties beginning around December 2014. Blendtec claims these issues were related to the numerous returns it was experiencing as a result of SFEG‘s parts in its blenders. Regardless, for a period of time, Blendtec set up several of its suppliers, including SFEG, on a payment plan. (Christensen Dep. excerpt, Doc. No. 75-1, at 5.) It made some payments toward the amounts it owed SFEG but fell behind its payment plan in February 2015.
SFEG decided to stop shipping product to Blendtec in mid-February 2015. (Wilson Dep. excerpt, Doc. No. 64-5, at 12–13.) The reason for doing so was to pressure Blendtec into submitting payment toward the amounts owed. (Id. at 12.) In mid- to late February, Blendtec decided to stop ordering SFEG components. (Def.‘s Answers to Interrogs., Doc. No. 73-17, at 7.)
Both parties have produced reports by experts who reach opposing conclusions on whether SFEG‘s parts lived up to its promises. SFEG‘s technical expert, Robert Hyatt, opines in
Blendtec‘s expert, Fred Smith, testified, to the contrary, that SFEG was aware that Blendtec‘s blenders were to be used for “robust blending operations,” but that the brushes and armatures sold by SFEG to Blendtec were not as good аs or better than the Ametek parts and “were not fit for their intended purpose.” (Smith Report ¶¶ 83, 85, Doc. No. 73-21.) He testified both that SFEG had reason to know that Blendtec was relying on SFEG‘s expertise, and that the defect in the commutator was a latent defect that was not discoverable by any standard inspection method. (Id. ¶¶ 88, 89.) In fact, the precise problem was not discovered until Blendtec cut the armature apart to discover the flaw in the “commutator reinforcement.” (Id. ¶ 88.) He also points out that the supposed problem with Blendtec‘s control board had never been a problem when used in conjunction with Ametek‘s parts. (Id. ¶¶ 75–76.)
B. Analysis
The court has concluded that
As an initial matter, SFEG points out that Blendtec‘s pleadings “traveled exclusively under the theory that its terms and conditions apply” and did not actually assert a “violation of any express warranty.” (Doc. No. 71, at 15.) SFEG claims that “Blendtec‘s case has morphed into a claim that Northland promised that its parts would be ‘as good or better’ than Ametek‘s.” (Id.) While it is clear that Blendtec has now abandoned any claims based on SFEG‘s violation of the warranties contained in Blendtec‘s terms and conditions, which Blendtec never provided to SFEG, SFEG does not actually argue that Blendtec‘s claims for breach of express and implied warranties should be dismissed as inadequately pleaded. The court therefore does not address any such argument and instead presumes for purposes of the Motion for Summary Judgment that Blendtec‘s counterclaims and defenses are sufficiently well pleaded to give SFEG notice of them.
1. Express Warranties and “Puffing”
Under Tennessee‘s enactment of the UCC, an express warranty may be created by
(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain . . . .
(c) Any sample or model which is made part of the basis of the bargain . . . .
SFEG expressly concedes that Blendtec asked it, at the outset of their relationship, if SFEG could build part sets that would “match or exceed the performance” of Ametek‘s parts (Doc. No. 71, at 15–16), and SFEG representеd that it could. SFEG acknowledges that the parties “dispute the breadth of this statement.” (Id. at 16.) Specifically, SFEG contends that it meant by that representation only that it would meet or exceed Ametek‘s performance on the specific tests expressly required by Blendtec, while Blendtec insists that SFEG warranted that its parts would be as good as or better than Ametek‘s “in every respect.” (Id.) SFEG argues, however, that it is entitled to summary judgment regardless of which factual interpretation prevails, because (1) it is undisputed that SFEG‘s parts performed as well as or better than Ametek‘s on the prescribed tests; and (2) “a claim that Northland‘s parts would be as good or better than Ametek‘s in every respect is puffing as a matter of law and, thus, cannot serve as a warranty.” (Id.)
