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Reynolds Packaging Kama, Inc., F/K/A Alcoa Kama Inc v. Inline Plastics Corp.

October 25, 2011


The opinion of the court was delivered by: (Magistrate Judge Carlson)


I. Statement of Facts and of the Case

A. Procedural History

This case comes before the Court for resolution of the final disputed factual issues and contested legal claims advanced by the parties. This litigation, which draws to a close with this opinion, began on October 15, 2008 when the plaintiff, Reynolds Packaging KAMA, Inc., brought a breach of contract action against the defendant, Inline Plastics Corporation, in order to recover unpaid amounts claimed to be due and owing under a series of written, long-term supply agreements between the parties. (Doc. 1) Specifically, Reynolds' complaint alleged that Inline was a long-term customer of Reynolds, a manufacturer of oriented polysterene sheet ("OPS") and polyethylene terephthalate sheet ("PET") , plastic products which were used in a variety of business applications. Over a span of years, Inline, which manufactured plastic containers for retail sales of food products, purchased large quantities of oriented polysterene sheet OPS and PET from Reynolds, pursuant to a series of written supply agreements between the parties. (Id.) According to Reynolds' complaint, Inline had received, but not paid for, approximately $3,000,000 in goods under these supply agreements when the last of these written agreements expired in the summer of 2008. (Id.) Reynolds sought reimbursement of these moneys, which it alleged were due and owing under its written contracts with Inline. (Id.)

On December 12, 2008, Inline filed an answer and counter-claim in this contract action. (Doc. 11) In its answer, Inline acknowledged that it had enjoyed a contractual supply relationship with Reynolds under a series of written agreements which extended until June 30, 2008, when the last, fully-integrated written supply agreement between the parties expired. (Id.) Inline, however, asserted a counter-claim against Reynolds for actions which allegedly occurred after those written agreements terminated in June of 2008. (Id.) According to Inline's counter-claim, Inline and Reynolds entered into an interim supply agreement which was embodied in a series of oral and written e-mail communications in the summer of 2008. (Id.) Inline alleged that under the terms of this interim agreement Reynolds committed to providing Inline with plastic for its manufacturing operations through the end of 2008, as Inline made arrangements for a new long-term source of supply for these materials. (Id.) Inline alleged in its counter-claim that Reynolds breached this agreement by suddenly terminating this supply relationship in October of 2008, and Inline sought damages for the injuries it alleged that it suffered due to this unexpected interruption in its plastics supplies. (Id.)

Reynolds then moved for summary judgment, both on its contract claims against Inline based upon the written agreements between the parties, and on Inline's counter-claim assertion that these parties had entered into an interim supply agreement embodied through a string of communications. (Doc. 28) On February 1, 2010, we issued a report and recommendation which recommended that summary judgment be granted in favor of Reynolds on its contractual claims against Inline, claims which were based on the terms of fully-integrated written supply contracts between the parties. (Doc. 61) As for Reynolds' motion for summary judgment with respect to Inline's counter-claim, which alleged that a less formal and structured interim supply contract had existed between these parties in the summer and fall of 2008, we recommended that summary judgment be denied since there were contested, and unresolved, material issues of fact concerning the course of dealings between the parties which precluded the entry of judgment in favor of Reynolds as a matter of law.(Id.)

On March 17, 2010, the district court entered an opinion and order adopting this report and recommendation. (Doc. 65) Following further pre-trial proceedings before the district court, in May of 2011, the parties consented to have the remaining issues in this litigation tried by this Court in a non-jury trial. (Doc. 95) As defined by the parties, those remaining issues which must be resoled by this Court, are threefold: First, the parties dispute the amount owed by Inline on Reynolds' contract claim, with Reynolds alleging that the total sum owed under this contract was $63,000 greater than the amounts originally agreed to by the parties. Second, the parties disputed factual issues that were central to Inline's contractual counter-claim, and specifically contested whether there was any enforceable interim supply agreement between the parties after June 2008, which had been breached through Reynolds' refusal to sell additional products to Inline after October 2008. Finally, the parties contested the amount of any damages to Inline that could be attributed to any alleged breach of this agreement by Reynolds.

With the remaining issues in this case framed by the parties in this fashion, the Court conducted a non-jury trial in this case on August 31, 2011. (Docs. 103, 104 and 105) Our factual findings and legal conclusions as to these disputed issues follow.

B. Factual Findings

1. Inline's Counter-Claim

With respect to Inline's counter-claim, we make the following findings of fact: In the summer of 2008, the longstanding supply agreement between Reynolds and Inline drew to a close. (Tr. 11-12, 108-9.*fn1 ) That contractual relationship had been embodied in a series of written agreements, most recently a 2006 supply agreement which expired on June 30, 2008. (Id., Pl. Ex. 1 and 2.) Under the terms of this 2006 supply agreement, Inline agreed to purchase products from Reynolds at highly favorable rates. (Pl.Ex. 2.) The written agreement which was scheduled to expire in June 2008 also addressed an on-going issue between the parties--Inline's substantial indebtedness to Reynolds arising out of prior purchases. (Pl.Ex. 2.) Indeed, by the summer of 2008 this outstanding indebtedness was substantial, amounting to approximately $3.2 million.(Id., Pl. Ex. 1 and 2.) Under the terms of the written agreement, in order to address Inline's outstanding debt, the 2006 Supply Agreement contained a provision intended to help Inline pay down the debt incrementally by including an upcharge on new product purchased each quarter. (Pl. Ex. 2, 2006 Supply Agreement ¶ 5.) Specifically, this provision, which also expired along with the supply agreement, provided as follows:

To bring [Inline's] account current, [Inline] will pay [Reynolds], quarterly, an additional $.03 per pound for all pounds of Product purchased during each quarter . . . This payment will be applied to the outstanding receivables on [Inline's] account. (Id.)

