Summary
finding that a statement that parties "should negotiate the terms and conditions" was not a promise because "'should' is permissive, not mandatory."
Summary of this case from Vara v. DevosOpinion
00 Civ. 5901 (HB)
November 6, 2001
OPINION ORDER
Defendant Crompton Corp. ("Witco") moved for summary judgment on all claims against it and Ciba Specialty Chemicals Holding LLC ("Ciba") and for summary judgment on its counter-claims against plaintiff Atla-Medine ("AM"). For the reasons discussed below the motion is granted in part and denied in part.
BACKGROUND
This is a cautionary tale. In business, as in life, it is often said "get it in writing," and "never trust good intentions." The litigation before me bears out the wisdom of those old saws.
The AM/Ciba Relationship
For many years AM was the exclusive United States ("U.S.") distributor of certain vinyl grade tin stabilizing chemical products ("VGTS"), primarily Irgastab T-201, manufactured by a German company named Ciba-Geiry Marienberg GmbH (also herein referred to as "Ciba"). VGTS products are used in the production of such products as window profiles, siding and fencing. Although there was no written contract between Ciba and AM, the relationship, which began in 1984 or thereabouts, was clearly understood by both parties and can be described as follows. Ciba manufactured Irgastab T-201 in a facility in Lampertheim, Germany for sales all over the world. Ciba distributed to the U.S. sales market exclusively through AM, who placed several orders a month with Ciba for Irgastab T-201. Ciba exported to AM in New York in bulk liquid containers, or "totes," owned by AM and AM paid the duty. AM then repackaged the Irgastab T-201 as "Atlastab 777" and completed shipment to its customers. AM invoiced the customers and paid Ciba within 75 days of the date of Ciba's shipment at a price set by Ciba, generally in response to movements in the worldwide market price of VGTS. The relationship between the parties did not provide a specific restriction on Ciba's pricing power, and while AM was free to renegotiate Ciba's planned price changes, at least some of the time Ciba imposed price changes over AM's objections.
The AM/Witco Relationship
Witco, a Delaware corporation, manufactures and distributes other VGTS products for sales all over the world. Before 1998, Witco and AM each controlled a significant percentage of the U.S. VGTS sales market. In May 1998 Witco acquired Ciba's VGTS business ("Asset Swap"). The present litigation raises questions as to what Witco and Ciba represented to AM about it's role before and after the Asset Swap in sales of Irgastab T-201 as well as the alleged known falsity of such representations.
In the Amended Complaint AM alleged that in 1998 AM's and Witco's U.S VGTS sales each represented approximately 20% of that market.
Between July 23, 1997 — when Ciba and Witco announced their intention to enter into the Asset Swap — and the closing of the deal in May 1998, AM Vice President Salvo Erkohen ("Erkohen"), AM's main business gatherer, met with Witco representatives several times. On each such occasion he was repeatedly told that Witco intended to continue "business as usual" with AM after the Asset Swap. The details of the promised continuing relationship were never discussed. After one such meeting Dr. Lawrence Brecker ("Brecker"), a Witco Vice-President responsible for the business unit that sold tin stabilizers, sent a letter dated March 25, 1998 to Erkohen "reaffirming the issues we all discussed at our meeting in New York on February 12th" ("March 25, 1998 letter"). Brecker posted the letter after being apprised of concerns that Erkohen had expressed to Ueli Haering, a Ciba Vice President, about Witco's intentions towards AM. To allay Erkohen's fears, Brecker wrote as follows:
"Please allow me to confirm that Witco agrees to continue to do business with you under the same terms and conditions as currently exist between Atla-Medine and Ciba Specialties . . . for the remainder of 1998. In the September time frame, we should negotiate the terms and conditions for continuing our relationship going forward, including exploring additional business opportunities."
Regrettably, there is no contemporaneous recording as to what was said at the February 12, 1998 meeting or whether the "remainder of 1998" date limitation was part of that discussion. Not surprisingly, memories differ.