The court finds that there is a question of fact as to the scope of SFEG‘s statements. Blendtec has presented evidence from which a jury could conclude that SFEG did not warrant simply that its parts would perform in laboratory testing as well as Ametek‘s. SFEG‘s representations arguably formed the initial basis for the parties’ decision to move forward with development of prototypes. Moreover, regardless of whether SFEG‘s parts passed initial testing, the evidence is clear that SFEG‘s parts had repeated and continued performance problems when used by consumers in actual blenders, and SFEG continued—for years—to respond to requests
And, contrary to SFEG‘s assertion, representations that a product is as good as or better in all respects than a competitor‘s is not always puffery as a matter of law. As observed by leading commentators on the topic, “the recognition that some statements are not warranties tells one nothing about where the line should be drawn between puffs and warranties, and anyone who claims always to be able to tell a ‘puff’ from a warranty is (we will not hold back) a fool or a liar.” 1 White, Summers, & Hillman, Uniform Commercial Code § 10:12 (6th ed.). Likewise, the Sixth Circuit has held that the content of a particular statement does not dictate whether it should be considered “puffing.” Context must also be considered. Thus, to determine whether pre-contract statements by the seller
were in fact a basis of the bargain and thus an express warranty, or whether they were merely a seller‘s “puffing,” the court should consider the circumstances surrounding the transaction, the reasonableness of the buyer in believing the seller, and the reliance placed on the seller‘s statements by the buyer.
Price Bros. Co. v. Philadelphia Gear Corp., 649 F.2d 416, 422 (6th Cir. 1981) (citing 1 A. Squillante & J. Fonseca, The Law Of Modern Commercial Practices 236, s 3:40 (revised ed. 1980)). The question, in short, is whether the statements formed the basis of the bargain. Id.
Viewing the totality of the circumstances here in the light most favorable to Blendtec as the non-moving рarty, the court finds that a reasonable jury could find that SFEG, throughout the course of the parties’ relationship, reiterated its position that its parts were as good as or better
In addition, there is evidence that SFEG‘s engineers knew considerably more about motors than Blendtec and that Blendtec continued to rely on SFEG‘s expertise, skill and judgment to design and build the parts. (See, e.g., Smith Dep. excerpt, Doc. No. 91-6, at 2 (SFEG
Clearly, there are facts in the record that support SFEG‘s position as well. A jury could well question the reasonableness of both Blendtec‘s continued faith in SFEG after repeated problems and Blendtec‘s decision to bypass its normal testing protocol, particularly with respect to the brushes and their use in the Stealth blender. In short, however, questions of fact preclude summary judgment on the issues of whether SFEG‘s statements constituted an express warranty (or a series of express warranties) and, if so, what the scope of the warranty is and whether SFEG breached it.
2. Implied Warranties
Under the UCC, the warranties of merchantability and fitness for a particular purpose are
Blendtec argues, in response, that the implied warranties are not waived because (1) the defects were latent; (2) SFEG failed to disclose relevant information about the latent defects; (3) SFEG urged Blendtec to rely on SFEG brush testing rather than Blendtec‘s own processes; and (4) SFEG‘s parts were a moving target that continuously changed. (Doc. No. 87, at 16.)
[W]hen the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired . . . there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him.
The evidence discussed above indicates that Blendtec basically followed its protocol in testing SFEG‘s parts sets but that problems continued to arise. Further, Blendtec argues that the problem with SFEG‘s brushes in conjunction with the unreinforced commutator in a locked rotor mode is a latent defect that both parties had difficulty pinning down and, in fact, did not diagnose until early 2015. Moreover, while Blendtec clearly bypassed its normal testing procedures as they related to brushes, there is a factual dispute as to whether beta and pilot testing would have revealed the problem. SFEG‘s proposed expert testified that, in his opinion, “Blendtec omitted steps of its product development process, which, if conducted, would havе increased the likelihood of detecting the problems with its design and avoiding the alleged quality concerns with the Northland motor parts.” (Hyatt Initial Report, Doc. No. 73-20, at 2.) Daniel Seegmiller, Blendtec Product Engineer, testified that if a full 500 pilot lot test had been performed on the brushes, the problems with them would likely have been detected. (Seegmiller Dep. excerpt, Doc. No. 75-8, at 6.) However, David Throckmorton could only speculate on whether the problem would have been caught any sooner—for instance, at the beta test stage—because the sample lots or “populations” were so small that it would take a long time to get “meaningful results.” (Throckmorton Dep. excerpt, Doc. No. 75-10, at 18–19.)
