Appeal from the District Court of the Virgin Islands. (D.C. Civil Action No. 85-00195).
Present: Mansmann, Hutchinson and Lewis, Circuit Judges.
HUTCHINSON, Circuit Judge.
In this appeal and cross-appeal, appellant U&W Industrial Supply, Inc. ("U&W") contends that a judgment for damages of $27,790.19 entered by the District Court of the Virgin Islands on U&W's requirements contract claim is inadequate. U&W argues that the district court erroneously held U&W had a duty to mitigate damages arising from appellee and cross-appellant Martin Marietta Alumina Properties, Inc.'s ("MMA's") breach of contracts, styled by the parties "blanket order contracts," under which U&W agreed to supply MMA's requirements of certain parts and supplies.
MMA, in its cross-appeal, argues that the district court should have entered judgment in its favor on U&W's breach of contract claims. MMA contends that the district court erred in awarding partial summary judgment to U&W on the theory that MMA breached a duty of good faith which the law implies in all commercial contracts. The district court implied a thirty day notice provision into the blanket order contracts because it felt MMA had breached this good faith duty when it failed to give U&W thirty days notice before canceling individual purchase orders it had the option of placing under its blanket order contracts with U&W. The district court's holding had the effect of adding a second thirty day notice provision to blanket order contracts which had only expressly required MMA to give U&W thirty days notice of a change in production levels at MMA's St. Croix aluminum ore processing facility.
Because MMA's requirements did not end, and its production levels did not vary substantially from those the requirements contracts were based on, until it actually closed its Virgin Island plant operations in May of 1985, we conclude that the court erred in implying this second thirty day notice provision into the contracts. Moreover, because uncontradicted evidence in this record establishes that the production levels on which U&W's obligation to maintain its own inventories was based never decreased before the plant closed in May of 1985, we also conclude that there is no disputed issue of material fact whose resolution in U&W's favor would permit it to prevail under applicable substantive law. Therefore, we will reverse the district court's order entering partial judgment for U&W and its order denying MMA's cross-motion for summary judgment and remand with instructions to enter an order granting summary judgment to MMA.
U&W is an industrial piping and valve supplier located on the island of St. Croix in the United States Virgin Islands ("Virgin Islands"). MMA operated an aluminum processing plant on St. Croix until May of 1985. From time to time, prior to 1983, MMA purchased large quantities of industrial piping and valves from U&W for use in MMA's aluminum processing operations under individual purchase orders. MMA's orders constituted 90% of U&W's business.
In 1982, MMA decided to implement a blanket order system for the purchase of materials. In doing so it joined an industry trend toward the use of blanket orders as a means of better competing against the Japanese. Before adopting the blanket order system, MMA had maintained a six month supply of the materials U&W was supplying. It wanted to reduce its inventory to a one week supply and rely on contractors to supply those items and other materials as needed. As finally adopted, MMA's blanket ordering system required suppliers who signed on to maintain inventories adequate to meet MMA's usual production levels but required MMA to place only one order within ninety days of signing. MMA was then free to place, or not place, orders as it saw fit.
U&W was one of the suppliers who signed on after responding to MMA's invitations to bid on some of the blanket order contracts. U&W submitted bids for valves, instrumentation, gaskets, electrical supplies, fittings and piping. On these items U&W's bid was the lowest and MMA awarded U&W requirements contracts for these items under the terms of the blanket order contracts. In its invitations to bid, MMA had included an analysis of its inventory needs that gave part numbers and descriptions of the items required, its levels of use or consumption of each for the current and prior year and the maximum quantity MMA had previously kept in inventory. These blanket contracts were drafted by MMA and were offered to U&W on a "take-it-or-leave-it basis." Brief for Appellee at 6. U&W attempted to negotiate the terms of the blanket contracts but MMA's purchasing manager informed U&W the agreement could not be modified. U&W then accepted the blanket contracts as MMA had presented them.
The parties executed four of the five blanket contracts at issue on December 23, 1983 and these were designed to run from January 1, 1984 to December 31, 1984. The fifth contract ran from July 1, 1983 to June 30, 1984. Except for the description of the products required, all five contained identical terms and conditions. Under each, U&W was obligated to maintain an inventory of each specific part adequate to supply MMA's needs at its current level of production. U&W understood the agreement obligated it to carry a ninety day supply of each part for MMA until the term of that blanket contract expired or it was otherwise terminated by one of the parties. Paragraph 19 of the blanket contracts stated:
19. ESTIMATED QUANTITY OF PRODUCT
Estimated quantity of PRODUCT required and release activity as defined in Exhibit A, is based on current production levels at  Tons. [MMA] reserves the right to change production levels at its sole discretion. In the event of any cahnges [sic] in production levels, [MMA] will notify vendor of either a reduction in PRODUCT quantities or increase in PRODUCT quantities to the maximum level set forth in Exhibit A. Any increase beyond the maximum level set forth in Exhibit A will require written agreement between [MMA] and [U&W].
Joint Appendix ("Jt. App.") at 248. Each blanket contract expressly obligated MMA to place only one order within the first 90 days, but each agreement also specifically stated MMA intended to place follow-up orders with U&W, despite MMA's disclaimer of any obligation ...