The significance of the March 25, 1998 letter is further muddied by events at a plastics industry trade fair (the "K Show") in Germany in October 1998 that was attended by, among others, Erkohen, several representatives of Witco and several representatives of Crane Plastics, far and away AM's largest VGTS account. Again, the parties recall the events of the K Show differently. What is undisputed is that at least one meeting took place among all of the above at which the Crane representatives expressed their satisfaction with AM, especially Erkohen, and again proffered general assurances that AM's role would continue. Neither the "remainder of 1998" nor any other date limitation on the relationship was discussed.
As promised in the March 25, 1998 letter, throughout 1998 Witco distributed Irgastab T-201 through AM under the same terms of AM's prior relationship with Ciba. Towards the end of that year, AM and Witco entered into negotiations with respect to the future. On January 18, 1999, Scott Chambers ("Chambers") Witco's U.S. Business Manager for the VGTS business, presented Erkohen with a signed "Sales Agency Agreement." Pursuant to this contract, AM would no longer be a distributor but instead would act as a sales agent of Witco in return for a fixed percentage commission. Erkohen refused to sign the contract, and additional negotiations ensued. The parties resolved one of the disputed provisions, by extending Witco's initial proposal of a two year term to a five year term, but the negotiations broke down over the Erkohen's demand that AM be guaranteed a "profit margin that [it] had for the last five years in an average."
Trans. of Erkohen's deposition, at 312, Def's Exh. 2.
Beginning in March 1999, Witco took a series of steps that severely disadvantaged AM's business. On March 12, 1999 Witco reduced AM's time to make payment to Witco from 90 days to "net 30 days" and notified AM that future VGTS shipments would be stopped whenever outstanding receivables were more than 15 days overdue. On March 18, 1999, without a clear warning Witco raised the price of Irgastab T-201 to AM by 13.5%, thereby erasing AM's profit margin — the new price exceeded what AM was charging its own customers. Witco had announced across the board price increases for its products months before, but AM had not known that it would be subject to the increase, or that the increase for its purchases would be so steep. Erkohen protested these moves, but was rebuffed, and told Witco that he would place no more orders through Witco.
The Crane Affair
What is missing from the preceding description of the deteriorating relationship between AM and Witco is the "why" of it. There is no question that AM believed based on signals from Witco that its relationship as a privileged seller — either agent or distributor — would continue after 1998. And, there is no question that by no later than the Spring of 1999 Witco's signals had taken on a very different tone. Witco's explanations for the change — that Ciba's VGTS products were found to be significantly under-priced and AM had grown progressively more tardy in its payments (denied vehemently by AM) — may provide part of the answer, though not all of it. The rest of the answer seems to lie with AM's largest customer, Crane Plastics ("Crane"), and its highly coveted business.
For years, Witco had enjoyed success selling various chemical products to Crane but had little, and by the late 1990s substantially less success selling Crane its version of Irgastab T-201, a functionally equivalent VGTS product called Mark 1900. Increasingly Crane was favoring AM with its VGTS business and as Witco's sales of Mark 1900 eroded AM's increased, in large measure because of the close personal relationships between Erkohen and Crane executives. Witco wanted to reverse the situation, and it is evident that at least one of the reasons for Witco's acquisition of Ciba's VGTS business was to increase its sales of VGTS to U.S. customers then buying Ciba products from AM. It is also evident that in order to maximize profits from U.S. sales, Witco decided, although precisely when in 1997 or 1998 is not clear, to freeze-out AM and eliminate the middleman. Direct sales from Witco to the customer promised greater profits than AM's distributorship could generate for Witco.
"Witco's policy is to sell directly to customers as much as possible." April 21, 1998 status report on the Asset Swap, Pl.'s Exh. 17, at 2. In a September 4, 1998 e-mail to Grodzki, Martin wrote "[g]etting [AM] out of the middle and maintaining the business could be worth over $500,000 in operating income." Pl's Exh. 20.