In sum, there is a question of fact as to whether the problems at issue were latent or patent defects and whether Blendtec‘s normal testing protocol could or should have detected the
C. Conclusion – SFEG‘s Motion for Summary Judgment
For the reasons set forth above, the court will deny SFEG‘s motion in its entirety.
VI. BLENDTEC‘S DAMAGES MOTION
A. Relevant Facts
In early February 2014, SFEG and Blendtec entered into a Supplier Agreement with a one-year term running from January 31, 2014 to January 31, 2015. (Pl.‘s Response to Statement of Undisp. Facts ¶ 21, Doc. No. 83; see also Supplier Agreement, Doc. No. 64-11.) The stated purpose of the Agreement was to “ensure the continuity of the supply chain while providing flexibility for both parties to react to potential demand surge.” (Doc. No. 64-11, at ¶ 1.) Blendtec agreed to provide SFEG monthly POs for specific requirements of motor part sets (armatures and fields), giving SFEG “30 day lead time on firm order,” and, at SFEG‘s request, a rolling 6-month forecast of product requirements. (Id. ¶¶ 2–3.) The Agreement establishes that Blеndtec‘s potential “inventory liability is limited to the firm purchase order quantity of motors 30 days into the future plus the sales value of 10,000 motors and the material value of 35,000 motors beyond the 30 day firm purchase order.” (Id. ¶ 4.) Beyond that amount, any inventory liability is solely at SFEG‘s risk. (Id. ¶ 5.)
According to SFEG, the purpose of the Supplier Agreement “was that they [Blendtec] were going to give us a six-month forecast of product without firm purchase orders. So for us to accept that six-month forecast, we wanted this assurance that if we bought against a forecast and not a purchase order that they would cover us for 10,000 motors plus the material value of 35,000 motors.” (Wilson 30(b)(6) Dep., Doc. No. 86-7, at 2.)
“On January 30, 2015, [SFEG] shipped armatures and fields to [Blendtec] pursuant to Purchase Order No. 3000763-3.” (Wilson Decl. ¶ 3, Doc. No. 112.) It did not send the entire amount ordered and, sometime during the first two weeks of February 2015, decided to stop all shipments of product to Blendtec. (Doc. No. 83 ¶ 11; Wilson Dep. excerpt, Doc. No. 64-5, at 12–13 (stating that SFEG put Blendtec on “shipment hold” in mid-February, 2015).) When SFEG notified Blendtec that it would not ship any more product, there were approximately 164,000 fields and 145,000 armatures that had been ordered by Blendtec under PO 3000763-3 but not shipped. (Doc. No. 83 ¶ 15.) SFEG had actually assembled 16,600 of the 164,000 fields that were ordered but not shipped and 11,000 of the armatures that were ordered but not shipped. (Wilson Dep. excerpt, Doc. No. 64-5, at 3.)
SFEG seeks “$1,232,179 in damages for these unshipped assemblies.” (Doc. No. 83 ¶ 16.) This figure represents the “net realizable sales value of unshipped assemblies under Purchase Order 3000763-3.” (Id. ¶ 2.)
PO 3000763-3 specifically states that its payment terms are net 30. (Id. ¶ 17.) SFEG never sent аn invoice for the unshipped assemblies. (Id. ¶ 18.) PO 3000763-3 had a delivery date of June 30, 2015, more than 30 days after SFEG decided to stop shipments. (Id. ¶ 25.)
