certain acceptable standards. Paragraph 14 states: "CANCELLATION: This agreement is subject to cancellation in whole or in part should Sonfast's performance significantly fall below minimum acceptable levels with regard to pricing, delivery, quality or service." Nothing in the agreement expressly sets forth what an "acceptable level" means. Furthermore, the agreement is silent as to the appropriate procedure for termination and whether this procedure included notifying Sonfast of the decision to terminate.
During the third quarter of 1991, Terry L. Bowman, York's Director of Purchasing, became concerned that Sonfast's prices were excessive and their service below the acceptable standard set by the agreement. To gauge the current market price of the fasteners, Bowman sought price quotations for comparable fasteners from other manufacturers. According to Mr. Bowman's deposition, the quotations were lower than the current price being charged by Sonfast. York then notified Steven H. Yount, Sonfast's Vice President in charge of sales, that it intended to solicit bids for the supply of fasteners to the CES division, the order that Sonfast had the exclusive contract to fill through December 1993. York did not notify Sonfast that its performance under the agreement had fallen below acceptable standards thereby triggering the termination clause of the agreement. Sonfast was advised by York that the bidding would cover a larger range of fasteners than what was currently being provided by Sonfast under the agreement. Further, Sonfast was advised that if it would agree to give up its right to be the exclusive CES supplier until December 1993, Sonfast would be permitted to submit a bid for the new supply arrangement. If Sonfast chose not to submit a bid, it would remain the exclusive CES fastener supplier until December 1993, pursuant to the Agreement, but would relinquish the opportunity to continue to be a supplier after that date. Sonfast submitted a bid. The defense contends that Sonfast voluntarily relinquished its right to supply the CES division through December 1993, when it submitted the bid. Sonfast contends that did not voluntarily consent, but rather, entered the bidding process under economic duress.
On or about February 7, 1992, York requested bids from seven suppliers. The bidding process was to be governed by York's bid rules. Each supplier was given a copy of the bid rules in February when their bid was initially requested. The rules expressly provided that in addition to the bid itself, the proposal should also contain a proposed delivery plan. Additionally, separate "Incumbent Bidding Rules" set forth the rules which specifically applied only to Sonfast's bid. The incumbent bidding rules gave some preferences to the incumbent bidder, provided that the incumbent's delivery and services had been of acceptable quality over the previous year, and provided that their prices had remained competitive. Five of the seven suppliers submitted bids by the March 12, 1992 deadline. With the exception of Sonfast, each of the bids also included a delivery plan proposal. Sonfast and Tebco produced the two lowest bids. Sonfast's bid was marginally lower than Tebco's (25.3% below standard cost versus 25.9% below standard cost). However, York judged the Tebco bid to be superior, as Tebco had provided a formal in-plant stocking plan while Sonfast had provided no comparable written plan. In his deposition, Mr. Bowman stated that Sonfast had provided oral assurances that it would make any changes necessary to retain the CES contract.
In a letter dated June 11, 1992, York informed Sonfast that it would continue to purchase fasteners from Sonfast to exhaust the inventory that Sonfast had already acquired to service the York account. The letter confirmed that York understood that this "phase-out" might not be completed until December 1992. A hand written notation at the bottom of the letter indicates that it was the intent of the parties to "zero" the existing inventory of "special" products by December 1992. The notation makes an express distinction between "special" and "standard" products. York continued to purchase fasteners from Sonfast through December 1992, at which time York determined that it had purchased all reasonable inventory existing on March 12, 1992.
Sonfast disputes the assertion that all reasonable inventory was purchased and contends that York did not proceed in good faith with respect to the "phase-out."
A second breach of contract claim also arises from the CES Agreement. This claim involves Sonfast's relationship with York's Madisonville plant, one of the plants supplied under the CES Agreement. In 1987 York elected to discontinue using Sonfast as a supplier for its Madisonville plant due to problems it encountered when using the fasteners in certain thin sheet metal applications. York contends that Sonfast was unable to provide a fastener that would work properly when used in the thin sheet metal applications. Sonfast disputes York's assertion. According to Plaintiff, in response to Defendant's complaint about the fastener, it developed plans for a new fastener that could be used for the thin sheet metal applications. Sonfast contends that York committed to a new supplier despite this plan. Additionally, Sonfast claims that York violated the exclusivity clause of the Agreement by ordering all #15519 fasteners from another supplier, rather than just the quantities that would be used in thin sheet metal applications. The parties are in dispute as to whether the Madisonville plant used the #15519 fasteners in applications other than the thin sheet metal applications. York contends that even if the fasteners were used in other applications, there is no language in the contract to support Sonfast's assertion regarding the need to split fastener orders.
Finally, also central to this dispute, is a second concurrent relationship between York and Sonfast. Through this relationship, Sonfast supplied fasteners to York's Applied Systems Division ("ASD") in York, Pennsylvania from approximately October 1987 through December 1992. There is a dispute as to whether this ongoing relationship was governed by any type of contract. Defendant contends that no contract ever existed and that it resisted Plaintiff's attempts to execute a written sales agreement. Plaintiff claims that a formal contract similar to the CES Agreement was executed by the parties. However, in his deposition Mr. Pappy admits that he has been unable to locate a copy of the alleged contract. Regardless of the existence of a formal contract, Plaintiff further asserts that the relationship was also governed by the "Incumbent Bidding Rules." In his deposition, Mr. Pappy contends that Richard J. Hoover, an executive at York, orally advised him that the relationship would be governed by the Incumbent Bidding Rules. Defendant asserts that such rules were never intended nor understood to be a binding contract, and that no binding contract exists.
In Count I of the complaint, Plaintiff claims that York breached the Agreement by awarding the CES fastener supply contract to Tebco. This claim is based on Sonfast's assertion that at no point during its relationship with York did its performance fall below acceptable standards. Thus, the award of the contract to Tebco breached the exclusivity clause of the Agreement and denied Sonfast the right to receive profits under the contract. Furthermore, Sonfast contends that it never freely consented to a modification of the original Agreement.
Count II of the complaint requests that the court award incidental and consequential damages for costs incurred by Sonfast because of the termination of the Agreement. First, Plaintiff requests incidental damages for the fasteners in inventory that York refused to purchase during the "phase-out" period. Additionally, in the complaint Plaintiff avers that it entered into a number of long term contracts to "insure its continued compliance under the Agreement." However, in his deposition Mr. Pappy stated "there are no contracts or leases that exist that are directly related to complying with the terms of the agreement." He clarified this statement by explaining that the contracts to which he was referring were the result of "business and economical justification[s]" related to the York account. Plaintiff asserts that because the Agreement was terminated prematurely, these contracts have caused it to suffer damage.
In Count III, Plaintiff asserts a second breach of contract claim based on the CES agreement. Plaintiff alleges that Defendant violated the exclusivity clause of the Agreement, and thereby breached the contract, by purchasing some fasteners for the Madisonville plant from a supplier other than Sonfast.
Count IV is a misrepresentation claim. Plaintiff asserts that Defendant falsely represented that it would purchase remaining Sonfast inventory originally ordered prior to March 1992 to service the York account. The claim further states that in reliance on this misrepresentation, Sonfast delayed exercising its rights against York for the alleged breach of the agreement. Plaintiff contends that its detrimental reliance on the misrepresentation caused it to suffer damages.
In Count V, Plaintiff asserts a third breach of contract claim. This claim relates to Sonfast's relationship with the Applied Systems Division of York. Sonfast alleges that it had a binding supply contract with ASD that was breached when ASD terminated Sonfast and sought other suppliers in December 1992.
Finally, in Count VI, Plaintiff requests that the court award punitive damages for misrepresentation claim alleged in Count IV.
The court prefaces its discussion of the merits of this case with an acknowledgment of the convoluted and confusing nature of the factof this case. Despite efforts by both parties to clearly and succinctly present the facts, the court has taken a substantial amount of time reorganizing the facts with the hope of presenting the case in a more coherent manner.
At the outset, it is beneficial to note how each Count of the complaint relates to the alleged agreements between the parties. The written contract between Sonfast and the York Central Environmental Systems division is at issue in Counts I, II, III, and IV. The CES Agreement controlled Sonfast's provision of fasteners to three York plants located in Madisonville, Kentucky; Norman, Oklahoma; and Elyria, Ohio. The entire Agreement is at issue in Counts I, II, and IV, while Count III focuses solely on Sonfast's relationship with the CES Madisonville plant. An alleged written agreement between Sonfast and the York Applied Systems Division is at issue in Count V. Finally, Count VI requests punitive damages for the misrepresentation claim alleged in Count IV.
A. Standard of Review
The court will consider this motion under the accepted standards for the award of summary judgment under Rule 56 of the Federal Rules of Civil Procedure. In Hankins v. Temple Univ., 829 F.2d 437, 440 (3d Cir. 1987), the United States Court of Appeals for the Third Circuit succinctly stated the applicable standards for summary judgment:
Summary judgment may be entered if "the pleadings, deposition[s], answers to interrogatories, and admissions on file, together with the affidavits, if any, 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). An issue is "genuine" only if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, [248,] 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986); Equimark Comm. Finance Co. v. C.I.T. Financial Serv. Corp., 812 F.2d 141, 144 (3d Cir. 1987). If the evidence is "merely colorable" or "not significantly probative" summary judgment may be granted. Anderson, 106 S. Ct. at 2511; Equimark, 812 F.2d at 144. Where the record, taken as a whole, could not "lead a rational trier of fact to find for the nonmoving party, summary judgment is proper." Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986).
Id. Once the moving party has shown an absence of evidence to support the claims of the nonmoving party, the nonmoving party must do more than simply sit back and rest on the allegations of the complaint. Specifically, the nonmoving party must "go beyond the pleadings and her own affidavits, or by the 'depositions, answers to interrogatories, and admissions on file' and designate 'specific facts showing that there is a genuine issue for trial.'" Celotex Corp. v. Catrett, 477 U.S. 317, 324, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). If the nonmovant bears the burden of persuasion at trial, "the party moving for summary judgment may meet its burden by showing that the evidentiary materials of record, if reduced to admissible evidence, would be insufficient to carry the nonmovant's burden at trial." Chipollini v. Spencer Gifts, Inc., 814 F.2d 893, 896 (3d Cir. 1987), cert. dismissed, 483 U.S. 1052 (1987).
B. The CES Division Fastener Purchase Agreement
Defendant asserts that summary judgment must be granted with respect to Counts I, II, III on several grounds. In response to Counts I and III, Defendant claims that there was no breach of the Agreement between CES and Sonfast. Rather, with respect to Count I, Defendant claims that the Agreement was subject to a valid modification by the parties. In response to Count III, Defendant asserts that the contract was terminated, not breached. Finally, Defendant asserts that it is entitled to summary judgment on Count II as Plaintiff may not be awarded consequential damages as a matter of law. The court will deny Defendant's motion for summary judgment as to Counts I and III, and will grant partial summary judgment to Defendant as to Count II.
1. Count I
Judge Posner once aptly noted that with respect to the provision of the Uniform Commercial Code governing modification, "the meaning of this provision and its proviso is not crystalline and there is little pertinent case law." Wisconsin Knife Works v. Nat'l Metal Crafters, 781 F.2d 1280, 1284 (7th Cir. 1986). The court today finds itself faced with a similar absence of germane case law. Where state law is undeclared or not current on a given issue, the "obligation of [the] federal court applying state law is to discern [the] most probable state of current law for the outcome of the litigation in the federal court should be substantially [the] same . . . as it would be if tried in a state court." Aluminum Co. of Am. v. Essex Group, Inc., 499 F. Supp. 53, 60 (W.D. Pa. 1980).
In an action for breach of contract, plaintiff carries the burden of proving the breach. Where defendant asserts modification as a defense, the burden shifts to defendant to prove a valid modification. See Wisconsin Knife Works, 781 F.2d at 1285. The party with the burden of proving modification must do so by a preponderance of the evidence. Id. "Where the movant bears the burden of proof at trial and the motion does not establish the absence of a genuine factual issue, the district court should deny summary judgment even if no opposing evidentiary matter is presented." Resolution Trust Corp. v. Gill, 960 F.2d 336, 340 (3d Cir. 1992). Additionally,
in determining whether the movant has satisfactorily established that there is no genuine issue of material fact, courts must keep in mind that 'inferences to be drawn from the underlying facts . . . must be viewed in the light most favorable to the party opposing the motion.'