Achieving that goal, however, would not be simple. By all accounts Erkohen was an effective salesperson and inspired an impressive degree of loyalty from his clients. So much so that on several occasions before and during the K Show Crane executives made it clear to Witco that Crane would not continue to buy from Witco after the Asset Swap unless AM were part of the equation. Indeed, Witco acknowledged in its internal documents that Erkohen's connection to Crane was "permanent" due to Erkohen's "close personal contacts" with Crane executives. Witco could not simply cut out AM and hope to keep the Crane account. Thus, the question became, as posed by Witco senior executive Kevin Grodzki ("Grodzki") in a September 15, 1998 e-mail to Scott Chambers, "how do we . . . . cut [AM] off while preserving the (Crane] business." An e-mail dated days earlier from Martin to Grodzki stated "I think eliminating Atla Medine is a profitability improvement we need to add to the list. . . . This has got to be done by someone in the U.S. leading with help from Katz and me. Agree?" Apparently, Chambers was given the task. At the K Show in October 1998, on the same day that they were assuring Crane and Erkohen that AM's role would continue as before, Chambers, Grodzki and Martin literally met in a backroom and unbeknownst to AM or Crane agreed to "phase out Alta Medine as soon as possible." On April 2, 1999, the day after Erkohen was notified of Witco's price increases and stated that he was now priced out of the market, Grodzki instructed Chambers to "call Crane and get on their calendar ASAP" and to recommend to Crane "eliminating the middleman" — i.e., AM. Chambers was also told to offer VGTS to Crane at a lower price than the price they had previously paid to AM. Chambers' embassy was successful, and Crane began buying more of Witco's product Mark 1900. By April 2000, Witco had drafted a formal sales contract between it and Crane to cover 100% of Crane's VGTS needs. The hardball tactics paid off
That Witco executed on its plan to "phase out" AM is clear; when it devised the strategy is not. Certainly, Witco had the plan in mind at the K Show, during the 1998 contract negotiations with Erkohen, and when the changes to AM distributorship were implemented in 1998. As early as September 1997 Witco's due diligence team recommended that AM be retained for a short time because Erkohen's strong customer relationships meant that an immediate cut-off might cause his clients to look to suppliers other than Witco. This Litigation
In an appendix to the diligence team's report, Brecker echoed the conclusion that in order to deal directly with AM's clients it would be necessary in the near term to "take advantage of his well established relationships."
This is the third opinion written on this over-litigated case. The first AM's antitrust claims and several of the common law claims, including a fraud claim pursuant to F.R.C.P. 12b(6), dismissed. When AM repleaded the fraud claim, Witco again moved to dismiss, this time without success. Witco has now moved for summary judgment on all of AM's remaining claims.
DISCUSSION
Witco moved for summary judgment on all seven claims against it and Ciba in the Amended Complaint: (1) breach of implied contract against Witco and Ciba; (2) breach of contract — distributorship course of dealing — against Witco; (3) breach of contract — commitment to continue — against Witco; (4) breach of contract — commitment to negotiate in good faith — against Witco; (5) fraud against Ciba and Witco; (6) intentional interference with prospective contractual relation against Witco; (7) unjust enrichment against Witco.
Summary Judgment Standard
In a motion for summary judgment, the burden is on the moving party to establish that there are no genuine issues of material fact in dispute and that it is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986); Fed.R.Civ.P. 56(c). A dispute regarding a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party."Aldrich v. Randolph Cent. Sch. Dist., 963 F.2d 520, 523 (2d Cir.) (quotation omitted). The court resolves all ambiguities and draws all inferences in favor of the nonmoving party in order to determine how a reasonable jury would decide. Aldrich, 963 F.2d at 523.
Contract Claims
The gist of AM's contract claims is that Witco entered into an exclusive distribution contract with AM and then breached the contract when it abruptly changed AM's payment and price terms in March 1999. Although AM frames the argument as three separate claims — implied contract, course of dealing and commitment to continue all rely on the same factual allegations and none succeed unless Witco agreed to a distributorship beyond "the remainder of 1998." There is no evidence of such an agreement, written or oral. AM has adduced ample evidence that Witco was less than candid, if not downright duplicitous, but no evidence of an enforceable distributorship agreement beyond "the remainder of 1998."
In fact, implied contract and course of dealing are not species of contract and therefore separate claims, but instead are mechanisms through which the court may supply terms not expressly provided in agreements.
Many of the facts pertinent to AM's contract claims are uncontested. Witco made multiple representations to Erkohen and to Crane that AM's role would continue after the Asset Swap. At a February 12, 1998 meeting Brecker and Erkohen discussed AM's continued relationship with Witco and came to at least a partial agreement. On March 25, 1998 Brecker wrote to Erkohen to confirm what had been agreed upon at the February 12th meeting — i.e., that AM would continue to buy from Witco under the same terms and conditions as then existed between AM and Ciba for the remainder of 1998. Brecker further stated that around September "we should" negotiate the post-1998 relationship between AM and Witco. In subsequent communications Witco reaffirmed its desire that AM's relationship continue as before, but never made mention of the 1998 date limitation. For the rest of 1998 and for the first third of 1999 Witco did continue the relationship with AM exactly as Ciba had left it.
AM disputes none of the foregoing. What AM argues is that the Court should disregard the date limitation in the March 25, 1998 letter because the letter incorrectly characterized the enforceable oral agreement of February 12, 1998, and to that end offers 3 pieces of evidence. First, Erkohen stated in his affidavit that no date restriction was discussed at the February 12, 1998 meeting; second, Witco assured Crane that AM's role would continue; and third no date limitation ever figured in the conversations at the K Show when the Crane executives indicated their desire to continue their relationship with AM. Regrettably, neither individually nor collectively does AM's evidence adequately address the fact that the March 25, 1998 letter, the only piece of paper, or indeed communication, in which the parties set forth in any detail to one another the terms of the relationship between them, clearly provides that the relationship was subject to renegotiation after 1998. AM does not create a material issue of fact by arguing that a reasonable jury could ignore this clear statement of the contract's duration because it is stated but once. Put another way, the parties' silence as to term length before and after the March 25, 1998 letter is not a reason for this Court or a reasonable jury to disregard the term actually given in favor of another term potentially in the minds of but never explicitly discussed by the parties. Moreover, if as AM argues the March 25, 1998 letter contradicted the agreement of February 12, 1998, why didn't Erkohen object? Given AM's theory of the case, that is perhaps the most curious silence of all.
It is immaterial to the question analyzed here whether the United Nations Convention on Contracts for the International Sale of Goods ("CISG") applies. Where applicable, the CISG may render enforceable agreements not evidenced by a writing and therefore subject to the Statute of Frauds; but here there is no agreement for the Court to enforce, written or otherwise, with respect to a post-1998 distributorship. The March 25, 1998 letter carries significant evidentiary weight not because it is a writing, but because it is the only clear communication between the parties as to the length of AM's distributorship.
Further, Witco did not breach a contractual obligation to negotiate in good faith. AM seems to have fashioned a contract claim from the language in the March 25, 1998 letter: "[i]n the September time frame, we should negotiate the terms and conditions for continuing our relationship going forward." AM argues that (1) the foregoing constitutes an enforceable obligation to negotiate in good faith and (2) Witco breached the obligation when it knowingly offered AM unacceptable terms in the negotiation in late 1998 and early 1999. There are two insurmountable problems with AM's argument, one factual the other legal.
First, Brecker's statement that the parties "should negotiate the terms and conditions" on its face does not constitute a promise. Used in this context, "should" is permissive, not mandatory. Second, New York law disfavors agreements to negotiate in good faith, and enforces them only where the parties have agreed to the "essential terms" of the contract.See Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 72 (2d Cir. 1989). Although somewhat counterintuitive, it is not so much the promise to negotiate that New York law occasionally enforces, but instead the skeletal agreement which the parties have undertaken to complete. "The parties can bind themselves to a concededly incomplete agreement in the sense that that they accept a mutual commitment to negotiate together in good faith in an effort to reach final agreement . . . within the scope that has been settled in the preliminary agreement." Arcadian Phosphates, 884 F.2d at 72, quoting Teachers Ins. Annuity Ass'n v. Tribune Co., 670 F. Supp. 491, 498 (S.D.N.Y. 1987). Here there was no preliminary agreement. Witco and AM had agreed to a distributorship for the "remainder of 1998," but the alleged promise to negotiate in the "September time frame" concerned a future distributorship, the details of which had not been discussed and which, in fact, was never agreed to. The negotiations which began in the "September time frame" broke down over manner and size of AM's compensation, clearly an essential term of any relationship between the parties.