Without citing to any statement of undisputed fact, SFEG asserts that the parties entered into the Supplier Agreement before switching from short-term purchase orders to large, blanket orders on a Kanban system, that is, “a system for electronically signaling the amount of product pulled by Blendtec into production.” (Doc. No. 82, at 6 (citing Wilson Decl. ¶ 8, Doc. No. 84).) SFEG does not specifically explain the Kanban system, how it worked, or how it changed the
B. Discussion
Blendtec moves for partial summary judgment on three damages-related issues: (1) whether SFEG is entitled to recover finance charges under SFEG‘s Terms & Conditions; (2) whether SFEG is entitled to damages for tooling costs; and (3) whether SFEG is entitled to damages for the unshipped assemblies.
The court has already determined, above, that SFEG‘s Terms & Conditions did not become part of the parties’ agreement. Because SFEG‘s claim for finance charges is premised solely upon the fact that a clause permitting recovery of finance charges is included in its Terms & Conditions, Blendtec is entitled to summary judgment in its favor on that issue. Second, in SFEG‘s response to Blendtec‘s motion, SFEG concedes that it is not entitled to recover tooling costs. Summary judgment in Blendtec‘s favor on that issue is appropriate as well. (Doc. No. 82, at 3–4.)
This leaves SFEG‘s claims for damages relating to “unshipped assemblies.” Specifically, Blendtec argues that SFEG is not entitled to damages related to “motor parts that Blendtec ordered but that SFEG refused to ship and for which SFEG never invoiced Blendtec.” (Doc. No. 61, at 3.) It argues that PO 3000763-3 was issued within the term of the Supplier Agrеement and that, consequently, Blendtec‘s “inventory liability is limited to the firm purchase order quantity of motors 30 days into the future plus the sales value of 10,000 motors and the material value of 35,000 motors beyond the 30 day firm purchase order.” (Doc. No. 64-2, at ¶ 4.)
In response, SFEG asserts that (1) Blendtec is liable for payment of the unshipped assemblies under
1. Whether a Contract Was Formed
The court finds that Blendtec‘s argument that no contract was formed was implicitly incorporated in its original motion. Regardless, for purposes of Blendtec‘s motion, the court construes the facts in the light most favorable to SFEG and concludes that SFEG‘s evidence that it made a partial shipment at the end of January 2015, after receipt of PO 3000763-3, if true, could be construed as part performance under the parties’ agreement and thus acceptance of the purchase order. The parties’ conduct, at least initially, arguably reflected an understanding that they had entered into an agreement.
2. Tenn. Code Ann. §§ 47-2-704(2) and 47-2-705(1)
Citing
Section 2-703 of the UCC addresses “Seller‘s remedies in general” and concerns situations in which a buyer “wrongfully rejects or revokes acceptance of goods or fails to make payment due on or before delivery.”
Section 2-704 cross-references § 2-703, as it pertains to the rights of “[a]n aggrieved seller under the preceding section,”
Section 2-705(1) provides that an aggrieved seller “may stop delivery of goods in the possession of a carrier or other bailee” under various circumstances. Because there is no hint here that the goods in question were in transit or ever in the possession of a bailee, it does not apply either.
SFEG‘s arguments under §§ 2-704 and 2-705 are irrelevant.
3. The Supplier Agreement
There is no dispute that the Supplier Agreement was duly executed by both parties and that the contract term ran from January 31, 2014 to January 31, 2015. (Supplier Agreement, Doc. No. 64-11.) It expressly provides that “[e/i]ther party can exit this agreement at any time with a written 30 day notice.” (Id. ¶ 7.) Neither party contends that there was a written notice to exit the
“In ‘resolving disputes concerning contract interpretation, [the court‘s] task is to ascertain the intention of the parties based upon the usual, natural, and ordinary meaning of the contractual language.‘” Planters Gin. Co. v. Fed. Compress & Warehouse Co., 78 S.W.3d 885, 890–91 (Tenn. 2002) (quoting Guiliano v. Cleo, Inc., 995 S.W.2d 88, 95 (Tenn. 1999)). The parties’ intent at the time of contracting “is presumed to be that specifically expressed in the body of the contract.” Id. at 890. Moreover, the “determination of the intention of the parties is generally treated as a question of law because the words of the contract are definite and undisputed, and in deciding the legal effect of the words, there is no genuine factual issue left for a jury to decide.” Id. (citing 5 Joseph M. Perillo, Corbin on Contracts, § 24.30 (rev. ed.1998); Doe v. HCA Health Services of Tenn., Inc., 46 S.W.3d 191, 196 (Tenn. 2001)).