As their longstanding business relationship drew to a close, Reynolds and Inline had markedly different business interests and priorities. From Reynolds' perspective, one of its highest priorities was reaching a new agreement concerning the repayment of this multi-million dollar receivable owed by Inline, since the termination of the existing supply agreement also terminated the contractual means by which Inline was repaying this debt. (Tr. 103-120.) This issue of debt repayment was a pre-eminent concern for Reynolds, and the ability to make future interim sales to Inline in the Fall of 2008 was a matter of lesser concern to Reynolds since Reynolds had determined by the Summer of 2008 that Inline's historic line of business had actually not been profitable for Reynolds. (Tr. 103-120.)

In contrast, as their longstanding contractual relationship drew to a close Inline had other priorities. (Tr. 14-29.) Inline's principle focus was on securing a short-term interim source of supply from Reynolds as it transitioned to a new long-term supply source. (Tr. 14-29.) As for its outstanding indebtedness to Reynolds, while Inline acknowledged this debt, it was unable to provide Reynolds with any specific assurances regarding how that looming debt would be paid. (Tr. 64-65.)

Moreover, it is evident from the trial testimony of the two principals for Reynolds and Inline, William Coad and Thomas Orkisz, that neither Mr. Coad nor Mr. Orkisz fully appreciated how different, and divergent, their corporate interests, needs and priorities were as this supply agreement drew to a close and the parties engaged in discussions regarding an interim relationship. (Tr. 14-29, 103-120.) Thus, the parties approached these discussions through the prisms of two very different perspectives, and with mutual misunderstandings regarding their respective needs and priorities. (Tr. 14-29, 103-120.) The confusion which these different, and mutually unappreciated, expectations created would compound over the next four months. (Tr. 14-29, 103-120.)

The discussions between the parties regarding this interim relationship began on June 25, 2008, when William Coad, the President of Reynolds, wrote to Thomas Orkisz, Inline's President. (Pl.Ex. 3.) In this June 25, 2008 letter Reynolds provided Inline with revised pricing for interim supplies of plastic materials as Inline transitioned to a new long-term supply source. (Id.) However, Mr. Coad's correspondence also spoke to what was then Reynolds' most pressing priority, repayment of the $3.2 million debt owed by Inline, and proposed a one-year repayment schedule for this debt, with interest. (Id.)

On July 3, 2008, Thomas Orkisz, acting on behalf of Inline, responded to this proposal in an e-mail communication. (Pl.Ex. 4.) Orkisz's reply reflected Inline's very different priorities in this business relationship. (Id.) Mr. Orkisz made no mention of repayment of the outstanding $3.2 million debt owed to Reynolds, one of the principle issues set forth in Mr. Coad's June 25, 2008 proposal.(Id.) Instead, Mr. Orkisz sought further price concessions from Reynolds on his primary, concern the interim supply proposal. (Id.) While the parties addressed those pricing issues in a series of subsequent e-mail communications, (Pl. Ex 5), Reynolds' concerns regarding the establishment of some fixed repayment schedule of Inline's $3.2 million indebtedness remained a pending, and unaddressed, issue from Reynolds' perspective. (Tr. 103-120.)

Thus, on July 14, 2008, William Coad wrote to Thomas Orkisz in an e-mail communication which discussed the interim supply agreement between the parties but once again expressly linked those discussions to a "need to confirm the repayment schedule for Inline's outstanding balance." (Pl. Ex. 6. ) Ten days later, on July 24, 2008, Orkisz replied to this communication in a fashion which reflected a continued lack of understanding on Orkisz's part regarding Reynolds' need for a fixed repayment schedule for this $3.2 million debt.(Pl. Ex. 6. ) Indeed, Orkisz's July 24, 2008, response did not speak to this issue in any fashion. (Pl. Ex. 6.) Instead, Orkisz, whose priorities revolved around meeting Inline's interim supply needs, simply outlined those needs for Coad without addressing repayment of this outstanding debt. (Id.)

Reynolds' demands for repayment of this outstanding $3.2 million debt, however, remained a recurring theme in conversations between the parties between June and October, 2008. (Tr. 47, 48, 60, 64-65, 103-120.) In at least some of these discussions, Inline's President, Thomas Orkisz, indicated that he was exploring proposals which would achieve Reynolds' principle stated objective, prompt repayment of this substantial debt. As Mr. Orkisz testified:

I think, you know, from the period of the end of June [2008] through that point [October 2008], there was probably at least, you know, three or four conversations over the summer of this topic [repayment of the $3.2 million debt]. In some instances I probably told Bill [Coad, Reynolds' President] I was looking into it, looking at options, talking to my bank to see if we could accelerate it. There might even been some thought about maybe compromising it we could pay it off quickly but a lesser amount. You know you're talking three years ago. But there were some things kicked around. (Tr. 64.)

Ultimately, however, Mr. Orkisz concluded that: "One constant that we pretty much landed on [was] not believing we could do anything better and an historical quarterly rate of about 250 to 300K." (Tr. 64-5.) Thus, the final proposal advanced by Mr. Orkisz on the issue of primary importance to Reynolds in these negotiations, repayment of the outstanding $3.2 million debt, was a proposal to ...

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