Thus, while AM asserts 4 separate contract claims against Witco and Ciba, they are in fact several heads of the same beast and share a common fate. They fail.
In coming to this conclusion I have not reached the various other defenses that Witco asserted against the contract claims, e.g. statute of frauds, void for indefiniteness, Witco negotiated in good faith, and AM voluntarily terminated the alleged distribution contract, etc.
Fraud Claim
While the evidence before me does not amount to a contract, I cannot say that there is no genuine issue of material fact as to whether Witco's and Ciba's strategic behavior towards AM constituted fraud. Witco's seemingly underhanded plan to "freeze-out" Ciba may indeed have crossed the line from hardnosed business tactics to fraud. I leave it to the jury to decide whether Witco misled AM and whether, in light of the March 25, 1998 letter, Witco's several representations as to AM's future role gave rise to fraud. I also defer to their judgment on whether AM relied on such misrepresentations and thereby suffered out-of-pocket damages and if so what those damages amounted to. The story has not materially changed since I denied the defendants' previous motion to dismiss the fraud claim and I see no reason to disturb my earlier conclusion.
Tortious Interference With Prospective Business Relations
"Under New York law, the elements of a claim for tortious interference with prospective business relations are: (1) business relations with a third party; (2) the defendant's interference with those business relations; (3) the defendant acted with the sole purpose of harming the plaintiff or used dishonest, unfair, or improper means; and (4) injury to the business relationship." Nadel v. Play-By-Play Toys Novelties Inc, 208 F.3d 368, 382 (2d. Cir. 2000). Here, Witco only argues that AM has failed to show that Witco used dishonest or unfair means in pursuing Crane's VGTS business, and did so largely in reliance upon its position that Witco did not breach any contracts with AM. However, the absence of contractual obligation is not a free pass to do as one pleases, and surely what qualifies as "dishonest, unfair, or improper" is in the eyes of the beholder. Rare is the case where summary judgment would be appropriate on this issue and this is not amongst them.
Unjust Enrichment
"To prevail on a claim for unjust enrichment in New York, a plaintiff must establish 1) that the defendant benefited; 2) at the plaintiff's expense; and 3) that `equity and good conscience' require restitution."Kaye v. Grossman, 202 F.3d 611, 616 (2d Cir. 2000). Here, to prevail on its motion Witco must show that AM could not reasonably have believed or did not believe that it would continue doing business with Witco past the end of 1998 under the Ciba model. Again, since what AM actually believed and whether such belief was reasonable are disputed by the parties this claim is not ripe for summary judgment.
Witco's Counter-Claims
Witco appears to have counterclaimed for breach of contract based on AM's failure to pay 9 invoices dated January 11, 1999 through March 15, 1999. The combined 1 page of briefing dedicated to Witco's counterclaims is more confusing than edifying. Neither party actually identifies the counterclaims and Witco's answer/counterclaims is not to be found in any of the voluminous papers submitted in connection with this motion. Witco refers to 9 invoices, but does not provide copies of the invoices or state, among other things, whether the invoiced amounts were agreed to orally or in writing. Rather than stagger about in the factual darkness, I deny summary judgment on the counterclaims in hopes of illumination at trial.
CONCLUSION
For the reasons discussed above, Witco's motion for summary judgment is granted as to AM's contract claims against Witco and Ciba — claims 1 through 4 of the Amended Complaint — and denied as to AM's remaining claims and Witco's counterclaims. Barring unforeseen circumstances, trial will begin on November 26, 2001. Requests to charge, voir dire and any motions in limine (fully briefed) are due in Chambers by November 15 before 5 pm and will be argued on November 21, 2001 at 9:30 am. No motion will exceed 10 pages. If this Opinion and Order eliminates (as it should) portions of the Joint Pretrial Order or the ridiculously extensive volume of objections and exhibits the parties shall contact Chambers promptly.