Neither party here disputes that the Supplier Agreement was duly executed by both parties and that it reflects their intent at the time they entered into it. SFEG appears to be arguing either that Blendtec waived its right to writtеn notice of termination of the agreement or its right to enforce the inventory liability limitation when it and SFEG implemented the Kanban ordering system.
Blendtec points out that Mark Christensen was not employed at the time the Supplier Agreement was executed and had never actually seen it prior to his deposition. (Christensen Dep. excerpt, Doc. No. 99-1, at 3.) The excerpt submitted by both parties does not reflect that he was asked specifically about Blendtec‘s potential liability under the Supplier Agreement or whether the Kanban system would even affect that provision of the Supplier Agreement. Ted Wilson agreed, in his 30(b)(6) deposition testimony, that the purpose of the Supplier Agreement was to provide some protection for SFEG in the event that it purchased raw materials in reliance on a six-month forecast, and he agreed that PO 3000763-3, dated January 19, 2015, fell within the term of the Supplier Agreement. (Wilson Dep. excerpt, Doc. No. 99-2, at 4.)
SFEG does not explain how the Kanban system obviated the Supplier Agreement or its intention both to protect SFEG and to limit Blendtec‘s liability for inventory. Neither Wilson‘s
Moreover, SFEG has not established that it is excused from its obligations under the Supplier Agreement by a prior material breach by Blendtec. Ordinarily, a party who first materially breaches may not recover under the contract. Madden Phillips Const., Inc. v. GGAT Dev. Corp., 315 S.W.3d 800, 813 (Tenn. Ct. App. 2009) (citation omitted). However, a non-breaching party may waive its right to assert first material breach as a bar to rеcovery if it accepts the benefits of the contract with knowledge of a breach.
In this case, first, Blendtec incurred no obligation to provide a “rolling 6 month forecast of product requirements” unless SFEG requested such a forecast. (Supply Agreement ¶ 3, Doc. No. 64-11.) SFEG has pointed to no evidence in the record that Blendtec failed to provide a forecast upon request and thus no evidence of a prior breach of that provision by Blendtec.
Paragraph 2 of the same agreement requires Blendtec to furnish monthly purchase orders “for specific requirements of motor part sets . . . for the upcoming calendar month,” thus providing at least “30 day lead time on firm order.” (Id. ¶ 2.) There is no indication that either party believed that Blendtec breached this provision by not submitting a new purchase order each month. Rather, its purchase orders indicated its needs further into the future and provided well over 30 days of lead time, to the benefit of SFEG. For instance, PO 3000763-1 was issued on July 24, 2014, requesting 100,000 fields and 100,000 armatures to be delivered by December 31, 2014. (Doc. No. 99-6.) Regardless, to the extent Blendtec‘s failure to submit a monthly purchase order constituted a breach, it is one to which SFEG never objected and instead continued to deal with Blendtec over the course of an entire year of operating under the Supplier Agreement.
SFEG does not dispute Blendtec‘s interpretation of the Supplier Agreement. The court will therefore grant Blendtec‘s Motion for Partial Summary Judgment limiting damages. According to Blendtec‘s calculations—which, again, SFEG does not refute or even address—Blendtec‘s liability for unshipped inventory is limited by the Supplier Agreement to $392,200. The court, however, expresses no opinion regarding whether either party owes damages to the other in this action, the issue of liability not having been resolved.
VII. CONCLUSION
The court will grant Blendtec‘s motions (Doc. Nos. 61, 65) and deny SFEG‘s motion (Doc. No. 70). An appropriate order is filed herewith.
ALETA A. TRAUGER
United States District Judge
Notes
a sequence of conduct between the parties to a particular transaction that exists if:
(1) The agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and
(2) The other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection.